UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements give
effect to the acquisition by Ferrellgas Partners, L.P. ("Ferrellgas") of
Thermogas Company ("Thermogas") under the purchase method of accounting. These
pro forma statements are presented for illustrative purposes only. The pro forma
adjustments are based upon available information and assumptions that management
believes are reasonable. The Pro Forma Condensed Combined Financial Statements
do not purport to represent what the results of operations or financial position
of Ferrellgas would actually have been if the purchase transaction had in fact
occurred on such dates, nor do they purport to project the results of operations
or financial position of Ferrellgas for any future period or as of any date,
respectively. Under the purchase method of accounting, tangible and identifiable
intangible assets acquired and liabilities assumed are recorded at their
estimated fair values. The excess of the purchase price, including estimated
fees and expenses related to the acquisition, over the fair value of the net
assets acquired is classified as goodwill in the accompanying unaudited pro
forma combined balance sheet and will be amortized over 15 years. The estimated
fair values and useful lives of assets acquired and liabilities assumed are
based on a preliminary valuation and are subject to final valuation adjustments.
Ferrellgas 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 and the liabilities assumed.
The Unaudited Pro Forma Condensed Combined Balance Sheet as of October 31, 1999,
was prepared by combining the balance sheet at October 31, 1999 for Ferrellgas
with the Statement of Net Assets to be Sold at September 30, 1999, for Thermogas
giving effect to the acquisition as though it had been completed on October 31,
1999. The Unaudited Pro Forma Condensed Combined Statements of Earnings for the
periods presented were prepared by combining Ferrellgas' Statements of Earnings
for the three months ended October 31, 1999, and the year ended July 31, 1999,
respectively, and with Thermogas' Statements of Operations to be Sold for the
three months ended September 30, 1999, and the year ended June 30, 1999,
respectively, giving effect to the acquisition as though it had occurred on
August 1, 1998. These Unaudited Pro Forma Condensed Combined Financial
Statements do not give effect to any restructuring costs or to any potential
cost savings or other operating efficiencies that could result from the
integration of Thermogas.
The consolidated historical financial statements of Ferrellgas for the year
ended July 31, 1999, are derived from audited consolidated financial statements
and are included in the Form 10-K filed by Ferrellgas on October 28, 1999 with
the Securities and Exchange Commission ("SEC"). The consolidated historical
financial statements of Ferrellgas for the three months ended October 31, 1999,
are derived from the unaudited consolidated financial statements in the Form
10-Q filed by Ferrellgas on December 13, 1999 with the SEC. The historical
financial statements of Thermogas for the year ended June 30, 1999, and the
three months ended September 30, 1999, are derived from periods included in the
audited consolidated financial statements contained in this current report.
You should read the financial information in this section along with Ferrellgas'
and Thermogas' historical consolidated financial statements and accompanying
notes in prior SEC filings or in this current report.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (1)
October 31, 1999
(in thousands, except unit data)
Ferrellgas Thermogas
Partners, L.P. Company Pro Forma Pro Forma
ASSETS Historical (2) Historical (2) Adjustments (3) Combined
- ---------------------------------------------- --------------- -------------- -------------- -------------
Current Assets:
Cash and cash equivalents $ 12,261 $ 7,254 $ - (4) $ 19,515
Accounts and notes receivable 84,563 17,538 - 102,101
Inventories 52,831 16,095 - 68,926
Prepaid expenses and other current assets 17,363 539 223 (3) 18,125
--------------- -------------- -------------- -------------
Total Current Assets 167,018 41,426 223 208,667
Property, plant and equipment, net 405,450 193,663 (43,788)(5) 555,325
Intangible assets, net 116,473 110,208 38,638 (6) 265,319
Other assets, net 8,340 2,666 1,244 (7) 12,250
--------------- -------------- -------------- -------------
Total Assets $ 697,281 $ 347,963 $ (3,683) $ 1,041,561
=============== ============== ============== =============
LIABILITIES AND PARTNERS' CAPITAL
- ----------------------------------------------
Current Liabilities:
Accounts payable $ 88,370 $ 28,282 $ - $ 116,652
Other current liabilities 45,537 4,219 7,100 (3) 56,856
Short-term borrowings 55,965 - - 55,965
--------------- -------------- -------------- -------------
Total Current Liabilities 189,872 32,501 7,100 229,473
Long-term debt 593,081 - 135,033 (8) 728,114
Other liabilities 12,300 - - 12,300
Contingencies and commitments - - - -
Minority interest 650 - - 650
--------------
Net Assets to be Sold $315,462
==============
Partners' Capital:
Senior common units (liquidation value $175 million) - 166,075 (9) 166,075
Common units (37,982) - (37,982)
General partner (59,843) 3,571 (10) (56,272)
Accumulated other comprehensive income (797) - (797)
--------------- -------------- -------------
Total Partners' Capital (98,622) 169,646 71,024
--------------- -------------- -------------
Total Liabilities and Partners' Capital $ 697,281 $ 311,779 $ 1,041,561
=============== ============== =============
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (1)
Three Months Ended October 31, 1999
(In thousands, except per unit data)
Ferrellgas Thermogas
Partners, L.P. Company Pro Forma Pro Forma
Historical (2) Historical (2) Adjustments (3) Combined
------------- ------------ ------------- ----------
Revenues $ 162,739 $ 41,101 $ - $ 203,840
Cost of product sold (exclusive of
depreciation, shown separately below) 85,325 24,337 - 109,662
------------- ------------ ------------- -----------
Gross profit 77,414 16,764 - 94,178
Operating expense 57,177 18,750 - 75,927
Depreciation and amortization expense 12,083 5,491 65 (11) 17,639
Employee stock ownership compensation expense 1,027 - - 1,027
General and administrative expense 5,183 5,711 - 10,894
Equipment lease expense 3,853 - 2,895 (12) 6,748
------------- ------------ ------------- -----------
Operating loss (1,909) (13,188) (2,960) (18,057)
Net interest income (expense) (12,323) 426 (3,672) (13) (15,569)
Other income (expense) (96) 43 - (53)
------------- ------------ ------------- -----------
Loss before minority interest (14,328) (12,719) (6,632) (33,679)
Income tax expense (benefit) - (4,833) 4,833 (14) -
Minority interest (106) - (195)(15) (301)
------------- ------------ ------------- -----------
Loss from continuing operations $ (14,222) $ (7,886) $ (11,270) $ (33,378)
============= ============ ============= ===========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (1)
Twelve Months Ended July 31, 1999
(In thousands, except per unit data)
Ferrellgas Thermogas
Partners, L.P. Company Pro Forma Pro Forma
Historical (2) Historical (2) Adjustments (3) Combined
-------------- ------------- ------------- -----------
Revenues $ 624,149 $ 235,401 $ - $ 859,550
Cost of product sold (exclusive of
depreciation, shown separately below) 273,388 110,673 - 384,061
-------------- ------------- ------------- -----------
Gross profit 350,761 124,728 - 475,489
Operating expense 205,720 72,496 - 279,216
Depreciation and amortization expense 47,257 21,514 712 (16) 69,483
Employee stock ownership compensation expense 3,295 - 3,295
General and administrative expense 19,174 23,018 - 42,192
Equipment lease expense 12,976 - 11,055 (12) 24,031
-------------- ------------- ------------- -----------
Operating income 62,339 6,700 (11,767) 57,272
Net interest expense (45,405) (2,098) (11,090) (17) (58,593)
Other expense (1,842) (258) (2,100)
-------------- ------------- ------------- -----------
Earnings (loss) before minority interest 15,092 4,344 (22,857) (3,421)
Income tax expense (benefit) - 1,651 (1,651) (14) -
Minority interest 309 - (187) (15) 122
-------------- ------------- ------------- -----------
Earnings (loss) from continuing operations $ 14,783 $ 2,693 $ (21,019) $ (3,543)
============== ============= ============= ===========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
4
Notes to Unaudited Pro Forma Combined Financial Statements
1. Presentation:
Ferrellgas acquired Thermogas on December 17, 1999 (the "Closing Date") and
is currently integrating the operations of Thermogas into the existing
operations. The Unaudited Pro Forma Condensed Combined Financial Statements
do not give effect to any restructuring costs, potential cost savings, or
other operating efficiencies that are expected to result from the
acquisition (see also footnote 18). The unaudited pro forma financial data
is not necessarily indicative of the operating results or financial
position that would have occurred had the acquisition been completed at the
dates indicated, nor are they necessarily indicative of future operating
results or financial position. The purchase accounting adjustments made in
connection with the development of the Unaudited Pro Forma Condensed
Combined Financial Statements are preliminary and have been made solely for
purposes of developing such pro forma financial information.
2. The columns represent the historical financial position and results of
operations of Ferrellgas and Thermogas. The Ferrellgas unaudited balance
sheet was derived from the information provided in the Form 10-Q filed on
December 13, 1999. The Thermogas balance sheet data was derived from the
audited financial statements, as of September 30, 1999, included in this
current report. The Ferrellgas income statement for the three months ended
October 31, 1999, and the year ended July 31, 1999, was derived from the
information provided in the Form 10-Q filed December 13, 1999, and the
Form 10-K filed October 28, 1999, respectively.
The Thermogas income statement data reported on the Pro Forma Combined
Statement of Earnings for the three months ended October 31, 1999, is
derived from the last three months of the Thermogas Statement of
Operations to be Sold for the nine months ended September 30, 1999. The
Thermogas income statement data reported on the Unaudited Pro Forma
Combined Statement of Earnings for the year ended July 31, 1999, is
derived from the combination of the following: a) the first six months of
the Thermogas Statement of Operations to be Sold for the nine months ended
September 30, 1999, and b) the last six months of the Thermogas Statement
of Operations to be Sold for the year ended December 31, 1998. Both
Statements of Operations to be Sold used in this calculation are included
in this current report.
3. It has been assumed that for purposes of the Unaudited Pro Forma Combined
Balance Sheet, the following transactions (see "a" through "d" below)
occurred on October 31, 1999, and for purposes of the Unaudited Pro Forma
Combined Statements of Earnings, the following transactions (see "a"
through "d" below) occurred on August 1, 1998:
a. The Thermogas Acquisition--On December 17, 1999, Ferrellgas completed
the acquisition of Thermogas (the "Acquisition"). Immediately prior to
the Closing Date, Thermogas entered into a $183 million bridge loan and
a $135 million operating tank lease financing with Bank of America,
N.A. as Administrative Agent. Upon the funding of the bridge loan,
Thermogas distributed approximately $123.7 million of the proceeds to
Williams Natural Gas Liquids, Inc. ("Williams" or "Seller"). The
remaining proceeds from the bridge loan remained in Thermogas and was
acquired by Ferrellgas. The proceeds from the operating tank lease of
approximately $133.8 million, net of related financing costs, were
distributed to Williams.
5
After the funding of both the bridge loan and the operating tank lease,
Ferrellgas purchased all of the member interests in Thermogas from
Williams in consideration for the issuance of senior common units
representing limited partner interests of Ferrellgas with a face value
of $175 million. The purchase price may be adjusted upward or downward
based on a final determination of working capital balances acquired.
The senior common units entitle the holder to annual distributions from
Ferrellgas 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 Amended and Restated Partnership
Agreement of Ferrellgas. The senior common units are redeemable by
Ferrellgas 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.
The Seller has the right to convert any outstanding senior common units
into common units at the end of two years or upon the occurrence of a
Material Event. Ferrellgas agreed to submit to its common unitholders a
proposal to approve this common unit conversion feature and to approve
an exemption under Ferrellgas' partnership agreement to enable The
Seller to vote the common units, if such conversion were to occur.
Ferrell Companies, Inc., which holds a majority of Ferrellgas' common
units, agreed to vote in favor of that proposal. Ferrellgas has also
granted the Seller demand registration rights at the end of two years
or upon the occurrence of a Material Event with respect to the any
outstanding senior common units (or common units into which they may be
convertible).
Upon the acquisition of Thermogas by Ferrellgas, Ferrellgas contributed
its interest in Thermogas to Ferrellgas, L.P., its operating
subsidiary. Ferrellgas, L.P. then assumed all of Thermogas' obligations
under the bridge loan and the operating tank lease. After the
contribution and assumption, Thermogas was merged with and into
Ferrellgas, L.P. with Ferrellgas, L.P. as the surviving entity.
Subsequent to the Acquisition, the remaining funds from the bridge loan
were used by Ferrellgas, L.P. to pay down existing debt and to fund
transaction related costs.
The preliminary purchase price allocation is as follows (in thousands):
Pro forma purchase price--
Assumption of Thermogas bridge loan $183,000
Senior common units issued 175,000
Cash acquired (59,331)
Estimated transaction costs 13,691
Estimated accrued exit costs 7,100
Estimated receivable from Seller due to working capital adjustment (223)
---------
$319,237
Total pro forma purchase price =========
Allocation of purchase price--
Working capital $ 8,925
Property, plant and equipment 149,875
Goodwill 56,559
Customer list 60,200
Assembled workforce 9,600
Trademark 18,500
Existing noncompete agreements of Thermogas 3,987
Other assets, net 2,666
Senior common units, issue costs 8,925
---------
Total pro forma allocation of purchase price $ 319,237
=========
6
The foregoing pro forma purchase price is based upon the actual amounts
paid to date, estimated remaining transaction-related costs, estimated
integration/exit costs, and the estimated working capital adjustment.
The preliminary purchase price allocation is based on available
information and certain assumptions that management considers
reasonable. The pro forma allocation of purchase price will be based
upon a final determination of the fair market value of the net assets
acquired at the Closing Date as determined by valuations and other
studies which are not yet complete. The final purchase price allocation
may differ from the preliminary allocation.
b. The issuance of the fixed rate $184 million of Senior Notes due between
2006-2009 (the "$184 million Senior Notes") - On February 28, 2000,
these notes were used to retire the $183 million bridge loan assumed by
Ferrellgas, L.P. on the Closing Date. The additional $1 million in
borrowings was used to fund debt issuance costs.
c. The assumption of a $135 million operating tank lease - This operating
tank lease was entered into by Thermogas just prior to the Closing Date
and was assumed by Ferrellgas L.P. on the Closing Date.
d. The contribution of $3.6 million by Ferrellgas, Inc. (the "General
Partner") to Ferrellgas and Ferrellgas L.P. - On the Closing Date, the
General Partner contributed cash in order to maintain its required 1%
general partnership interest in Ferrellgas and its required 1.0101%
general partnership interest in Ferrellgas, L.P.
4. The pro forma adjustments to cash (in thousands):
Cash acquired after assumption of bridge loan................................................... $ 59,331
Cash contribution by General Partner............................................................ 3,571
Cash paid to reduce Ferrellgas' existing credit facility borrowings............................. (49,211)
Cash paid for transaction costs................................................................. (13,691)
---------
Pro forma adjustment....................................................................... $ 0
=========
5. The pro forma adjustment to property, plant and equipment (in thousands):
Allocation of purchase price to property, plant and equipment................................... $149,875
Elimination of historical cost of property, plant and equipment of Thermogas.................... (193,663)
---------
Pro forma adjustment....................................................................... $(43,788)
=========
The historical cost of property, plant and equipment of Thermogas includes
the cost of the tanks subject to the operating tank lease as described in
Note 3 above.
6. The pro forma adjustment to intangible assets (in thousands):
Goodwill associated with purchase of Thermogas.................................................. $ 56,559
Intangible asset - customer list associated with purchase of Thermogas.......................... 60,200
Intangible asset - trademark associated with purchase of Thermogas.............................. 18,500
Intangible asset - assembled workforce associated with purchase of Thermogas.................... 9,600
Eliminate historical cost of goodwill of Thermogas.............................................. (106,221)
---------
Pro forma adjustment....................................................................... $ 38,638
=========
7. The pro forma adjustment to other assets reflects the debt issuance costs
incurred related to the $184 million Senior Notes.
7
8. The pro forma adjustment to long-term debt (in thousands):
Assumption of Thermogas bridge loan............................................................. $ 183,000
Issuance of the $184 million Senior Notes at an average rate of 8.8% interest rate.............. 184,000
Borrowing for payment of remaining debt issuance costs related to $184 million Senior
Notes.................................................................................... 244
Eliminate Thermogas bridge loan pursuant to refinancing with issuance of Senior Notes (183,000)
Reduce Ferrellgas' credit facility borrowings from cash acquired................................ (49,211)
---------
Pro forma adjustment....................................................................... $ 135,033
=========
9. The pro forma adjustments to senior common units (in thousands):
Senior common units issued ($175 million liquidation value)...................................... $175,000
Costs related to the issuance of the senior common units......................................... (8,925)
--------
Pro forma adjustments....................................................................... $166,075
========
10. The pro forma adjustments to General Partner reflects the cash contribution
from the General Partner (described in footnote 3).
11. The pro forma adjustment to depreciation and amortization expense for the
three months ended October 31, 1999 (in thousands):
Elimination of historical depreciation and amortization expense of Thermogas.................... $ (5,491)
Additional depreciation and amortization expense reflecting the preliminary
Allocation of purchase price:
Depreciation of amount allocated to buildings and equipment................................ 2,258
Amortization of amount allocated to goodwill (15 year life)................................ 943
Amortization of amount allocated to customer list (15 year life)........................... 1,003
Amortization of amount allocated to assembled workforce (3 year life)...................... 800
Amortization of amount allocated to trademark (15 year life)............................... 308
Amortization of amount allocated to existing noncompete agreements of Thermogas 244
--------
Pro forma adjustment.................................................................. $ 65
========
12. The pro forma adjustment to recognize equipment lease expense related to the
operating tank lease.
13. The pro forma adjustment to interest expense for the three months ended
October 31, 1999 (in thousands):
Elimination of Thermogas net interest income.................................................... $ (426)
Elimination of interest related to repayment of a portion of the Ferrellgas, L.P. Credit
Facility................................................................................ 846
Additional interest expense related to--
Issuance of $184 million Senior Notes at an average 8.8% fixed interest rate............... (4,055)
Amortization of debt issuance costs related to the $184 million Senior Notes............... (37)
--------
Pro forma adjustment.................................................................. $(3,672)
========
The elimination of interest expense related to the Ferrellgas, L.P. Credit
Facility was determined based on (i) repayment of $49.0 million of existing
indebtedness from proceeds of the bridge loan and (ii) an average interest
rate of 6.91%.
14. The pro forma adjustment to the provision for income taxes recognizes that
Ferrellgas is not subject to income tax.
8
15. The pro forma adjustment to the minority interest reflects the Ferrellgas
L.P. General Partner's ownership interest in the consolidated results of
the Ferrellgas.
16. The pro forma adjustment to depreciation and amortization expense for the
twelve months ended July 31, 1999 (in thousands):
Elimination of historical depreciation and amortization expense of Thermogas.................... $(21,514)
Additional depreciation and amortization expense reflecting the preliminary
allocation of purchase price:
Depreciation of amount allocated to buildings and equipment................................ 9,033
Amortization of amount allocated to goodwill (15 year life)................................ 3,771
Amortization of amount allocated to customer list (15 year life)........................... 4,013
Amortization of amount allocated to assembled workforce (3 year life)...................... 3,200
Amortization of amount allocated to trademark (15 year life)............................... 1,233
Amortization of amount allocated to existing noncompete agreements of Thermogas 976
------------
Pro forma adjustment.................................................................. $ 712
============
17. The pro forma adjustment to interest expense for the twelve months ended
July 31, 1999 (in thousands):
Elimination of Thermogas net interest income.................................................... $ 2,098
Elimination of interest related to repayment of a portion of the Ferrellgas, L.P. Credit
Facility.................................................................................. 3,178
Additional interest expense related to--
Issuance of $184 million Senior Notes at an average 8.8% fixed interest rate............... (16,218)
Amortization of debt issuance costs related to the Senior Notes............................ (148)
------------
Pro forma adjustment.................................................................. $(11,090)
============
The elimination of interest expense related to Ferrellgas, L.P. Credit
Facility was determined based on (i) repayment of $49.0 million of existing
indebtedness from proceeds of the bridge loan and (ii) an average interest
rate of 6.49%.
18. The following forecast information has not been included in the Unaudited
Pro Forma Condensed Combined Financial Statements but is presented as
follows in order to provide additional information about the Acquisition.
Ferrellgas is currently implementing its strategic and operating plans for
the integration of Thermogas into its existing operations. Ferrellgas
expects to achieve significant cost savings from duplicative general and
administrative costs and duplicative costs in overlapping retail propane
locations. Given the corporate overhead structure that Ferrellgas has
historically utilized in its operations, it is estimated that approximately
$22 million of annual general and administrative costs can be eliminated
from the operations of Thermogas, based on the twelve month period used in
the Unaudited Pro Forma Condensed Combined Statement of Operations. Based
on preliminary information and assumptions regarding the overlapping retail
propane locations, Ferrellgas estimates that it will reduce operating
expenses by approximately $9 million due to elimination of duplicative
salaries and benefits, plant and supplies, advertising and selling,
maintenance, vehicle and other expenses.
9
In addition to the cost savings described above, Ferrellgas expects to
generate additional operating income from its existing transportation
management and propane procurement operations as a result of the added
transportation and propane supply needs of the Thermogas operations. These
transportation and supply management operations have been historically
provided by related parties. Thus, these operations have not been included
in the Unaudited Pro Forma Condensed Combined Statement of Earnings. In
addition, given the significantly warmer than normal temperatures
experienced during from the winter months of November 1998 to February
1999, Ferrellgas would have expected an increase in profits during the
Unaudited Pro Forma Condensed Combined Statement of Earnings for the year
ended July 31, 1999, assuming normal winter temperatures. Based on
temperatures provided by the American Gas Association, the temperatures for
the winter of 1998 was 11% warmer than normal.
10