UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file numbers: 1-11331
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 13, 2001, the registrants had units or shares outstanding as
follows:
Ferrellgas Partners, L.P. 36,063,953 Common Units
2,801,622 Senior 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
Ferrellgas Partners, L.P. and Subsidiaries
------------------------------------------
Consolidated Balance Sheets - October 31, 2001
(unaudited) and July 31, 2001 1
Consolidated Statements of Earnings -
Three months ended October 31, 2001 and 2000 (unaudited) 2
Consolidated Statement of Partners' Capital -
Three months ended October 31, 2001 (unaudited) 3
Consolidated Statements of Cash Flows -
Three months ended October 31, 2001 and 2000 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Ferrellgas Partners Finance Corp.
---------------------------------
Balance Sheets - October 31, 2001 (unaudited) and July 31, 2001 9
Statements of Earnings - Three months ended October 31,
2001 and 2000 (unaudited) 9
Statements of Cash Flows - Three months ended October 31,
2001 and 2000 (unaudited) 10
Notes to Financial Statements (unaudited) 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
October 31, July 31,
ASSETS 2001 2001
- --------------------------------------------- ----------- ------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 19,367 $25,386
Accounts and notes receivable, net 66,814 56,772
Inventories 79,380 65,284
Prepaid expenses and other current assets 16,588 10,504
----------- ------------
Total Current Assets 182,149 157,946
Property, plant and equipment, net 489,389 491,194
Goodwill 124,190 124,190
Intangible assets, net 104,261 108,526
Other assets, net 14,473 14,303
----------- ------------
Total Assets $ 914,462 $ 896,159
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------------------
Current Liabilities:
Accounts payable $ 102,969 $58,274
Other current liabilities 62,174 77,610
Short-term borrowings 458 -
----------- ------------
Total Current Liabilities 165,601 135,884
Long-term debt 727,815 704,782
Other liabilities 14,550 15,472
Contingencies and commitments - -
Minority interest 1,735 2,034
Partners' Capital:
Senior unitholder (2,801,622 units outstanding
at both October 2001 and July 2001, -
liquidation preference $112,065 at both
October 2001 and July 2001) 112,065 112,065
Common unitholders (35,939,466 and 35,908,366
units outstanding at October 2001 and
July 2001, repectively) (45,221) (12,959)
General partner unitholder (363,025 and 362,711
units outstanding at October 2001 and
July 2001, respectively) (59,124) (58,738)
Accumulated other comprehensive loss (2,959) (2,381)
----------- ------------
Total Partners' Capital 4,761 37,987
----------- ------------
Total Liabilities and Partners' Capital $ 914,462 $ 896,159
=========== ============
See notes to consolidated financial statements.
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per-unit data)
(unaudited)
For the three months ended
--------------------------------------
October 31, 2001 October 31, 2000
--------------------------------------
Revenues:
Gas liquids and related product sales $224,285 $264,558
Other 20,958 23,903
------------------ -----------------
Total revenues 245,243 288,461
Cost of product sold (exclusive of
depreciation, shown separately below) 149,947 196,320
------------------ -----------------
Gross profit 95,296 92,141
Operating expense 67,127 65,143
Depreciation and amortization expense 11,454 14,031
General and administrative expense 6,825 4,717
Equipment lease expense 6,545 8,107
Employee stock ownership plan
compensation charge 1,309 1,069
Loss on disposal of assets and other 847 1,171
------------------ -----------------
Operating income (loss) 1,189 (2,097)
Interest expense (15,114) (16,168)
Interest income 326 557
------------------ -----------------
Loss before minority interest (13,599) (17,708)
Minority interest (97) (143)
------------------ -----------------
Net loss (13,502) (17,565)
Distribution to senior unitholder 2,802 4,653
Net loss available to general partner (163) (222)
------------------ -----------------
Net loss available to common unitholders $(16,141) $(21,996)
================== =================
Basic and diluted loss per common unit:
Net loss available to common unitholders $ (0.45) $ (0.70)
================== =================
See notes to consolidated financial statements.
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Number of units Accumulated
--------------------------------- other
General General compre- Total
Senior Common partner Senior Common partner hensive partners'
unitholder unitholders unitholder unitholder unitholders unitholder loss capital
---------- ----------- ---------- ---------- ----------- ---------- -------- ----------
August 1, 2001 2,801.6 35,908.4 362.7 $ 112,065 $ (12,959) $ (58,738) $ (2,381) $ 37,987
Contribution in connection with
ESOP compensation charge - - - - 1,283 13 - 1,296
Common unit cash distribution - - - - (17,956) (181) - (18,137)
Senior unit accrued distribution - - - - (2,745) (85) - (2,830)
Common unit options exercised - 31.1 0.3 - 523 2 - 525
Comprehensive loss:
Net loss - - - - (13,367) (135) - (13,502)
Other comprehensive income:
Risk management fair value
adjustment - - - - - - (578) (578)
----------
Comprehensive loss (14,080)
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
October 31, 2001 2,801.6 35,939.5 363.0 $ 112,065 $ (45,221) $ (59,124) $ (2,959) $ 4,761
========== ========== ========== ========== ========== ========== ========= ==========
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the three months ended
------------------------------------
October 31, 2001 October 31, 2000
---------------- ----------------
Cash Flows From Operating Activities:
Net loss $ (13,502) $ (17,565)
Reconciliation of net loss to net cash
used in operating activities:
Depreciation and amortization expense 11,454 14,031
Employee stock ownership plan
compensation charge 1,309 1,069
Minority interest (97) (143)
Other 742 1,260
Changes in operating assets and
liabilities, net of effects from
business acquisitions:
Accounts and notes receivable,
net of securitization (15,739) (28,990)
Inventories (14,096) (5,047)
Prepaid expenses and other current
assets (6,084) (1,284)
Accounts payable 44,653 33,313
Accrued interest expense (6,395) (8,812)
Other current liabilities (8,824) (8,618)
Other liabilities (150) (81)
---------------- ----------------
Net cash used in operating activities (6,729) (20,867)
---------------- ----------------
Cash Flows From Investing Activities:
Business acquisitions, net of cash acquired (522) (3,534)
Capital expenditures (6,009) (2,568)
Net proceeds from accounts receivable
securitization 3,000 55,000
Other 1,342 1,268
---------------- ----------------
Net cash (used in) provided by
investing activities (2,189) 50,166
---------------- ----------------
Cash Flows From Financing Activities:
Distributions (20,967) (15,812)
Additions to long-term debt 24,242 7,914
Reductions of long-term debt (1,145) (999)
Net additions (reductions) to
short-term borrowings 458 (12,914)
Minority interest activity (214) (197)
Proceeds from exercise of common
unit options 525 -
---------------- ----------------
Net cash provided by (used in)
financing activities 2,899 (22,008)
---------------- ----------------
(Decrease) increase in cash and cash
equivalents (6,019) 7,291
Cash and cash equivalents -
beginning of period 25,386 14,838
---------------- ----------------
Cash and cash equivalents -
end of period $ 19,367 $ 22,129
================ ================
Cash paid for interest $ 20,935 $ 24,393
================ ================
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001
(unaudited)
A. Organization
Ferrellgas Partners, L.P. activities are primarily conducted through its
subsidiary Ferrellgas, L.P. Ferrellgas Partners is the sole limited partner
of Ferrellgas, L.P. with a 99% limited partner interest. Ferrellgas
Partners and Ferrellgas L.P. are together referred to as the Partnership.
The consolidated financial statements of Ferrellgas Partners and
Subsidiaries reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the interim periods
presented. All adjustments to the consolidated financial statements were of
a normal, recurring nature, as well as the accounting change to adopt
Statement of Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangibles Assets". The information included in this Quarterly Report on
Form 10-Q should be read in conjunction with Management's Discussion and
Analysis and the financial statements with related notes included in the
Partnership's Annual Report on Form 10-K for the year ended July 31, 2001.
B. Accounting estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("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. Reclassifications
Certain amounts, including Goodwill (see Note F), included in the first
quarter of fiscal 2001 consolidated financial statements have been
reclassified to conform to the first quarter of fiscal 2002 presentation.
In fiscal 2001 and after the filing of the Quarterly Report on Form 10-Q
for the quarterly period ended October 31, 2000, the Partnership applied
the provisions of Emerging Issues Task Force (EITF Issue) No. 99-19
"Reporting Revenue Gross as a Principal versus Net as an Agent" which
affects the presentation of certain revenue and cost of product sold items.
D. Nature of operations
The propane industry is seasonal in nature with peak activity during the
winter months. Therefore, the results of operations for the periods ended
October 31, 2001 and 2000 are not necessarily indicative of the results to
be expected for a full year.
E. Supplemental Balance Sheet Information:
Inventories consist of:
October 31, July 31,
(in thousands) 2001 2001
----------- --------------
Liquefied propane gas and related products $59,980 $45,966
Appliances, parts and supplies 19,400 19,318
----------- --------------
$79,380 $65,284
=========== ==============
In addition to inventories on hand, the Partnership enters into contracts
to buy product for supply purposes. Nearly all of these contracts have
terms of less than one year and most call for payment based on market
prices at the date of delivery. All fixed price contracts have terms of
less than one year. As of October 31, 2001, in addition to the inventory on
hand, the Partnership had committed to take net delivery of approximately
30,592,000 gallons at a fixed price for its future retail propane sales.
Property, plant and equipment, net consist of:
October 31, July 31,
(in thousands) 2001 2001
----------- --------------
Property, plant and equipment $778,133 $774,128
Less: accumulated depreciation 288,744 282,934
----------- --------------
$489,389 $491,194
=========== ==============
F. Goodwill and Other Intangible Assets - Adoption of SFAS No. 142:
Statement of Financial Accounting Standard (SFAS) No. 142 modified the
financial accounting and reporting for acquired goodwill and other
intangible assets, including the requirement that goodwill and some
intangible assets no longer be amortized. The Partnership adopted SFAS No.
142 beginning in the first quarter of fiscal 2002. This adoption resulted
in a reclassification of both assembled workforce and other assets with a
remaining book value of $10,019,000 to goodwill. The remaining intangible
assets are subject to amortization. Although there will be no cash flow
effect, the Partnership believes its amortization expense will decrease by
$10,600,000 in fiscal 2002, compared to the amortization that would have
been recorded had the new accounting standard not been issued. See
additional discussion about the decrease in amortization expense in
Management Discussion and Analysis of Financial Condition and Results of
Operations. This new standard also required the Partnership to test
goodwill for impairment at the time the standard is adopted and also on an
annual basis. The results of the initial impairment test of goodwill
performed at the time the standard was adopted did not have a material
effect on its financial position, results of operations or cash flows. The
following disclosures are required by SFAS No. 142.
Intangible assets, net consist of:
October 31, 2001 July 31, 2001
----------------------- ----------------------------
Gross Accum- Gross Accum-
Carrying ulated Carrying ulated
(in thousands) Amount Amortization Amount Amortization
----------- ------------ ----------- ------------
Customer lists $207,681 $(118,162) $207,667 $(114,679)
Non-compete agreement 60,322 (45,580) 60,222 (44,684)
----------- ------------ ----------- -------------
Total $268,003 $(163,742) $267,889 $(159,363)
=========== ============ =========== =============
(in thousands)
Aggregate Amortization Expense:
2001 2000
---- ----
For the three months ended October $ 4,379 $ 4,502
Estimated Amortization Expense:
For the nine months ended July 31, 2002 $ 9,312
For the year ended July 31, 2002 13,691
For the year ended July 31, 2003 11,111
For the year ended July 31, 2004 10,067
For the year ended July 31, 2005 9,488
For the year ended July 31, 2006 8,968
For the three months ended
October 31, October 31,
(in thousands) 2001 2000
----------- -----------
Reported net loss $(13,502) $(17,565)
Add back: Goodwill amortization - 2,084
----------- -----------
Adjusted net loss $(13,502) $(15,481)
=========== ===========
Basic and diluted loss per common unit:
Reported net loss available to common
unitholders $ (0.45) $ (0.70)
Goodwill amortization 0.06
----------- -----------
Adjusted net loss available to common
unitholders $ (0.45) $ (0.64)
=========== ===========
G. Contingencies
The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
contingent claims that are likely to have a material adverse effect on the
financial condition, results of operations or cash flows of the
Partnership. Currently, the Partnership is not a party to any legal
proceedings other than various claims and lawsuits arising in the ordinary
course of business.
H. Distributions
On September 14, 2001, the Partnership paid cash distributions of $1.00 and
$0.50 per senior and common unit, respectively, for the quarter ended July
31, 2001. On November 20, 2001, the Partnership declared its first-quarter
cash distribution of $1.00 and $0.50 per senior and common unit,
respectively, that is to be paid December 14, 2001.
I. Loss Per Common Unit
Below is a calculation of the basic and diluted loss per unit on the
consolidated statements of earnings. In the first quarter of fiscal 2002,
107,208 unit options were considered dilutive, however, these additional
units caused less than a $0.01 change between the basic and dilutive loss
per unit. In the first quarter of fiscal 2001, the unit options were
antidilutive. For diluted loss per unit purposes, the senior units were
excluded as they are considered contingently issuable common units for
which all necessary conditions for their issuance have not been satisfied
as of the end of the reporting period. In order to compute the basic and
diluted loss per common unit, the distributions on senior units are
subtracted from net loss to compute net loss available to common
unitholders.
(in thousands, except per unit data)
Three months ended
October 31, October 31,
2001 2000
----------- -----------
Net loss available to common unitholders $(16,141) $(21,996)
Weighted average common units outstanding 35,919.0 31,307.1
----------- -----------
Basic and diluted loss per common unit $ (0.45) $ (0.70)
=========== ===========
J. Adoption of New Accounting Standards
The Financial Accounting Standards Board recently issued SFAS No. 143
"Accounting for Asset Retirement Obligations" and SFAS No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 143 requires the recognition of a liability if a company has a
legal or contractual financial obligation in connection with the retirement
of a tangible long-lived asset. The Partnership expects to implement SFAS
No. 143 beginning in the fiscal year ending July 31, 2003, and is currently
assessing its effect on the Partnership's financial position, results of
operations and cash flows.
SFAS No. 144 modifies the financial accounting and reporting for long-lived
assets to be disposed of by sale and it broadens the presentation of
discontinued operations to include more disposal transactions. The
Partnership expects to implement SFAS No. 144 beginning in the fiscal year
ending July 31, 2003, and is currently assessing its effect on the
Partnership's financial position, results of operations and cash flows.
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
BALANCE SHEETS
October 31, July 31,
ASSETS 2001 2001
- ------------------------------------ ----------- -------------
(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 1,707 1,662
Accumulated deficit (1,707) (1,662)
----------- -------------
Total Stockholder's Equity $1,000 $1,000
=========== =============
STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended
----------------------------------
October 31, October 31,
2001 2001
-------------- --------------
General and administrative expense $ 45 $ 91
-------------- --------------
Net loss $(45) $(91)
============== ==============
See notes to financial statements.
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly owned-subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
-------------------------
October 31, October 31,
2001 2000
----------- -----------
Cash Flows From Operating Activities:
Net loss $(45) $ (91)
----------- -----------
Cash used in operating activities (45) (91)
----------- -----------
Cash Flows From Financing Activities:
Capital contribution 45 91
----------- -----------
Cash provided by financing activities 45 91
----------- -----------
Change in cash - -
Cash - beginning of period 1,000 1,000
----------- -----------
Cash - end of period $1,000 $1,000
=========== ===========
See notes to financial statements.
<FN>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001
(unaudited)
A. Ferrellgas Partners Finance Corp., a Delaware corporation, was formed on
March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners,
L.P.
B. The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the interim periods
presented. All adjustments to the financial statements were of a normal,
recurring nature.
</FN>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the historical financial condition and
results of operations of Ferrellgas Partners and its subsidiaries and should be
read in conjunction with the historical consolidated financial statements and
accompanying notes thereto included elsewhere in this Quarterly Report on Form
10-Q.
Forward-looking statements
Statements included in this report include forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. These forward-looking statements are
identified as any statement that does not relate strictly to historical or
current facts. They use words such as "anticipate," "believe," "intend," "plan,"
"projection," "forecast," "strategy," "position," "continue," "estimate,"
"expect," "may," "will," or the negative of those terms or other variations of
them or by comparable terminology. In particular, statements, express or
implied, concerning future operating results, or the ability to generate sales,
income or cash flow are forward-looking statements. Forward-looking statements
are not guarantees of performance. They involve risks, uncertainties and
assumptions. The Partnership's future results may differ materially from those
expressed in these forward-looking statements. Many of the factors that will
determine these results are beyond the Partnership's ability to control or
predict. These statements include, but are not limited to, the following:
o whether Ferrellgas, L.P. will have sufficient funds to meet its obligations
and to enable it to distribute to Ferrellgas Partners sufficient funds to
permit Ferrellgas Partners to meet its obligations with respect its
$160,000,000 senior secured notes, to pay the required distribution on its
senior units and to pay the minimum quarterly distribution of $0.50 per
common unit,
o whether or not the Partnership will continue to meet all of the quarterly
financial tests required by various financing instruments, and
o whether the first quarter of fiscal 2002 percentage decrease in gas liquid
sales, cost of product sold and equipment lease expense as compared to the
first quarter of fiscal 2001 will continue during fiscal 2002.
Readers of this report should not put undue reliance on any forward-looking
statements. The forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the statements. The risks and uncertainties and their
effect on the Partnership's operations include, but are not limited to, the
following risks, which are more fully described in the Partnership's 1933 Act
filings:
o the retail propane industry is a mature one,
o the effect of weather conditions on demand for propane,
o increases in propane prices may cause higher levels of conservation by the
Partnership's customers,
o price, availability and inventory risk of propane supplies,
o the timing of collections of the Partnership's accounts receivable and
increases in product costs and demand may decrease its working capital
availability,
o the availability of capacity to transport propane to market areas,
o competition from other energy sources and within the propane industry,
o operating risks incidental to transporting, storing, and distributing
propane, including the litigation risks which may not be covered by
insurance,
o the Partnership may not be successful in making acquisitions,
o changes in interest rates, including the refinancing of long-term financing
at favorable interest rates,
o governmental legislation and regulations,
o energy efficiency and technology trends may affect demand for propane,
o the condition of the capital markets in the United States,
o the political and economic stability of the oil producing nations,
o the Partnership may sell additional limited partner interests, thus
diluting existing interests of unitholders,
o the distribution priority to the Partnership's common units owned by the
public terminates no later than December 31, 2005,
o the holder of the Partnership's senior units may have the right in the
future to convert the senior units into common units,
o the holder of the Partnership's senior units may be able to sell the senior
units or convert into common units with special indemnification rights
available to the holder,
o a redemption of the senior units may be dilutive to the Partnership's
common unitholders,
o the terms of the senior units limit the Partnership's use of proceeds from
sales of equity and the rights of the common unitholders,
o the current holder of the senior units has a special voting exemption if
the senior units convert into common units, and
o the expectation that the remaining senior units will be redeemed in the
future with proceeds from an offering of equity at a price satisfactory to
the Partnership.
Results of Operations
Due to the seasonality of the retail distribution of propane, results of
operations for the three months ended October 31, 2001 and 2000, 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, timing of acquisitions, variations in the weather and
fluctuations in propane prices. As the Partnership has grown through
acquisitions, fixed costs such as personnel costs, equipment leases,
depreciation and interest expense have increased. Historically, these fixed cost
increases have caused net losses in the first and fourth fiscal quarters and net
income in the second and third fiscal quarters to be more pronounced.
Three Months Ended October 31, 2001 vs. October 31, 2000
Gas liquid and related product sales. Total gas liquids and related product
sales decreased 15.2% to $224,285,000, due to both a decreased average propane
sales price per gallon and decreased retail propane sales volume.
The average retail and wholesale propane sales price per gallon decreased
due to the effect of a significant decrease in the wholesale cost of propane.
Retail sales volumes decreased 5.0% to 189,911,000 gallons in the first quarter
of fiscal 2002 as compared to 200,063,000 gallons in the first quarter of fiscal
2001, primarily due to the effects of the slowing economy and customer
conservation.
Other revenues. Other revenues decreased 12.3% to $20,958,000, primarily
due to lower appliance sales and service labor due to effects of the slowing
economy.
Cost of product sold. Cost of product sold decreased 23.6% to $149,947,000
primarily due to the effect of a decrease in the wholesale cost of propane
during the first quarter of fiscal 2002, which was significantly lower as
compared to the first quarter of fiscal 2001. The wholesale market price at one
of the major supply points, Mt. Belvieu, Texas, averaged $0.45 per gallon during
the first quarter of fiscal 2002 compared to an average of $0.66 per gallon in
the first quarter of fiscal 2001. Other major supply points in the United States
experienced similar decreases. Other factors causing a decrease in the cost of
product sold included decreased retail sales volumes partially offset by an
unfavorable $2,045,000 variance in results from risk management activities not
qualifying as hedges.
Gross profit. Gross profit increased 3.4% to $95,296,000, primarily due to
increased retail margins, partially offset by customer conservation and
unfavorable variances in results from risk management activities. See additional
discussion in Item 3 "Quantitative and Qualitative Disclosures about Market
Risk."
Operating expense. Operating expense increased 3.0% to $67,127,000,
primarily due to increased compensation expense.
General and administrative expense. General and administrative expense
increased $2,108,000 to $6,825,000, primarily due to expenses related to the
operational improvement initiative discussed in "Liquidity and Capital Resources
- - Investing Activities" and higher staffing levels.
Depreciation and amortization expense. Depreciation and amortization
expense decreased 18.4% to $11,454,000 primarily due to the implementation of
SFAS No. 142, which eliminated routine goodwill amortization. See further
discussion of the implementation of SFAS No. 142 in Note F to the consolidated
financial statements.
Equipment lease expense. Equipment lease expense decreased 19.3% to
$6,545,000 due to lower interest rates on variable rate operating leases.
Interest expense. Interest expense decreased 6.5% to $15,114,000 primarily
due to reduced borrowings and to a lesser extent lower interest rates on the
Partnership's credit facility, partially offset by the effect of the termination
of the interest swap agreement in the fourth quarter of fiscal 2001.
Forward looking statements. The Partnership expects declines in gas liquid
sales, cost of product sold and equipment lease expense experienced in the first
quarter of fiscal 2002 to continue in the second, third and fourth quarters of
fiscal 2002 as compared to the same periods in fiscal 2001. The declines in gas
liquid sales and cost of product sold are expected due to the effects of
significantly lower wholesale propane prices experienced during fiscal 2002 as
compared to last year. Lower interest rates in fiscal 2002 are expected to lead
to decreased equipment lease expense.
Liquidity and Capital Resources
The ability of the Partnership to satisfy its obligations is dependent upon
future performance, which will be subject to prevailing economic, financial,
business and weather conditions and other factors, many of which are beyond its
control. Due to the seasonality of the retail propane distribution business, a
significant portion of the Partnership's cash flow from operations is typically
generated during the winter heating season which occurs during the Partnership's
second and third fiscal quarters. Typically, the Partnership generates
significantly lower cash flows from operations in its first and fourth fiscal
quarters as compared to the second and third quarters, because fixed costs
exceed gross profit during the non-peak season. Subject to meeting certain
financial tests discussed below, Ferrellgas, Inc., the Partnership's general
partner, believes that Ferrellgas, L.P. will have sufficient funds available to
meet its obligations, and to distribute to Ferrellgas Partners sufficient funds
to permit Ferrellgas Partners to meet its obligations with respect to the
$160,000,000 senior secured notes. In addition, the General Partner believes
that Ferrellgas, L.P. will have sufficient funds available to distribute to
Ferrellgas Partners sufficient cash to pay the required quarterly distribution
on the senior units and the minimum quarterly distribution on all common units
during fiscal 2002.
The Partnership's credit facilities, public debt, private debt, accounts
receivable securitization facility and operating tank leases contain several
financial tests and covenants restricting the Partnership's ability to pay
distributions, incur debt and engage in certain other business transactions. In
general, these tests are based on the Partnership's debt to cash flow ratio and
cash flow to interest expense ratio. Ferrellgas, Inc. believes that the most
restrictive of these tests currently are debt incurrence limitations within the
credit facility, operating tank leases and accounts receivable securitization
facility and limitations on the payment of distributions within the Ferrellgas
Partners senior secured notes. The credit facility, operating tank leases and
accounts receivable securitization facility limit Ferrellgas, L.P.'s ability to
incur debt if Ferrellgas, L.P. exceeds prescribed ratios of either debt to cash
flow or cash flow to interest expense. Ferrellgas Partners' senior secured notes
restrict payments if a minimum ratio of cash flow to interest expense is not
met. This restriction places limitations on the Partnership's ability to make
certain restricted payments such as the payment of cash distributions to
unitholders. The cash flow used to determine these financial tests generally is
based upon the Partnership's most recent cash flow performance giving pro forma
effect for acquisitions and divestitures made during the test period.
Based upon current estimates of the Partnership's cash flow, Ferrellgas,
Inc. believes that the Partnership will be able to meet all of the required
quarterly financial tests and covenants. However, if the Partnership were to
encounter unexpected downturns in business operations in the future, such as
continued significantly warmer than normal weather as experienced during the
start of this heating season or a volatile cost environment, the Partnership may
not meet certain financial tests in immediate future quarters. These factors
could temporarily restrict the ability of Ferrellgas, L.P. to incur debt or
Ferrellgas Partner's ability to make cash distributions to its unitholders.
Depending on the circumstances, the Partnership may consider alternatives to
permit the incurrence of debt at Ferrellgas, L.P. or the continued payment by
Ferrellgas Partners of the quarterly cash distribution to its unitholders. No
assurances can be given, however, that such alternatives can or will be
implemented with respect to any given quarter.
Future maintenance and working capital needs of the Partnership are
expected to be provided by cash generated from future operations, existing cash
balances, the credit facility and the accounts receivable securitization
facility. To fund expansive capital projects and future acquisitions,
Ferrellgas, L.P. may borrow on the existing credit facility, Ferrellgas Partners
or Ferrellgas, L.P. may issue additional debt to the extent permitted under
existing debt agreements or Ferrellgas Partners may issue additional equity
securities, including, among others, common units.
Toward this purpose, on February 5, 1999, Ferrellgas Partners filed a shelf
registration statement with the Securities and Exchange Commission for the
periodic sale of equity and/or debt securities. The registered securities would
be available for sale by the Partnership in the future to fund acquisitions, to
reduce indebtedness or to fund general corporate purposes. On June 5, 2001, the
Partnership issued almost $90,000,000 worth of equity pursuant to this
registration statement and currently has the ability to sell approximately
$210,000,000 more in equity and/or debt.
Ferrellgas Partners also maintains an additional shelf registration
statement with the Securities and Exchange Commission for 2,010,484 common
units. These common units may be issued by Ferrellgas Partners in connection
with the Partnership's acquisition of other businesses, properties or securities
in business combination transactions.
Operating Activities. Cash used in operating activities was $6,729,000 for
the three months ended October 31, 2001, compared to cash used in operating
activities of $20,867,000 for the three months ended October 31, 2000. This
decreased use of cash is primarily due to the effect of decreased retail sales
prices on accounts receivable. Additionally the effect on cash from operating
activities due to increases in inventory was offset by increases in accounts
payable. Due to the seasonality of the retail distribution of propane, cash used
in operating activities for the three months ended October 31, 2001 and 2000,
are not necessarily indicative of the cash from operations expected for a full
year. The Partnership reported cash provided by operating activities of
$99,859,000 and $53,352,000 in the fiscal years ended July 31, 2001 and 2000,
respectively.
Investing Activities. During the first quarter of fiscal 2002, the
Partnership made growth and maintenance capital expenditures of $6,009,000
consisting primarily of the following:
o purchase and development of computer software,
o upgrading district plant facilities,
o additions to propane storage tanks and cylinders, and
o vehicle lease buyouts.
The Partnership has recently completed a review of its key business
processes to identify areas where it can use technology and process enhancements
to improve its operations. Specifically, the Partnership has identified areas
where it can reduce operating expenses and improve customer satisfaction in the
near future. These areas under review include improvements to the routing and
scheduling of customer deliveries, customer administration and operational
workflow. During fiscal 2002, the Partnership expects to allocate considerable
resources, including the purchase and development of software, toward these
improvements and intends to fund the necessary capital requirements primarily
from excess cash from operations generated during fiscal 2001. For the quarter
ended October 31, 2001, the Partnership made growth and maintenance capital
expenditures of $2,191,000 related to this initiative. Other than the initiative
described above, the Partnership's capital requirements for repair and
maintenance of property, plant and equipment are relatively low due to limited
technological change and long useful lives of propane tanks and cylinders.
The Partnership leases computers and light and medium duty trucks, tractors
and trailers. The Partnership believes vehicle leasing is a cost-effective
method for meeting its transportation and technology equipment needs. The
Partnership purchased $234,000 of vehicles whose lease terms expired in the
first quarter of fiscal 2002.
During the first quarter of fiscal 2002, the Partnership received net
proceeds of $3,000,000, pursuant to the transfer of an interest in a pool of its
trade accounts receivable to its wholly-owned, special purpose subsidiary,
Ferrellgas Receivables, LLC. The level of funding available from this accounts
receivable facility agreement is currently limited to $60,000,000 and at October
31, 2001, $34,000,000 was funded.
The Partnership continues to consider opportunities to expand its
operations through strategic acquisitions of retail propane operations located
throughout the United States.
Subsequent to October 31, 2001, the Partnership incurred total acquisition
capital expenditures of approximately $9,837,000 pursuant to the acquisition of
two retail propane companies. This amount was funded by approximately $5,525,000
of cash payments, the issuance of $1,987,000 in noncompete notes and the
issuance to the seller of $2,325,000 in Common Units.
Financing Activities. Ferrellgas, L.P.'s credit facility, which expires
June 30, 2003, is unsecured and consists of a $117,000,000 working capital,
general corporate and acquisition facility, including a letter of credit
sub-facility, and a $40,000,000 revolving working capital facility. This
$40,000,000 facility is subject to an annual reduction in outstanding balances
to zero for thirty consecutive days. All borrowings under the credit facility
bear interest, at the borrower's option, at a rate equal to either London
Interbank Offered Rate plus an applicable margin varying from 1.25 percent to
2.25 percent or the bank's base rate plus an applicable margin varying from 0.25
percent to 1.25 percent. The bank's base rate at October 31, 2001 and July 31,
2001 was 6.0% and 6.75%, respectively. See Investing Activities for discussion
of additional cash availability related to the accounts receivable facility
agreement.
At October 31, 2001, $24,700,000 of borrowings and $53,920,000 of letters
of credit were outstanding under the Ferrellgas, L.P. credit facility at an
average interest rate of 4.9%. Letters of credit are currently used to cover
obligations relating to requirements for insurance coverage and risk management
activities. Nearly all of the borrowings on the credit facility were classified
as long-term, because the Partnership had made temporary payments of long-term
debt in the third and fourth quarters of fiscal 2001. At October 31, 2001,
Ferrellgas, L.P. had $78,380,000 available for general corporate, acquisition
and working capital purposes under the credit facility. Based on the pricing
grid contained in the credit facility, the current borrowing rate for future
borrowings under the credit facility is LIBOR plus 1.50%. The Partnership
believes that these facilities will be sufficient to meet its future working
capital needs. However, if the Partnership were to experience an unexpected
significant increase in working capital requirements, it could exceed its
immediately available resources. Events that could cause increases in working
capital borrowings or letter of credit requirements include a significant
increase in the cost of propane, a significant delay in the collections of
accounts receivable, increased volatility in commodity prices related to risk
management activities or increased liquidity requirements imposed by insurance
providers. The Partnership would consider alternatives to provide increased
working capital. No assurances can be given, however, that such alternatives
could be implemented.
On September 14, 2001, the Partnership paid cash distributions of $1.00 and
$0.50 per senior and common unit, respectively, for the quarter ended July 31,
2001. Cash distributions increased by $5,155,000 primarily because the senior
units were paid distributions in kind in the first quarter of fiscal 2001. On
November 20, 2001, the Partnership declared its first-quarter cash distribution
of $1.00 and $0.50 per senior and common unit, respectively, that is to be paid
December 14, 2001.
Adoption of New Accounting Standards. The Financial Accounting Standards
Board recently issued SFAS No. 143 "Accounting for Asset Retirement Obligations"
and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets."
SFAS No. 143 requires the recognition of a liability if a company has a
legal or contractual financial obligation in connection with the retirement of a
tangible long-lived asset. The Partnership expects to implement SFAS No. 143
beginning in the fiscal year ending July 31, 2003, and is currently assessing
its effect on the Partnership's financial position, results of operations and
cash flows.
SFAS No. 144 modifies the financial accounting and reporting for long-lived
assets to be disposed of by sale and it broadens the presentation of
discontinued operations to include more disposal transactions. The Partnership
expects to implement SFAS No. 144 beginning in the fiscal year ending July 31,
2003, and is currently assessing its effect on the Partnership's financial
position, results of operations and cash flows.
ITEM 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. The Partnership's risk management trading activities utilize
certain types of energy commodity forward contracts, options, and swaps traded
on the over-the-counter financial markets and futures traded on the New York
Mercantile Exchange to manage and hedge its exposure to the volatility of
floating commodity prices and to protect its inventory positions. The
Partnership's risk management activities, other than trading, also utilize
certain over-the-counter energy commodity forward contracts and options to limit
overall price risk and to hedge its exposure to inventory price movements.
Market risks associated with energy commodities are monitored daily by
senior management for compliance with the Partnership's trading and other than
trading risk management policies. These policies include specific dollar
exposure limits, limits on the term of various contracts and volume limits for
various energy commodities. The Partnership also utilizes loss limits and daily
review of open positions to manage exposures to changing market prices.
Market, Credit and Liquidity Risk. New York Mercantile Exchange traded
futures are guaranteed by the New York Mercantile Exchange and have nominal
credit risk. The Partnership is exposed to credit risk associated with forwards,
swaps and option transactions in the event of nonperformance by counterparties.
For each counterparty, the Partnership analyzes its financial condition prior to
entering into an agreement, establishes credit limits and monitors the
appropriateness of each limit. The change in market value of Exchange-traded
futures contracts requires daily cash settlement in margin accounts with
brokers. Forwards and most other over-the-counter instruments are generally
settled at the expiration of the contract term. In order to minimize the
liquidity risk of cash, margin or collateral requirements of counterparties for
over-the-counter instruments, the Partnership attempts to balance maturities and
positions with individual counterparties.
Sensitivity Analysis. The Partnership has prepared a sensitivity analysis
to estimate the exposure to market risk of its energy commodity positions.
Forward contracts, futures, swaps and options were analyzed assuming a
hypothetical 10% change in prices for the delivery month for all energy
commodities. The potential loss in future earnings from these positions from a
10% adverse movement in market prices of the underlying energy commodities is
estimated at $5,430,000 for trading and $32,000 for other than trading
activities as of October 31, 2001. The preceding hypothetical analysis is
limited because changes in prices may or may not equal 10%, thus, actual results
may differ.
Additionally, the Partnership seeks to mitigate its variable rate interest
rate risk exposure on operating leases by entering into interest rate cap
agreements. At October 31, 2001, the Partnership had $24,700,000 of variable
rate debt, $157,200,000 outstanding in variable rate operating leases and an
equal amount of interest rate cap agreements outstanding to hedge the related
variable rate exposure. Thus, assuming a 100 basis point increase in the
variable interest rate to the Partnership during fiscal 2002, the interest rate
risk related to the variable rate debt, the operating leases and the associated
interest rate cap agreements would be a decrease to earnings of $1,812,000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) Reports on Form 8-K
The Partnership furnished one Form 8-K during the quarter ended October 31,
2001.
Items
Date of Report Reported Financial Statements Filed
September 13, 2001 9 None
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, 2001 By /s/ Kevin T. Kelly
-----------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS PARTNERS FINANCE CORP.
Date: December 13, 2001 By /s/ Kevin T. Kelly
-----------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)