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 October 31, 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 December 2, 1999, the registrants had units or shares outstanding as follows:
Ferrellgas Partners, L.P. 31,307,116 Common Units
Ferrellgas Partners Finance
Corp. 1,000 Common Stock
FERRELLGAS PARTNERS, L.P. and SUBSIDIARIES
FERRELLGAS PARTNERS FINANCE CORP.
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page
Ferrellgas Partners, L.P. and Subsidiaries
Consolidated Balance Sheets - October 31, 1999 and July 31, 1999 1
Consolidated Statements of Earnings -
Three months ended October 31, 1999 and 1998 2
Consolidated Statement of Partners' Capital -
Three months ended October 31, 1999 3
Consolidated Statements of Cash Flows -
Three months ended October 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Ferrellgas Partners Finance Corp.
Balance Sheets - October 31, 1999 and July 31, 1999 8
Statements of Earnings - Three months ended October 31, 1999
and 1998 8
Statements of Cash Flows - Three months ended October 31, 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 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
October 31, July 31,
ASSETS 1999 1999
- ---------------------------------------------------------------------- ------------- -------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 12,261 $35,134
Accounts and notes receivable 84,563 58,380
Inventories 52,831 24,645
Prepaid expenses and other current assets 17,363 6,780
------------- -------------
Total Current Assets 167,018 124,939
Property, plant and equipment, net 405,450 405,292
Intangible assets, net 116,473 118,117
Other assets, net 8,340 8,397
------------- -------------
Total Assets $697,281 $656,745
============= =============
LIABILITIES AND PARTNERS' CAPITAL
- ----------------------------------------------------------------------
Current Liabilities:
Accounts payable $88,370 $60,754
Other current liabilities 45,537 48,266
Short-term borrowings 55,965 20,486
------------- -------------
Total Current Liabilities 189,872 129,506
Long-term debt 593,081 583,840
Other liabilities 12,300 12,144
Contingencies and commitments - -
Minority interest 650 906
Partners' Capital:
Common unitholders (31,307,116 and 14,710,765 units
outstanding at October 31, 1999 and July 31, 1999, respectively) (37,982) 1,215
Subordinated unitholders (0 and 16,593,721 units outstanding
at October 31, 1999 and July 31, 1999, respectively) - (10,516)
General partner (59,843) (59,553)
Accumulated other comprehensive income (797) (797)
------------- -------------
Total Partners' Capital (98,622) (69,651)
------------- -------------
Total Liabilities and Partners' Capital $697,281 $656,745
============= =============
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
-----------------------------------
October 31, 1999 October 31, 1998
------------------ ----------------
Revenues:
Gas liquids and related product sales $141,507 $118,002
Other 21,232 12,337
--------------- --------------
Total revenues 162,739 130,339
Cost of product sold (exclusive of
depreciation, shown separately below) 85,325 58,712
--------------- --------------
Gross profit 77,414 71,627
Operating expense 57,177 51,712
Depreciation and amortization expense 12,083 11,311
Employee stock ownership plan compensation charge 1,027 890
General and administrative expense 5,183 4,668
Equipment lease expense 3,853 2,968
--------------- --------------
Operating income (loss) (1,909) 78
Interest expense (12,581) (11,618)
Interest income 258 158
Gain (loss) on disposal of assets (96) 86
--------------- --------------
Loss before minority interest and
extraordinary item (14,328) (11,296)
Minority interest (106) (75)
--------------- --------------
Loss before extraordinary item (14,222) (11,221)
Extraordinary loss on early extinguishment of debt,
net of minority interest of $130 - (12,786)
--------------- --------------
Net loss (14,222) (24,007)
General partner's interest in net loss (142) (240)
--------------- --------------
Limited partners' interest in net loss $(14,080) $(23,767)
=============== ==============
Loss per limited partner unit:
Loss before extraordinary item $ (0.45) $ (0.35)
Extraordinary loss - (0.41)
--------------- --------------
Net loss $ (0.45) $ (0.76)
=============== ==============
Loss per limited partner unit-assuming dilution:
Loss before extraordinary item $ (0.45) $ (0.35)
Extraordinary loss - (0.41)
--------------- --------------
Net loss $ (0.45) $ (0.76)
=============== ==============
See notes to consolidated financial statements.
2
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Number of units Accumulated
------------------------ other
Sub- Sub- compre- Total
Common ordinated Common ordinated General hensive partners'
unitholders unitholders unitholders unitholders partner income capital
----------- ------------ ------------------------ ------------ ------------- ---------------
August 1, 1999 14,710.8 16,593.7 $ 1,215 $(10,516) $(59,553) $(797) $(69,651)
Conversion of
subordinated units 16,593.7 (16,593.7) (10,516) 10,516 - - -
into common units
Common units issued in -
connection with
acquisitions 2.6 - 45 - - - 45
Contribution from general
partner in connection
with ESOP compensation - - 1,007 - 10 - 1,017
charge
Quarterly distributions - - (15,653) - (158) - (15,811)
Comprehensive income:
Net loss - - (14,080) - (142) - (14,222)
---------------
Comprehensive income (14,222)
----------- ------------ ------------------------ ------------ ------------- ---------------
October 31, 1999 31,307.1 0.0 $(37,982) $ 0 $(59,843) $(797) $(98,622)
=========== ============ ======================== ============ ============= ===============
See notes to consolidated financial statements.
3
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the three months ended
-------------------------------------
October 31, 1999 October 31, 1998
------------------ -----------------
Cash Flows From Operating Activities:
Net loss $(14,222) $(24,007)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization 12,083 11,311
Extraordinary loss, net of minority interest - 12,786
Employee stock ownership plan compensation charge 1,027 890
Other 938 468
Changes in operating assets and liabilities net of
effects from business acquisitions:
Accounts and notes receivable (26,542) (10,951)
Inventories (27,640) (15,645)
Prepaid expenses and other current assets (10,583) (7,229)
Accounts payable 27,616 15,123
Other current liabilities (2,959) (2,679)
Other liabilities 157 (175)
------------------ -----------------
Net cash used in operating activities (40,125) (20,108)
------------------ -----------------
Cash Flows From Investing Activities:
Business acquisitions (6,527) (17,844)
Capital expenditures (6,205) (7,124)
Other 1,468 983
------------------ -----------------
Net cash used in investing activities (11,264) (23,985)
------------------ -----------------
Cash Flows From Financing Activities:
Net additions to short-term borrowings 35,479 27,541
Additions to long-term debt 10,223 370,719
Reductions of long-term debt (1,214) (336,090)
Cash paid for call premium and debt issuance costs - (12,528)
Distributions (15,811) (15,805)
Other (161) (161)
----------------- ------------------
Net cash provided by financing activities 28,516 33,676
------------------ -----------------
Decrease in cash and cash equivalents (22,873) (10,417)
Cash and cash equivalents - beginning of period 35,134 16,961
------------------ -----------------
Cash and cash equivalents - end of period $12,261 $6,544
================== =================
Cash paid for interest $13,708 $11,847
================== =================
See notes to consolidated financial statements.
4
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
(unaudited)
A. The financial statements of Ferrellgas Partners, L.P. and Subsidiaries (
the "Partnership") 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. These financial statements should be read in conjunction
with the financial statements and related notes included in our Annual
Report on Form 10-K for the year ended July 31, 1999.
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
October 31, 1999 and October 31, 1998 are not necessarily indicative of the
results to be expected for a full year.
D. Inventories consist of:
October 31, July 31,
(in thousands) 1999 1999
--------------- ---------------
Liquefied propane gas and related products $43,747 $15,480
Appliances, parts and supplies 9,084 9,165
--------------- ---------------
$52,831 $24,645
=============== ===============
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 October 31, 1999, the Partnership had committed to take delivery of
43,329,000 gallons at a fixed price for its estimated future retail propane
sales.
Property, plant and equipment, net consist of:
October 31, July 31,
(in thousands) 1999 1999
--------------- ---------------
Property, plant and equipment $656,374 $650,536
Less: accumulated depreciation 250,924 245,244
--------------- ---------------
$405,450 $405,292
=============== ===============
Intangible assets, net consist of:
October 31, July 31,
(in thousands) 1999 1999
--------------- ---------------
Intangible assets $259,977 $257,390
Less: accumulated amortization 143,504 139,273
--------------- ---------------
$116,473 $118,117
=============== ===============
5
E. Quarterly Distributions of Available Cash
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 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 are made within 45 days after the end of each fiscal
quarter ending January, April, July and October to holders of record on the
applicable record date.
Distributions by the Partnership in an amount equal to 100% of its Available
Cash will generally be made 98% to the Common 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.
Common Units do not accrue arrearages.
F. Partners' Capital
Ferrellgas Partners, L.P. ("MLP") partners' capital consists of
31,307,116 Common Units representing the entire limited partner
interest, and a 1% General Partner interest. The Agreement of Limited
Partnership of Ferrellgas Partners, L.P. (the "Partnership Agreement")
contains specific provisions for the allocation of net earnings and loss to
each of the partners for purposes of maintaining the partner capital
accounts.
In a non-cash transaction, effective, August 1, 1999, the
Subordination Period ended and the Subordinated Units converted to Common
Units. Certain financial tests, which were primarily related to making the
Minimum Quarterly Distribution on all Units, were satisfied for each of the
three consecutive four quarter periods ending July 31, 1999.
The Partnership maintains a shelf registration statement for Common Units
representing limited partner interests in the Partnership. The Common Units
may be issued from time to time by the Partnership in connection with the
Partnership's acquisition
of other businesses, properties or securities in business combination
transactions. The Partnership also maintains another shelf registration
statement for the issuance of Common Units, Deferred Participation Units,
Warrants and Debt Securities. The Partnership Agreement allows the General
Partner to issue an unlimited number of additional Partnership general and
limited interests and other equity securities of the Partnership for such
consideration and on such terms and conditions as shall be established by
the General Partner without the approval of any Unitholders.
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 are likely to have a material adverse effect on the
results of operations or financial condition of the Partnership.
H. On September 14, 1999, the Partnership paid a cash distribution of $0.50
per Common and Subordinated Unit for the quarter ended July 31, 1999. On
November 22, 1999, the Partnership declared its first-quarter cash
distribution of $0.50 per Common Unit, payable December 15, 1999.
6
I. Subsequent Events
On November 8, 1999, the Partnership announced that it had signed a
definitive agreement to purchase Thermogas Company, a subsidiary of
Williams, for total consideration of $432,500,000. At closing the seller
will receive $257,500,000 cash and $175,000,000 Senior Common Units. The
closing of the transaction is subject to customary conditions, including
regulatory approval.
Effective December 6, 1999, the Ferrellgas, L.P. (the "OLP") entered into
with Banc of America, as investor, and First Security Bank, as
lessor-trustee, a $25,000,000 synthetic lease transaction involving a
portion of the Partnership's customer tanks. The lease term extends over
three and one-half years and may be extended for two additional one-year
periods at the option of the OLP if such extension is approved by the
lessor.
7
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
BALANCE SHEETS
October 31, July 31,
ASSETS 1999 1999
- -------------------------------------------------------------------- ------------------ -------------------
(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 960 774
Accumulated deficit (960) (774)
------------------ -------------------
Total Stockholder's Equity $1,000 $1,000
================== ===================
STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended
-------------------------------------
October 31, October 31,
1999 1998
------------------ ------------------
General and administrative expense $ 186 $ 45
------------------ ------------------
Net loss $(186) $(45)
================== ==================
See notes to financial statements.
8
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly owned subsidiary of Ferrellgas
Partners, L.P.)
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
-------------------------------------------------
October 31, October 31,
1999 1998
--------------------- ------------------------
Cash Flows From Operating Activities:
Net loss $(186) $(45)
--------------------- ------------------------
Cash used in operating activities (186) (45)
--------------------- ------------------------
Cash Flows From Financing Activities:
Capital contribution 186 45
--------------------- ------------------------
Cash provided by financing activities 186 45
--------------------- ------------------------
Change 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
OCTOBER 31, 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 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 Year 2000 compliance 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 pay the
Minimum Quarterly Distribution ("MQD") ($0.50 per Unit) on all Common 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 and their effect on the Partnership's
operations include but are not limited to the following: 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, i) Year 2000 compliance of the
Partnership's suppliers and j) other factors that are discussed in the Risk
Factor section of 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 operations system
(including related computer hardware), financial accounting and reporting
system, supply and distribution accounting and operating system, payroll system,
local and wide area networks and electronic mail systems. All these systems are
now believed to be Year 2000 compliant.
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
10
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
has reviewed its largest suppliers, particularly liquid petroleum gas suppliers,
to obtain appropriate assurances that they are, or will be, Year 2000 compliant.
This review included general public disclosures made by the supplier, general
questionnaires and direct contact with suppliers regarding specific facilities.
While no supplier will provide assurances regarding Year 2000 compliance or the
effect from external factors on their operations, our review has indicated
suppliers are addressing Year 2000 issues. 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 $930,000 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 the remaining calendar year 1999 the Partnership will incur
an additional $51,000 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 months ended October 31, 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 net losses in the first and fourth quarters and net income in the
second and third quarters to be more pronounced.
Three Months Ended October 31, 1999 vs. October 31, 1998
Total Revenues. Total gas liquids and related product sales increased 19.9%
to $141,507,000 as compared to $118,002,000 in the first quarter of fiscal 1999,
primarily due to increased sales price per gallon and increased retail propane
volumes.
Sales price per gallon increased due to the effect of a significant
increase in the wholesale cost of propane as compared to the prior period.
Retail volumes increased 6.0% to 153,429,000 gallons as compared to 144,682,000
gallons for the prior period, primarily due to increased base business sales and
the effect of acquisitions, partially offset by reduced crop drying volumes
compared to the same quarter last year and hurricane related crop damage in the
southeastern United States. Other revenues increased by $8,895,000 primarily due
to favorable trading revenues.
11
Gross Profit. Gross profit increased 8.1% to $77,414,000 as compared to
$71,627,000 in the first quarter of fiscal 1999, primarily due to the favorable
trading profits and increased retail sales volume, partially offset by reduced
retail margins. Last year's margins benefited significantly from a low wholesale
cost environment. This cost environment was not repeated this year. In addition,
while the wholesale cost of propane rapidly increased during the quarter, the
sales price lagged the cost increase.
Operating Expenses. Operating expenses increased 10.6% to $57,177,000 as
compared to $51,712,000 in the first quarter of fiscal 1999 primarily due to
trading operations, merit salary increases, and acquisition related increases in
personnel costs, plant and office expenses, and vehicle and other expenses.
Equipment Lease Expense. Equipment lease expense, which includes vehicle,
propane tank and computer lease expense, increased by $885,000 primarily due to
the utilization of operating lease financing to fund fleet upgrades and
replacements.
Interest expense. Interest expense increased 8.3% to $12,581,000 as
compared to $11,618,000 in the first quarter of fiscal 1999. This increase is
primarily the result of increased borrowings related to acquisitions and capital
expenditures.
Extraordinary item. During fiscal year 1999, the Partnership recognized an
extraordinary loss of $12,786,000 net of minority interest of $130,000. The
gross extraordinary loss included a payment of a 5% premium and a write-off of
unamortized financing costs of $2,916,000, resulting primarily from the early
extinguishment of $200,000,000 of its fixed rate senior notes. (see Financing
Activities following).
Liquidity and Capital Resources
The ability of the MLP to satisfy its obligations is dependent upon future
performance, which will be subject to prevailing economic, financial, business
and weather conditions and other factors, many of which are beyond its control.
For the fiscal year ending July 31, 2000, 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") and enable it to distribute the MQD on all Common Units.
The MLP Senior Secured Notes, the $350,000,000 OLP senior notes ("Senior
Notes"), the $145,000,000 amended and restated OLP credit facility ("Credit
Facility") and the $38,000,000 additional OLP revolving credit agreement
("Additional Credit Facility") (See Financing Activities following) 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 MQD to
unitholders.
Although the MLP's financial performance during fiscal 1999 was adversely
impacted by unseasonably warmer temperatures, the Partnership believes it will
continue to meet the MLP Senior Secured Notes Restricted Payment test during
fiscal 2000, in addition to meeting the other financial tests in the MLP Senior
Secured Notes, Senior Notes, Credit Facility and Additional Credit Facility
agreements. 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.
12
No assurances can be given, however, that such
alternatives will be successful with respect to any given quarter.
In a non-cash transaction, on August 1, 1999, the subordination period
ended and the Subordinated Units converted to Common Units. This conversion is
more fully described in Note F of the Consolidated Financial Statements provided
herein.
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 existing 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 February 5, 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 MLP maintains a shelf registration statement with the Commission for
2,010,484 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 used in operating activities was $40,125,000 for
the three months ended October 31, 1999, compared to cash used in operating
activities of $20,108,000 for the prior period. This increased use of cash is
primarily due to the net effect of increased wholesale cost of product on
accounts receivable, inventory, and accounts payable and to a lesser extent the
timing of receipts and payments related to trading activities.
Investing Activities. During the three months ended October 31, 1999, the
Partnership made total acquisition capital expenditures of $6,708,000. This
amount was funded by $6,527,000 cash payments, $45,000 of Common Units issued
and $136,000 of other costs and consideration.
During the three months ended October 31, 1999, the Partnership made growth
and maintenance capital expenditures of $6,205,000 consisting primarily of the
following: 1) additions to Partnership-owned customer tanks and cylinders, 2)
relocating and upgrading district plant facilities, 3) vehicle lease buyouts,
and 4) upgrading computer equipment and software. 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 smaller 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.
On November 8, 1999, the Partnership announced that it had signed a
definitive agreement to purchase Thermogas Company, a subsidiary of Williams,
for total consideration of $432,500,000. At closing the seller will receive
$257,500,000 cash and $175,000,000 Senior Common Units. The closing of the
transaction is subject to customary conditions, including regulatory approval.
Other than future effects from the Thermogas acquisition, the Partnership does
not have any material commitments of funds for capital expenditures other than
to support the current level of operations. In fiscal 2000, the Partnership does
expect an increase in growth and maintenance capital expenditures as compared to
fiscal 1999 levels, primarily resulting from the Thermogas Company acquisition.
13
Financing Activities. On August 4, 1998, the OLP issued the privately
placed unsecured Senior Notes and entered into a Credit Facility with its
existing banks. The proceeds of the 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 issued
in July 1994, including a 5% call premium, and to repay outstanding indebtedness
under the former OLP revolving credit facility. The OLP entered the Additional
Credit Facility agreement on April 30, 1999. This facility provides for an
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.
During the three months ended October 31, 1999, the Partnership borrowed
$35,479,000 from its credit facilities to fund working capital, business
acquisitions, and capital expenditure needs. At October 31, 1999, $123,900,000
of borrowings were outstanding under the credit facilities. Letters of credit
outstanding, used primarily to secure obligations under certain insurance
arrangements, totaled $23,665,000. At October 31, 1999, the Operating
Partnership had $35,435,000 available for general corporate, acquisition and
working capital purposes under the credit facilities.
On November 22, 1999, the Partnership declared a cash distribution of $0.50
per Common Unit, payable December 15, 1999.
Effective December 6, 1999, the OLP entered into with Banc of America, as
investor, and First Security Bank, as lessor-trustee $25,000,000 synthetic
lease transaction involving a portion of the OLP customer tanks. The
lease term extends over three and one-half years and may be extended for two
additional one-year periods at the option of the OLP if such extension is
approved by the lessor.
Adoption of New Accounting Standards. The Financial Accounting Standards
Board ("FASB") recently issued Statment of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133", is required to be adopted by the Partnership for the first
quarter of fiscal 2001. The Partnership is currently assessing its impact on the
Partnership's financial position, results of operations and cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Partnership's market risk sensitive
instruments and positions is the potential loss arising from adverse changes in
commodity prices. Additionally, the Partnership seeks to mitigate its interest
rate risk exposure on variable rate debt by entering into interest rate collar
agreements. As of October 31, 1999, the Partnership had $123,900,000 in variable
rate debt and $25,000,000 notional amount of interest rate collar agreements
effectively outstanding. Thus, assuming a 100 basis point change increase 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 financial statements.
The Partnership's trading activities utilize certain types of energy
commodity forward contracts and swaps traded on the over-the-counter financial
markets and futures traded on the New York Mercantile Exchange ("NYMEX" or
"Exchange") to anticipate market movements, manage and hedge its exposure to the
volatility of floating commodity prices and to protect its inventory positions.
The Partnership's non-trading activities utilize certain over-the-counter energy
commodity options to limit overall price risk and to hedge its exposure to
inventory price movements.
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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 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 $4,300,000 as of October 31, 1999. Actual results may differ.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Lease Intended as Security, dated as of December 1, 1999
between Ferrellgas, LP as Lessee and First Security Bank,
National Association, solely as Certificate Trustee, as
Lessor
10.2 Participation Agreement, dated as of December 1, 1999,
among Ferrellgas, L.P., as Lessee, Ferrellgas, Inc. as
General Partner, First Security Bank, National
Association, solely as Certificate Trustee, First Security
Trust Company of Nevada, solely as Agent, The Persons
Named on Schedule I-A, The Persons Named on Schedule I-B,
as Lenders and Appendix I to Participation Agreement
10.3 Third Amendment to Second Amended and Restated Credit
Agreement dated as of December 2, 1999, among Ferrellgas,
L.P., Ferrellgas, Inc., Bank of America N.A. as agent,
and the other financial institutions party thereto.
10.4 First Amendment to Short-Term Revolving Credit Agreement
dated as of December 2, 1999, among Ferrellgas, L.P.,
Ferrellgas, Inc., Bank of America N.A., as agent, and the
other financial institutions party thereto.
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
The Partnership did not file a Form 8-K during the quarter ended
October 31, 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: December 13, 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: December 13, 1999 By /s/ Kevin T. Kelly
------------------------------------------------
Kevin T. Kelly
Chief Financial Officer (Principal
Financial and Accounting Officer)
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INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
10.1 Lease Intended as Security, dated as of December
1, 1999 between Ferrellgas, LP as
Lessee and First Security Bank, National
Association, solely as Certificate Trustee,
as Lessor
10.2 Participation Agreement, dated as of December 1,
1999, among Ferrellgas, L.P., as
Lessee, Ferrellgas, Inc. as General Partner, First
Security Bank, National
Association, solely as Certificate Trustee, First
Security Trust Company of Nevada,
solely as Agent, The Persons Named on Schedule I-A,
The Persons Named on Schedule
I-B, as Lenders and Appendix I to Participation
Agreement
10.3 Third Amendment to Second Amended and Restated
Credit Agreement dated as of December 2, 1999,
among Ferrellgas, L.P., Ferrellgas, Inc., Bank of
America N.A. as agent, and the other financial
institutions party thereto.
10.4 First Amendment to Short-Term Revolving Credit
Agreement dated as of December 2, 1999, among
Ferrellgas, L.P., Ferrellgas, Inc., Bank of
America N.A., as agent, and the other financial
institutions party thereto.
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)
16