Consolidated Balance Sheets
As of January 31, 2003 and July 31, 2002
Ferrellgas, Inc.
(a wholly-owned subsidiary of Ferrell Companies, Inc.)
January 31, July 31,
ASSETS 2003 2002
- ------------------------------------------------- ------------- ------------
Current Assets:
Cash and cash equivalents $ 27,344 $ 20,819
Accounts and notes receivable (net of
allowance for doubtful accounts of $2,295 and
$1,467 in January 31, 2003 and July 31, 2002,
respectively) 113,199 74,274
Inventories 71,739 48,034
Prepaid expenses and other current assets 8,372 10,771
------------- ------------
Total Current Assets 220,654 153,898
Property, plant and equipment, net 745,403 565,611
Goodwill 363,134 363,134
Intangible assets, net 103,130 98,170
Other assets, net 23,402 3,476
------------- ------------
Total Assets $1,455,723 $1,184,289
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
- -------------------------------------------------
Current Liabilities:
Accounts payable $ 100,408 $ 54,316
Other current liabilities 89,331 89,005
------------- ------------
Total Current Liabilities 189,739 143,321
Long-term debt 902,235 703,858
Deferred income taxes 2,337 2,351
Other liabilities 17,718 14,861
Contingencies and commitments (Note G) - -
Minority interest 192,381 180,620
Parent investment in subsidiary 221,927 210,817
Stockholder's Equity (Deficiency):
Common stock, $1 par value;
10,000 shares authorized; 990 shares issued 1 1
Additional paid-in-capital 13,682 13,622
Note receivable from parent (146,911) (147,484)
Retained earnings 64,543 65,094
Accumulated other comprehensive loss (1,929) (2,772)
------------- ------------
Total Stockholder's Equity (Deficiency) (70,614) (71,539)
------------- ------------
Total Liabilities and Stockholder's
Equity (Deficiency) $1,455,723 $1,184,289
============= ============
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FERRELLGAS, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Ferrell Companies, Inc.)
NOTES TO CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
A. Organization
The accompanying consolidated balance sheets and related notes present the
consolidated financial position of Ferrellgas, Inc. (the "Company"), its
subsidiaries and its general partnership interests in Ferrellgas Partners,
L.P and Ferrellgas, L.P. The Company is a wholly-owned subsidiary of
Ferrell Companies, Inc. ("Ferrell" or "Parent").
The consolidated balance sheets of the Company and its 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 balance sheets were of a normal, recurring nature. The
information included in this Quarterly Report should be read in conjunction
with the consolidated balance sheets and accompanying notes included in the
Company's consolidated balance sheets of July 31, 2002 and 2001.
B. Accounting estimates
The preparation of balance sheets in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the balance sheets. Actual results could differ
from these estimates. Significant estimates impacting the consolidated
balance sheets include accruals that have been established for product
liability and other claims.
C. Supplemental Balance Sheet Information:
Inventories consist of:
January 31, July 31,
2003 2002
----------- -----------
Propane gas and related products $54,311 $29,169
Appliances, parts and supplies 17,428 18,865
----------- -----------
$71,739 $48,034
=========== ===========
In addition to inventories on hand, the Company enters into contracts to
buy and sell product, primarily propane for supply procurement purposes.
Nearly all of these contracts have terms of less than one year and most
call for payment based on market prices at the date of delivery. All fixed
price contracts have terms of less than one year. As of January 31, 2003,
the Company had committed, for supply procurement purposes, to make net
delivery of approximately 5.7 million gallons of propane at a fixed price.
2
Property, plant and equipment, net consist of:
January 31, July 31,
2003 2002
----------- -----------
Property, plant and equipment $1,073,110 $883,906
Less: accumulated depreciation 327,707 318,295
----------- -----------
$ 745,403 $565,611
=========== ===========
On December 10, 2002, the Company purchased propane tanks and related
assets for $155.6 million that were previously leased. See Note D for a
discussion regarding the funding of this purchase.
Intangible assets, net consist of:
January 31, 2003 July 31, 2002
------------------------------------------- ------------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------------ ---------------- ------------ ------------ ---------------- ------------
Customer lists $217,465 $(129,112) $88,353 $208,662 $(124,860) $83,802
Non-compete agreements 65,354 (50,577) 14,777 62,893 (48,525) 14,368
------------ ---------------- ------------ ------------ ---------------- ------------
Total $282,819 $(179,689) $103,130 $271,555 $(173,385) $98,170
============ ================ ============ ============ ================ ============
Other assets, net consist of:
January 31, July 31,
2003 2002
--------------- --------------
Debt issue costs $ 7,722 $2,399
Retained interest in accounts
receivable securitization 14,291 -
Other 1,389 1,077
-------------- ---------------
$23,402 $3,476
============== ===============
On September 24, 2002, Ferrellgas Partners issued $170.0 million of 8.75%
senior notes due 2012, the proceeds of which were used to repurchase and
redeem its $160.0 million of 9.375% senior secured notes due 2006. Debt
issue costs of $4.8 million, of which $4.3 million is classified as other
assets, related to the $170.0 million senior note issuance, were
capitalized and will be amortized to interest expense through fiscal 2012.
On December 10, 2002, Ferrellgas, L.P. refinanced its $157.0 million bank
credit facility with an amended $307.5 million bank credit facility, which
will terminate on April 28, 2006, unless extended or renewed. Debt issue
costs of $1.9 million, of which $1.3 million is classified as other assets,
related to this refinancing, were capitalized and will be amortized to
interest expense through 2006.
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D. Long-Term Debt
Long-term debt consists of:
January 31, July 31,
2003 2002
--------------- --------------
Senior notes
Fixed rate, 7.16%, due 2005-2013 $350,000 $350,000
Fixed rate, 8.75%, due 2012 219,658 -
Fixed rate, 9.375%, due 2006 - 160,000
Fixed rate, 8.8%, due 2006-2009 184,000 184,000
Credit agreement, variable interest rates, due 2006 140,000 -
Notes payable, 7.4% and 7.6% weighted average interest rates,
respectively, due 2003 to 2011 11,057 12,177
---------------- ---------------
904,715 706,177
Less: current portion, included in other current liabilities on
the consolidated balance sheets 2,480 2,319
---------------- ---------------
$902,235 $703,858
================ ===============
On September 24, 2002, Ferrellgas Partners issued $170.0 million of 8.75%
senior notes due 2012, the proceeds of which were used to repurchase and
redeem its $160.0 million of 9.375% senior secured notes due 2006.
On December 18, 2002, Ferrellgas Partners issued $48.0 million of 8.75%
senior notes due 2012, the proceeds of which were used to reduce borrowings
under the bank credit facility to provide increased availability of funds
for working capital, acquisition, capital expenditure and general corporate
purposes. The $48.0 million senior notes were issued with a debt premium of
$1.7 million that will be amortized to interest expense through 2012.
Interest on the 8.75% senior notes due 2012 is payable semi-annually in
arrears on June 15 and December 15. Interest on the $170.0 million 8.75%
senior notes commenced on December 15, 2002 and interest on the $48.0
million 8.75% senior notes will commence on June 15, 2003. These notes are
unsecured and are not redeemable before June 15, 2007, except in specific
circumstances.
On December 10, 2002, Ferrellgas, L.P. refinanced its $157.0 million bank
credit facility with a $307.5 million amended bank credit facility, using
$155.6 million of the funds available to purchase propane tanks and related
assets that were previously leased, plus a $1.2 million payment of related
accrued lease expense. The remaining portion of the amended bank credit
facility is available for working capital, acquisition, capital expenditure
and general partnership purposes and will terminate on April 28, 2006,
unless extended or renewed. As of January 31, 2003, Ferrellgas, L.P. had
borrowings of $140.0 million, at a weighted average interest rate of 3.64%,
under this amended bank credit facility.
All borrowings under the amended bank credit facility bear interest, at
Ferrellgas, L.P.'s option, at a rate equal to either:
4
o the base rate, which is defined as the higher of the federal funds rate
plus 0.50% or Bank of America's prime rate (as of January 31, 2003, the
federal funds rate and Bank of America's prime rate were 1.33% and 4.25%,
respectively); or
o the Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of
January 31, 2003, the one-month Eurodollar Rate was 1.26%).
The scheduled annual principal payments on long-term debt as of January 31,
2003, are as follows:
Scheduled annual
annual principle
Fiscal year ending July 31, payments
--------------------
Payments remaining in 2003 $ 760
2004 2,134
2005 2,299
2006 251,313
2007 59,039
Thereafter 587,512
E. Asset Retirement Obligations
Statement of Financial Accounting Standard (SFAS) No. 143 provides
accounting requirements for retirement obligations associated with tangible
long-lived assets, including the requirement that a liability be recognized
if there is a legal or financial obligation associated with the retirement
of the assets. The Company adopted SFAS No. 143 beginning in the year
ending July 31, 2003. This cumulative effect of a change in accounting
principle resulted in the recognition of a $3.1 million long-term liability
and a $0.3 million long-term asset. The Company believes the implementation
will not have a material ongoing effect on its financial position. These
obligations relate primarily to the estimated future expenditures required
to retire the Company's underground storage facilities. The remaining
period until these facilities will likely require closure and remediation
expenditures is approximately 50 years. The following table presents a
reconciliation of the beginning and ending carrying amounts of the asset
retirement obligation:
Six months
ended
January 31,
2003
---------------
Asset retirement obligation as of August 1, 2002 $3,073
Add: Accretion 99
---------------
Asset retirement obligation as of January 31, 2003 $3,172
===============
The related asset carried for the purpose of settling the asset retirement
obligation is $0.3 million as of January 31, 2003, and is not a legally
restricted asset. Other liabilities, assuming retroactive application of
the change in accounting principle as of August 1, 2001 and July 31, 2002,
would have increased $2.9 million and $3.1 million, respectively.
F. Guarantees
FASB Financial Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," expands the existing disclosure requirements for
guarantees and requires recognition of a liability for the fair value of
guarantees issued after December 31, 2002. As of January 31, 2003, the only
material guarantees that the Company had outstanding were associated with
residual value guarantees of operating leases. These operating leases are
related to transportation equipment with remaining lease periods scheduled
to expire over the next seven fiscal years. Upon completion of the lease
period, the Company guarantees that the fair value of the equipment will
equal or exceed the guaranteed amount, or the Company will pay the lessor
the difference. The fair value of these residual value guarantees entered
into after December 31, 2002 was $29.5 thousand as of January 31, 2003.
Although the fair values at the end of the lease terms have historically
exceeded these guaranteed amounts, the maximum potential amount of
aggregate future payments the Company could be required to make under these
leasing arrangements, assuming the equipment is worthless at the end of the
lease term, is $16.6 million.
5
G. Contingencies
The Company is threatened with or named as a defendant in various lawsuits
that, among other items, claim damages for product liability. It is not
possible to determine the ultimate disposition of these matters; however,
management is of the opinion that there are no known claims or contingent
claims that would reasonably be expected to have a material adverse effect
on the financial condition of the Company. Currently, the Company is not a
party to any legal proceedings other than various claims and lawsuits
arising in the ordinary course of business.
H. Business Combinations
During the six months ended January 31, 2003, the Company acquired the
following retail propane businesses with an aggregate value at $43.6
million:
o ProAm, Inc., based primarily in Georgia and Texas, acquired December,
2002;
o a branch of Cenex Propane Partners Co., based in Iowa, acquired
November, 2002; and
o Northstar Propane, based in Nevada, acquired November, 2002.
These purchases were primarily funded by $34.1 million of cash payments and
the issuance of a $10.0 million non-interest bearing note due in December
2003.
The aggregate value of $43.6 million of these three retail propane
businesses was preliminarily allocated as follows: $25.9 million for fixed
assets such as customer tanks, buildings and land, $9.4 million for
customer lists, $2.5 million for non-compete agreements and $5.8 million
for net working capital. Net working capital was comprised of $7.8 million
of current assets and $2.0 million of current liabilities. The estimated
fair values and useful lives of assets acquired are based on a preliminary
valuation and are subject to final valuation adjustments. The Company
intends to continue its analysis of the net assets of these acquired
businesses to determine the final allocation of the total purchase price to
the various assets acquired. The weighted average amortization period for
non-compete agreements and customer lists are five and 15 years,
respectively.
I. Adoption of New Accounting Standards
The Financial Accounting Standards Board recently issued SFAS No. 143
"Accounting for Asset Retirement Obligations", SFAS No. 144 "Accounting for
the Impairment or Disposal of Long-lived Assets", SFAS No. 145 "Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections," SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities," SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure," FASB Financial Interpretation
No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" and FASB Financial
Interpretation No. 46 "Consolidation of Variable Interest Entities."
SFAS No. 143 requires the recognition of a liability if a company has a
legal or contractual financial obligation in connection with the retirement
of a tangible long-lived asset. The Company implemented SFAS No. 143
beginning in the year ending July 31, 2003. This cumulative effect of a
change in accounting principle resulted in the recognition of a $3.1
million long-term liability and a $0.3 million long-term asset. See Note E
for further discussion of these obligations. The Company believes this
implementation will not have a material ongoing effect on its financial
position.
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 Company
implemented SFAS No. 144 beginning in the year ending July 31, 2003, with
no material effect on its financial position.
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SFAS No. 145 eliminates the requirement that material gains and losses
resulting from the early extinguishment of debt be classified as an
extraordinary item in the consolidated statements of earnings. Instead,
companies must evaluate whether the transaction meets both the criteria of
being unusual in nature and infrequent in occurrence. Other aspects of SFAS
No. 145 relating to accounting for intangible assets of motor carriers and
accounting for certain lease modifications do not currently apply to the
Company. The Company implemented SFAS No. 145 beginning in the year ending
July 31, 2003.
SFAS No. 146 modifies the financial accounting and reporting for costs
associated with exit or disposal activities. This statement requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Additionally, the statement
requires the liability to be recognized and measured initially at fair
value. Under previous rules, liabilities for exit costs were recognized at
the date of the entity's commitment to an exit plan. The Company has
adopted and implemented SFAS No. 146 for all exit or disposal activities
initiated after July 31, 2002. Ferrellgas believes the implementation will
not have a material effect on its financial position.
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation"
to provide alternative methods of transition for a voluntary change to the
fair-value based method of accounting for stock-based employee
compensation. This statement also amends SFAS 123 disclosure requirements
for annual and interim financial statements to provide more prominent
disclosures about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
statement is effective for the fiscal year ending July 31, 2003, with
earlier application permitted. However, the interim disclosure requirements
will be effective for the three months ending April 30, 2003. Ferrellgas is
currently studying SFAS 148 and the related implications of SFAS 123.
FASB Financial Interpretation No. 45 expands the existing disclosure
requirements for guarantees and requires that companies recognize a
liability for guarantees issued after December 31, 2002. Ferrellgas
implemented this interpretation beginning in the three months ended January
31, 2003. The implementation resulted in the recognition of a liability of
$29.8 thousand, and a related prepaid asset of $29.8 thousand, both of
which will be amortized over the life of the guarantees. See Note F for
further discussion about these guarantees.
FASB Financial Interpretation No. 46 clarified Accounting Research Bulletin
No. 51, "Consolidated Financial Statements." If certain conditions are met,
this interpretation requires the primary beneficiary to consolidate certain
variable interest entities in which equity investors lack the
characteristics of a controlling financial interest or do not have
sufficient equity investment at risk to permit the variable interest entity
to finance its activities without additional subordinated financial support
from other parties. This interpretation is effective immediately for
variable interest entities created or obtained after January 31, 2003. For
variable interest entities acquired before February 1, 2003, the
interpretation is effective for the first fiscal year or interim period
beginning after June 15, 2003. Ferrellgas currently does not have any
variable interest entities that would be subject to this interpretation.