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 January 31, 2004
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________ to __________
Commission file numbers: 001-11331
333-06693
000-50182 and
000-50183
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
Ferrellgas, L.P.
Ferrellgas Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1698480
Delaware 43-1742520
Delaware 43-1698481
Delaware 14-1866671
---------------- ------------------
(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification Nos.)
One Liberty Plaza, Liberty, Missouri 64068
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (816) 792-1600
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act).
Ferrellgas Partners, L.P. Yes [ X ] No [ ]
Ferrellgas Partners Finance Corp.,
Ferrellgas, L.P. and Ferrellgas Finance Corp. Yes [ ] No [ X ]
At February 27, 2004, the registrants had common units or shares outstanding as
follows:
Ferrellgas Partners, L.P. 39,736,833 Common Units
Ferrellgas Partners Finance Corp. 1,000 Common Stock
Ferrellgas, L.P. n/a n/a
Ferrellgas Finance Corp. 1,000 Common Stock
EACH OF FERRELLGAS PARTNERS FINANCE CORP. AND FERRELLGAS FINANCE CORP. MEET THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1) OF FORM 10-Q AND ARE
THEREFORE, WITH RESPECT TO EACH SUCH REGISTRANT, FILING THIS FORM 10-Q WITH THE
REDUCED DISCLOSURE FORMAT.
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.
Table of Contents
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Ferrellgas Partners, L.P. and Subsidiaries
------------------------------------------
Condensed Consolidated Balance Sheets -
January 31, 2004 and July 31, 2003 1
Condensed Consolidated Statements of Earnings -
Three and six months ended January 31, 2004 and 2003 2
Condensed Consolidated Statement of Partners' Capital -
Six months ended January 31, 2004 3
Condensed Consolidated Statements of Cash Flows -
Six months ended January 31, 2004 and 2003 4
Notes to Condensed Consolidated Financial Statements 5
Ferrellgas Partners Finance Corp.
---------------------------------
Condensed Balance Sheets - January 31, 2004
and July 31, 2003 14
Condensed Statements of Earnings -
Three and six months ended January 31, 2004 and 2003 14
Condensed Statements of Cash Flows -
Six months ended January 31, 2004 and 2003 15
Note to Condensed Financial Statements 15
Ferrellgas, L.P. and Subsidiaries
---------------------------------
Condensed Consolidated Balance Sheets -
January 31, 2004 and July 31, 2003 16
Condensed Consolidated Statements of Earnings -
Three and six months ended January 31, 2004 and 2003 17
Condensed Consolidated Statement of Partners' Capital -
Six months ended January 31, 2004 18
Condensed Consolidated Statements of Cash Flows -
Six months ended January 31, 2004 and 2003 19
Notes to Condensed Consolidated Financial Statements 20
Ferrellgas Finance Corp.
------------------------
Condensed Balance Sheets - January 31, 2004
and July 31, 2003 26
Condensed Statements of Earnings -
Three and six months ended January 31, 2004 and
from inception to January 31, 2003 26
Condensed Statements of Cash Flows -
Six months ended January 31, 2004 and from inception
to January 31, 2003 27
Note to Condensed Financial Statements 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 39
ITEM 4. CONTROLS AND PROCEDURES 40
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 40
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 40
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 40
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 40
ITEM 5. OTHER INFORMATION 40
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 41
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
(unaudited)
January 31, July 31,
ASSETS 2004 2003
- -------------------------------------------------------------------------------- --------------- --------------
Current assets:
Cash and cash equivalents $ 23,072 $ 11,154
Accounts and notes receivable, net 157,581 56,742
Inventories 83,976 69,077
Prepaid expenses and other current assets 8,819 8,306
--------------- --------------
Total current assets 273,448 145,279
Property, plant and equipment, net 698,457 684,917
Goodwill 124,190 124,190
Intangible assets, net 110,067 98,157
Other assets 8,609 8,853
--------------- --------------
Total assets $1,214,771 $ 1,061,396
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 116,813 $ 59,454
Other current liabilities 71,185 89,687
Short-term borrowings 42,700 -
--------------- ---------------
Total current liabilities 230,698 149,141
Long-term debt 900,396 888,226
Other liabilities 19,728 18,747
Contingencies and commitments (Note I) - -
Minority interest 2,853 2,363
Partners' capital:
Senior unitholder (1,994,146 units outstanding at both January 31, 2004 and
July 31, 2003 - liquidation preference $79,766 at both January 31, 2004 and
July 31, 2003) 79,766 79,766
Common unitholders (39,727,834 and 37,673,455 units outstanding
at January 31, 2004 and July 31, 2003, respectively) 41,879 (15,602)
General partner unitholder (421,434 and 400,683 units outstanding
at January 31, 2004 and July 31, 2003, respectively) (58,736) (59,277)
Accumulated other comprehensive loss (1,813) (1,968)
--------------- ---------------
Total partners' capital 61,096 2,919
--------------- ---------------
Total liabilities and partners' capital $1,214,771 $ 1,061,396
=============== ===============
See notes to these condensed consolidated financial statements.
1
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per unit data)
(unaudited)
For the three months ended For the six months ended
---------------------------- --------------------------
January 31, January 31, January 31, January 31,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues:
Propane and other gas liquids sales $ 457,433 $ 439,301 $ 689,487 $ 634,201
Other 24,348 25,165 47,708 46,579
----------- ----------- ----------- -----------
Total revenues 481,781 464,466 737,195 680,780
Cost of product sold (exclusive of
depreciation, shown with amortization below) 286,899 254,718 446,148 378,390
----------- ----------- ----------- -----------
Gross profit 194,882 209,748 291,047 302,390
Operating expense 79,804 79,677 152,283 148,105
Depreciation and amortization expense 12,665 10,261 23,860 20,156
General and administrative expense 8,982 7,759 15,873 14,661
Equipment lease expense 4,732 5,528 9,243 11,520
Employee stock ownership plan compensation charge 2,164 1,639 3,948 3,034
Loss on disposal of assets and other 1,926 1,125 3,552 1,796
----------- ----------- ----------- -----------
Operating income 84,609 103,759 82,288 103,118
Interest expense (17,291) (16,084) (34,085) (30,780)
Interest income 470 364 801 426
Early extinguishment of debt expense - - - (7,052)
----------- ----------- ----------- -----------
Earnings before minority interest and cumulative
effect of change in accounting principle 67,788 88,039 49,004 65,712
Minority interest 733 937 595 822
----------- ----------- ----------- -----------
Earnings before cumulative effect of change in
accounting principle 67,055 87,102 48,409 64,890
Cumulative effect of change in accounting principle,
net of minority interest of $28 - - - (2,754)
----------- ----------- ----------- -----------
Net earnings 67,055 87,102 48,409 62,136
Distribution to senior unitholder 1,994 2,743 3,988 5,525
Net earnings available to general partner unitholder 650 843 444 566
----------- ----------- ----------- -----------
Net earnings available to common unitholders $ 64,411 $ 83,516 $ 43,977 $ 56,045
=========== =========== =========== ===========
Basic earnings per common unit:
Earnings available to common unitholders before
cumulative effect of change in accounting principle $ 1.65 $ 2.31 $ 1.15 $ 1.62
Cumulative effect of change in accounting principle - - - (0.07)
----------- ----------- ----------- -----------
Net earnings available to common unitholders $ 1.65 $ 2.31 $ 1.15 $ 1.55
=========== =========== =========== ===========
Diluted earnings per common unit:
Earnings available to common unitholders before
cumulative effect of change in accounting principle $ 1.64 $ 2.30 $ 1.14 $ 1.62
Cumulative effect of change in accounting principle - - - (0.07)
----------- ----------- ----------- -----------
Net earnings available to common unitholders $ 1.64 $ 2.30 $ 1.14 $ 1.55
=========== =========== =========== ===========
See notes to these condensed consolidated financial statements.
2
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Accumulated other
Number of units comprehensive loss
--------------------------------- --------------------
General General Total
Senior Common partner Senior Common partner Risk Pension partners'
unitholder unitholders unitholder unitholder unitholders unitholder management liability capital
---------- ----------- ---------- ---------- ----------- ---------- ---------- --------- ---------
August 1, 2003 1,994.1 37,673.5 400.7 $ 79,766 $(15,602) $(59,277) $ - $(1,968) $ 2,919
Contribution in connection with
ESOP compensation charge - - - - 3,869 39 - - 3,908
Common unit cash distribution - - - - (38,715) (391) - - (39,106)
Senior unit cash and accrued
distribution - - - - (3,948) (80) - - (4,028)
Common units issued in public
offering - 2,000.0 20.2 - 47,196 477 - - 47,673
Common units issued in connection
with acquistions - 30.4 0.3 - 695 7 - - 702
Common unit options exercised - 23.9 0.2 - 459 5 - - 464
Comprehensive income:
Net earnings - - - - 47,925 484 - - 48,409
Other comprehensive income:
Pension liability adjustment - - - - - - - 174 174
Net loss on risk management
derivatives - - - - - - (69) - (69)
Reclassification of net gains
on derivatives - - - - - - 50 - 50
---------
Comprehensive income 48,564
---------- ----------- ---------- ---------- ----------- ---------- ---------- --------- ---------
January 31, 2004 1,994.1 39,727.8 421.4 $ 79,766 $ 41,879 $(58,736) $(19) $(1,794) $61,096
========== =========== ========== ========== =========== ========== ========== ========= =========
See notes to these condensed consolidated financial statements.
3
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the six months ended
------------------------------
January 31, January 31,
2004 2003
------------- -------------
Cash flows from operating activities:
Net earnings $ 48,409 $ 62,136
Reconciliation of net earnings to net cash provided
by operating activities:
Cumulative effect of change in accounting principle - 2,754
Early extinguishment of debt expense - 1,854
Depreciation and amortization expense 23,860 20,156
Employee stock ownership plan compensation charge 3,948 3,034
Loss on disposal of assets 2,824 786
Minority interest 595 822
Other 3,169 4,182
Changes in operating assets and liabilities, net of
effects from business acquisitions:
Accounts and notes receivable, net (128,001) (111,337)
Inventories (14,899) (20,391)
Prepaid expenses and other current assets (538) 1,285
Accounts payable 57,275 46,012
Other current liabilities (10,140) (6,940)
Other liabilities 882 (315)
Accounts receivable securitization:
Proceeds from new accounts receivable securitizations 30,000 60,000
Proceeds from collections reinvested in revolving
period accounts receivable securitizations 419,466 303,837
Remittances of amounts collected as servicer of
accounts receivable securitizations (423,466) (303,837)
------------- -------------
Net cash provided by operating activities 13,384 64,038
------------- -------------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (38,142) (34,120)
Capital expenditures - tank lease buyout - (155,600)
Capital expenditures - technology initiative (3,612) (10,993)
Capital expenditures - other (12,581) (7,509)
Other 1,774 1,516
------------- -------------
Net cash used in investing activities (52,561) (206,706)
------------- -------------
Cash flows from financing activities:
Distributions (43,134) (42,129)
Issuance of common units, net of issuance costs of $48 47,348 -
Net additions to short-term borrowings 42,700 -
Proceeds from issuance of debt 13,300 359,715
Principal payments on debt (9,877) (161,559)
Cash paid for financing costs - (7,001)
Proceeds from exercise of common unit options 459 1,576
Cash contribution from general partner 488 603
Redemption of senior units - (1,567)
Minority interest activity (145) (506)
Other (44) -
------------- -------------
Net cash provided by financing activities 51,095 149,132
------------- --------------
Increase in cash and cash equivalents $ 11,918 $ 6,464
Cash and cash equivalents - beginning of period 11,154 19,781
------------- --------------
Cash and cash equivalents - end of period $ 23,072 $ 26,245
============= ==============
Cash paid for interest $ 32,899 $ 28,551
============= ==============
See notes to these condensed consolidated financial statements.
4
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2004
(Dollars in thousands, except per unit data, unless otherwise designated)
(unaudited)
A. Organization
Ferrellgas Partners, L.P. ("Ferrellgas Partners") is a publicly traded
limited partnership, owning a 99% limited partner interest in Ferrellgas,
L.P. (the "Operating Partnership"). Ferrellgas Partners and the Operating
Partnership are collectively referred to as "Ferrellgas." Ferrellgas, Inc.
(the "General Partner"), a wholly-owned subsidiary of Ferrell Companies,
Inc. ("Ferrell Companies"), has retained a 1% general partner interest in
Ferrellgas Partners and also holds a 1.0101% general partner interest in
the Operating Partnership, representing an effective 2% general partner
interest in Ferrellgas on a combined basis. As General Partner, it performs
all management functions required by Ferrellgas.
The condensed consolidated financial statements of Ferrellgas reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the interim periods presented. All adjustments to the
condensed consolidated financial statements were of a normal, recurring
nature. The information included in this Quarterly Report on Form 10-Q
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations, and the consolidated
financial statements and accompanying notes included in Ferrellgas' Annual
Report on Form 10-K for the fiscal year ended July 31, 2003.
B. Unit and stock-based compensation
Ferrellgas accounts for the Ferrellgas Unit Option Plan (the "Unit Option
Plan") and the Ferrell Companies, Inc. Incentive Compensation Plan (the
"ICP") using the intrinsic value method under the provisions of Accounting
Principles Board ("APB") No. 25, "Accounting for Stock Issued to
Employees," for all periods presented and makes the fair value method pro
forma disclosures required under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." Accordingly, no compensation
cost has been recognized for the Unit Option Plan or for the ICP in the
condensed consolidated statements of earnings. Had compensation cost for
these plans been determined based upon the fair value at the grant date for
awards under these plans, consistent with the methodology recommended under
SFAS No. 123, Ferrellgas' net earnings and earnings per unit would have
been adjusted as noted in the table below:
5
For the three months ended For the six months ended
January 31, January 31,
--------------------------- ------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net earnings available to common
unitholders, as reported $64,411 $83,516 $43,977 $56,045
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards 240 207 475 413
---------- ---------- ---------- ----------
Pro forma net earnings available to
common unitholders $64,171 $83,309 $43,502 $55,632
========== ========== ========== ==========
Earnings per common unit:
Basic earnings available to common
unitholders before cumulative
effect of change in accounting
principle, as reported $1.65 $2.31 $1.15 $1.62
Basic earnings available to common
unitholders, as reported 1.65 2.31 1.15 1.55
-----------------------------------------------------------------------------------------------------
Basic earnings available to common
unitholders before cumulative
effect of change in accounting
principle, pro forma 1.64 2.30 1.13 1.61
Basic earnings available to common
unitholders, pro forma 1.64 2.30 1.13 1.54
-----------------------------------------------------------------------------------------------------
Diluted earnings available to common
unitholders before cumulative effect
of change in accounting principle,
as reported 1.64 2.30 1.14 1.62
Diluted earnings available to
common unitholders, as reported 1.64 2.30 1.14 1.55
-----------------------------------------------------------------------------------------------------
Diluted earnings available to common
unitholders before cumulative
effect of change in accounting
principle, pro forma 1.64 2.30 1.13 1.61
Diluted earnings available to
common unitholders, pro forma 1.64 2.30 1.13 1.54
----------------------------------------------------------------------------------------------------
6
C. Accounting estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP")
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from these estimates. Significant estimates
impacting the condensed consolidated financial statements include accruals
that have been established for contingent liabilities, pending claims and
legal actions arising in the normal course of business, useful lives of
property, plant and equipment assets, residual values of tanks,
amortization methods of intangible assets and valuation methods of
intangible assets and derivative commodity contracts.
D. Reclassifications
Certain reclassifications have been made to the six months ended January
31, 2003 condensed consolidated statement of cash flows to conform to the
six months ended January 31, 2004 condensed consolidated statement of cash
flows presentation. "Loss on disposal of assets" is disclosed separately in
net cash provided by operating activities on the condensed consolidated
statements of cash flows. This amount was previously classified as "Other"
in net cash provided by operating activities in the six months ended
January 31, 2003.
E. Nature of operations
Ferrellgas Partners is a holding entity that conducts no operations and has
two subsidiaries, Ferrellgas Partners Finance Corp. and the Operating
Partnership. Ferrellgas Partners owns a 100% equity interest in Ferrellgas
Partners Finance Corp. No operations are conducted by or through Ferrellgas
Partners Finance Corp., whose only purpose is to act as the co-issuer and
co-obligor of any debt issued by Ferrellgas Partners. The Operating
Partnership is the only operating subsidiary of Ferrellgas Partners.
The Operating Partnership is engaged primarily in the retail distribution
of propane and related equipment and supplies in the United States. The
retail market is seasonal because propane is used primarily for heating in
residential and commercial buildings. Therefore, the results of operations
for the six months ended January 31, 2004 and 2003 are not necessarily
indicative of the results to be expected for a full fiscal year. The
Operating Partnership serves more than one million residential,
industrial/commercial, agricultural and other customers.
F. Cash and cash equivalents and non-cash activities
For purposes of the condensed consolidated statements of cash flows,
Ferrellgas considers cash equivalents to include all highly liquid debt
instruments purchased with an original maturity of three months or less.
Significant non-cash investing and financing activities are primarily
related to the accounts receivable securitization and transactions with
related parties and are disclosed in Note G - Accounts receivable
securitization and Note N - Transactions with related parties,
respectively.
G. Accounts receivable securitization
During the six months ended January 31, 2004, $26.0 million had been funded
from the Operating Partnership's accounts receivable securitization
facility. Ferrellgas renewed this facility effective September 23, 2003,
for a 364-day commitment with Banc One, NA. At January 31, 2004, Ferrellgas
did not have any remaining capacity to transfer additional trade accounts
receivable. In accordance with SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," this
transaction is reflected in the condensed consolidated financial statements
as a sale of accounts receivable and a retained interest in transferred
accounts receivable. The retained interest is classified on the condensed
consolidated balance sheets within "Accounts and notes receivable, net."
7
H. Supplemental financial statement information
Inventories consist of:
January 31, July 31,
2004 2003
--------------- --------------
Propane gas and related products $65,461 $49,772
Appliances, parts and supplies 18,515 19,305
--------------- --------------
$83,976 $69,077
=============== ==============
In addition to inventories on hand, Ferrellgas enters into contracts to buy
and sell product, primarily propane for supply procurement purposes. Nearly
all of these contracts have terms of less than one year and most call for
payment based on market prices at the date of delivery. All fixed price
contracts have terms of less than one year. As of January 31, 2004,
Ferrellgas had committed, for supply procurement purposes, to make net
delivery of approximately 4.1 million gallons of propane at a fixed price.
Property, plant and equipment, net consist of:
January 31, July 31,
2004 2003
--------------- --------------
Property, plant and equipment $1,025,539 $1,002,199
Less: accumulated depreciation 327,082 317,282
--------------- --------------
$ 698,457 $ 684,917
=============== ==============
During the six months ended January 31, 2004, Ferrellgas placed in service
$46.4 million of computer software, which will be depreciated using the
straight-line method over its estimated useful life of 5 years.
Intangible assets, net consist of:
January 31, 2004 July 31, 2003
------------------------------------------ ------------------------------------------
Gross Gross
carrying Accumulated carrying Accumulated
amount amortization Net amount amortization Net
---------- ---------------- ------------- ---------- ---------------- -------------
Customer lists $230,203 $(134,337) $ 95,866 $220,061 $(133,548) $86,513
Non-compete agreements 68,228 (54,027) 14,201 64,020 (52,376) 11,644
---------- ---------------- ------------- ---------- ---------------- -------------
$298,431 $(188,364) $110,067 $284,081 $(185,924) $98,157
========== ================ ============= ========== ================ =============
For the three months For the six months
ended January 31, ended January 31,
------------------------ ----------------------
2004 2003 2004 2003
---------- ---------- -------- --------
Aggregate amortization expense $2,876 $3,199 $6,043 $6,304
Estimated amortization expense:
For the years ended July 31,
2004 $ 11,991
2005 11,349
2006 10,823
2007 10,091
2008 9,158
8
Loss on disposal of assets and other For the three months ended For the six months ended
consist of: January 31, January 31,
------------------------------ ----------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Loss on disposal of assets $1,503 $ 546 $2,824 $ 786
Loss on transfer of accounts receivable
related to the accounts receivable
securitization 931 910 1,547 1,374
Service income related to the accounts
receivable securitization (508) (331) (819) (364)
---------- ---------- ---------- ----------
$1,926 $1,125 $3,552 $1,796
========== ========== ========== ==========
Shipping and handling expenses are classified in the following condensed
consolidated statements of earnings line items:
For the three months ended For the six months ended
January 31, January 31,
------------------------------ ----------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Operating expense $39,856 $37,291 $70,356 $67,070
Depreciation and amortization expense 2,146 1,505 4,182 3,177
Equipment lease expense 2,820 3,037 5,624 5,932
---------- ---------- ---------- ----------
$44,822 $41,833 $80,162 $76,179
========== ========== ========== ==========
I. Contingencies
Ferrellgas' operations are subject to all operating hazards and risks
normally incidental to handling, storing, transporting and otherwise
providing for use by consumers of combustible liquids such as propane. As a
result, at any given time, Ferrellgas is threatened with or named as a
defendant in various lawsuits arising in the ordinary course of business.
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 will have a material adverse effect on the financial
condition, results of operations and cash flows of Ferrellgas. Currently,
Ferrellgas is not a party to any legal proceedings other than various
claims and lawsuits arising in the ordinary course of business.
J. Partners' capital
Ferrellgas Partners' partnership agreement generally provides that it use
the cash proceeds of any offering of common units to redeem a portion of
its outstanding senior units, otherwise a "Material Event" would be deemed
to have occurred and JEF Capital Management, Inc. ("JEF Capital
Management") as the holder of the senior units, would thereafter have
specified rights, such as the right to convert the senior units into common
units or the right to register the senior units. By letter agreement dated
November 20, 2003, JEF Capital Management agreed to waive the occurrence of
a "Material Event" if Ferrellgas Partners issues common units at any time
and from time to time on or prior to March 31, 2004, and does not use the
cash proceeds from such offering or offerings to redeem a portion of the
outstanding senior units. In consideration of the granting of the waiver,
Ferrellgas Partners agreed not to redeem any outstanding senior units prior
to March 31, 2004, and to reimburse JEF Capital Management for its
reasonable legal fees incurred in connection with the execution of the
waiver. On February 25, 2004, JEF Capital Management and Ferrellgas
Partners extended the letter agreement through December 31, 2004.
On December 1, 2003, Ferrellgas Partners received $47.4 million of cash
pursuant to the issuance of 2.0 million common units to the public. In
connection with this transaction, the General Partner contributed $0.5
million to maintain its 1% general partnership interest in Ferrellgas
Partners. Ferrellgas then used the net proceeds to reduce the borrowings
outstanding under its bank credit facility by approximately $38.3 million.
The remaining proceeds were used for general partnership purposes,
including the repayment of debt incurred to fund prior acquisitions.
9
K. Earnings per common unit
Below is a calculation of the basic and diluted earnings per common unit in
the condensed consolidated statements of earnings for the periods
indicated. For diluted earnings per common unit purposes, the senior units
were excluded as they are considered contingently issuable common units for
which all necessary conditions for their issuance have not been satisfied
as of the end of the reporting period. Distributions to the senior
unitholder decrease the net earnings available to common unitholders.
Three months ended Six months ended
------------------------------ ------------------------------
January 31 January 31 January 31 January 31
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net earnings available to common
unitholders before cumulative
effect of change in accounting
principle $64,411 $83,516 $43,977 $58,771
Cumulative effect of change in
accounting principle, net of
minority interest and general partner
interest of $56 - - - (2,726)
------------ ------------ ------------ ------------
Net earnings available to common
unitholders $64,411 $83,516 $43,977 $56,045
============ ============ ============ ============
-----------------------------------------------------------------------------------------------------------------
(in thousands)
Weighted average common units
outstanding 39,048.2 36,144.0 38,377.2 36,116.0
Dilutive securities 175.6 92.7 158.9 84.3
------------ ------------ ------------ ------------
Weighted average common units outstanding
plus dilutive securities 39,223.8 36,236.7 38,536.1 36,200.3
-----------------------------------------------------------------------------------------------------------------
Basic earnings per common unit:
-------------------------------
Net earnings available to common
unitholders before cumulative
effect of change in accounting
principle $1.65 $2.31 $1.15 $1.62
Cumulative effect of change in
accounting principle, net of
minority interest and general partner
interest of $56 - - - (0.07)
------------ ------------ ------------ ------------
Net earnings available to common
unitholders $1.65 $2.31 $1.15 $1.55
============ ============ ============ ============
-----------------------------------------------------------------------------------------------------------------
Diluted earnings per common unit:
--------------------------------
Net earnings available to common
unitholders before cumulative
effect of change in accounting
principle $1.64 $2.30 $1.14 $1.62
Cumulative effect of change in
accounting principle, net of
minority interest and general partner
interest of $56 - - - (0.07)
------------ ------------ ------------ ------------
Net earnings available to common
unitholders $1.64 $2.30 $1.14 $1.55
============ ============ ============ ============
10
L. Distributions
On September 12, 2003, and December 15, 2003, Ferrellgas paid cash
distributions of $1.00 and $0.50 per senior and common unit, respectively,
for the three months ended July 31, 2003 and October 31, 2003. On February
24, 2004, Ferrellgas declared cash distributions of $1.00 and $0.50 per
senior and common unit, respectively, for the three months ended January
31, 2004, that are expected to be paid on March 15, 2004.
M. Adoption of new accounting standards
The Financial Accounting Standards Board ("FASB") recently issued SFAS No.
150 "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity," FASB Financial Interpretation No. 46
"Consolidation of Variable Interest Entities" and Emerging Issues Task
Force ("EITF") 00-21 "Accounting for Revenue Arrangements with Multiple
Deliverables."
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. This statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective for the fiscal
year ending July 31, 2004. Ferrellgas has studied SFAS No. 150 and believes
it will not have a material effect on its financial position, results of
operations and cash flows.
FASB Financial Interpretation No. 46 ("FIN 46") clarifies Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." If certain
conditions are met, this interpretation requires the primary beneficiary to
consolidate certain variable interest entities in which equity investors
lack the characteristics of a controlling financial interest or do not have
sufficient equity investment at risk to permit the variable interest entity
to finance its activities without additional subordinated financial support
from other parties. In December 2003, the FASB issued a revision to FIN 46,
which addresses new effective dates and certain implementation issues. The
interpretation is generally effective for the periods ending after December
15, 2003. Among these issues is the addition of a scope exception for
certain entities that meet the definition of a business, provided certain
criteria are met. Ferrellgas currently believes it does not have any
variable interest entities that would be subject to this revised
interpretation.
EITF No. 00-21 addresses how to account for arrangements that may involve
multiple revenue-generating activities, such as the delivery or performance
of multiple products, services, and/or rights to use assets. In applying
this guidance, separate contracts with the same party, entered into at or
near the same time, will be presumed to be a bundled transaction, and the
consideration will be measured and allocated to the separate units based on
their relative fair values. This consensus guidance will be applicable to
agreements entered into in quarters beginning after June 15, 2003.
Ferrellgas adopted this new accounting pronouncement beginning August 1,
2003. The implementation of this pronouncement did not have a material
impact on Ferrellgas' financial position, results of operations and cash
flows, because it does not enter into a significant number of arrangements
that may involve multiple revenue-generating activities.
N. Transactions with related parties
Ferrellgas has no employees and is managed and controlled by its General
Partner. Pursuant to Ferrellgas' partnership agreements, the General
Partner is entitled to reimbursement for all direct and indirect expenses
incurred or payments it makes on behalf of Ferrellgas, and all other
necessary or appropriate expenses allocable to Ferrellgas or otherwise
reasonably incurred by its General Partner in connection with operating
Ferrellgas' business. These costs, which include compensation and benefits
paid to employees of the General Partner who perform services on their
behalf, as well as related general and administrative costs, are as
follows:
11
For the three months For the six months
ended January 31, ended January 31,
------------------------ -----------------------
2004 2003 2004 2003
-------- -------- -------- --------
Reimbursable costs $55,237 $54,108 $104,044 $99,289
JEF Capital Management is beneficially owned by James E. Ferrell, the
Chairman, President and Chief Executive Officer of the General Partner, and
thus is an affiliate. Ferrellgas paid senior unit distributions of $4.0
million and $5.6 million to JEF Capital Management during the six months
ended January 31, 2004 and 2003, respectively. On January 31, 2004,
Ferrellgas accrued a senior unit distribution of $2.0 million that
Ferrellgas expects to pay to JEF Capital Management on March 15, 2003. See
Note J - Partners' capital - for disclosure of related party transactions
with the General Partner and JEF Capital Management related to the issuance
of common units on December 1, 2003.
Ferrell Companies is the sole shareholder of the General Partner and owns
17.8 million common units of Ferrellgas Partners. Ferrell Propane, Inc.
("Ferrell Propane") is wholly-owned by the General Partner. During the six
months ended January 31, 2004 and 2003, Ferrellgas Partners paid common
unit distributions of $17.8 million, $0.1 million and $0.4 million to
Ferrell Companies, Ferrell Propane and the General Partner, respectively.
On February 24, 2004, Ferrellgas declared distributions to Ferrell
Companies, Ferrell Propane and the General Partner of $8.9 million, $26
thousand and $0.2 million, respectively, that are expected to be paid on
March 15, 2004. See Note J - Partners' capital - for disclosure of related
party transactions with the General Partner and JEF Capital Management
related to the issuance of common units on December 1, 2003.
Ferrell International Limited is beneficially owned by James E. Ferrell and
thus is an affiliate. Ferrellgas enters into transactions with Ferrell
International Limited in connection with Ferrellgas' risk management
activities and does so at market prices in accordance with Ferrellgas'
affiliate trading policy approved by the General Partner's Board of
Directors. These transactions include forward, option and swap contracts
and are all reviewed for compliance with the policy. Ferrellgas also
provides limited accounting services for Ferrell International Limited.
Ferrellgas recognized the following net receipts (disbursements) from
purchases, sales and commodity derivative transactions and for providing
accounting services with Ferrell International Limited:
For the three months For the six months
ended January 31, ended January 31,
------------------------ -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net receipts(disbursements) $ - $ 65 $ - $(245)
Receipts from providing accounting services 10 10 20 20
These net purchases, sales and commodity derivative transactions with
Ferrell International Limited are classified as cost of product sold on the
condensed consolidated statements of earnings. There were no amounts due
from or due to Ferrell International Limited at January 31, 2004.
O. Subsequent event - announcement of anticipated contribution of membership
interests of Blue Rhino LLC
On February 9, 2004, Ferrellgas announced that a subsidiary of Ferrell
Companies, Inc., the parent of the General Partner, intends to contribute
to Ferrellgas Partners, and subsequently to the Operating Partnership, the
membership interests in Blue Rhino LLC and its payment and specified other
obligations under the agreement pursuant to which it acquired that entity.
Terms of the contribution agreement call for the assumption of the
subsidiary's obligation to pay $17 in cash for each share of Blue Rhino
Corporation stock outstanding on the date of the closing of the merger by
which the subsidiary will acquire Blue Rhino Corporation and subsequently
convert it into a limited liability corporation. The total obligation
assumed is anticipated to be approximately $340.0 million. Blue Rhino is
the nations' leading provider of branded propane tank exchange service and
complimentary products with 29,000 retail locations in 49 states and Puerto
Rico. The transaction is expected to close during the last half of fiscal
2004.
12
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED BALANCE SHEETS
(in dollars)
(unaudited)
January 31, July 31,
ASSETS 2004 2003
- -------------------------------------------------------------------- ----------------- ----------------
Cash $1,000 $1,000
----------------- ----------------
Total assets $1,000 $1,000
================= ================
STOCKHOLDER'S EQUITY
- --------------------------------------------------------------------
Common stock, $1.00 par value; 2,000 shares
authorized; 1,000 shares issued and outstanding $1,000 $1,000
Additional paid in capital 2,508 2,463
Accumulated deficit (2,508) (2,463)
----------------- ----------------
Total stockholder's equity $1,000 $1,000
================= ================
CONDENSED STATEMENTS OF EARNINGS
(unaudited)
Three months ended Six months ended
----------------------------------- -----------------------------------
January 31, January 31, January 31, January 31,
2004 2003 2004 2003
--------------- ---------------- --------------- ----------------
General and administrative expense $ - $ - $ (45) $ -
--------------- ---------------- --------------- ----------------
Net loss $ - $ - $ (45) $ -
=============== ================ =============== ================
See note to these condensed financial statements.
14
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED STATEMENTS OF CASH FLOWS
(in dollars)
(unaudited)
For the six months ended
--------------------------------------------
January 31, January 31,
2004 2003
------------------ -------------------
Cash flows from operating activities:
Net loss $ (45) $ -
------------------ -------------------
Cash used in operating activities (45) -
------------------ -------------------
Cash flows from financing activities:
Capital contribution 45 -
------------------ -------------------
Cash provided by financing activities
45 -
------------------ -------------------
Change in cash - -
Cash - beginning of period 1,000 1,000
------------------ -------------------
Cash - end of period $1,000 $1,000
================== ===================
See note to these condensed financial statements.
NOTE TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 2004
(unaudited)
A. Organization
Ferrellgas Partners Finance Corp., a Delaware corporation, was formed on
March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners,
L.P.
The condensed financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the interim
periods presented. All adjustments to the condensed financial statements
were of a normal, recurring nature.
15
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
January 31, July 31,
ASSETS 2004 2003
- -------------------------------------------------------------------------------- -------------- --------------
Current assets:
Cash and cash equivalents $ 20,896 $ 10,816
Accounts and notes receivable, net 157,581 56,742
Inventories 83,976 69,077
Prepaid expenses and other current assets 8,043 7,629
-------------- --------------
Total current assets 270,496 144,264
Property, plant and equipment, net 698,457 684,917
Goodwill 124,190 124,190
Intangible assets, net 110,067 98,157
Other assets 4,305 4,163
-------------- --------------
Total assets $1,207,515 $1,055,691
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
- -------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 116,536 $ 59,261
Other current liabilities 67,043 77,211
Short-term borrowings 42,700 -
-------------- --------------
Total current liabilities 226,279 136,472
Long-term debt 680,915 668,657
Other liabilities 19,728 18,747
Contingencies and commitments (Note I) - -
Partners' capital:
Limited partner 279,553 231,420
General partner 2,853 2,363
Accumulated other comprehensive loss (1,813) (1,968)
-------------- --------------
Total partners' capital 280,593 231,815
-------------- --------------
Total liabilities and partners' capital $1,207,515 $1,055,691
============== ==============
See notes to these condensed consolidated financial statements.
16
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands)
(unaudited)
For the three months ended For the six months ended
------------------------------ ------------------------------
January 31, January 31, January 31, Janaury 31,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Revenues:
Propane and other gas liquids sales $457,433 $439,301 $689,487 $634,201
Other 24,348 25,165 47,708 46,579
--------------- -------------- -------------- --------------
Total revenues 481,781 464,466 737,195 680,780
Cost of product sold (exclusive of
depreciation, shown with amortization below) 286,899 254,718 446,148 378,390
--------------- -------------- -------------- --------------
Gross profit 194,882 209,748 291,047 302,390
Operating expense 79,739 79,406 152,151 147,834
Depreciation and amortization expense 12,665 10,261 23,860 20,156
General and administrative expense 8,982 7,759 15,873 14,661
Equipment lease expense 4,732 5,528 9,243 11,520
Employee stock ownership plan compensation charge 2,164 1,639 3,948 3,034
Loss on disposal of assets and other 1,926 1,125 3,552 1,796
--------------- -------------- -------------- --------------
Operating income 84,674 104,030 82,420 103,389
Interest expense (12,536) (11,687) (24,304) (22,442)
Interest income 470 360 801 418
--------------- -------------- -------------- --------------
Earnings before cumulative effect of change in
accounting principle 72,608 92,703 58,917 81,365
Cumulative effect of change in accounting principle - - - (2,782)
--------------- -------------- -------------- --------------
Net earnings $ 72,608 $ 92,703 $ 58,917 $ 78,583
=============== ============== ============== ==============
See notes to these condensed consolidated financial statements.
17
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Accumulated other
comprehensive loss
-----------------------
Total
Limited General Risk Pension partners'
partner partner management liability capital
----------- ----------- ------------ --------- -----------
August 1, 2003 $231,420 $2,363 $ - $(1,968) $231,815
Contribution in connection with
ESOP compensation charge 3,908 40 - - 3,948
Quarterly cash and accrued distributions (52,672) (538) - - (53,210)
Net assets contributed by Ferrellgas
Partners and general partner in
connection with acquistions 38,575 393 - - 38,968
Comprehensive income:
Net earnings 58,322 595 - - 58,917
Other comprehensive income:
Pension liability adjustment 174 174
Net losses on risk management
derivatives - - (69) - (69)
Reclassification of net gains on
derivatives - - 50 - 50
-----------
Comprehensive income 59,072
----------- ----------- ------------ --------- -----------
January 31, 2004 $279,553 $2,853 $(19) $(1,794) $280,593
============ =========== ============= ========== ===========
See notes to these condensed consolidated financial statements.
18
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the six months ended
--------------------------------
January 31, January 31,
2004 2003
--------------- ---------------
Cash flows from operating activities:
Net earnings $ 58,917 $ 78,583
Reconciliation of net earnings to net cash provided
by operating activities:
Cumulative effect of change in accounting principle - 2,782
Depreciation and amortization expense 23,860 20,156
Employee stock ownership plan compensation charge 3,948 3,034
Loss on disposal of assets 2,824 786
Other 2,926 3,828
Changes in operating assets and liabilities, net of
effects from business acquisitions:
Accounts and notes receivable, net (128,001) (111,337)
Inventories (14,899) (20,391)
Prepaid expenses and other current assets (438) 1,285
Accounts payable 57,275 46,012
Other current liabilities (10,311) (7,610)
Other liabilities 882 (315)
Accounts receivable securitization:
Proceeds from new accounts receivable securitizations 30,000 60,000
Proceeds from collections reinvested in revolving
period accounts receivable securitizations 419,466 303,837
Remittances of amounts collected as servicer of
accounts receivable securitizations (423,466) (303,837)
--------------- ---------------
Net cash provided by operating activities 22,983 76,813
--------------- ---------------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (38,142) (2,121)
Capital expenditures - tank lease buyout - (155,600)
Capital expenditures - technology initiative (3,612) (10,993)
Capital expenditures - other (12,581) (7,509)
Other 1,799 1,511
----------------- ----------------
Net cash used in investing activities (52,536) (174,712)
----------------- ----------------
Cash flows from financing activities:
Distributions (53,210) (50,048)
Proceeds from issuance of debt 13,300 140,000
Principal payments on debt (1,423) (1,559)
Net additions to short-term borrowings 42,700 -
Cash paid for financing costs - (1,896)
Cash contribution from partners 38,266 18,179
----------------- ----------------
Net cash provided by financing activities 39,633 104,676
----------------- ----------------
Increase in cash and cash equivalents $ 10,080 $ 6,777
Cash and cash equivalents - beginning of period 10,816 19,388
----------------- ----------------
Cash and cash equivalents - end of period $ 20,896 $ 26,165
================= ================
Cash paid for interest $ 23,361 $ 20,812
================= ================
See notes to these condensed consolidated financial statements.
19
FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2004
(Dollars in thousands)
(unaudited)
A. Organization
Ferrellgas, L.P. operates the propane business and assets of Ferrellgas
Partners, L.P. ("Ferrellgas Partners"). The general partner of Ferrellgas,
L.P. and Ferrellgas Partners is Ferrellgas, Inc. (the "General Partner"), a
wholly-owned subsidiary of Ferrell Companies, Inc. ("Ferrell Companies").
The General Partner holds an approximate 1% general partner interest in
Ferrellgas, L.P. and performs all management functions. Ferrellgas
Partners, a publicly traded limited partnership, holds an approximate 99%
interest in and consolidates Ferrellgas, L.P.
The condensed consolidated financial statements of Ferrellgas, L.P. and
subsidiaries reflect all adjustments, which are, in the opinion of
management, necessary for a fair statement of the interim periods
presented. All adjustments to the condensed consolidated financial
statements were of a normal, recurring nature. The information included in
this Quarterly Report on Form 10-Q should be read in conjunction with the
consolidated financial statements and accompanying notes included in
Ferrellgas, L.P.'s Annual Report on Form 10-K for the fiscal year ended
July 31, 2003.
B. Unit and stock-based compensation
Ferrellgas, L.P. accounts for the Ferrellgas Unit Option Plan (the "Unit
Option Plan") and the Ferrell Companies, Inc. Incentive Plan (the "ICP")
using the intrinsic value method under the provisions of Accounting
Principles Board ("APB") No. 25, "Accounting for Stock Issued to
Employees," for all periods presented and makes the fair value method pro
forma disclosures required under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." Accordingly, no compensation
cost has been recognized for the Unit Option Plan or for the ICP in the
condensed consolidated statements of earnings. Had compensation cost for
these plans been determined based upon the fair value at the grant date for
awards under these plans, consistent with the methodology recommended under
SFAS No. 123, Ferrellgas, L.P.'s net earnings would have been adjusted as
noted in the table below:
For the three months For the six months
ended January 31, ended January 31,
------------------------ ----------------------
2004 2003 2004 2003
---------- ---------- ---------- --------
Net earnings, as reported $72,608 $92,703 $58,917 $78,583
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards 245 211 485 422
---------- ---------- ---------- --------
Pro forma net earnings $72,363 $92,492 $58,432 $78,161
========== ========== ========== ========
20
C. Accounting estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP")
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from these estimates. Significant estimates
impacting the condensed consolidated financial statements include accruals
that have been established for contingent liabilities, pending claims and
legal actions arising in the normal course of business, useful lives of
property, plant and equipment assets, residual values of tanks,
amortization methods of intangible assets and valuation methods of
intangible assets and derivative commodity contracts.
D. Reclassifications
Certain reclassifications have been made to the six months ended January
31, 2003 condensed consolidated statement of cash flows to conform to the
six months ended January 31, 2004 condensed consolidated statement of cash
flows presentation. "Loss on disposal of assets" is disclosed separately in
net cash provided by operating activities on the condensed consolidated
statements of cash flows. This amount was previously classified as "Other"
in net cash provided by operating activities in the six months ended
January 31, 2003.
E. Nature of operations
Ferrellgas, L.P. is engaged primarily in the retail distribution of propane
and related equipment and supplies in the United States. The retail market
is seasonal because propane is used primarily for heating in residential
and commercial buildings. Therefore, the results of operations for the six
months ended January 31, 2004 and 2003 are not necessarily indicative of
the results to be expected for a full fiscal year.
F. Cash and cash equivalents and non-cash activities
For purposes of the condensed consolidated statements of cash flows,
Ferrellgas, L.P. considers cash equivalents to include all highly liquid
debt instruments purchased with an original maturity of three months or
less. Significant non-cash investing and financing activities are primarily
related to the accounts receivable securitization and transactions with
related parties and are disclosed in Note G - Accounts receivable
securitization and Note L - Transactions with related parties,
respectively.
G. Accounts receivable securitization
During the six months ended January 31, 2004, $26.0 million had been funded
from Ferrellgas, L.P.'s accounts receivable securitization facility.
Ferrellgas, L.P. renewed this facility effective September 23, 2003, for a
364-day commitment with Banc One, NA. At January 31, 2004, Ferrellgas, L.P.
did not have any remaining capacity to transfer additional trade accounts
receivable. In accordance with SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," this
transaction is reflected in the condensed consolidated financial statements
as a sale of accounts receivable and a retained interest in transferred
accounts receivable. The retained interest is classified on the condensed
consolidated balance sheets within "Accounts and notes receivable, net."
H. Supplemental financial statement information
Inventories consist of:
January 31, July 31,
2004 2003
---------------- -----------------
Propane gas and related products $65,461 $49,772
Appliances, parts and supplies 18,515 19,305
---------------- -----------------
$83,976 $69,077
================ =================
21
In addition to inventories on hand, Ferrellgas, L.P. enters into contracts
to buy and sell product, primarily propane for supply procurement purposes.
Nearly all of these contracts have terms of less than one year and most
call for payment based on market prices at the date of delivery. All fixed
price contracts have terms of less than one year. As of January 31, 2004,
Ferrellgas, L.P. had committed, for supply procurement purposes, to make
net delivery of approximately 4.1 million gallons of propane at a fixed
price.
Property, plant and equipment, net consist of:
January 31, July 31,
2004 2003
---------------- -----------------
Property, plant and equipment $1,025,539 $1,002,199
Less: accumulated depreciation 327,082 317,282
---------------- -----------------
$ 698,457 $ 684,917
================ =================
During the six months ended January 31, 2004, Ferrellgas, L.P. placed in
service $46.4 million of computer software, which will be depreciated using
the straight-line method over its estimated useful life of 5 years.
Intangible assets, net consist of:
January 31, 2004 July 31, 2003
------------------------------------------ ------------------------------------------
Gross Gross
carrying Accumulated carrying Accumulated
amount amortization Net amount amortization Net
---------- ---------------- ----------- ---------- ---------------- -----------
Customer lists $230,203 $(134,337) $ 95,866 $220,061 $(133,548) $86,513
Non-compete agreements 68,228 (54,027) 14,201 64,020 (52,376) 11,644
---------- ---------------- ----------- ---------- ---------------- -----------
$298,431 $(188,364) $110,067 $284,081 $(185,924) $98,157
========== ================ =========== ========== ================ ============
For the three months For the six months
ended January 31, ended January 31,
------------------------ ----------------------
2004 2003 2003 2002
---------- ---------- ---------- ----------
Aggregate amortization expense $2,876 $3,199 $6,043 $6,304
Estimated amortization expense:
For the years ended July 31,
2004 $ 11,991
2005 11,349
2006 10,823
2007 10,091
2008 9,158
22
Loss on disposal of assets and other consists of:
For the three months For the six months
ended January 31, ended January 31,
-------------------------- ------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Loss on disposal of assets $1,503 $ 546 $2,824 $ 786
Loss on transfer of accounts receivable
related to the accounts receivable
securitization 931 910 1,547 1,374
Service income related to the accounts
receivable securitization (508) (331) (819) (364)
-------- -------- -------- --------
$1,926 $1,125 $3,552 $1,796
======== ======== ======== ========
Shipping and handling expenses are classified in the following condensed
consolidated statements of earnings line items:
For the three months For the six months
ended January 31, ended January 31,
-------------------------- ------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Operating expense $39,856 $37,291 $70,356 $67,070
Depreciation and amortization expense 2,146 1,505 4,182 3,177
Equipment lease expense 2,820 3,037 5,624 5,932
-------- -------- -------- --------
$44,822 $41,833 $80,162 $76,179
======== ======== ======== ========
I. Contingencies
Ferrellgas L.P.'s operations are subject to all operating hazards and risks
normally incidental to handling, storing, transporting and otherwise
providing for use by consumers of combustible liquids such as propane. As a
result, at any given time, Ferrellgas, L.P. is threatened with or named as
a defendant in various lawsuits arising in the ordinary course of business.
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 will have a material adverse effect on the financial
condition, results of operations and cash flows of Ferrellgas, L.P.
Currently, Ferrellgas L.P. is not a party to any legal proceedings other
than various claims and lawsuits arising in the ordinary course of
business.
J. Distributions
During the six months ended January 31, 2004, Ferrellgas, L.P. paid cash
distributions of $53.2 million. On February 24, 2004, Ferrellgas L.P.
declared a cash distribution of $22.3 million for the three months ended
January 31, 2004, that is expected to be paid on March 15, 2004.
K. Adoption of new accounting standards
The Financial Accounting Standards Board ("FASB") recently issued SFAS No.
150 "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity," FASB Financial Interpretation No. 46
"Consolidation of Variable Interest Entities" and Emerging Issues Task
Force ("EITF") 00-21 "Accounting for Revenue Arrangements with Multiple
Deliverables."
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. This statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective for the fiscal
year ending July 31, 2004. Ferrellgas, L.P. has studied SFAS No. 150 and
believes it will not have a material effect on its financial position,
results of operations and cash flows.
23
FASB Financial Interpretation No. 46 ("FIN 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. In December 2003, the FASB issued a revision to FIN 46,
which addresses new effective dates and certain implementation issues. The
interpretation is generally effective for the periods ending after December
15, 2003. Among these issues is the addition of a scope exception for
certain entities that meet the definition of a business, provided certain
criteria are met. Ferrellgas, L.P. currently believes it does not have any
variable interest entities that would be subject to this revised
interpretation.
EITF No. 00-21 addresses how to account for arrangements that may involve
multiple revenue-generating activities, such as the delivery or performance
of multiple products, services, and/or rights to use assets. In applying
this guidance, separate contracts with the same party, entered into at or
near the same time, will be presumed to be a bundled transaction, and the
consideration will be measured and allocated to the separate units based on
their relative fair values. This consensus guidance will be applicable to
agreements entered into in quarters beginning after June 15, 2003.
Ferrellgas, L.P. adopted this new accounting pronouncement beginning August
1, 2003. The implementation of this pronouncement did not have a material
impact on Ferrellgas, L.P.'s financial position, results of operations and
cash flows, because it does not enter into a significant number of
arrangements that may involve multiple revenue-generating activities.
L. Transactions with related parties
Ferrellgas, L.P. has no employees and is managed and controlled by the
General Partner. Pursuant to Ferrellgas, L.P.'s partnership agreement, the
General Partner is entitled to reimbursement for all direct and indirect
expenses incurred or payments it makes on behalf of Ferrellgas, L.P., and
all other necessary or appropriate expenses allocable to Ferrellgas, L.P.
or otherwise reasonably incurred by the General Partner in connection with
operating Ferrellgas L.P.'s business. These costs, which include
compensation and benefits paid to employees of the General Partner who
perform services on their behalf, as well as related general and
administrative costs, are as follows:
For the three months For the six months
ended January 31, ended January 31,
-------------------------- ------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Reimbursable costs $55,237 $54,108 $104,044 $99,289
Ferrellgas, L.P. paid to Ferrellgas Partners and the General Partner
distributions of $52.7 million and $0.5 million, respectively, during the
six months ended January 31, 2004. On February 24, 2004, Ferrellgas, L.P.
declared distributions to Ferrellgas Partners, L.P. and the General Partner
of $22.1 million and $0.2 million, respectively, that are expected to be
paid on March 15, 2004.
On December 1, 2003, Ferrellgas, L.P. received $38.6 million and $0.4
million in cash and net asset contributions from Ferrellgas Partners and
the General Partner, respectively. Ferrellgas, L.P. then used the net cash
proceeds to reduce the borrowings outstanding under its bank credit
facility.
Ferrell International Limited is beneficially owned by James E. Ferrell and
thus is an affiliate. Ferrellgas, L.P. enters into transactions with
Ferrell International Limited in connection with Ferrellgas L.P.'s risk
management activities and does so at market prices in accordance with
Ferrellgas L.P.'s affiliate trading policy approved by the General
Partner's Board of Directors. These transactions include forward, option
and swap contracts and are all reviewed for compliance with the policy.
Ferrellgas also provides limited accounting services for Ferrell
International Limited. Ferrellgas, L.P. recognized the following net
receipts (disbursements) from purchases, sales and commodity derivative
transactions and for providing accounting services with Ferrell
International Limited:
24
For the three months For the six months
ended January 31, ended January 31,
-------------------------- ------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net receipts(disbursements) $ - $65 $ - $(245)
Receipts from providing accounting services 10 10 20 20
These net purchases, sales and commodity derivative transactions with
Ferrell International Limited are classified as cost of product sold on the
condensed consolidated statements of earnings. There were no amounts due
from or due to Ferrell International Limited at January 31, 2004.
M. Subsequent event - announcement of anticipated contribution of membership
interests of Blue Rhino LLC
On February 9, 2004, Ferrellgas, L.P. announced that a subsidiary of
Ferrell Companies, Inc., the parent of the General Partner, intends to
contribute to Ferrellgas Partners, and subsequently to Ferrellas, L.P., the
membership interests in Blue Rhino LLC and its payment and specified other
obligations under the agreement pursuant to which it acquired that entity.
Terms of the contribution agreement call for the assumption of the
subsidiary's obligation to pay $17 in cash for each share of Blue Rhino
Corporation stock outstanding on the date of the closing of the merger by
which the subsidiary will acquire Blue Rhino Corporation and subsequently
convert it into a limited liability corporation. The total obligation
assumed is anticipated to be approximately $340.0 million. Blue Rhino
Corporation is the nations' leading provider of branded propane tank
exchange service and complimentary products with 29,000 retail locations in
49 states and Puerto Rico. The transaction is expected to close during the
last half of fiscal 2004.
25
FERRELLGAS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas, L.P.)
CONDENSED BALANCE SHEETS
(in dollars)
(unaudited)
January 31, July 31,
ASSETS 2004 2003
- -------------------------------------------------------------------- ------------------- -------------------
Cash $1,000 $1,000
------------------- -------------------
Total assets $1,000 $1,000
=================== ===================
STOCKHOLDER'S EQUITY
- --------------------------------------------------------------------
Common stock, $1.00 par value; 2,000 shares
Authorized; 1,000 shares issued and outstanding $1,000 $1,000
Additional paid in capital 700 515
Accumulated deficit (700) (515)
------------------- -------------------
Total stockholder's equity $1,000 $1,000
=================== ===================
CONDENSED STATEMENTS OF EARNINGS
(unaudited)
Three months From Six months From
ended inception to ended inception to
January 31, January 31, January 31, January 31,
2004 2003 2004 2003
---------------- ------------ --------------- ------------
General and administrative expense $ 185 $ - $ 185 $ -
---------------- ------------ --------------- ------------
Net loss $ (185) $ - $ (185) $ -
================ ============ =============== ============
See note to these condensed financial statements.
26
FERRELLGAS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas, L.P.)
CONDENSED STATEMENTS OF CASH FLOWS
(in dollars)
(unaudited)
Six months ended From inception to
January 31, January 31,
2004 2003
-------------------------- --------------------------
Cash flows from operating activities:
Net loss $ (185) $ -
-------------------------- --------------------------
Cash used in operating activities (185) -
-------------------------- --------------------------
Cash flows from financing activities:
Capital contribution 185 -
-------------------------- --------------------------
Cash provided by financing activities 185 -
-------------------------- --------------------------
Change in cash - -
Cash - beginning of period 1,000 1,000
-------------------------- --------------------------
Cash - end of period $1,000 $1,000
========================== ==========================
See note to these condensed financial statements.
NOTE TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 2004
(unaudited)
A. Organization
Ferrellgas Finance Corp., a Delaware corporation, was formed on January 16,
2003 and is a wholly-owned subsidiary of Ferrellgas, L.P.
The condensed financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the interim
periods presented. All adjustments to the condensed financial statements
were of a normal, recurring nature.
27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Our management's discussion and analysis of financial condition and results
of operations relates to Ferrellgas Partners, L.P. and Ferrellgas, L.P.
Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. have nominal
assets, do not conduct any operations and have no employees. Ferrellgas Partners
Finance Corp. may act as a co-obligor of future issuances of debt securities of
Ferrellgas Partners and Ferrellgas Finance Corp. may act as co-obligor of future
issuances of debt securities of Ferrellgas, L.P. Accordingly, and due to the
reduced disclosure format, a discussion of the results of operations, liquidity
and capital resources of Ferrellgas Partners Finance Corp. and Ferrellgas
Finance Corp. are not presented in this section.
In this report, unless the context indicates otherwise:
o when we refer to "us," "we," "our," or "ours," we generally mean Ferrellgas
Partners, L.P. together with its consolidated subsidiaries, including
Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance
Corp., except when used in connection with "common units" or "senior
units," in which case these terms refer to Ferrellgas Partners, L.P.;
o references to "Ferrellgas Partners" refer to Ferrellgas Partners, L.P.
itself, without its consolidated subsidiaries;
o references to the "operating partnership" refer to Ferrellgas, L.P.,
together with its consolidated subsidiaries, including Ferrellgas Finance
Corp.;
o references to our "general partner" refer to Ferrellgas, Inc.;
o the term "unitholders" refers to holders of common units of Ferrellgas
Partners; and
o references to "Notes" refer to the notes to the condensed consolidated
financial statements of Ferrellgas Partners and subsidiaries, as filed
herewith.
Ferrellgas Partners and the operating partnership are Delaware limited
partnerships. Ferrellgas Partners is a holding entity that conducts no
operations and has two direct subsidiaries, Ferrellgas Partners Finance Corp.
and the operating partnership. Ferrellgas Partner's only significant assets are
its approximate 99% limited partnership interest in the operating partnership
and its 100% equity interest in Ferrellgas Partners Finance Corp. Our common
units are listed on the New York Stock Exchange and our activities are
substantially conducted through the operating partnership.
The following is a discussion of our historical financial condition and
results of operations and should be read in conjunction with our historical
condensed consolidated financial statements and accompanying notes thereto
included elsewhere in this Quarterly Report on Form 10-Q.
The discussions set forth in the "Results of Operations" and "Liquidity and
Capital Resources" sections generally refer to Ferrellgas Partners and its
consolidated subsidiaries. However, there exists three material differences
between Ferrellgas Partners and the operating partnership. Those three material
differences are:
o the partnerships incur different amounts of interest expense on their
outstanding indebtedness; see pages 2 and 16 in their respective condensed
consolidated financial statements;
o during the six months ended January 31, 2003, Ferrellgas Partners incurred
$7.1 million in expenses related to the early extinguishment of its debt;
and
o during the three months ended January 31, 2004, Ferrellgas Partners paid
$8.5 million in cash on a short-term, non-interest bearing note related to
the fiscal 2003 acquisition of Pro-Am, Inc.
28
Forward-looking statements
Statements included in this report include forward-looking statements.
These forward-looking statements are identified as any statement that does not
relate strictly to historical or current facts. These statements often 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 comparable terminology.
These statements often discuss plans, strategies, events or developments that we
expect or anticipate will or may occur in the future and are based upon the
beliefs and assumptions of our management and on the information currently
available to them. In particular, statements, express or implied, concerning
future operating results, or our ability to generate sales, income or cash flow
are forward-looking statements.
Forward-looking statements are not guarantees of future performance. You
should not put undue reliance on any forward-looking statements. All
forward-looking statements are subject to risks, uncertainties and assumptions
that could cause our actual results to differ materially from those expressed in
or implied by these forward-looking statements. Many of the factors that will
affect our future results are beyond our ability to control or predict.
Some of our forward-looking statements include the following:
o whether the operating partnership will have sufficient funds to meet its
obligations, including its obligations under its debt securities, and to
enable it to distribute to Ferrellgas Partners sufficient funds to permit
Ferrellgas Partners to meet its obligations with respect to its existing
securities;
o whether Ferrellgas Partners and the operating partnership will continue to
meet all of the quarterly financial tests required by the agreements
governing their indebtedness;
o the expectation that retail gallons sold, gross profit and interest expense
in future periods will approximate those in prior periods; and
o the expectation that future periods will have increased depreciation
expense over the amount recognized during the same period in fiscal 2003.
For a more detailed description of these and other forward-looking
statements and for risk factors that may affect any forward-looking statements,
see the sections entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Risk Factors" in Items 7 and 1,
respectively, of our Annual Report on Form 10-K for our fiscal year ended July
31, 2003, as filed with the SEC on October 21, 2003.
Results of Operations
Overview
We are the second largest retail marketer of propane in the United States
based on retail gallons sold during fiscal 2003. We serve more than one million
residential, industrial/commercial and agricultural and other customers in 45
states. Our operations primarily include the retail distribution and sale of
propane and related equipment and supplies and extend from coast to coast with
concentrations in the Midwest, Southeast, Southwest and Northwest regions of the
country.
Weather conditions have a significant impact on demand for propane for
heating purposes. Accordingly, the volume of propane sold is directly affected
by the severity of the winter weather in the regions we serve and can vary
substantially from year to year. In any given area, sustained warmer-than-normal
temperatures will tend to result in reduced propane use, while sustained
colder-than-normal temperatures will tend to result in greater use.
The market for propane is seasonal because of increased demand during the
winter months primarily for the purpose of providing heating in residential and
commercial buildings. Consequently, sales and operating profits are concentrated
in our second and third fiscal quarters, which are during the winter heating
season of November through March. Due to the seasonality of the retail
distribution of propane, results of our operations for the six months ended
January 31, 2004 and 2003 are not necessarily indicative of the results to be
expected for a full fiscal year. Other factors affecting our results of
operations include competitive conditions, energy commodity prices, demand for
propane, timing of acquisitions and general economic conditions in the United
States.
29
Our gross profit from the retail distribution of propane is primarily based
on margins; that is the cents-per-gallon difference between our costs to
purchase and distribute propane and the sale prices we charge our retail
customers. The wholesale propane price per gallon is subject to various market
conditions and may fluctuate based on changes in demand, supply and other energy
commodity prices. We employ risk management activities that attempt to mitigate
risks related to the purchasing, storing and transporting of propane.
As we have grown through acquisitions, fixed costs such as personnel costs,
equipment leases, depreciation and interest expense have increased.
Historically, due to the seasonality of our business, these fixed costs have
contributed to net losses in the first and fourth fiscal quarters. Gross profit
earned in our second and third quarters provide sources of cash for these fixed
costs.
We continue to pursue our business strategies of using technology to
improve operations, capitalizing on our national presence and economies of
scale, employing a disciplined acquisition strategy and achieving internal
growth and aligning employee interest with our investors. On February 9, 2004,
we announced that a subsidiary of Ferrell Companies, Inc., the parent of the
general partner, intends to contribute to Ferrellgas Partners, and subsequently
to the operating partnership, the membership interests in Blue Rhino LLC and its
payment and specified other obligations under the agreement pursuant to which it
acquired that entity. Terms of the contribution agreement call for the
assumption of the subsidiary's obligation to pay $17 in cash for each share of
Blue Rhino Corporation stock outstanding on the date of the closing of the
merger by which the subsidiary will acquire Blue Rhino Corporation and
subsequently convert it into a limited liability corporation. The total
obligation assumed is anticipated to be approximately $340 million. Blue Rhino
is the nations' leading provider of branded propane tank exchange service and
complimentary products with 29,000 retail locations in 49 states and Puerto
Rico. The transaction is expected to close during the last half of fiscal 2004.
Three Months Ended January 31, 2004 and January 31, 2003
(amounts in thousands)
Increase/ Percentage
Three months ended January 31, 2004 2003 (Decrease) Change
- ------------------------------- ---------- ---------- ---------- ----------
Retail propane gallons sold 318,767 360,388 (41,621) (11.5)%
Propane and other gas liquids sales $457,433 $439,301 $18,132 4.1%
Gross profit 194,882 209,748 (14,866) (7.1)%
Operating income 84,609 103,759 (19,150) 18.5)%
Interest expense 17,291 16,084 1,207 7.5%
Heating degree days, as reported by the National Oceanic and Atmospheric
Administration ("NOAA"), were 2% warmer than normal during both the three months
ended January 31, 2004 and the three months ended January 31, 2003. The combined
temperatures for the first two months of the fiscal 2004 second quarter were 6%
warmer than normal; however, temperatures for January were 3% colder than
normal, with the coldest temperatures occurring in the last two weeks of
January. Most of the colder temperatures in the first two months of the fiscal
2004 second quarter were concentrated in the northeastern portion of the
country, where our customer base is smaller as compared to other regions of the
country. Customer conservation and delayed deliveries caused by higher commodity
prices also contributed significantly to the volume shortfall this quarter.
The average propane sales price per gallon increased due to the effect of a
significant increase in the wholesale cost of propane during the three months
ended January 31, 2004 as compared to the prior year period. The wholesale
market price at one of the major supply points, Mt. Belvieu, Texas, averaged
$0.64 per gallon during the three months ended January 31, 2004, compared to an
average of $0.54 per gallon in the prior year period. Other major supply points
in the United States have also experienced significant increases.
30
Propane and other gas liquids sales increased $62.9 million compared to the
prior year period primarily due to an increase in the average propane sales
price per gallon. This increase was partially offset by the $44.8 million sales
decrease due to reduced retail sales volumes which was primarily caused by the
previously mentioned warmer temperatures and customer reaction to the higher
wholesale cost of propane.
Gross profit decreased $14.9 million primarily due to the decrease in our
retail propane volumes, and to a lesser extent, a lower contribution from our
risk management trading activities, causing gross profit to decrease by $3.1
million compared to the prior year period. This decrease in gross profit was
partially offset by increased retail volumes from acquisitions and increased
retail margins.
Operating income decreased $19.2 million reflecting the previously
mentioned decrease in gross profit and, to a lesser extent, an increase in
depreciation and amortization expense. Depreciation and amortization expense
increased primarily due to assets related to our technology initiative that were
placed in service during the three months ended October 31, 2003 and
acquisitions completed during fiscal 2003 and 2004.
Interest expense increased 7.5% primarily due to increased borrowings
related to the buyout of operating tank leases in December 2002 and to finance
acquisitions completed in fiscal 2003.
Interest expense of the operating partnership
Interest expense increased 7.3% primarily due to increased borrowings
related to the buyout of operating tank leases in December 2002 and to finance
acquisitions in fiscal 2003.
Six Months Ended January 31, 2004 and January 31, 2003
(amounts in thousands)
Increase/ Percentage
Six months ended January 31, 2004 2003 (Decrease) Change
- ------------------------------- ---------- ---------- ---------- ----------
Retail propane gallons sold 494,339 532,414 (38,075) (7.2)%
Propane and other gas liquids sales $689,487 $634,201 $55,286 8.7%
Gross profit 291,047 302,390 (11,343) (3.8)%
Operating income 82,288 103,118 (20,830) (20.2)%
Interest expense 34,085 30,780 3,305 10.7%
Heating degree days, as reported by NOAA, were 4% warmer than normal during
the six months ended January 31, 2004 compared to 1% warmer than normal during
the six months ended January 31, 2003. The combined temperatures for November
and December 2003 were 6% warmer than normal; however, temperatures for January
2004 were 3% colder than normal, with the coldest temperatures occurring in the
last two weeks of January. Most of the colder temperatures in November and
December 2003 were concentrated in the northeastern portion of the country,
where our customer base is smaller as compared to other regions of the country.
Customer conservation and delayed deliveries caused by higher commodity prices
also contributed significantly to the volume shortfall this period.
The average sales price per gallon increased due to the effect of a
significant increase in the wholesale cost of propane during fiscal 2004 as
compared to the prior year period. The wholesale market price at one of the
major supply points, Mt. Belvieu, Texas, averaged $0.59 per gallon during the
six months ended January 31, 2004, compared to an average of $0.49 per gallon in
the prior year period. Other major supply points in the United States have also
experienced significant increases.
Propane and other gas liquids sales increased $100.3 million compared to
the prior year period primarily due to an increase in the average propane sales
price per gallon. This increase was partially offset by the $45.0 million sales
decrease due to reduced retail sales volumes which was primarily caused by
warmer temperatures as discussed above.
Gross profit decreased $11.3 million primarily due to the decrease in our
retail propane volumes, and to a lesser extent, a lower contribution from our
risk management trading activities, causing gross profit to decrease by $1.5
million This decrease in gross profit was partially offset by increased volumes
from acquisitions and increased retail margins.
31
Operating income decreased $20.8 million reflecting the previously
mentioned decrease in gross profit, an increase in operating expense and, to a
lesser extent, an increase in depreciation and amortization expense. Operating
expense increased primarily due to increased personnel expense related to
acquisitions completed during fiscal 2003 and 2004. Depreciation and
amortization expense increased primarily due to assets related to our technology
initiative that were placed in service during the three months ended October 31,
2003 and acquisitions completed during fiscal 2003 and 2004.
Interest expense increased 10.7% primarily due to increased borrowings
related to the buyout of operating tank leases in December 2002 and to finance
acquisitions completed in fiscal 2003.
Interest expense of the operating partnership
Interest expense increased 8.3% primarily due to increased borrowings
related to the buyout of operating tank leases in December 2002 and to finance
acquisitions in fiscal 2003.
Forward-looking statements
We expect retail gallons sold, gross profit and interest expense in the
second half of fiscal 2004 to approximate the amounts reported in the prior year
period. We anticipate operating income in the second half of fiscal 2004 to be
unfavorable compared to the prior year period primarily due to increased
depreciation expense. We expect net earnings in the second half of fiscal 2004
to be unfavorable compared to the prior year period primarily due the decrease
in operating income and increased interest expense from increased borrowings.
Liquidity and Capital Resources
General
Our cash requirements include working capital requirements, debt service
payments, the required quarterly senior unit distribution, the minimum quarterly
common unit distribution, capital expenditures and acquisitions. The minimum
quarterly distribution of $0.50 expected to be paid on all common units on March
15, 2004, represents the thirty-eighth consecutive minimum quarterly
distribution paid to our common unitholders dating back to October 1994. Working
capital requirements are subject to the price of propane, the weather and other
changes in the demand for propane. Relatively colder weather and higher propane
prices during the winter heating season increase our working capital
requirements.
Our ability to satisfy our cash requirements is dependent upon our future
performance, which will be subject to prevailing economic, financial, business
and weather conditions and other factors, many of which are beyond our control.
Due to the seasonality of the retail propane distribution business, a
significant portion of our cash flow from operations is generated during the
winter heating season which occurs during our second and third fiscal quarters.
Our net cash provided by operating activities primarily reflect earnings from
our business activities adjusted for depreciation and amortization and changes
in our working capital accounts. Typically, we generate significantly lower net
cash from operating activities in our first and fourth fiscal quarters as
compared to the second and third fiscal quarters because fixed costs generally
exceed gross profit during the non-peak heating season.
Subject to meeting the financial tests discussed above, our general partner
believes that the operating partnership will have sufficient funds available to
meet its obligations, and to distribute to Ferrellgas Partners sufficient funds
to permit Ferrellgas Partners to meet its obligations during fiscal 2004. In
addition, our general partner believes that the operating partnership will have
sufficient funds available to distribute to Ferrellgas Partners sufficient cash
to pay the required quarterly distribution on the senior units and the minimum
quarterly distribution on all of its common units during the remainder of fiscal
2004.
32
Our bank credit facility, public debt, private debt and accounts receivable
securitization facility contain several financial tests and covenants
restricting our ability to pay distributions, incur debt and engage in certain
other business transactions. In general, these tests are based on our debt to
cash flow ratio and cash flow to interest expense ratio. Our general partner
currently believes that the most restrictive of these tests are debt incurrence
limitations under the terms of our bank credit and accounts receivable
securitization facilities and limitations on the payment of distributions within
our 8.75% senior notes due 2012. The bank credit and accounts receivable
securitization facilities generally limit the operating partnership's ability to
incur debt if it exceeds prescribed ratios of either debt to cash flow or cash
flow to interest expense. Our 8.75% senior notes restrict payments if a minimum
ratio of cash flow to interest expense is not met, assuming certain exceptions
to this ratio limit have previously been exhausted. This restriction places
limitations on our ability to make restricted payments such as the payment of
cash distributions to our unitholders. The cash flow used to determine these
financial tests generally is based upon our most recent cash flow performance
giving pro forma effect for acquisitions and divestitures made during the test
period. Our bank credit facility, public debt, private debt and accounts
receivable securitization facility do not contain early repayment provisions
related to a decline in our credit rating.
As of January 31, 2004, our general partner believes that we met all the
required quarterly financial tests and covenants during the first and second
quarters of fiscal 2004. Based upon current estimates of our cash flow, our
general partner believes that we will be able to continue to meet all of the
required quarterly financial tests and covenants for the remainder of fiscal
2004. However, if we were to encounter unexpected downturns in business
operations in the future, such as significantly warmer than normal winter
temperatures, a volatile energy commodity cost environment or continued economic
downturn, we may not meet the applicable financial tests in future quarters.
This failure could have a materially adverse effect on our operating capacity
and cash flows and could restrict our ability to incur debt or to make cash
distributions to our unitholders, even if sufficient funds were available.
Depending on the circumstances, we may consider alternatives to permit the
incurrence of debt or the continued payment of the quarterly cash distribution
to our unitholders. No assurances can be given, however, that such alternatives
can or will be implemented with respect to any given quarter.
Our future capital expenditures and working capital needs are expected to
be provided by a combination of cash generated from future operations, existing
cash balances, the bank credit facility or the accounts receivable
securitization facility. To fund expansive capital projects and future
acquisitions, we may obtain funds on our facilities, we may issue additional
debt to the extent permitted under existing financing arrangements or we may
issue additional equity securities, including, among others, common units.
Toward this purpose, in June 2003, a shelf registration statement was
declared effective by the SEC for the periodic sale by us of up to $500 million
of equity and/or debt securities. The registered securities are available to us
for sale from time to time in the future to fund acquisitions, to reduce
indebtedness, to redeem senior units or to provide funds for general corporate
purposes. On December 1, 2003, we received $47.4 million, after underwriting
discounts and commissions, from the issuance of 2.0 million common units to the
public. We used the net proceeds, together with contributions made by the
general partner to maintain its effective 2% general partner interest in us, to
reduce borrowings outstanding under the bank credit facility of the operating
partnership by $38.3 million and to repay debt incurred to fund prior
acquisitions of $8.5 million. The remaining proceeds will be used for general
partnership purposes of Ferrellgas Partners. See Note J - Partners' capital - to
our condensed consolidated financial statements for further discussion of this
common unit issuance. As of January 31, 2004, we had $419.8 million available
from this shelf registration statement.
We also maintain a shelf registration statement with the SEC for the
issuance of approximately 2.0 million common units. We may issue these common
units in connection with our acquisition of other businesses, properties or
securities in business combination transactions.
33
Operating Activities
Net cash provided by operating activities was $13.4 million for the six
months ended January 31, 2004, compared to net cash provided by operating
activities of $64.0 million for the prior fiscal year period. This decrease in
cash provided by operating activities is primarily due to the lower proceeds
from the accounts receivable securitization activity, and to a lesser extent a
decrease in cash flow from operating activities before changes in working
capital. Our working capital needs are typically highest during the winter
heating season. Cash required to fund working capital during the six months
ended January 31, 2004 was $95.4 million as compared to $91.7 million for the
prior fiscal period. This use of working capital is primarily due to the timing
of cash received from customers on accounts receivable and the cash needed to
purchase inventory.
Accounts receivable securitization
Cash flows from the accounts receivable securitization facility decreased
$34.0 million primarily due to management's decision at the end of fiscal 2003
to reduce the bank credit facility rather than remit greater amounts collected
as servicer of accounts receivable securitizations. At the end of fiscal 2002,
we did not have outstanding balances on either the bank credit facility or the
accounts receivable securitization facility. This decision to use lower costs of
capital at July 31, 2003, for working capital needs left the accounts receivable
securitization facility with an effective $34.0 million outstanding as compared
to no balance outstanding at July 31, 2002. During the winter heating season, we
typically use the accounts receivable facility to meet our increased working
capital needs. Consequently, we received the maximum funding of $26.0 million
from this facility during the six months ended January 31, 2004 as compared to
$60.0 million in the prior year period. We renewed this facility effective
September 23, 2003, for a 364-day commitment with Banc One, NA. At January 31,
2004, we did not have any remaining capacity to transfer additional trade
accounts receivable. In accordance with SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities," this
transaction is reflected in our condensed consolidated financial statements as a
sale of accounts receivable and a retained interest in transferred accounts
receivable.
The operating partnership
Net cash provided by operating activities was $23.0 million for the six
months ended January 31, 2004, compared to net cash provided by operating
activities of $76.8 million for the six months ended January 31, 2003. This
decrease in cash provided by operating activities is primarily due to the
previously mentioned lower proceeds from accounts receivable securitization
activity and to a lesser extent a decrease in cash flow from operating
activities before changes in working capital.
Investing Activities
During the six months ended January 31, 2004, net cash used by investing
activities was $52.6 million, compared to $206.7 million for the six months
ended January 31, 2003. This decrease in cash used in investing activities is
primarily due to a one-time purchase of $155.6 million in fiscal 2003 of propane
tanks and related assets that were previously leased.
Acquisitions
During the six months ended January 31, 2004, we used $38.1 million in cash
for the acquisition of four retail propane companies.
Capital expenditures
We made cash capital expenditures of $16.2 million during the six months
ended January 31, 2004 as compared to $18.5 million in the prior year period
primarily due to the reduced capital expenditures related to our technology
initiative that was placed in service during fiscal 2004. Capital expenditures
during fiscal 2004 consisted primarily of expenditures for the betterment and
replacement of property, plant and equipment.
34
Financing Activities
During the six months ended January 31, 2004, net cash provided by
financing activities was $51.1 million compared to $149.1 million for the six
months ended January 31, 2003. This decrease in cash provided by financing
activities was primarily due to the borrowings on our bank credit facility to
finance the purchase of propane tanks and related assets that were previously
leased in fiscal 2003, an $8.5 million payment on the non-interest bearing note
related to the fiscal 2003 acquisition of Pro-Am, Inc., partially offset by the
previously mentioned issuance of common units.
Distributions
We paid the required distributions on the senior units and the minimum
quarterly distribution on all common units, as well as general partner
interests, totaling $43.1 million during the six months ended January 31, 2004.
The required quarterly distribution on the senior units and the minimum
quarterly distribution on all common units for the three months ended January
31, 2004 of $22.3 million are expected to be paid on March 15, 2004 to holders
of record on March 5, 2004. See related disclosure about the distributions of
senior units in "Disclosures about Effects of Transactions with Related
Parties."
Credit Facility
At January 31, 2004, $182.7 million of borrowings and $52.4 million of
letters of credit were outstanding under our unsecured $307.5 million bank
credit facility, which will terminate on April 28, 2006. Letters of credit are
currently used to cover obligations primarily relating to requirements for
insurance coverage and, and to a lesser extent, risk management activities. At
January 31, 2004, we had $72.4 million available for working capital,
acquisition, capital expenditure and general partnership purposes under the
$307.5 million bank credit facility.
All borrowings under our $307.5 million bank credit facility bear interest, at
our option, at a rate equal to either:
o a base rate, which is defined as the higher of the federal funds rate plus
0.50% or Bank of America's prime rate (as of January 31, 2004, the federal
funds rate and Bank of America's prime rate were 1.03% and 4.0%,
respectively); or
o the Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of
January 31, 2004, the one-month Eurodollar Rate was 1.01%).
In addition, an annual commitment fee is payable on the daily unused portion of
our $307.5 million bank credit facility at a per annum rate varying from 0.375%
to 0.625% (as of January 31, 2004, the commitment fee per annum rate was 0.5%).
We believe that the liquidity available from our $307.5 million bank credit
facility and the accounts receivable securitization facility will be sufficient
to meet our future working capital needs for fiscal 2004. See "Operating
Activities" for discussion about our accounts receivable securitization
facility. However, if we were to experience an unexpected significant increase
in working capital requirements, our working capital needs could exceed our
immediately available resources. Events that could cause increases in working
capital borrowings or letter of credit requirements include, but are not limited
to the following:
o a significant increase in the wholesale cost of propane;
o a significant delay in the collections of accounts receivable;
o increased volatility in energy commodity prices related to risk management
activities;
o increased liquidity requirements imposed by insurance providers;
o a significant downgrade in our credit rating;
o decreased trade credit; or
o a significant acquisition.
35
If one or more of these or other events caused a significant use of available
funding, we may consider alternatives to provide increased working capital
funding. No assurances can be given, however, that such alternatives would be
available, or, if available, could be implemented.
Long-term debt
The following table summarizes our long-term debt obligations as of January
31, 2004:
Principal payments due by fiscal year
--------------------------------------------------------------------------------
Remainder 2008 and
(in thousands) of 2004 2005 2006 2007 thereafter Total
------------- ------------ ------------ ------------ ------------ -------------
Long-term debt, including
current portion $766 $2,568 $111,209 $38,474 $748,195 $901,212
The operating partnership
The financing activities discussion above also applies to the operating
partnership except for cash flows related to distributions and Ferrellgas
Partners' $8.5 million payment on the non-interest bearing note to Pro-Am, Inc.
Distributions
The operating partnership paid cash distributions of $53.2 million during
the six months ended January 31, 2004. On February 24, 2004, the operating
partnership declared cash distributions of $22.3 million for the three months
ended January 31, 2004, that are expected to be paid on March 15, 2004.
Cash contributions from partners
On December 1, 2003, the operating partnership received cash contributions
of $37.9 million and $0.4 million from its limited partner, Ferrellgas Partners
and its general partner, respectively. The operating partnership then used these
net proceeds to reduce the borrowings outstanding under its $307.5 million bank
credit facility.
The following table summarizes the operating partnership's long-term debt
obligations as of January 31, 2004:
Principal payments due by fiscal year
--------------------------------------------------------------------------------
Remainder 2008 and
(in thousands) of 2004 2005 2006 2007 thereafter Total
------------- ------------ ------------ ------------ ------------ -------------
Long-term debt, including
current portion $766 $2,568 $111,209 $38,474 $530,195 $683,212
36
Disclosures about Risk Management Activities Accounted for at Fair Value
The following table summarizes the change in the unrealized fair value of
contracts from our risk management trading activities for the three months ended
January 31, 2004:
Three Six
months ended months ended
January 31, 2004 January 31, 2004
(in thousands) -------------------- --------------------
Unrealized losses in fair value of contracts
outstanding at beginning of period $(1,419) $(1,718)
Other unrealized gains recognized 1,041 1,049
Less: realized losses recognized 1,161 870
-------------------- --------------------
Unrealized losses in fair value of contracts
outstanding at January 31, 2004 $(1,539) $(1,539)
==================== ====================
The following table summarizes the maturity of contracts from our risk
management trading activities for the valuation methodologies we utilized as of
January 31, 2004:
(in thousands) Fair value of
contracts at
period-end
------------------
Maturity less
Source of fair value than 1 year
- ---------------------------------------------------- ------------------
Prices actively quoted $ (71)
Prices provided by other external sources (1,468)
Prices based on models and other valuation methods -
------------------
Unrealized losses in fair value of contracts
outstanding at January 31, 2004 $(1,539)
==================
See additional discussion about market, counterparty credit and liquidity risks
related to our risk management trading activities and other risk management
activities in Item 3 "Quantitative and Qualitative Disclosures about Market
Risk."
Disclosures about Effects of Transactions with Related Parties
We have no employees and are managed and controlled by our general partner.
Pursuant to our partnership agreements, our general partner is entitled to
reimbursement for all direct and indirect expenses incurred or payments it makes
on our behalf, and all other necessary or appropriate expenses allocable to us
or otherwise reasonably incurred by our general partner in connection with
operating our business. These reimbursable costs, which totaled $104.0 million
for the six months ended January 31, 2004, include compensation and benefits
paid to employees of our general partner who perform services on our behalf, as
well as related general and administrative costs.
Ferrell Companies, Inc. ("Ferrell Companies") is the sole shareholder of
our general partner and owns 17.8 million of our common units. Ferrell Propane,
Inc. ("Ferrell Propane") is wholly owned by our general partner and owns 51
thousand of our common units. During the six months ended January 31, 2004,
Ferrellgas Partners paid common unit distributions of $17.8 million and $0.1
million to Ferrell Companies and Ferrell Propane, respectively, for the three
months ended July 31, 2003 and January 31, 2004. Also during the six months
ended, Ferrellgas Partners and the operating partnership together paid the
general partner distributions of $1.0 million for the three months ended July
31, 2003 and January 31, 2004.
37
JEF Capital Management, Inc. ("JEF Capital Management") is beneficially
owned by James E. Ferrell, the Chairman, President and Chief Executive Officer
of our general partner, and thus is an affiliate. JEF Capital Management is the
holder of all of Ferrellgas Partners' issued and outstanding senior units.
Ferrellgas Partners' partnership agreement generally provides that it use the
cash proceeds of any offering of common units to redeem a portion of the
outstanding senior units, otherwise a "Material Event" would be deemed to have
occurred and JEF Capital Management, as the holder of the senior units, would
thereafter have specified rights, such as the right to convert the senior units
into common units or the right to register the senior units. By letter agreement
dated November 20, 2003, JEF Capital Management agreed to waive the occurrence
of a "Material Event" if Ferrellgas Partners issues common units at any time and
from time to time on or prior to March 31, 2004, and does not use the cash
proceeds from such offering or offerings to redeem a portion of the outstanding
senior units. In consideration of the granting of the waiver, Ferrellgas
Partners agreed not to redeem any outstanding senior units prior to March 31,
2004, and to reimburse JEF Capital Management for its reasonable legal fees not
to exceed $70 thousand incurred in connection with the execution of the waiver.
On February 25, 2004, JEF Capital Management and Ferrellgas Partners extended
the letter agreement through December 31, 2004.
We paid JEF Capital Management $4.0 million in senior unit distributions
during the six months ended January 31, 2004. On February 24, 2004, we accrued a
senior unit distribution of $2.0 million that is expected to be paid to JEF
Capital Management on March 15, 2004.
Ferrell International Limited is beneficially owned by James E. Ferrell and
thus is an affiliate. We provide limited accounting services to Ferrell
International Limited. During the six months ended January 31, 2004, we
recognized net receipts from providing limited accounting services of $20
thousand. There were no amounts due from or due to Ferrell International Limited
at January 31, 2004.
We believe these related party transactions were under terms that were no
less favorable to us than those available with third parties.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements include the leasing of transportation
equipment, property, computer equipment and propane tanks. We account for these
arrangements as operating leases. We believe these arrangements are a
cost-effective method for financing our equipment needs. These off-balance sheet
arrangements enable us to lease equipment from third parties rather than, among
other options, purchase the equipment using on-balance sheet financing.
Most of the operating leases involving our transportation equipment contain
residual value guarantees. These transportation equipment lease arrangements are
scheduled to expire over the next seven years. Most of these arrangements
provide that the fair value of the equipment will equal or exceed a guaranteed
amount, or we will be required to pay the lessor the difference. Although the
fair values at the end of the lease terms have historically exceeded these
guaranteed amounts, the maximum potential amount of aggregate future payments we
could be required to make under these leasing arrangements, assuming the
equipment is worthless at the end of the lease term, is currently $13.3 million.
We do not know of any event, demand, commitment, trend or uncertainty that would
result in a material change to these arrangements.
The following table summarizes our future minimum rental payments and
operating lease buyouts as of January 31, 2004:
Future Minimum Rental and Buyout Amounts by Fiscal Year
--------------------------------------------------------------------------------
Remainder 2008 and
(in thousands) of 2004 2005 2006 2007 thereafter Total
------------- ------------ ------------ ------------ ------------ -------------
Operating lease rental payments $11,714 $19,545 $15,553 $11,508 $19,101 $77,421
Operating lease buyouts 590 6,037 2,247 7,148 8,622 24,644
38
Operating lease buyouts represent the maximum amount we would pay if we
were to exercise our right to buyout the assets at the end of their lease term.
Historically, we have been successful in renewing certain leases that are
subject to buyouts. However, there is no assurance we will be successful in the
future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our risk management activities primarily attempt to mitigate risks related
to the purchasing, storing and transporting of propane. We generally purchase
propane in the contract and spot markets from major domestic energy companies on
a short-term basis. Our costs to purchase and distribute propane fluctuate with
the movement of market prices. This fluctuation subjects us to potential price
risk, which we attempt to minimize through the use of risk management
activities.
Our risk management activities include the use of energy commodity forward
contracts, swaps and options traded on the over-the-counter financial markets
and futures and options traded on the New York Mercantile Exchange. These risk
management activities are conducted primarily to offset the effect of market
price fluctuations on propane inventory and purchase commitments and to mitigate
the price and inventory risk on sale commitments to our customers.
Our risk management activities are intended to generate a profit, which we
then apply to reduce our cost of product sold. The results of our risk
management activities directly related to the delivery of propane to our retail
customers, which include our supply procurement, storage and transportation
activities, are presented in our discussion of retail margins and are accounted
for at cost. The results of our other risk management activities are presented
separately in our discussion of gross profit found in "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations" as risk management trading activities and are accounted for at fair
value.
Market risks associated with energy commodities are monitored daily by
senior management for compliance with our commodity risk management policy. This
policy includes an aggregate dollar loss limit and limits on the term of various
contracts. We also utilize volume limits for various energy commodities and
review our positions daily where we remain exposed to market risk, so as to
manage exposures to changing market prices.
Market, Credit and Liquidity Risk. New York Mercantile Exchange traded
futures and options are guaranteed by the New York Mercantile Exchange and have
nominal credit risk. We are exposed to credit risk associated with
over-the-counter traded forwards, swaps and option transactions in the event of
nonperformance by counterparties. For each counterparty, we analyze its
financial condition prior to entering into an agreement, establish a credit
limit and monitor the appropriateness of the limit. The change in market value
of Exchange-traded futures contracts requires daily cash settlement in margin
accounts with brokers. Over-the-counter instruments are generally settled at the
expiration of the contract term. In order to minimize the liquidity risk of
cash, margin or collateral requirements of counterparties for over-the-counter
instruments, we attempt to balance maturities and positions with individual
counterparties. Historically, our risk management activities have not
experienced significant credit-related losses in any year or with any individual
counterparty. Our risk management contracts do not contain material repayment
provisions related to a decline in our credit rating.
Sensitivity Analysis. We have prepared a sensitivity analysis to estimate
the exposure to market risk of our energy commodity positions. Forward
contracts, futures, swaps and options outstanding as of January 31, 2004, that
were used in our risk management trading activities were analyzed assuming a
hypothetical 10% adverse change in prices for the delivery month for all energy
commodities. The potential loss in future earnings regarding these positions
from a 10% adverse movement in market prices of the underlying energy
commodities was estimated at $0.5 million for risk management trading activities
and $0.1 million for other risk management activities as of January 31, 2004.
The preceding hypothetical analysis is limited because changes in prices may or
may not equal 10%, thus actual results may differ.
At January 31, 2004, we had $182.7 million in variable rate amended bank
credit facility borrowings. Thus, assuming a one percent increase in our
variable interest rate, our interest rate risk related to the borrowings on our
variable rate amended bank credit facility would result in a loss in future
earnings of $1.8 million for the twelve months ending January 31, 2005. The
preceding hypothetical analysis is limited because changes in interest rates may
or may not equal one percent, thus actual results may differ.
39
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed with the participation of our management,
including the principal executive officer and principal financial officer of our
general partner, of the effectiveness of our disclosure controls and procedures
(as such terms are defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act).
Based on that evaluation, our management, including the principal executive
officer and principal financial officer of our general partner, concluded that
such disclosure controls and procedures were designed to be and were effective
as of January 31, 2004 to reasonably ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act are
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms.
It should be noted that any system of disclosure controls and procedures,
however well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system are met. In addition, the
design of any system of disclosure controls and procedures is based in part upon
assumptions about the likelihood of future events. Because of these and other
inherent limitations of any such system, there can be no assurance that any
design will always succeed in achieving its stated goals under all potential
future conditions, regardless of how remote.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note I - Contingencies - to our condensed consolidated financial
statements included elsewhere in this report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
40
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed below are furnished as part of this Quarterly Report on Form
10-Q. Exhibits required by Item 601 of Regulation S-K of the Securities Act,
which are not listed, are not applicable.
Exhibit
Number Description
-------- -----------
2.1 Contribution Agreement dated February 8, 2004, by and among
FCI Trading Corp., Ferrellgas, Inc., Ferrellgas Partners,
L.P. and Ferrellgas, L.P. Incorporated by reference to
Exhibit 2.1 to our Current Report on Form 8-K filed February
12, 2004.
3.1 Fourth Amended and Restated Agreement of Limited Partnership
of Ferrellgas Partners, L.P., dated as of February 18, 2003.
Incorporated by reference to Exhibit 4.3 to our Current
Report on Form 8-K filed February 18, 2003.
3.2 Certificate of Incorporation for Ferrellgas Partners Finance
Corp. Incorporated by reference to the same numbered Exhibit
to our Quarterly Report on Form 10-Q filed June 13, 1997.
3.3 Bylaws of Ferrellgas Partners Finance Corp. Incorporated by
reference to the same numbered Exhibit to our Quarterly
Report on Form 10-Q filed June 13, 1997.
3.4 Second Amended and Restated Agreement of Limited Partnership
of Ferrellgas, L.P., dated as of October 14, 1998.
Incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q filed March 17, 1999.
3.5 First Amendment to the Second Amended and Restated Agreement
of Limited Partnership of Ferrellgas, L.P. Incorporated by
reference to Exhibit 10.2 to our Quarterly Report on Form
10-Q filed June 14, 2000.
3.6 Certificate of Incorporation of Ferrellgas Finance Corp.
Incorporated by reference to Exhibit 4.1 to the Current
Report on Form 8-K of Ferrellgas Partners, L.P. filed
February 18, 2003.
3.7 Bylaws of Ferrellgas Finance Corp. Incorporated by reference
to Exhibit 4.2 to the Current Report on Form 8-K of
Ferrellgas Partners, L.P. filed February 18, 2003.
4.1 Specimen Certificate evidencing Common Units representing
Limited Partner Interests (contained in Exhibit 3.1 hereto as
Exhibit A thereto).
4.2 Indenture, dated as of September 24, 2002, with form of Note
attached, among Ferrellgas Partners, L.P., Ferrellgas
Partners Finance Corp., and U.S. Bank National Association,
as trustee, relating to 8 3/4% Senior Notes due 2012.
Incorporated by reference to Exhibit 4.1 to our Current
Report on Form 8-K filed September 24, 2002.
41
Exhibit
Number Description
-------- -----------
4.3 Ferrellgas, L.P., Note Purchase Agreement, dated as of
July 1, 1998, relating to: $109,000,000 6.99% Senior Notes,
Series A, due August 1, 2005, $37,000,000 7.08% Senior Notes,
Series B, due August 1, 2006, $52,000,000 7.12% Senior Notes,
Series C, due August 1, 2008, $82,000,000 7.24% Senior Notes,
Series D, due August 1, 2010, and $70,000,000 7.42% Senior
Notes, Series E, due August 1, 2013. Incorporated by
reference to Exhibit 4.4 to our Annual Report on Form 10-K
filed October 29, 1998.
4.4 Ferrellgas, L.P., Note Purchase Agreement, dated as of
February 28, 2000, relating to: $21,000,000 8.68% Senior
Notes, Series A, due August 1, 2006, $70,000,000 8.78% Senior
Notes, Series B, due August 1, 2007, and $93,000,000 8.87%
Senior Notes, Series C, due August 1, 2009. Incorporated by
reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q
filed March 16, 2000.
4.5 Registration Rights Agreement, dated as of December 17, 1999,
by and between Ferrellgas Partners, L.P. and Williams Natural
Gas Liquids, Inc. Incorporated by reference to Exhibit 4.2 to
our Current Report on Form 8-K filed December 29, 2000.
4.6 First Amendment to the Registration Rights Agreement, dated
as of March 14, 2000, by and between Ferrellgas Partners,
L.P. and Williams Natural Gas Liquids, Inc. Incorporated by
reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q
filed March 16, 2000.
4.7 Second Amendment to the Registration Rights Agreement, dated
as of April 6, 2001, by and between Ferrellgas Partners, L.P.
and The Williams Companies, Inc. Incorporated by reference to
Exhibit 10.3 to our Current Report on Form 8-K filed April 6,
2001.
4.8 Representations Agreement, dated as of December 17, 1999, by
and among Ferrellgas Partners, L.P., Ferrellgas, Inc.,
Ferrellgas, L.P. and Williams Natural Gas Liquids, Inc.
Incorporated by reference to Exhibit 2.3 to our Current
Report on Form 8-K filed December 29, 1999.
4.9 First Amendment to Representations Agreement, dated as of
April 6, 2001, by and among Ferrellgas Partners, L.P.,
Ferrellgas, Inc., Ferrellgas, L.P. and The Williams
Companies, Inc. Incorporated by reference to Exhibit 10.2 to
our Current Report on Form 8-K filed April 6, 2001.
4.10 Waiver and Acknowledgement of No Material Event dated
November 20, 2003, by and among Ferrellgas Partners, L.P.,
Ferrellgas, L.P., Ferrellgas, Inc. and JEF Capital
Management, Inc. Incorporated by reference to Exhibit 4.1 to
our Current Report on Form 8-K filed November 24, 2003.
* 4.11 Extension of Waiver and Acknowledgement of No Material Event
dated February 25, 2004, by and among Ferrellgas Partners,
L.P., Ferrellgas, L.P., Ferrellgas, Inc. and JEF Capital
Management, Inc.
10.2 Receivable Interest Sale Agreement, dated as of September 26,
2000, by and between Ferrellgas, L.P., as originator, and
Ferrellgas Receivables, L.L.C., as buyer. Incorporated by
reference to Exhibit 10.17 to our Annual Report on Form 10-K
filed October 26, 2000.
42
Exhibit
Number Description
-------- -----------
10.3 First Amendment to the Receivable Interest Sale Agreement
dated as of January 17, 2001, by and between Ferrellgas, L.P.,
as originator, and Ferrellgas Receivables, L.L.C., as buyer.
Incorporated by reference to Exhibit 10.5 to our Quarterly
Report on Form 10-Q filed March 14, 2001.
10.4 Receivables Purchase Agreement, dated as of September 26,
2000, by and among Ferrellgas Receivables, L.L.C., as seller,
Ferrellgas, L.P., as servicer, Jupiter Securitization
Corporation, the financial institutions from time to time
party hereto, and Bank One, NA, main office Chicago, as agent.
Incorporated by reference to Exhibit 10.18 to our Annual
Report on Form 10-K filed October 26, 2000.
10.5 First Amendment to the Receivables Purchase Agreement, dated
as of January 17, 2001, by and among Ferrellgas Receivables,
L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter
Securitization Corporation, the financial institutions from
time to time party hereto, and Bank One, N.A., main office
Chicago, as agent. Incorporated by reference to Exhibit 10.4
to our Quarterly Report on Form 10-Q filed March 14, 2001.
10.6 Second Amendment to the Receivables Purchase Agreement dated
as of September 25, 2001, by and among Ferrellgas Receivables,
L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter
Securitization Corporation, the financial institutions from
time to time party hereto, and Bank One, N.A., main office
Chicago, as agent. Incorporated by reference to Exhibit 10.29
to our Annual Report on Form 10-K filed October 25, 2001.
10.7 Third Amendment to the Receivables Purchase Agreement, dated
as of September 24, 2002, by and among Ferrellgas Receivables,
L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter
Securitization Corporation, the financial institutions from
time to time party hereto, and Bank One, NA, main office
Chicago, as agent.
10.8 Fourth Amendment to the Receivables Purchase Agreement, dated
as of September 23, 2003, by and among Ferrellgas Receivables,
L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter
Securitization Corporation, the financial institutions from
time to time party hereto, and Bank One, NA, main office
Chicago, as agent. Incorporated by reference to Exhibit 10.8
to our Annual Report on Form 10-K filed October 21, 2003.
10.9 Purchase Agreement, dated as of November 7, 1999, by and among
Ferrellgas Partners, L.P., Ferrellgas, L.P and Williams
Natural Gas Liquids, Inc. Incorporated by reference to Exhibit
99.1 to our Current Report on Form 8-K filed November 12,
1999.
10.10 First Amendment to Purchase Agreement, dated as of December
17, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas,
L.P., and Williams Natural Gas Liquids, Inc. Incorporated by
reference to Exhibit 2.2 to our Current Report on Form 8-K
filed December 29, 1999.
10.11 Second Amendment to Purchase Agreement, dated as of March 14,
2000, by and among Ferrellgas Partners, L.P., Ferrellgas L.P.,
and Williams Natural Gas Liquids, Inc. Incorporated by
reference to Exhibit 2.1 to our Quarterly Report on Form 10-Q
filed March 16, 2000.
43
Exhibit
Number Description
-------- -----------
10.12 Third Amendment to Purchase Agreement dated as of April 6,
2001, by and among Ferrellgas Partners, L.P., Ferrellgas L.P.
and The Williams Companies, Inc. Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed April 6,
2001.
10.13 Agreement and Plan of Merger dated as of February 8, 2004, by
and among Blue Rhino Corporation, FCI Trading Corp., Diesel
Acquisition, LLC and Ferrell Companies, Inc. Incorporated by
reference to Exhibit 99.2 to our Current Report on Form 8-K
filed February 12, 2004.
10.14 Unit Purchase Agreement dated February 8, 2004, between
Ferrellgas Partners, L.P. and James E. Ferrell. Incorporated
by reference to Exhibit 99.3 to our Current Report on Form 8-K
filed February 12, 2004.
# 10.15 Ferrell Companies, Inc. Supplemental Savings Plan, restated
January 1, 2000. Incorporated by reference to Exhibit 99.1 to
our Current Report on Form 8-K filed February 18, 2003.
# 10.16 Second Amended and Restated Ferrellgas Unit Option Plan.
Incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed June 5, 2001.
# 10.17 Ferrell Companies, Inc. 1998 Incentive Compensation Plan -
Incorporated by reference to Exhibit 10.12 to our Annual
Report on Form 10-K filed October 29, 1998.
# 10.18 Employment agreement between James E. Ferrell and Ferrellgas,
Inc., dated July 31, 1998. Incorporated by reference to
Exhibit 10.13 to our Annual Report on Form 10-K filed October
29, 1998.
# 10.19 Employment agreement between Patrick Chesterman and
Ferrellgas, Inc. dated July 31, 2000. Incorporated by
reference to Exhibit 10.19 to our Annual Report on Form 10-K
filed October 26, 2000.
# 10.20 Employment agreement between Kevin Kelly and Ferrellgas, Inc.
dated July 31, 2000. Incorporated by reference to Exhibit
10.22 to our Annual Report on Form 10-K filed October 26,
2000.
* 31.1 Certification of Ferrellgas Partners, L.P. pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act.
* 31.2 Certification of Ferrellgas Partners Finance Corp. pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
* 31.3 Certification of Ferrellgas, L.P. pursuant to Rule 13a-14(a)
or Rule 15d-14(a) of the Exchange Act.
* 31.4 Certification of Ferrellgas Finance Corp. pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act.
* 32.1 Certification of Ferrellgas Partners, L.P. pursuant to 18
U.S.C. Section 1350.
* 32.2 Certification of Ferrellgas Partners Finance Corp. pursuant to
18 U.S.C. Section 1350.
44
Exhibit
Number Description
-------- -----------
* 32.3 Certification of Ferrellgas, L.P. pursuant to 18 U.S.C.
Section 1350.
* 32.4 Certification of Ferrellgas Finance Corp. pursuant to 18
U.S.C. Section 1350.
* Filed herewith
# Management contracts or compensatory plans.
(b) Reports on Form 8-K
Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P.
and Ferrellgas Finance Corp. filed three Form 8-K's during the three months
ended January 31, 2004.
Items
Date of Report Reported Financial Statements Filed
- ------------------------------------------- -------- ------------------------------
Filed November 21, 2003 5, 7 Audited annual balance sheets
and footnotes of Ferrellgas,
Inc.
Filed November 24, 2003 5, 7 None
Filed December 1, 2003 5, 7 None
Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P.
and Ferrellgas Finance Corp. furnished two Form 8-K's during the three months
ended January 31, 2004.
Items
Date of Report Reported Financial Statements Furnished
- ------------------------------------------- -------- ------------------------------
Furnished November 18, 2003 9 None
Furnished November 24, 2003 7, 9, 12 None
45
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: March 10, 2004 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: March 10, 2004 By /s/ Kevin T. Kelly
-------------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS, L.P.
By Ferrellgas, Inc. (General Partner)
Date: March 10, 2004 By /s/ Kevin T. Kelly
-------------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS FINANCE CORP.
Date: March 10, 2004 By /s/ Kevin T. Kelly
-------------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)