UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended April 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file numbers: 1-11331
333-06693
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1698480
Delaware 43-1742520
---------------------------- -------------------------------
(States or other jurisdictions of (I.R.S. Employer Identification Nos.)
incorporation or organization)
One Liberty Plaza, Liberty, Missouri 64068
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (816) 792-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
At May 20, 1999, the registrants had units or shares outstanding as follows:
Ferrellgas Partners, L.P. - 14,710,765 Common Units
16,593,721 Subordinated Units
Ferrellgas Partners Finance
Corp. 1,000 Common Stock
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ferrellgas Partners, L.P. and Subsidiaries
Consolidated Balance Sheets - April 30, 1999 and July 31, 1998 1
Consolidated Statements of Earnings -
Three and nine months ended April 30, 1999 and 1998 2
Consolidated Statement of Partners' Capital -
Nine months ended April 30, 1999 3
Consolidated Statements of Cash Flows -
Nine months ended April 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Ferrellgas Partners Finance Corp.
Balance Sheets - April 30, 1999 and July 31, 1998 8
Statements of Earnings - Three and nine months ended April 30, 1999 and 1998 8
Statements of Cash Flows - Nine months ended April 30, 1999 and 1998 9
Notes to Financial Statements 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
April 30, July 31,
ASSETS 1999 1998
- --------------------------------------------------------------- ------------ ------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 8,623 $ 16,961
Accounts and notes receivable, net 60,987 50,097
Inventories 28,556 34,727
Prepaid expenses and other current assets 7,215 8,706
------------ ------------
Total Current Assets 105,381 110,491
Property, plant and equipment, net 404,946 395,855
Intangible assets, net 111,351 105,655
Other assets, net 8,611 9,222
------------ ------------
Total Assets $630,289 $621,223
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------------------------------------
Current Liabilities:
Accounts payable $41,657 $48,017
Other current liabilities 42,888 41,767
Short-term borrowings 0 21,150
------------ ------------
Total Current Liabilities 84,545 110,934
Long-term debt 555,703 507,222
Other liabilities 14,944 12,640
Contingencies and commitments
Minority interest 1,397 1,510
Partners' Capital:
Common unitholders (14,710,765 units outstanding
in April 1999 and 14,699,678 outstanding in July 1998) 21,012 27,985
Subordinated unitholders (16,593,721 units outstanding
at both April 1999 and July 1998) 11,816 19,908
General partner (59,128) (58,976)
------------ ------------
Total Partners' Capital (26,300) (11,083)
------------ ------------
Total Liabilities and Partners' Capital $630,289 $621,223
============ ============
See notes to consolidated financial statements
1
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per unit data)
(unaudited)
For the three months ended For the nine months ended
----------------------------- -----------------------------
April 30, April 30, April 30, April 30,
1999 1998 1999 1999
----------------------------------------------------------------
Revenues:
Gas liquids and related product sales $161,192 $166,066 $495,735 $545,110
Other 8,700 9,101 34,573 32,073
------------ ------------- ------------- -------------
Total revenues 169,892 175,167 530,308 577,183
Cost of product sold (exclusive of
depreciation, shown separately below) 70,171 85,718 230,211 303,213
------------ ------------- ------------- -------------
Gross profit 99,721 89,449 300,097 273,970
Operating expense 52,811 49,328 160,763 154,280
Depreciation and amortization expense 12,156 11,193 35,273 33,717
Employee stock ownership compensation charge 800 - 2,490 -
General and administrative expense 5,366 4,231 14,231 12,510
Vehicle and tank lease expense 3,351 2,621 9,492 7,432
------------ ------------- ------------- -------------
Operating income 25,237 22,076 77,848 66,031
Interest expense (11,264) (12,121) (34,842) (36,843)
Interest income 330 548 874 1,347
Gain (loss) on disposal of assets (495) 421 (1,007) 115
------------ ------------- ------------- -------------
Earnings before minority interest and
extraordinary item 13,808 10,924 42,873 30,650
Minority interest 179 149 550 427
------------ ------------- ------------- -------------
Earnings before extraordinary item 13,629 10,775 42,323 30,223
Extraordinary loss on early extinguishment
of debt, net of minority interest of $130 - - (12,786) -
------------ ------------- ------------- -------------
Net earnings 13,629 10,775 29,537 30,223
General partner's interest in net earnings 136 107 295 302
------------ ------------- ------------- -------------
Limited partners' interest in net earnings $13,493 $10,668 $29,242 $29,921
============ ============= ============= =============
Net earnings per limited partner unit:
Earnings before extraordinary item $ 0.43 $ 0.34 $ 1.34 $ 0.96
Extraordinary loss - - 0.41 -
------------ ------------- ------------- -------------
Net earnings $ 0.43 $ 0.34 $ 0.93 $ 0.96
============ ============= ============= =============
Net earnings per limited partner unit-assuming dilution:
Earnings before extraordinary item $ 0.43 $ 0.34 $ 1.34 $ 0.95
Extraordinary loss - - 0.41 -
------------ ------------- ------------- -------------
Net earnings $ 0.43 $ 0.34 $ 0.93 $ 0.95
============ ============= ============= =============
See notes to consolidated financial statements.
2
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Number of units
-----------------------------
Sub- Sub- Total
Common ordinated Common ordinated General partners'
Unitholders Unitholders Unitholders Unitholders partner capital
-------------- -------------- -------------------------- ---------------- -----------
July 31, 1998 14,699.7 16,593.7 $27,985 $19,908 $(58,976) $(11,083)
Common units issued in
connection with
acquisitions 11.1 - 197 - 2 199
Contribution from general
partner in connection with
ESOP compensation charge - - 165 2,275 25 2,465
Quarterly distributions - - (22,053) (24,891) (474) (47,418)
Net earnings - - 14,718 14,524 295 29,537
-------------- -------------- --------------- ----------- ---------------- -----------
April 30, 1999 14,710.8 16,593.7 $21,012 $11,816 $(59,128) $(26,300)
============== ============== =============== =========== ================ ===========
See notes to consolidated financial statements.
3
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the nine months ended
--------------------------------
April 30, April 30
1999 1998
--------------- ----------------
Cash Flows From Operating Activities:
Net earnings $29,537 $30,223
Reconciliation of net earnings to net cash
provided by operating activities:
Depreciation and amortization 35,273 33,717
Extraordinary loss, net of minority interest 12,786 -
Employee stock ownership compensation charge 2,490 -
Other 4,461 3,290
Changes in operating assets and liabilities
net of effects from business acquisitions:
Accounts and notes receivable (12,212) (9,842)
Inventories 7,040 15,708
Prepaid expenses and other current assets 1,491 2,106
Accounts payable (6,360) (1,223)
Other current liabilities 561 (9,874)
Other liabilities 2,305 428
--------------- ----------------
Net cash provided by operating activities 77,372 64,533
--------------- ----------------
Cash Flows From Investing Activities:
Business acquisitions (27,915) (4,080)
Capital expenditures (20,558) (15,267)
Other 1,360 3,278
--------------- ----------------
Net cash used in investing activities (47,113) (16,069)
--------------- ----------------
Cash Flows From Financing Activities:
Net reductions to short-term borrowings (21,150) (16,123)
Additions to long-term debt 394,745 11,438
Reductions of long-term debt (351,689) (1,622)
Cash paid for call premiums and debt issuance costs (12,528) -
Distributions (47,418) (47,371)
Other (557) (519)
--------------- ----------------
Net cash used in financing activities (38,597) (54,197)
--------------- ----------------
Decrease in cash and cash equivalents (8,338) (5,733)
Cash and cash equivalents - beginning of period 16,961 14,788
--------------- ----------------
Cash and cash equivalents - end of period $8,623 $9,055
=============== ================
Cash paid for interest $33,974 $36,540
=============== ================
See notes to consolidated financial statements
4
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
(unaudited)
A. The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the interim periods
presented. All adjustments to the financial statements were of a normal,
recurring nature.
B. The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from these
estimates.
C. The propane industry is seasonal in nature with peak activity during the
winter months. Therefore, the results of operations for the periods ended
April 30, 1999 and April 30, 1998 are not necessarily indicative of the
results to be expected for a full year.
D. Quarterly Distributions of Available Cash
Ferrellgas Partners, L.P. ("the Partnership") makes quarterly cash
distributions of all of its "Available Cash", generally defined as
consolidated cash receipts less consolidated cash disbursements and net
changes in reserves established by Ferrellgas, Inc. ("the General Partner")
for future requirements. These reserves are retained to provide for the
proper conduct of the Partnership business, or to provide funds for
distributions with respect to any one or more of the next four fiscal
quarters.
Distributions by the Partnership in an amount equal to 100% of its Available
Cash will generally be made 98% to the Common and Subordinated Unitholders
(the "Unitholders") and 2% to the General Partner, subject to the payment of
incentive distributions to the holders of Incentive Distribution Rights to
the extent that certain target levels of cash distributions are achieved. To
the extent there is sufficient Available Cash, the holders of Common Units
have the right to receive the "Minimum Quarterly Distribution" ($0.50 per
Unit), plus any "arrearages", prior to any distribution of Available Cash to
the holders of Subordinated Units. Common Units will not accrue arrearages
for any quarter after the "Subordination Period" (as defined below) and
Subordinated Units will not accrue any arrearages with respect to
distributions for any quarter.
In general, the Subordination Period will continue indefinitely until the
first day of any quarter beginning on or after August 1, 1999, in which the
following requiremnts are met: (i) distributions of Available Cash
constituting Cash from Operations (as defined in the Partnership Agreement)
equal or exceed the Minimum Quarterly Distribution on the Common Units and the
Subordinated Units for each of the three consecutive four quarter periods
immediately preceding such date and (ii) the Partnership has invested at least
$50 million in acquisitions and capital additions or improvements to increase
the operating capacity of the Partnership. Upon expiration of the Subordination
Period, all remaining Subordinated Units will convert to Common Units.
Management believes it is reasonably probable that the Partnership will meet
both requirements and thus, the Subordinated Units will convert into Common
Units during the quarter beginning on August 1, 1999.
E. Inventories consist of:
April 30, July 31,
(in thousands) 1999 1998
---------------- --------------
Liquefied propane gas and related products $19,555 $26,316
Appliances, parts and supplies 9,001 8,411
---------------- --------------
$28,556 $34,727
================ ==============
5
In addition to inventories on hand, the Partnership enters into contracts
to buy product for supply purposes. Nearly all such contracts have terms of
less than one year and most call for payment based on market prices at date
of delivery. All fixed price contracts have terms of less than one year. As
of April 30, 1999, the Partnership had not committed to take delivery of a
material amount of gallons at a fixed price for its estimated future retail
propane sales.
Property, plant and equipment, net consist of:
April 30, July 31,
(in thousands) 1999 1998
--------------- ---------------
Property, plant and equipment $645,576 $620,783
Less: accumulated depreciation 240,630 224,928
--------------- ---------------
$404,946 $395,855
=============== ===============
Intangible assets, net consist of:
April 30, July 31,
(in thousands) 1999 1998
--------------- ---------------
Intangible assets $246,504 $229,186
Less: accumulated amortization 135,153 123,531
--------------- ---------------
$111,351 $105,655
=============== ===============
F. Long-Term Debt
Long-term debt consists of:
April 30, July 31,
(in thousands) 1999 1998
-------------- ------------
Senior Notes
Fixed rate, 7.16%, due 2005-2013 (1) $350,000 $ -
Fixed rate, 10%, due 2001 (1) - 200,000
Fixed rate, 9.375%, due 2006 160,000 160,000
Credit Agreement
Term loan, 8.5%, due 2001 - 50,000
Revolving credit loans, 5.7% and 8.5%, due 2001 30,600 85,850
Notes payable, 8.3% and 6.7% weighted average interest rates,
respectively, due 1999 to 2007 17,975 13,558
-------------- ------------
558,575 509,408
Less: current portion 2,872 2,186
-------------- ------------
$555,703 $507,222
============== ============
(1) Ferrellgas, L.P. ("the OLP") fixed rate Senior Notes, issued in
June 1994, were redeemed at the option of the OLP on August 5, 1998
with a 5% premium payable concurrent with the issuance of
$350,000,000 of new unsecured OLP Senior Notes.
On July 1, 1998, the OLP entered into an agreement for the issuance of $350
million of privately placed fixed rate senior notes ("New Senior Notes")
funded August 4, 1998 in five series with maturities ranging from year 2005
through 2013. The proceeds of the offering were used to redeem the OLP
fixed rate Senior Notes issued in June 1994, and to repay outstanding
indebtedness under the Credit Facility.
6
The OLP entered into an agreement on July 2, 1998, with the lenders under
the existing Credit Facility for an amended and restated credit facility ("New
Credit Facility") effective August 4, 1998. The New Credit Facility provides for
(i) a $40,000,000 unsecured working capital facility subject to an annual
reduction in borrowings to zero for thirty consecutive days, (ii) a $50,000,000
unsecured working capital and general corporate facility, including a letter of
credit facility, and (iii) a $55,000,000 unsecured general corporate and
acquisition facility. The New Credit Facility matures July 2, 2001.
The OLP entered into an additional revolving credit agreement ("Additional
Credit Facility") on April 30, 1999, with certain lenders that are part of
the New Credit Facility. This additional facility provides for a
$38,000,000 unsecured facility for acquisitions, capital expenditures, and
general corporate purposes. Any outstanding Additional Credit Facility
balance at April 29, 2000, may be converted to a term loan and will be due
and payable in full July 2, 2001.
G. The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
contingent claims that individually or in the aggregate are likely to have
a material adverse effect on the results of operations, financial condition
or cash flows of the Partnership.
H. On September 14, 1998, December 15, 1998, March 15, 1999, and
June 14, 1999, the Partnership paid cash distributions of $0.50 per
unit for each of the quarters ended July 31, 1998, October 31, 1998,
January 31, 1999, and April 30, 1999, respectively.
I. Below is a calculation of the basic and diluted units used to calculate
earnings per basic and dilutive unit on the Statement of Earnings.
(in thousands, except per unit data)
Three months ended Nine months ended
------------------ ------------------
April 30, April 30, April 30, April 30,
1999 1998 1999 1998
---------- ------------ ---------- -----------
Income available to common and
subordinate unitholders $13,493 $10,688 $29,242 $29,921
Weighted average outstanding units
31,299.37 31,293.40 31,296.79 31,269.15
Basic EPU $0.43 $0.34 $0.93 $0.96
=================================== ==================================
Income available to common and
subordinate unitholders $13,493 $10,688 $29,242 $29,921
Weighted average outstanding units
31,299.37 31,293.40 31,296.79 31,269.15
Dilutive securities - options 0 61.85 28.81 78.27
---------------- ----------------- ----------------- ----------------
Weighted average outstanding units
+ dilutive 31,299.37 31,355.25 31,325.60 31,347.42
Diluted EPU $0.43 $0.34 $0.93 $0.95
================ ================= ================= ================
7
16
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
BALANCE SHEETS
April 30, July 31,
ASSETS 1999 1998
- -------------------------------------------------------------------- ------------------ -------------------
(unaudited)
Cash $1,000 $1,000
------------------ -------------------
Total Assets $1,000 $1,000
================== ===================
STOCKHOLDER'S EQUITY
- --------------------------------------------------------------------
Common stock, $1.00 par value; 2,000 shares
authorized; 1,000 shares issued and outstanding $1,000 $1,000
Additional paid in capital 774 548
Accumulated deficit (774) (548)
------------------ -------------------
Total Stockholder's Equity $1,000 $1,000
================== ===================
STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended Nine Months Ended
------------------------------------------- ----------------------------------
April 30, April 30, April 30, April 30,
1999 1998 1999 1998
--------------------- -------------------- --------------- ------------------
General and administrative expense $ 181 $ 176 $ 226 $ 291
--------------------- -------------------- --------------- ------------------
Net loss $(181) $(176) $(226) $(291)
===================== ==================== =============== ==================
See notes to financial statements.
8
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly owned subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months ended
-------------------------------------------
April 30, April 30,
1999 1998
-------------------- --------------------
Cash Flows From Operating Activities:
Net loss $ (226) $ (291)
-------------------- --------------------
Cash used by operating activities (226) (291)
-------------------- --------------------
Cash Flows From Financing Activities:
Capital contribution 226 291
-------------------- --------------------
Cash provided by financing activities 226 291
-------------------- --------------------
Increase (decrease) in cash - -
Cash - beginning of period 1,000 1,000
-------------------- --------------------
Cash - end of period $1,000 $1,000
==================== ====================
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
(unaudited)
A. Ferrellgas Partners Finance Corp., a Delaware corporation, was formed on
March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners,
L.P.
B. The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the interim periods
presented. All adjustments to the financial statements were of a normal,
recurring nature.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the results of operations and liquidity
and capital resources of Ferrellgas Partners, L.P. (the "Partnership" or "MLP").
Except for the $160,000,000 of 9 3/8% Senior Secured Notes issued in April 1996
by the MLP (the "MLP Senior Notes") and the related interest expense,
Ferrellgas, L.P. (the "Operating Partnership" or "OLP") accounts for nearly all
of the consolidated assets, liabilities, sales and earnings of the MLP. When the
discussion refers to the consolidated MLP, the term Partnership will be used.
Ferrellgas Partners Finance Corp. has nominal assets and does not
conduct any operations. Accordingly, a discussion of the results of operations
and liquidity and capital resources is not presented.
Forward-looking statements
Statements included in this report that are not historical facts, including
statements concerning the General Partner's belief regarding the probability of
the future conversion of Subordinated Units into Common Units and the belief
that the OLP will have sufficient funds to meet its obligations and to enable it
to distribute to the MLP sufficient funds to permit the MLP to meet its
obligations with respect to the MLP Senior Notes issued in April 1996, and
sufficient funds to fund the Minimum Quarterly Distribution ($0.50 per Unit) on
all Common and Subordinated Units, are forward-looking statements.
Such statements are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed in or implied by the
statements. The risks and uncertainties include but are not limited to the
following and their effect on the Partnership's operations: a) the effect of
weather conditions on demand for propane, b) price and availability of propane
supplies, c) the availability of capacity to transport propane to market areas,
d) competition from other energy sources and within the propane industry, e)
operating risks incidental to transporting, storing, and distributing propane,
f) changes in interest rates, g) governmental legislation and regulations, h)
energy efficiency and technology trends and i) Year 2000 compliance and j) other
factors that are discussed in the Partnership's most recent 1933 Act filing with
the Securities and Exchange Commission, Amendment No. 1 to Form S-3 Registration
Statement, as filed February 5, 1999.
Year 2000 Compliance
Many computer systems and applications in use throughout the world today
may not be able to appropriately interpret dates beginning in the year 2000
("Year 2000" issue). As a result, this problem could have adverse consequences
on the operations of companies and the integrity of information processing.
The Partnership began the process in 1997 of identifying and correcting its
computer systems and applications that were exposed to the Year 2000 issue. The
Partnership initially focused on the systems and applications that were
considered critical to its operations and services for supplying propane to its
customers and to its ability to account for those business services accurately.
These critical areas include the retail propane accounting and operation
systems, financial accounting and reporting system, supply and distribution
accounting and operating system, payroll system, local and wide area networks
and electronic mail systems. The supply and distribution accounting and
operating system and payroll system are believed to be Year 2000 compliant. The
financial accounting and reporting system is expected to be Year 2000 compliant
by the end of June 1999, while the local and wide area networks are expected to
be Year 2000 compliant by the beginning of August 1999. The Partnership is
currently converting the electronic mail system and the retail propane
accounting and operations systems and expects both systems to be Year 2000
compliant by the beginning of November 1999.
10
The Partnership has also taken steps to identify other non-critical
applications that may have exposure to the Year 2000 issue. It has established a
separate company group to independently test these applications for Year
2000 compliance. To date, no material Year 2000 issues have been identified as a
result of this testing.
There can be no assurance that every system in every location where
Ferrellgas conducts business will function properly on January 1, 2000. In
addition, there are other Year 2000 risks which are beyond the Partnership's
control, any of which if wide spread could have a material adverse affect on the
Partnership's operations. Such risks include, but are not limited to, the
failure of utility and telecommunications companies to provide service. For
these reasons, the Partnership has developed a contingency plan should Year 2000
problems temporarily affect any of our locations. Each Ferrellgas location has
been provided with a contingency plan that contains, among others, procedures to
keep the Partnership's plants operational, to access emergency management
personnel, and to utilize cellular phones.
The Partnership conducts business with several hundred outside suppliers.
While no single supplier is considered material to the Partnership, a combined
number could constitute a material amount to the Partnership. The Partnership is
currently reviewing its largest suppliers to obtain appropriate assurances that
they are, or will be, Year 2000 compliant. If compliance by the Partnership's
suppliers is not achieved in a timely manner, it is unknown what effect, if any,
the Year 2000 issue could have on the Partnership's operations.
The Partnership has evaluated its Year 2000 issues and does not expect that
the total cost of related modifications and conversions will have a material
effect on its financial position, results of operations or cash flows. Such
costs are being expensed as incurred. To date, the Partnership has incurred
approximately $600,000 to identify and correct its Year 2000 issues. This
expense has been primarily related to its critical systems and applications. It
is estimated that in calendar year 1999 the Partnership will incur an additional
$50,000 to $250,000 to identify and correct its Year 2000 issues. The
Partnership does not anticipate significant purchases of computer software or
hardware as a result of its Year 2000 issue and does not believe that the
correction of any Year 2000 issues will delay or eliminate other scheduled
computer upgrades and replacements. Despite the Partnership's efforts to address
and remediate the Year 2000 issue, there can be no assurance that all critical
areas and non-critical applications will continue without interruption through
January 1, 2000 and beyond.
Results of Operations
The propane industry is seasonal in nature with peak activity during the
winter months. Due to the seasonality of the business, results of operations for
the three and nine months ended April 30, 1999 and 1998, are not necessarily
indicative of the results to be expected for a full year. Other factors
affecting the results of operations include competitive conditions, demand for
product, variations in weather and fluctuations in propane prices. As the
Partnership has grown through acquisitions, fixed costs such as personnel costs,
depreciation and interest expense have increased. Historically, these fixed cost
increases have caused losses in the first and fourth quarters and net income in
the second and third quarters to be more pronounced.
Three Months Ended April 30, 1999 vs. April 30, 1998
Revenues. Total gas liquids and related product sales decreased 2.9% to
$161,192,000 as compared to $166,066,000 in the third quarter of fiscal 1998,
primarily due to decreased sales price for retail and wholesale sales, partially
offset by an increase in retail sales volume due to the effect of acquisitions
and cooler temperatures than in the same quarter last year.
11
Retail and wholesale sales prices per gallon were lower than those in the
same quarter last year due to the lower wholesale cost of propane experienced in
the current year. Retail volumes increased 9.5% to 191,783,000 gallons as
compared to 175,168,000 gallons for the same quarter last year, primarily due to
the effect of acquisitions and the effect of cooler weather than the same
quarter as last year. Fiscal 1999 winter temperatures, as reported by the
American Gas Association ("AGA"), were 4.5% cooler than the same quarter last
year and 9.0% warmer than normal.
Gross Profit. Gross profit increased 11.5% to $99,721,000 as compared to
$89,449,000 in the third quarter of fiscal 1998, primarily due to increased
retail volumes, the effect of acquisitions, and to a lesser extent increased
retail margins.
Operating Expenses. Operating expenses increased 7.1% to $52,811,000 as
compared to $49,328,000 in the third quarter of fiscal 1998 primarily due to
acquisition related increases in personnel costs, plant and office expenses,
vehicle and other expenses and merit salary increases.
Depreciation and Amortization. Depreciation and amortization expense
increased 8.6% to $12,156,000 as compared to $11,193,000 in the same quarter
last year primarily due to the addition of intangibles and property, plant and
equipment from acquisitions of propane businesses.
Vehicle and Tank Lease Expense. Vehicle and tank lease expense increased by
$730,000 due to the continued use of operating lease financing to fund fleet
upgrades and replacements.
Interest expense. Interest expense decreased 7.1% to $11,264,000 as
compared to $12,121,000 in the third quarter of fiscal 1998. This decrease is
primarily the result of a decrease in the overall average interest rate paid by
the Partnership on its borrowings as a result of the refinancing of the fixed
rate debt and existing revolving credit facility balances , partially offset by
the effect of increased borrowings for acquisition and growth capital
expenditures (see Financing Activities below).
Nine Months Ended April 30, 1999 vs. April 30, 1998
Revenues. Total gas liquids and related product sales decreased 9.1% to
$495,735,000 as compared to $545,110,000 for the prior period, primarily due to
decreased sales price per gallon.
Retail and wholesale sales prices per gallon were lower than those during
the prior period due to the lower wholesale cost of propane experienced in the
current period. Retail volumes increased 2.5% to 587,711,000 gallons as compared
to 573,644,000 gallons for the same period last year, primarily due to the
effect of acquisitions, partially offset by the effect of warmer weather than
the prior year. Fiscal 1999 winter temperatures, as reported by the AGA, were
1.2% warmer than the same period as last year and 9.0% warmer than normal.
Gross Profit. Gross profit increased 9.5% to $300,097,000 as compared to
$273,970,000 in the same period last year, primarily due to the effect of
increased retail margins related to favorable wholesale propane costs and the
effect of acquisitions, partially offset by the effect of warmer temperatures on
retail volumes.
Operating Expenses. Operating expenses increased 4.2% to $160,763,000 as
compared to $154,280,000 in the same period last year primarily due to
acquisition related increases in personnel costs, plant and office expenses,
vehicle and other expenses and merit salary increases.
Depreciation and Amortization. Depreciation and amortization expense
increased 4.6% to $35,273,000 as compared to $33,717,000 for the same period
last year primarily due to the addition of intangibles and property, plant and
equipment from acquisitions of propane businesses.
12
Vehicle and Tank Lease Expense. Vehicle and tank lease expense increased by
$2,060,000 due to the continued use of operating lease financing to fund fleet
upgrades and replacements.
Interest expense. Interest expense decreased 5.4% to $34,842,000 as
compared to $36,843,000 in the same period last year. This decrease is primarily
the result of a decrease in the overall average interest rate paid by the
Partnership on its borrowings as a result of the refinancing of the fixed rate
debt and existing revolving credit facility balances, partially offset by the
effect of increased borrowings for aqcuisition and growth capital expenditures
(see Financing Activities below).
The extraordinary charge is due primarily to the payment of a $10,000,000
call premium related to the refinancing of $200,000,000 of fixed rate debt on
August 5, 1998. The remaining costs relate to the write off of unamortized debt
issuance costs related to refinancing of the fixed rate debt and revolving
credit facility balances. (see Financing Activities below).
Liquidity and Capital Resources
The ability of the MLP to satisfy its obligations is dependent upon future
performance of the OLP, which will be subject to prevailing economic, financial,
business and weather conditions and other factors, many of which are beyond its
control. For the fiscal year ending July 31, 1999, the General Partner believes
that the OLP will have sufficient funds to meet its obligations and enable it to
distribute to the MLP sufficient funds to permit the MLP to meet its obligations
with respect to the $160,000,000 senior secured notes issued in April 1996 ("MLP
Senior Secured Notes").
The MLP Senior Secured Notes, the $350,000,000 OLP senior notes ("New
Senior Notes"), the amended and restated OLP credit facility ("New Credit
Facility") and the additional OLP revolving credit agreement ("Additional Credit
Facility") (see Financing Activitiees below) contain several financial tests
which restrict the Partnership's ability to pay distributions, incur
indebtedness and engage in certain other business transactions. These tests, in
general, are based on the ratio of the MLP's and OLP's consolidated cash flow to
fixed charges, primarily interest expense. Because the Partnership is more
highly leveraged at the MLP than at the OLP, the tests related to the MLP Senior
Secured Notes are more sensitive to fluctuations in consolidated cash flows and
fixed charges. The most sensitive of the MLP related tests restricts the
Partnership's ability to make certain Restricted Payments which include, but are
not limited to, the payment of the Minimum Quarterly Distribution ("MQD") to
unitholders.
Although the MLP's financial performance during fiscal 1999 has been
adversely affected by warmer temperatures, the Partnership believes it will
continue to meet the MLP Senior Secured Notes Restricted Payment test during
fiscal 1999, in addition to meeting the other financial tests in the MLP Senior
Secured Notes, New Senior Notes, New Credit Facility and the Additional Credit
Facility. However, if the OLP were to encounter any unexpected downturns in
business operations, it could result in the Partnership not meeting certain
financial tests in future quarters, including but not limited to, the MLP Senior
Secured Notes Restricted Payment test. Depending on the circumstances, the
Partnership would pursue alternatives to permit the continued payment of MQD to
its Common Unitholders. No assurances can be given, however, that such
alternatives will be successful with respect to any given quarter.
Provided that certain remaining financial tests are satisfied, the
subordination period will end and the Subordinated Units will convert to Common
Units during the quarter beginning on August 1, 1999. The financial tests, among
others, which apply to each of the three consecutive four quarter periods ending
on July 31, 1999, are related to making the MQD on all Common and Subordinated
Units. These are more fully described in Note D to the Consolidated Financial
Statements provided herein. The Partnership met such financial tests for the
four quarter periods ended July 31, 1997 and July 31, 1998, and made the Minimum
Quarterly Distribution on all Units for the three quarters ended October 31,
1998, January 31, 1999, and April 30, 1999, respectively. There can be no
assurance that the Partnership will meet the remaining financial test for the
four quarter period ending July 31, 1999, and that the Subordinated Units will
13
convert to Common Units during the quarter begining on August 1, 1999.
Management believes, however, that it is reasonably probable that the
Partnership will meet the remaining financial test and thus, the Subordinated
Units will convert into Common Units during that quarter.
Future maintenance and working capital needs of the Partnership are
expected to be provided by cash generated from future operations, existing cash
balances and the working capital borrowing facility. In order to fund expansive
capital projects and future acquisitions, the OLP may borrow on either of its
revolving bank lines, the MLP or OLP may issue additional debt or the MLP may
issue additional equity securities, including among others, Common Units.
Toward this purpose, on January 25, 1999, the MLP filed a shelf
registration statement with the Securities and Exchange Commission (the
"Commission") for the periodic sale of up to $300,000,000 in debt and/or equity
securities. The registered securities would be available for sale by the
Partnership in the future to fund acquisitions or to reduce indebtedness. Also,
the Partnership maintains a shelf registration statement with the Commission for
1,800,322 Common Units representing limited partner interests in the MLP. The
Common Units may be issued from time to time by the MLP in connection with the
OLP's acquisition of other businesses, properties or securities in business
combination transactions.
Operating Activities. Cash provided by operating activities was $77,372,000
for the nine months ended April 30, 1999, compared to $64,533,000 for the prior
period. This increase in cash is primarily due to increased earnings before both
an extraordinary loss on early extinguishment of debt and the non-cash employee
stock ownership compensation charge partially offset by less cash generated from
a decrease in propane inventory in fiscal year 1999 as compared to fiscal year
1998. Additional increases in cash from operations included reductions in
changes in other current liabilities, including accrued profit sharing.
Beginning in July 1998, profit sharing compensation costs were replaced by a
non-cash employee stock ownership plan compensation expense.
Investing Activities. During the nine months ended April 30, 1999, the
Partnership made total acquisition capital expenditures of $33,202,000. This
amount was funded by $27,915,000 cash payments, $5,088,000 of noncompete notes,
$199,000 of Partnership units issued.
During the nine months ended April 30, 1999, the Partnership made growth
and maintenance capital expenditures of $20,558,000 consisting primarily of the
following: 1) expanding storage facilities and additions to Partnership-owned
customer tanks and cylinders, 2) installation of new payroll system software and
upgrading other computer equipment and software 3) relocating and upgrading
district plant facilities, and 4) vehicle lease buyouts. Capital requirements
for repair and maintenance of property, plant and equipment are relatively low
since technological change is limited and the useful lives of propane tanks and
cylinders, the Partnership's principal physical assets, are generally long.
The Partnership meets its vehicle and transportation equipment fleet needs
by leasing light and medium duty trucks and tractors. The General Partner
believes vehicle leasing is a cost effective method for meeting the
Partnership's transportation equipment needs.
The Partnership continues seeking to expand its operations through
strategic acquisitions of retail propane operations located throughout the
United States. These acquisitions will be funded through internal cash flow,
external borrowings or the issuance of additional Partnership interests. The
Partnership does not have any material commitments of funds for capital
expenditures other than to support the current level of operations.
Financing Activities. On August 4, 1998, the OLP issued $350,000,000 of new
privately placed unsecured senior notes ("New Senior Notes") and entered into a
$145,000,000 revolving credit facility ("New Credit Facility") with its existing
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bank. The proceeds of the New Senior Notes, which include five series with
maturities ranging from year 2005 through 2013 at an average fixed interest rate
of 7.16%, were used to redeem $200,000,000 of OLP fixed rate Senior Notes
("Senior Notes") issued in July 1994, including a 5% call premium, and to repay
outstanding indebtedness under the revolving credit facility. As a result of
these financings, the Partnership expects to continue to realize a decrease in
interest expense during the last quarter of fiscal 1999 as compared to the prior
year.
The OLP entered into a credit facility agreement on April 30, 1999. This
new facility ("Additional Credit Facility") provides for a $38,000,000 unsecured
facility for acquisitions, capital expenditures, and general corporate purposes.
The outstanding Additional Credit Facility balance at April 29, 2000, may be
converted to a term loan and will be due and payable in full July 2, 2001.
On July 17, 1998, all of the outstanding common stock of Ferrell Companies,
Inc. ("Ferrell") was purchased by a newly established Employee Stock Ownership
Trust. As a result of this change in control in the ownership of Ferrell and
indirectly in the General Partner, the MLP, pursuant to the MLP Senior Secured
Note Indenture, was required to offer to purchase the outstanding notes at a
price of 101% of the principal amount thereof. The offer to purchase was made on
July 27, 1998 and expired August 26, 1998. Upon the expiration of the offer, the
MLP accepted for purchase $65,000 of the notes which were all of the notes
tendered pursuant to the offer. The MLP assigned its right to purchase the notes
to a third party.
During the nine months ended April 30, 1999, the Partnership repaid
$21,150,000 to its credit facility as it related to the funding of working
capital, business acquisitions, and capital expenditure needs. At April 30,
1999, $30,600,000 of borrowings were outstanding under the revolving portion of
the New Credit Facility. Letters of credit outstanding, used primarily to secure
obligations under certain insurance arrangements, totaled $23,065,000. The
Additional Credit Facility had no borrowings outstanding at April 30, 1999. At
April 30, 1999, the Operating Partnership had $129,335,000 available for general
corporate, acquisition and working capital purposes under its two credit
facilities.
On September 14, 1998, December 15, 1998, March 15, 1999 and June 14, 1999
the Partnership paid cash distributions of $0.50 per unit for each of the
quarters ended July 31, 1998, October 31, 1998, January 31, 1999 and April 30,
1999, respectively.
Adoption of New Accounting Standards. The Financial Accounting Standards
Board ("the FASB") recently issued the following new accounting standards: SFAS
No. 130 "Reporting Comprehensive Income", SFAS No. 131 "Disclosures About
Segments of an Enterprise and Related Information", SFAS No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits" and SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS Nos. 130,
131 and 132 are required to be adopted by the Partnership for the fiscal year
ended July 31, 1999. The adoption of SFAS Nos. 130 and 132 are not expected to
have a material effect on the Partnership's financial position or results of
operations. The Partnership is currently assessing the impact of SFAS No. 131 on
disclosure requirements for the next year. Due to a recent decision by the FASB
to postpone its implementation, SFAS No. 133 is required to be adopted by the
Partnership for the fiscal year ended July 31, 2001. The adoption of SFAS Nos.
133 is not expected to have a material effect on the Partnership's financial
position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Partnership's market risk sensitive
instruments and positions is the potential loss arising from adverse changes in
commodity prices. Additionally, the Partnership seeks to mitigate its interest
rate risk exposure on variable rate debt by entering into interest rate collar
agreements. As of April 30, 1999, the Partnership had only $30,600,000 of
variable rate debt and $25,000,000 notional amount of interest rate collar
agreements effectively outstanding. Thus, assuming a material change in the
variable interest rate to the Partnership, the interest rate risk related to the
variable rate debt and the associated interest rate collar agreements is not
material to the Partnership's financial position.
The Partnership's trading activities utilize certain types of energy
commodity forward contracts and swaps traded on the over-the-counter financial
15
markets and futures traded on the New York Mercantile Exchange ("NYMEX" or
"Exchange") to anticipate market movements and manage its exposure to the
volatility of floating commodity prices and to protect its inventory positions.
Market risks associated with energy commodities are monitored daily for
compliance with the Partnership's trading policy. This policy includes specific
dollar exposure limits, limits on the term of various contracts and volume
limits for various energy commodities. The Partnership also utilizes loss limits
and daily review of open positions to manage exposures to changing market
prices.
Market and Credit Risk. NYMEX traded futures are guaranteed by the Exchange
and have nominal credit risk. The Partnership is exposed to credit risk
associated with forwards, futures, swaps and option transactions in the event of
nonperformance by counterparties. For each counterparty, the Partnership
analyzes the financial condition prior to entering into an agreement,
establishes credit limits and monitors the appropriateness of each limit. The
change in market value of Exchange-traded futures contracts requires daily cash
settlement in margin accounts with brokers. Forwards and most other
over-the-counter instruments are generally settled at the expiration of the
contract term.
Sensitivity Analysis. The Partnership has prepared a sensitivity analysis
to estimate the exposure to market risk of its energy commodity positions.
Forward contracts, futures, swaps and options were analyzed assuming a
hypothetical 10% change in forward prices for the delivery month for all energy
commodities. The potential loss in future earnings from these positions from a
10% adverse movement in market prices of the underlying energy commodities is
estimated at $1,900,000 as of April 30, 1999. Actual results may differ.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Short-Term Revolving Credit Agreement dated as of April
30, 1999, among Ferrellgas, L.P., Ferrellgas, Inc., Bank
Of America National Trust And Savings Association, as
agent, and the other financial institutions party hereto.
27.1 Financial Data Schedule - Ferrellgas Partners, L.P. (filed
in electronic format only).
27.2 Financial Data Schedule - Ferrellgas Partners Finance Corp
(filed in electronic format only).
(b) Reports on Form 8-K
None filed during the quarter ended April 30, 1999.
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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: June 14, 1999 By /s/ Kevin T. Kelly
---------------------------------
Kevin T. Kelly
Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS PARTNERS FINANCE CORP.
Date: June 14, 1999 By /s/ Kevin T. Kelly
---------------------------------
Kevin T. Kelly
Chief Financial Officer (Principal
Financial and Accounting Officer)
17