SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended July 31, 1994
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 number 33-53379
Ferrellgas Partners, L.P.
Ferrellgas, L.P.
Ferrellgas Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1675728
Delaware 43-1676206
Delaware 43-1677595
(States or other jurisdictions of (I.R.S. Employer
or incorporation or organization) Identification Nos.)
One Liberty Plaza, Liberty, Missouri 64068
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (816) 792-1600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Units New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrants were required to
file such reports), and (2) have been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value as of October 14, 1994, of the
registrant's Common Units held by nonaffiliates of the
registrant, based on the reported closing price of such units on
the New York Stock Exchange on such date, was approximately
$293,112,500.
At October 14, 1994, the registrants had units and shares of
common stock outstanding as follows:
Ferrellgas Partners, L.P. - 14,100,000 Common Units
16,593,721 Subordinated Units
Ferrellgas Finance Corp. - 1,000 Shares of $1 par value common stock
Documents Incorporated by Reference: None
FERRELLGAS PARTNERS, L.P.
FERRELLGAS, L.P.
FERRELL FINANCE CORP.
1994 FORM 10-K ANNUAL REPORT
Table of Contents
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' UNITS AND RELATED UNITHOLDER MATTERS
ITEM 6. SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PART I
ITEM 1. BUSINESS.
Business of Ferrellgas Partners, L.P.
Ferrellgas Partners, L.P. (the "MLP"), a publicly traded
Delaware limited partnership, was formed April 19, 1994. In
order to simplify the MLP's obligations under the laws of certain
jurisdictions in which it conducts business, the MLP's activities
are conducted through its subsidiary Ferrellgas, L.P. (the
"Operating Partnership"). The MLP, with a 99% limited partner
interest, is the sole limited partner of the Operating
Partnership and together the MLP and the Operating Partnership
will be referred to as the "Partnership". The Operating
Partnership accounts for all of the MLP's consolidated assets,
sales and earnings. Accordingly, a separate discussion of the
results of operations, liquidity, and capital resources of the
MLP is not presented. See ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for
discussion of the Operating Partnership's results.
Business of Ferrellgas, L.P. (and the Partnership)
The Operating Partnership, a Delaware limited partnership, was
formed April 22, 1994, to acquire, own and operate the propane
business and assets of Ferrellgas, Inc. (the "Company",
"Ferrellgas", and "General Partner"). The Company has retained a
1% general partner interest in Ferrellgas Partners, L.P. and also
holds a 1% general partner interest in the Operating Partnership,
representing a 2% general partner interest in the Partnership on
a combined basis. As General Partner of the Partnership, the
Company performs all management functions required for the
Partnership.
General
The Partnership is engaged in the sale, distribution, marketing
and trading of propane and other natural gas liquids. The
discussion that follows focuses on the Partnership's retail
operations and its other operations, which consist of propane and
natural gas liquids trading operations, chemical feedstocks
marketing and wholesale propane marketing, all of which were
conveyed to the Partnership on July 5, 1994. All historical
references prior to July 5, 1994 relate to the operations as
conducted by the Company.
The General Partner believes the Partnership is the third
largest retail marketer of propane in the United States (as
measured by gallons sold), serving approximately 600,000
residential, commercial, agricultural and industrial customers in
45 states and the District of Columbia through approximately 415
retail outlets with 238 satellite locations in 36 states (some
outlets serve interstate markets). For the Operating
Partnership's pro forma fiscal year ended July 31, 1994, and the
Company's historical fiscal years ended July 31, 1993 and 1992,
annual retail propane sales volumes were approximately 564
million, 553 million and 496 million gallons, respectively. The
Partnership's pro forma (adjusted for the transactions described
in Note A of the MLP's notes to consolidated financial
statements) earnings before depreciation, amortization, interest
and taxes ("EBITDA") was $97.4 million, $88.9 million and $87.1
million for the fiscal years ended July 31, 1994, 1993 and 1992,
respectively. Pro forma net income was $39.9 million, $28.3
million and $26.0 million for the fiscal years ended July 31,
1994, 1993 and 1992, respectively. The retail propane business
of the Partnership consists principally of transporting propane
purchased through various suppliers to its retail distribution
outlets, then to tanks located on its customers' premises, as
well as to portable propane cylinders. The Partnership also
believes it is a leading natural gas liquids trading company.
Annual propane and natural gas liquids trading, chemical
feedstocks and wholesale propane sales volumes were approximately
1.7 billion, 1.2 billion and 1.3 billion gallons during the
Operating Partnership's pro forma fiscal year ended July 31,
1994, and the Company's historical fiscal years ended July 31,
1993 and 1992, respectively.
Retail Operations
Formation
Ferrell Companies, Inc. ("Ferrell"), the parent of Ferrellgas,
was founded in 1939 as a single retail propane outlet in
Atchison, Kansas and was incorporated in 1954. In 1984, a
subsidiary was formed under the name Ferrellgas, Inc. to operate
the retail propane business previously conducted by Ferrell.
Ferrell is primarily owned by James E. Ferrell and his family.
The Company's initial growth was largely the result of small
acquisitions in the rural areas of eastern Kansas, northern and
central Missouri, Iowa, Western Illinois, Southern Minnesota,
South Dakota and Texas. In July 1984, the Company acquired
propane operations with annual retail sales volumes of
approximately 33 million gallons and in December 1986, the
Company acquired propane operations with annual retail sales
volumes of approximately 395 million gallons. These major
acquisitions and many other smaller acquisitions have
significantly expanded and diversified the Company's geographic
coverage. In July 1994, the propane business and assets of the
Company were contributed to the Partnership.
Business Strategy
The Partnership's business strategy is to continue Ferrellgas'
historical focus on residential and commercial retail propane
operations and to expand its operations through strategic
acquisitions of smaller retail propane operations located
throughout the United States and through increased
competitiveness and efforts to acquire new customers. The propane
industry is relatively fragmented, with the ten largest retail
distributors possessing less than 33% of the total retail
propane market and much of the industry consisting of over 3,000
local or regional companies. The Partnership's retail operations
account for approximately 6% of the retail propane purchased in
the United States, as measured by gallons sold. Since 1986, and
as of July 31, 1994, Ferrellgas has acquired 70 smaller
independent propane retailers which Ferrellgas believes were not
individually material. For the fiscal years ended July 31, 1990
to 1994, Ferrellgas spent approximately $18.0 million, $25.3
million, $10.1 million, $0.9 million and $3.4 million,
respectively, for acquisitions of operations with annual retail
sales of approximately 11.3 million, 18.0 million, 8.6 million,
0.7 million and 2.9 million gallons of propane, respectively.
The Partnership intends to initially concentrate its
acquisition activities in geographical areas in close proximity
to the Company's existing operations and to acquire propane
retailers that can be efficiently combined with such existing
operations to provide an attractive return on investment after
taking into account the efficiencies which may result from such
combination. The Partnership will, however, also pursue
acquisitions which broaden its geographic coverage. The
Partnership's goal in any acquisition will be to improve the
operations and profitability of these smaller companies by
integrating them into the Partnership's established supply
network. The General Partner regularly evaluates a number of
propane distribution companies which may be candidates for
acquisition. The General Partner believes that there are numerous
local retail propane distribution companies that are possible
candidates for acquisition by the Partnership and that the
Partnership's geographic diversity of operations helps to create
many attractive acquisition opportunities for the Partnership.
The Partnership intends to fund acquisitions through internal
cash flow, external borrowings or the issuance of additional
Partnership interests. The Partnership's ability to accomplish
these goals will be subject to the continued availability of
acquisition candidates at prices attractive to the Partnership.
There is no assurance the Partnership will be successful in
increasing the level of acquisitions or that any acquisitions
that are made will prove beneficial to the Partnership.
In addition to growth through acquisitions, the Partnership
believes that it can be successful in competing for new
customers. Since 1989, Ferrellgas has experienced modest internal
growth in its customer base. During that same period of time the
quality of field management has been improved and improvements in
operating efficiencies have been implemented. The residential and
commercial retail propane distribution business has been
characterized by a relatively stable customer base, primarily due
to the expense of switching to alternative fuels, as well as the
quality of service and personal relations. In addition, since
safety regulations adopted in most states in which the
Partnership operates prohibit propane retailers from filling
tanks owned by other retailers, customers that lease tanks
generally develop long-term relationships with their suppliers.
The cost and inconvenience of switching tanks minimizes a
customer's tendency to switch among suppliers of propane and
among alternative fuels on the basis of minor variations in
price. Based on its market surveys, the Partnership believes that
within the retail propane industry approximately 12% of all
residential propane users switch suppliers annually. The
Partnership strives to minimize losses of existing customers
while attracting as many new customers as possible. To achieve
this objective extensive market research was conducted by
Ferrellgas to determine the critical factors that cause customers
to value their propane supplier. Based upon the results of such
surveys, Ferrellgas has designed and implemented a monthly
process of assessing customer satisfaction in each of its local
retail markets. The Partnership believes that these surveys give
it an advantage over its competitors, none of whom it is believed
conduct comparable surveys. By highlighting specific areas of
customer satisfaction, the Partnership believes that it can move
quickly to both retain existing customers who are at risk, and
gain new customers. Specific measures have been and are
continuing to be designed to take advantage of the information
gained regarding customer satisfaction. The Partnership has also
begun the process of upgrading computer equipment and software in
order to improve customer service and achieve efficiencies that
enable local market personnel to direct more efforts towards
sales activities.
Approximately 70% of the Partnership's customers lease their
tanks from the Partnership, as compared to approximately 60% of
all propane customers nationwide. The Partnership believes there
is a significant growth opportunity in marketing to the 40% of
propane users that own their own tank. As a result, the
Partnership has directly sought to identify locations where it
can achieve rapid growth by marketing more effectively to these
potential customers. Ferrellgas believes that since the
commencement of this effort in August 1992, it has added
thousands of new customers that own their own tank. For both
customers who lease their tank, and customers that own their
tank, the Partnership's continued ability to deliver propane to
customers when needed and during periods of extreme demand,
especially in remote areas and during inclement weather, will be
critical to maintaining margins, maintaining the loyalty of its
retail customers and expanding its customer base.
Marketing
Natural gas liquids are derived from petroleum products and
sold in compressed or liquefied form. Propane, the predominant
type of natural gas liquid, is typically extracted from natural
gas or separated during crude oil refining. Although propane is
gaseous at normal pressures, it is compressed into liquid form at
relatively low pressures for storage and transportation. Propane
is a clean-burning energy source, recognized for its
transportability and ease of use relative to alternative forms of
stand alone energy sources.
The retail propane marketing business generally involves large
numbers of small volume deliveries averaging approximately 200
gallons each. The market areas are generally rural but also
include suburban areas where natural gas service is not
available. In the residential and commercial markets, propane is
primarily used for space heating, water heating and cooking. In
the agricultural market propane is primarily used for crop
drying, space heating, irrigation and weed control. In addition,
propane is used for certain industrial applications, including
use as engine fuel, which is burned in internal combustion
engines that power vehicles and forklifts and as a heating or
energy source in manufacturing and drying processes.
Profits in the retail propane business are primarily based on
the cents-per-gallon difference between the purchase price and
the sales price of propane. The Partnership generally purchases
propane on a short-term basis; therefore, its supply costs
fluctuate with market price fluctuations. Should wholesale
propane prices decline in the future, the Partnership's margins
on its retail propane distribution business should increase in
the short-term because retail prices tend to change less rapidly
than wholesale prices. Should the wholesale cost of propane
increase, for similar reasons retail margins and profitability
would likely be reduced at least for the short-term until retail
prices can be increased. Ferrellgas historically has been able
to maintain margins on an annual basis despite propane supply
cost changes. The General Partner is unable to predict, however,
how and to what extent a substantial increase or decrease in the
wholesale cost of propane would affect the Partnership's margins
and profitability.
The Partnership has a network of approximately 415 retail
outlets and 238 satellite locations marketing propane under the
"Ferrellgas" trade name to approximately 600,000 customers
located in 45 states and the District of Columbia. The Company's
largest market concentrations are in the Midwest, Great Lakes and
Southeast regions of the United States. The Company operates in
areas of strong retail market competition, which has required it
to develop and implement strict capital expenditure and operating
standards in its existing and acquired retail propane operations
in order to control operating costs.
The Partnership utilizes marketing programs targeting both new
and existing customers. The Company emphasizes its superior
ability to deliver propane to customers as well as its training
and safety programs. During the fiscal year ended July 31, 1994,
sales to residential customers accounted for 45% of retail
propane sales volume, sales to industrial and other commercial
customers accounted for 35% of retail propane sales volume, sales
to agricultural customers accounted for 11% of retail propane
sales volume and sales to other customers accounted for 9% of
retail propane sales volume. Residential sales have a greater
profit margin, more stable customer base and tend to be less
sensitive to price changes than the other markets served by
Ferrellgas. No single customer of the Partnership accounts for
10% or more of the Partnership's consolidated revenues.
The retail market for propane is seasonal because it is used
primarily for heating in residential and commercial buildings.
Consequently, sales and operating profits are concentrated in the
second and third fiscal quarters (November through April). Cash
inflows from these quarters will be realized in the third and
fourth quarters and to the extent necessary the Partnership will
reserve cash inflows from the third and fourth quarters for
distribution to Unitholders in the first and second fiscal
quarters. In addition, sales volume traditionally fluctuates from
year to year in response to variations in weather, prices and
other factors, although the Partnership believes that the broad
geographic distribution of its operations helps to minimize
exposure to regional weather or economic patterns. Long-term,
historic weather data from the National Climatic Data Center
indicate that the average annual temperatures have remained
relatively constant over the last 30 years with fluctuations
occurring on a year-to-year basis only. During times of
colder-than-normal winter weather, such as the conditions
experienced by certain regions served by the Company in the
second and third quarters of fiscal year 1994, the Company has
been able to take advantage of its larger and more efficient
distribution network to help avoid supply disruptions such as
those experienced by some of its competitors, thereby broadening
its long-term customer base.
The following chart illustrates the impact of annual variations
in weather on Ferrellgas' sales volumes. Set forth are (i) the
average national degree days (population weighted) (a measure of
the relative warmth of a particular year in which a larger number
indicates a colder year) which are developed by the National
Weather Service Climate Analysis Center, with historical averages
periodically revised for changes in the population weighting as
more current Bureau of Census population data becomes available,
(ii) degree days as a percentage of the average normal degree
days as of 1994 (100.0% represents a normal year with larger
percentages representing colder-than-normal years and smaller
percentages representing warmer-than-normal years), and (iii) the
annual retail propane sales volumes of Ferrellgas for the five
fiscal years ended July 31, 1990 to 1994. The average degree days
in regions served by the Company have historically varied on an
annual basis by a greater amount than the average national degree
days and there can be no assurance that average temperatures in
future years will be close to the historical average.
For The Year Ended July 31,
-------------------------------------
1990 1991 1992 1993 1994
----- ----- ----- ----- -----
National Degree Days (1)...... 4,549 4,211 4,303 4,559 4,619
Degree Days as % of
Normal Degree Days(1)........ 97.0% 89.8% 91.8% 99.7% 101.0%
Sales Volumes (in millions of
gallons)(2).................. 499 482 496 553 564
(1) 1994 and 1993 national degree days are based on
population weighted census data from 1961 to 1990. The normal
average national degree days as of the fiscal year ended July
31, 1994, were 4,575 on this same population census basis.
1992, 1991 and 1990 degree days are based on population
weighted census data from 1951 to 1980, and accordingly are
based on normal average national degree days as of the fiscal
year ended July 31, 1993, which were 4,689 on this same
population census basis.
(2) From 1990 through 1994, 42 acquisitions were completed at
a total cost of approximately $57.7 million. The aggregate
annual sales volumes attributable to these acquisitions
(measured with respect to each acquisition on the date of the
acquisition) were estimated to be 11.3 million gallons, 18.0
million gallons, 8.6 million gallons, 0.7 million gallons and
2.9 million gallons for the fiscal years ended July 31, 1990
through 1994, respectively.
Supply and Distribution
The Partnership purchases propane primarily from major domestic
oil companies. Supplies of propane from these sources have
traditionally been readily available, although no assurance can
be given that supplies of propane will be readily available in
the future. As a result of (i) the Partnership's ability to buy
large volumes of propane and (ii) the Partnership's large
distribution system and underground storage capacity, the
Partnership believes that it is in a position to achieve product
cost savings and avoid shortages during periods of tight supply
to an extent not generally available to other retail propane
distributors. The Partnership is not dependent upon any single
supplier or group of suppliers, the loss of which would have a
material adverse effect on the Partnership. For the year ended
July 31, 1994, no supplier at any single delivery point provided
more than 10% of Ferrellgas' total domestic propane supply. A
portion of the Partnership's propane inventory is purchased under
supply contracts which typically have a one year term and a
fluctuating price relating to spot market prices. Certain of the
Partnership's contracts specify certain minimum and maximum
amounts of propane to be purchased thereunder. The Partnership
may purchase and store inventories of propane in order to help
insure uninterrupted deliverability during periods of extreme
demand. The Partnership owns three underground storage facilities
with an aggregate capacity of approximately 168 million gallons.
Currently, approximately 80 million gallons of this capacity is
leased to third parties, and approximately 6 million gallons of
capacity is exchanged with another company for approximately 6
million gallons of storage capacity at Bumstead, Arizona. The
remaining space is available for the Company's own use.
Propane is generally transported from natural gas processing
plants and refineries, pipeline terminals and storage facilities
to retail distribution outlets and wholesale customers by
railroad tank cars leased by the Partnership and highway
transport trucks owned or leased by the Partnership. The
Partnership operates a fleet of 62 transport trucks to transport
propane from refineries, natural gas processing plants or
pipeline terminals to the Company's retail distribution outlets.
Common carrier transport trucks may be used during the peak
delivery season in the winter months or to provide service in
areas where economic considerations favor common carrier use.
Propane is then transported from the Company's retail
distribution outlets to customers by the Company's fleet of 1,056
bulk delivery trucks, which are fitted generally with 2,000 to
3,000 gallon propane tanks. Propane storage tanks located on the
customers' premises are then filled from the delivery truck.
Propane is also delivered to customers in portable cylinders.
Industry and Competition
Industry
Based upon information contained in the Energy Information
Administration's Annual Energy Review 1993 magazine, propane
accounts for approximately 3.0% of household energy consumption
in the United States, an average level which has remained
relatively constant for the past 10 years. It competes primarily
with natural gas, electricity and fuel oil as an energy source
principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and
suburban areas where natural gas is unavailable or portability of
product is required. Propane is generally more expensive than
natural gas on an equivalent BTU basis in locations served by
natural gas, although propane is often sold in such areas as a
standby fuel for use during peak demands and during interruption
in natural gas service. The expansion of natural gas into
traditional propane markets has historically been inhibited by
the capital costs required to expand distribution and pipeline
systems. Although the extension of natural gas pipelines tends to
displace propane distribution in the neighborhoods affected, the
Partnership believes that new opportunities for propane sales
arise as more geographically remote neighborhoods are developed.
Propane is generally less expensive to use than electricity for
space heating, water heating and cooking and competes effectively
with electricity in those parts of the country where propane is
cheaper than electricity on an equivalent BTU basis. Although
propane is similar to fuel oil in application, market demand and
price, propane and fuel oil have generally developed their own
distinct geographic markets. Because residential furnaces and
appliances that burn propane will not operate on fuel oil, a
conversion from one fuel to the other requires the installation
of new equipment. The Partnership's residential retail propane
customers, therefore, will have an incentive to switch to fuel
oil only if fuel oil becomes significantly less expensive than
propane. Likewise, the Partnership may be unable to expand its
customer base in areas where fuel oil is widely used,
particularly the Northeast, unless propane becomes significantly
less expensive than fuel oil. Alternatively, many industrial
customers who use propane as a heating fuel have the capacity to
switch to other fuels, such as fuel oil, on the basis of
availability or minor variations in price. Propane generally is
becoming increasingly favored over fuel oil and other alternative
sources of fuel as an environmentally preferred energy source.
Competition
In addition to competing with marketers of other fuels, the
Partnership competes with other companies engaged in the retail
propane distribution business. Competition within the propane
distribution industry stems from two types of participants: the
larger multi-state marketers, and the smaller, local independent
marketers. Based upon information contained in the National
Propane Gas Association's LP-Gas Market Facts and the June 1994
issue of LP Gas magazine, the Partnership believes that the ten
largest multi-state retail marketers of propane, including the
Partnership, account for less than 33% of the total retail sales
of propane in the United States. Based upon information contained
in industry publications, the Partnership also believes no single
marketer has a greater than 10% share of the total market in the
United States and that the Partnership is the third largest
retail marketer of propane in the United States, with a market
share of approximately 6% as measured by volume of national
retail propane sales.
Most of the Partnership's retail distribution outlets compete
with three or more marketers or distributors. The principal
factors influencing competition among propane marketers are price
and service. The Partnership competes with other retail marketers
primarily on the basis of reliability of service and
responsiveness to customer needs, safety and price. Each retail
distribution outlet operates in its own competitive environment
because retail marketers locate in close proximity to customers
to lower the cost of providing service. The typical retail
distribution outlet has an effective marketing radius of
approximately 25 miles.
Other Operations
The other operations of the Partnership consist of: (1)
trading, (2) chemical feedstocks marketing and (3) wholesale
propane marketing. The Partnership, through its natural gas
liquids trading operations and wholesale marketing, has become
one of the largest independent traders of propane and natural gas
liquids in the United States. The Partnership owns no properties
that are material to these operations, but leases 361 railroad
tank cars for use in its chemical feedstocks marketing
operations.
Trading
The Partnership's traders are engaged in trading propane and
other natural gas liquids for the Partnership's account and for
supplying the Partnership's retail and wholesale propane
operations. The Company primarily trades products purchased from
its over 200 suppliers, however, it also conducts transactions on
the New York Mercantile Exchange. Trading activity is conducted
primarily to generate a profit independent of the retail and
wholesale operations, but is also conducted to insure the
availability of propane during periods of short supply. Propane
represents over 57% of the Partnership's total trading volume,
with the remainder consisting of various other natural gas
liquids. The Partnership attempts to minimize trading risk
through the enforcement of its trading policies, which include
total inventory limits and loss limits, and attempts to minimize
credit risk through credit checks and application of its credit
policies. However, there can be no assurance that historical
experience or the existence of such policies will prevent trading
losses in the future. For the Operating Partnership's pro forma
fiscal year ended July 31, 1994, and the Company's historical
fiscal years ended July 31, 1993 and 1992, net revenues of $6.8
million, $6.7 million and $4.9 million, respectively, were
derived from trading activities.
Chemical Feedstocks Marketing
The Partnership is also involved in the marketing of refinery
and petrochemical feedstocks. Petroleum by-products are purchased
from refineries and sold to petrochemical plants. Revenues of
$43.0 million, $54.0 million and $50.6 million were derived from
such activities for the Operating Partnership's pro forma fiscal
year ended July 31, 1994, and the Company's historical fiscal
years ended July 31, 1993 and 1992, respectively.
Wholesale Marketing
The Partnership engages in the wholesale distribution of
propane to other retail propane distributors. During the fiscal
years ended July 31, 1994, 1993 and 1992 the Partnership and
Ferrellgas sold 61 million, 73 million and 95 million,
respectively, of propane to wholesale customers and had revenues
attributable to such sales of $22.5 million, $29.3 million and
$37.7 million, respectively.
Employees
At July 31, 1994, the General Partner had 2,313 full-time
employees and 778 temporary and part-time employees. The number
of temporary and part-time employees is generally higher by
approximately 500 people during the winter heating season. At
July 31, 1994, the General Partner's full-time employees were
employed in the following areas:
Retail Market Locations..................... 1,959
Transportation and Storage.................. 109
Field Services.............................. 55
Corporate Offices (Liberty & Houston)....... 190
-----
Total.................................... 2,313
=====
Approximately two percent of the General Partner's employees
are represented by nine local labor unions, which are all
affiliated with the International Brotherhood of Teamsters. The
General Partner has not experienced any significant work
stoppages or other labor problems.
The Partnership's supply, trading, chemical feedstocks
marketing, distribution scheduling and product accounting
functions are operated out of the Partnership's offices located
in Houston, Texas, by a total full time corporate staff of 49
people.
Governmental Regulation; Environmental and Safety Matters
From August 1971 until January 1981, the United States
Department of Energy regulated the price and allocation of
propane. The Partnership is no longer subject to any similar
regulation.
Propane is not a hazardous substance within the meaning of
federal and state environmental laws. In connection with all
acquisitions of retail propane businesses that involve the
purchase of real estate, the Partnership conducts a due diligence
investigation to attempt to determine whether any substance other
than propane has been sold from or stored on any such real estate
prior to its purchase. Such due diligence includes questioning
the sellers, obtaining representations and warranties concerning
the sellers' compliance with environmental laws and visual
inspections of the properties, whereby employees of the General
Partner look for evidence of hazardous substances or the
existence of underground storage tanks.
With respect to the transportation of propane by truck, the
Partnership is subject to regulations promulgated under the
Federal Motor Carrier Safety Act. These regulations cover the
transportation of hazardous materials and are administered by the
United States Department of Transportation. National Fire
Protection Association Pamphlet No.58, which establishes a set of
rules and procedures governing the safe handling of propane, or
comparable regulations, have been adopted as the industry
standard in a majority of the states in which the Partnership
operates. There are no material environmental claims pending and
the Partnership complies in all material respects with all
material governmental regulations and industry standards
applicable to environmental and safety matters.
Service Marks and Trademarks
The Partnership markets retail propane under the "Ferrellgas"
tradename and uses the tradename "Ferrell North America" for its
other operations. In addition, the Partnership has a trademark on
the name "Ferrellmeter," its patented gas leak detection device.
The Company contributed all of its right, title and interest in
such tradenames and trademark in the continental United States to
the Partnership. The General Partner will have an option to
purchase such tradenames and trademark from the Partnership for a
nominal value if the General Partner is removed as general
partner of the Partnership other than for cause. If the General
Partner ceases to serve as the general partner of the Partnership
for any other reason, it will have the option to purchase such
tradenames and trademark from the Partnership for fair market
value.
Management Information and Control Systems
The Partnership has, in each of its retail outlets, a
computer-based information and control system. This system
provides for remote billing of, and collections from, customers
and is designed to enhance the local outlets' responsiveness to
customers. Each outlet can be monitored by headquarters to
determine volume of sales, selling price and gross margin.
Business of Ferrellgas Finance Corp.
Ferrellgas Finance Corp. (the "Finance Corp."), a Delaware
corporation, was formed April 28, 1994, and is a wholly-owned
subsidiary of the Operating Partnership. The Finance Corp. has
nominal assets and does not conduct any operations, but serves as
co-obligor for securities issued by the Operating Partnership.
Certain institutional investors that might otherwise be limited
in their ability to invest in securities issued by partnerships
by reasons of the legal investment laws of their states of
organization or their charter documents, may be able to invest in
the Operating Partner's securities because the Finance Corp. is a
co-obligor. Accordingly, a discussion of the results of
operations, liquidity and capital resources of the Finance Corp.
is not presented. See the Finance Corp's. notes to financial
statements for a discussion of the securities which the Finance
Corp. is serving as co-obligor.
ITEM 2. PROPERTIES.
At July 31, 1994, the Partnership owned or leased the following
transportation equipment which was utilized primarily in retail
operations, except for railroad tank cars, which are used
primarily by chemical feedstocks operations:
The highway transport trailers have an average capacity of
approximately 9,000 gallons. The bulk delivery trucks are
generally fitted with 2,000 to 3,000 gallon propane tanks. Each
railroad tank car has a capacity of approximately 30,000 gallons.
Owned Leased Total
----- ------ ------
Truck tractors.............. 15 47 62
Transport trailers.......... 70 - 70
Bulk delivery trucks........ 437 619 1,056
Pickup and service trucks... 385 577 962
Railroad tank cars.......... - 361 361
A typical retail distribution outlet is located on one to three
acres of land and includes a small office, a workshop, bulk
storage capacity of 18,000 gallons to 60,000 gallons and a small
inventory of stationary customer storage tanks and portable
propane cylinders that the Partnership provides to its retail
customers for propane storage. The Partnership owns the land and
buildings of about 50% of its retail outlets and leases the
remaining facilities on terms customary in the industry and in
the applicable local markets.
Approximately 506,000 propane tanks are owned by the
Partnership, most of which are located on customer property and
leased to those customers. The Partnership also owns
approximately 541,000 portable propane cylinders, most of which
are leased to industrial and commercial customers for use in
manufacturing and processing needs, including forklift
operations, and to residential customers for home heating and
cooking, and to local dealers who purchase propane from the
Company for resale.
The Partnership owns underground storage facilities at
Hutchinson, Kansas; Adamana, Arizona; and Moab, Utah. At July 31,
1994, the capacity of these facilities approximated 73 million
gallons, 88 million gallons and 7 million gallons, respectively
(an aggregate of approximately 168 million gallons). Currently,
approximately 80 million gallons of this capacity is leased to
third parties, and approximately 6 million gallons of capacity is
exchanged with another company for approximately 6 million
gallons of storage capacity at Bumstead, Arizona. The remaining
space is available for the Partnership's own use.
The Partnership owns the land and two buildings (50,245 square
feet of office space) comprising its corporate headquarters in
Liberty, Missouri, and leases the 18,124 square feet of office
space in Houston, Texas, where its trading, chemical feedstocks
marketing and wholesale marketing operations are located.
The Partnership believes that it has satisfactory title to or
valid rights to use all of its material properties and, although
some of such properties are subject to liabilities and leases
and, in certain cases, liens for taxes not yet currently due and
payable and immaterial encumbrances, easements and restrictions,
the Company does not believe that any such burdens will
materially interfere with the continued use of such properties by
the Partnership in its business, taken as a whole. In addition,
the Partnership believes that it has, or is in the process of
obtaining, all required material approvals, authorizations,
orders, licenses, permits, franchises and consents of, and has
obtained or made all required material registrations,
qualifications and filings with, the various state and local
governmental and regulatory authorities which relate to ownership
of the Partnership's properties or the operations of its
business.
ITEM 3. LEGAL PROCEEDINGS.
Litigation
Propane is a flammable, combustible gas. Serious personal and
property damage can occur in connection with its transportation,
storage or use. The Partnership, in the ordinary course of
business is threatened with or is named as a defendant in various
lawsuits which, among other items, seek actual and punitive
damages for products liability, personal injury and property
damage. The Partnership maintains liability insurance policies
with insurers in such amounts and with such coverages and
deductibles as management of the Partnership believes is
reasonable and prudent. However, there can be no assurance that
such insurance will be adequate to protect the Partnership from
material expenses related to such personal injury or property
damage or that such levels of insurance will continue to be
available in the future at economical prices. It is not possible
to determine the ultimate disposition of these matters discussed
above; however, after taking into consideration the Partnership's
insurance coverage and existing reserves, management is of the
opinion that there are no known uninsured claims or known
contingent claims that are likely to have a material adverse
effect on the results of operations or financial condition of the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders of
the Registrants during the period April 19, 1994 (inception of
the MLP) to July 31, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER
MATTERS.
The Common Units, representing common limited partner interests
in the Partnership, are listed and traded on the New York Stock
Exchange under the symbol FGP. The Common Units began trading on
June 28, 1994, after an initial public offering at a price of
$21.00 per Common Unit. The high and low sales prices of the
Common Units from June 28 to July 31, 1994, as reported on The
New York Stock Exchange Composite Tape were $21.125 and $20.750,
respectively. As of October 14, 1994, there were 628 registered
Common Unitholders of record.
The Partnership also has subordinated units, all of which are
held by the Company and Ferrell, for which there is no
established public trading market.
The Partnership will make quarterly cash distributions of its
Available Cash, as defined by the MLP's Agreement of Limited
Partnership (the "Partnership Agreement"). Available Cash is
generally defined as consolidated cash receipts less consolidated
cash disbursements and changes in reserves established by cash
reserves of the General Partner for future requirements. The
Partnership has not yet made any cash distributions in respect of
its Common Units but expects to make such cash distributions on a
quarterly basis commencing with the fiscal quarter ended October
31, 1994.
The Partnership is a publicly traded limited partnership that
is not subject to federal income tax. Instead, Unitholders are
required to report their allocable share of the Partnership's
income, gain, loss, deduction and credit, regardless of whether
the Partnership makes distributions.
ITEM 6. SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.
The following table presents selected historical consolidated
financial data of the Company for each of the years ended July
31, 1990, 1991, 1992 and 1993, and for the eleven months ended
June 30, 1994, and historical financial data of the Partnership
for the period from inception to July 31, 1994, as well as pro
forma (adjusted for the transactions described in Note A of the
MLP's notes to consolidated financial statements) information for
the year ended July 31, 1994. The income statement and balance
sheet data for the Company for the year ended July 31, 1990,
1991, 1992 and 1993, and the eleven months ended June 30, 1994,
have been derived from the historical consolidated financial
statements of the Company, certain of which appear elsewhere in
this Form 10-K. The selected financial data of the Partnership
for the period from inception to July 31, 1994 and the pro forma
year ended July 31, 1994, have been derived from the consolidated
financial statements of Ferrellgas Partners, L.P., which appears
elsewhere in this Form 10-K.
Ferrellgas, Inc. and Subsidiaries (Predecessor)
-----------------------------------------------------------------------
Historical
Historical Year Ended July 31, Eleven Months
--------------------------------------------------- Ended
1990 1991 1992 1993 June 30, 1994
31, 1994
-------- -------- -------- -------- -------------
- - ---------
Income Statement Data:
Total revenues $467,641 $543,933 $501,129 $541,945 $501,990
Depreciation and amortization 33,521 36,151 31,196 30,840 26,452
Operating income (loss) 54,388 63,045 56,408 58,553 71,522
Interest expense 55,095 60,507 61,219 60,071 53,693
Earnings (loss) from continuing operations (347) 1,979 (1,700) (1) 109 12,337
Earnings from continuing operations per unit (2)
Cash distributions declared per unit (3)
Balance Sheet Data (at end of period):
Working capital $50,456 $53,403 $67,973 $74,408 $91,912
Total assets 554,580 580,260 598,613 573,376 592,664
Payable to (receivable from) parent and affiliates 10,743 3,763 2,236 (916) (4,050)
Long-term debt 465,644 466,585 501,614 489,589 476,441
Stockholder's equity 11,463 21,687 8,808 11,359 22,829
Partners' Capital:
Common Unitholders
Subordinated Unitholders
General Partner (2)
Operating Data:
Retail propane sales volumes (in gallons) 499,042 482,211 495,707 553,413 540,309
Capital expenditures (4):
Maintenance $5,428 $7,958 $10,250 $10,527 $4,777
Growth 10,447 2,478 3,342 2,851 3,049
Acquisition 18,005 25,305 10,112 897 2,551
Total $33,880 $35,741 $23,704 $14,275 $10,377
Supplemental Data:
Earnings before depreciation, amortization,
interest and taxes (5) $87,909 $99,196 $87,604 $89,393 $97,974
<FN>
(1) In August 1991, the Company revised the estimated useful
lives of storage tanks from 20 to 30 years in order to more
closely reflect expected useful lives of the assets. The
effect of the change in accounting estimates resulted in a
favorable impact on net loss from continuing operations of
approximately $3.7 million for the fiscal year ended July 31,
1992.
(2) Pursuant to the MLP's Agreement of Limited Partnership
(the "Partnership Agreement"), the net loss from operations is
allocated 100% to the General Partner from inception of the
Partnership to the last day of the taxable year ending July
31, 1994. An amount equal to 99% of this net loss will be
reallocated to the limited partners in the following taxable
year based on their ownership percentage. In addition, the
retirement of debt assumed by the Partnership resulted in an
extraordinary loss of approximately $60,062,000 resulting from
debt prepayment premiums, consent fees and the write-off of
unamortized discount and financing costs. In accordance with
the Partnership Agreement, this extraordinary loss is
allocated 100% to the General Partner and will not be
reallocated to the limited partners in the next taxable year.
(3) No cash distributions were declared by the Partnership from
inception to July 31, 1994.
(4) The Company's capital expenditures fall generally into three
categories: (i) maintenance capital expenditures, which
include expenditures for repair and replacement of property,
plant and equipment; (ii) growth capital expenditures, which
include expenditures for purchases of new propane tanks and
other equipment to facilitate expansion of the Company's
customer base and operating capacity; and (iii) acquisition
capital expenditures, which include expenditures related to
the acquisition of retail propane operations. Acquisition
capital expenditures include a portion of the purchase price
allocated to intangibles associated with the acquired
businesses.
(5) EBITDA is calculated as operating income plus depreciation
and amortization. EBITDA is not intended to represent cash
flow and does not represent the measure of cash available for
distribution. EBITDA is a non-GAAP measure, but provides
additional information for evaluating the Partnership's
ability to make the Minimum Quarterly Distribution. In
addition, EBITDA is not intended as an alternative to earnings
from continuing operations or net income.
</FN>
ITEM 7:MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the historical and pro forma
financial condition and results of operations of the Operating
Partnership and the Company. The discussion should be read in
conjunction with the pro forma and historical consolidated
financial statements and the notes thereto included elsewhere in
this Form 10-K.
General
The Operating Partnership is engaged in the sale, distribution,
marketing and trading of propane and other natural gas liquids.
The Operating Partnership's revenue is derived primarily from the
retail propane marketing business. The General Partner believes
the Operating Partnership is the third largest retail marketer of
propane in the United States, based on gallons sold, serving more
than 600,000 residential, industrial/commercial and agricultural
customers in 45 states and the District of Columbia through
approximately 415 retail outlets and 238 satellite locations.
Annual retail propane sales volume were approximately 564
million, 553 million and 496 million gallons for the fiscal years
ended July 31, 1994, 1993 and 1992, respectively.
The retail propane business of the Operating Partnership
consists principally of transporting propane purchased in the
contract and spot markets, primarily from major oil companies, to
its retail distribution outlets and then to tanks located on the
customers' premises as well as to portable propane cylinders. In
the residential and commercial markets, propane is primarily used
for space heating, water heating and cooking. In the agricultural
market propane is primarily used for crop drying, space heating,
irrigation and weed control. In addition, propane is used for
certain industrial applications, including use as an engine fuel
which is burned in internal combustion engines that power
vehicles and forklifts and as a heating or energy source in
manufacturing and drying processes.
The Operating Partnership is also engaged in the trading of
propane and other natural gas liquids, chemical feedstocks
marketing and wholesale propane marketing. Through its natural
gas liquids trading operations and wholesale marketing, the
Operating Partnership is one of the largest independent traders
of propane and natural gas liquids in the United States. In pro
forma fiscal year 1994, the Operating Partnership's annual
wholesale and trading sales volume was approximately 1.7 billion
gallons of propane and other natural gas liquids, approximately
57% of which was propane. For the Operating Partnership's pro
forma fiscal year ended July 31, 1994, and the Company's
historical fiscal years ended July 31,1993 and 1992, net revenues
from trading activities were $6.8 million, $6.7 million and $4.9
million, respectively, .
Results of Operations
Although the Operating Partnership was formed April 22, 1994,
the first period of actual propane operations was the one month
ended July 31, 1994. As the propane business is seasonal in
nature, with peak activity in the winter months, July sales
volumes represent less than 5% of the Operating Partnership's pro
forma annual sales, therefore, one month actual propane operation
results are not indicative of results to be expected for a full
year.
Inception to July 31, 1994 versus Pro Forma July 31, 1993
Total Revenues. Total revenues decreased 7.4% to $24,566,000
as compared with $26,535,000 for the prior year period. The
overall decrease was attributable to revenues from other
operations (net trading operations, wholesale propane marketing
and chemical feedstocks marketing) decreasing 38.5% to
$4,918,000, offset by revenues from retail operations increasing
6.0% to $19,648,000.
The decrease in revenues from other operations was primarily
due to fluctuating chemical feedstock market opportunities.
The increase in revenues from retail operations was primarily
due to (i) an increase in sales volume due to increased sales and
(ii) to an increase in other income. The volume of gallons sold,
excluding acquisitions, increased revenues by $361,000. Fiscal
year 1994 and 1993 acquisitions increased revenues by $160,000.
Other income increased revenue by $592,000 primarily due to
inventory gas gains recognized from the emptying of an
underground storage facility and storage rental income.
Gross Profit. Gross profit increased 10.9% to $11,355,000 as
compared with $10,235,000 for the prior period, due to an
increase in retail operations gross profit offset by a decrease
in other operation's revenue due to normal market fluctuations.
Retail operations results improved due to increased sales volume
as discussed previously, to margin increases as a result of
favorable changes in the competitive pressures of the industry
and to normal fluctuations in the Operating Partnership's product
mix and other income as discussed above.
Operating Expenses. Operating expenses increased 21.4% to
$10,078,000 as compared with $8,299,000, for the prior period,
primarily due to an increase in general liability and worker's
compensation expense during July 31, 1994, as compared to July 31,
1993. However, for the pro forma fiscal year ended July 31, 1994,
general liability and worker's compensation expense has decreased
due to improved claims administration.
Extraordinary loss. The retirement of $477,600,000 of
indebtedness assumed by the Operating Partnership resulted in an
extraordinary loss of approximately $60,062,000 resulting from
debt prepayment premiums, consent fees and the write-off of
unamortized discount and financing costs.
Net Loss. Net loss increased to $65,139,000 as compared with
$4,322,000 for the prior period primarily due to the
extraordinary loss described above.
Eleven Months Ended June 30, 1994 versus June 30, 1993
(PREDECESSOR)
Total Revenues. Total revenues decreased 2.6% to $501,990,000
as compared with $515,410,000 for the prior year period. The
overall decrease was attributable to revenues from other
operations decreasing 17.2% to $67,386,000, offset by revenues
from retail operations increasing 0.1% to $434,604,000.
The decrease in revenues from other operations was primarily
due to higher sales of chemical feedstocks in the prior period
resulting from sales of chemical feedstocks that were designated
for storage but were sold due to storage limitations. Additional
decreases in revenues were the result of lower product costs for
chemical feedstocks and wholesale propane marketing resulting in
lower sales prices.
The increase in revenues from retail operations was primarily
due to an increase in sales volume due to cooler temperatures
than those which existed in the prior period offset by a decrease
in selling price. The volume of gallons sold, excluding
acquisitions, increased revenues by $6,203,000. Fiscal year 1994
and 1993 acquisitions increased revenues by $1,915,000. Other
income increased revenue $954,000 primarily due to increased
storage and equipment rental and appliance sales. These increases
were offset by a $8,473,000 decrease in sales price due to lower
product costs.
Gross Profit. Gross profit increased 5.2% to $245,895,000 as
compared with $233,677,000 for the prior period, primarily due to
an increase in retail operations gross profit. Retail operations
results improved due to increased sales volume as discussed
previously and to margin increases as a result of favorable
changes in the competitive pressures of the industry and to
normal fluctuations in the Company's product mix.
Operating Expenses. Operating expenses increased 2.8% to
$135,058,000 as compared with $131,318,000, for the prior period,
primarily due to (i) an increase in incentive compensation
expense, and (ii) an increase in overtime, variable labor and
vehicle expenses due to increased sales volume. These increases
were partially offset by a decrease in general liability and
workers compensation expense due to improved claims
administration and decreased sales and use tax audit assessments.
Depreciation and Amortization. Depreciation expense decreased
6.7% to $26,452,000 as compared with $28,350,000 for the prior
period due primarily to extending the use of the Company's
vehicles beyond the depreciable life and to the reduction in the
number of Company owned vehicles.
Net Interest Expense. Net interest expense decreased 3.8% to
$50,094,000 as compared with $52,080,000 for the prior period due
to the reacquisition of $11,900,000 and $10,500,000 of senior
notes in the third quarter of fiscal 1994 and in the fourth
quarter of fiscal year 1993, respectively, offset by increased
non-cash amortization of deferred financing costs.
Net Earnings. Net earnings increased to $11,470,000 as
compared with $3,374,000 for the prior period primarily due to
the increase in retail operations sales volume and margins offset
by increased operating expenses and the fiscal 1994 extraordinary
loss from early extinguishment of debt.
Fiscal Year Ended July 31, 1993 versus July 31, 1992
(PREDECESSOR)
Total Revenues. Total revenues increased 8.1% to $541,945,000
as compared with $501,129,000 for the prior year. This increase
was attributable to an increase in revenues from retail
operations of 10.6% to $451,966,000 partially offset by a
decrease in revenues from other operations of 2.6% to
$89,979,000.
The increase in revenues attributable to retail operations
resulted from increased sales volume. The sales volume increase
was mainly due to a surge in agricultural business from crop
drying in farm belt states and cooler temperatures than those
which existed in the prior year. The volume of gallons sold,
excluding the effects of acquisitions, increased revenues by
$42,648,000. This increase was offset by a decrease in selling
price which reduced revenues by $3,326,000. Acquisitions
completed in fiscal 1993 and 1992 increased revenues by
$3,172,000.
Total revenues attributable to other operations decreased 2.6%
to $89,979,000. Wholesale propane marketing revenues decreased as
a result of a change in focus and marketing strategy. This
decrease was offset by an increase in net trading operations as a
result of increased market volatility relative to the prior year.
Gross Profit. Gross profit increased 4.3% to $243,912,000 as
compared with $233,850,000 for the prior year. The increase was
primarily due to an increase in retail operations' sales volume
and an increase in net trading and wholesale marketing operating
results. These increases were offset by a decrease in retail
operations' margins due to competitive pricing pressures in the
industry.
Operating Expenses. Operating expenses increased 4.1% to
$139,617,000 as compared with $134,165,000 for the prior year,
due to (i) an increase in personnel costs from increased sales
volume and accrued incentive compensation expense, (ii) an
increase in vehicle expenses from increased sales volume, (iii)
an increase in other expenses from sales and use tax assessments
on prior year purchases and leases, and (iv) general increases in
the cost of doing business. These increases were partially offset
by a decrease in general liability expense due to improved claims
administration and to a decrease in bad debt expense due to
improved credit and collections administration.
Depreciation and Amortization. Depreciation and amortization
expense decreased 1.1% to $30,840,000 as compared with
$31,196,000 for the prior year due to retirements and fully
depreciated assets.
General and Administrative Expenses. General and administrative
expenses increased 33.3% to $10,079,000 as compared with
$7,561,000 for the prior year period due to an increase in
compensation expense related to the long-term incentive plan and
an increase in non-capitalized software maintenance costs.
Net Interest Expense. Net interest expense of $56,805,000
remained essentially unchanged as compared with $56,818,000 for
the prior year. Decreases in interest expense due to lower
effective interest rates were offset by a decrease in interest
income as a result of lower interest rates on short-term
investments.
Extraordinary Loss. The extraordinary loss of $886,000, net of
$543,000 income tax benefit, was due to the early extinguishment
of $10,500,000 of the senior notes as discussed in the notes to
the consolidated financial statements.
Net Loss. Net loss decreased to $777,000 as compared with a
loss of $11,679,000 for the prior year due to a $9,093,000
decrease in the extraordinary loss from the early extinguishment
of debt and to an increase in net operating results.
Fiscal Year Ended July 31, 1992 versus July 31, 1991
(PREDECESSOR)
Total Revenues. Total revenues decreased 7.9% to $501,129,000
as compared with $543,933,000 for the prior year. This decrease
was attributable to a decrease in revenues from retail operations
of 8.1% to $408,781,000 and a decrease in revenues from other
operations of 6.8% to $92,348,000.
The decrease in revenues attributable to retail operations
resulted mainly from a decrease in selling price related to the
end of the Persian Gulf crisis and to competitive pressures
within the industry. In fiscal 1991, selling prices were
increased in response to product cost increases brought about by
the Persian Gulf crisis. The volume of gallons sold, excluding
the effects of acquisitions, decreased due to temperatures being
warmer than normal and warmer than the prior year in the primary
heating months, along with competitive pressures within the
industry. The decrease in selling price and volumes reduced total
revenues by $45,080,000 and $1,727,000, respectively.
Acquisitions in fiscal 1991 and 1992 increased fiscal 1992
revenues by $10,120,000.
The decrease in revenues attributable to other operations
resulted from declines in net trading operations and wholesale
propane marketing revenues offset by an increase in revenues from
chemical feedstocks marketing. Net trading operations decreased
due to a less volatile market than that which existed in fiscal
1991 during the Persian Gulf crisis. Wholesale propane marketing
revenues decreased as a result of changes in marketing strategy
and focus of the business and a decrease in selling price and
volumes for the reasons noted above for retail operations.
Chemical feedstocks marketing revenues increased due to
additional emphasis on butane sales.
Gross Profit. Gross profit decreased 4.9% to $233,850,000 as
compared with $245,965,000 for the prior year. Approximately half
of the decrease was attributable to retail operations as a result
of competitive pressures in the industry and warmer than normal
and warmer than prior year temperatures in the primary heating
months. The remaining decrease was attributable to net trading
operations and wholesale propane marketing.
Operating Expenses. Operating expenses increased 3.5% to
$134,165,000 as compared with $129,684,000 for the prior year.
This increase was primarily due to an increase in payroll
expenses, general liability and workers' compensation insurance
and an increase in expenses due to acquisitions in fiscal 1992
and 1991. These increases were partially offset by a reduction in
incentive compensation expense.
Depreciation and Amortization. Depreciation and amortization
expense decreased 13.7% to $31,196,000 as compared with
$36,151,000 for the prior year due primarily to a change in the
useful lives of certain assets as discussed in the notes to the
consolidated financial statements. The change was based on the
expected useful lives of the assets and industry practice.
General and Administrative Expenses. General and
administrative expenses decreased 41.6% to $7,561,000 as compared
with $12,953,000 for the prior year due primarily to a reversal
of expense previously provided related to the long-term incentive
plan and the elimination of certain management positions.
Net Interest Expense. Net interest expense increased 0.3% to
$56,818,000 as compared with $56,666,000 for the prior year. In
connection with the refinancing of the subordinated debt, the
Company borrowed an additional $40,000,000. The impact of this
additional borrowing on interest expense was offset by a lower
effective interest rate on the new subordinated debt and the
investment of the excess cash proceeds from the refinancing.
Extraordinary Loss. The extraordinary loss of $9,979,000, net
of income tax benefit, was due to the refinancing of the
subordinated debt as discussed in the notes to the consolidated
financial statements.
Net Earnings (Loss). Net earnings decreased to a net loss of
$11,679,000 as compared with net earnings of $1,979,000 for the
prior year due primarily to the decrease in gross profit and the
extraordinary loss on the refinancing of subordinated debt.
Liquidity and Capital Resources
The ability of the Operating Partnership to satisfy its
obligations will be dependent upon future performance, which will
be subject to prevailing economic conditions and to financial,
business and weather conditions and other factors, many of which
are beyond its control. For the fiscal year ending July 31, 1995,
the General Partner believes that the Operating Partnership will
generate sufficient Available Cash constituting Cash from
Operations to meet its obligations and enable it to distribute
the Minimum Quarterly Distribution on all Common Units and
Subordinated Units. Future capital needs of the Operating
Partnership are expected to be provided by future operations,
existing cash balances and the working capital facility.
On September 30, 1994, the General Partner entered into a
definitive Purchase Agreement with Vision Energy Resources, Inc.
("Vision") for the purchase of the propane business owned and
operated by Vision for a cash purchase price of $45 million. The
closing of the transaction is subject to customary conditions,
including the expiration of the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act. Following the
closing of the transaction, the General Partner intends to
transfer the assets of Vision to the Operating Partnership. In
connection with the contribution of the Vision assets by the
General Partner, the Operating Partnership will assume
substantially all of the liabilities, whether known or unknown,
associated with Vision (other than income tax liabilities). In
addition, the Operating Partnership will assume the payment
obligations of the General Partner for additional indebtedness
that will be incurred by the General Partner in acquiring Vision.
In order to fund possible additional future acquisitions, the
Operating Partnership may incur additional indebtedness or the
MLP may issue additional Common Units. Toward this purpose, on
August 22, 1994, the MLP filed with the Securities and Exchange
Commission a shelf registration statement on Form S-1 to register
2,400,000 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 Operating Partnership's acquisition of
other businesses, properties or securities in business
combination transactions.
Although the Operating Partnership was formed April 22, 1994,
the first period of actual propane operations was the one month
ended July 31, 1994. As the propane business is seasonal in
nature, with peak activity in the winter months, July sales
volumes represent less than 5% of the Operating Partnership's pro
forma annual sales, therefore, one month actual propane operation
results are not indicative of results to be expected for a full
year.
Cash Flows from Operating Activities. Cash used by operating
activities decreased to ($12,066,000) for the one month ended
July 31, 1994. This decrease was attributable to decreases in net
earnings, accounts payable, other liabilities, and an increase in
inventory.
Cash Flows From Investing Activities. During the one month
ended July 31, 1994, the Operating Partnership made aggregate
expenditures, including intangibles and organization costs, of
$2,772,000 for property, plant and equipment. The Operating
Partnership maintains its vehicle and transportation equipment
fleet by leasing light and medium duty trucks and tractors. The
General Partner believes vehicle leasing is a cost effective
method for financing transportation equipment. 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
Operating Partnership's principal physical assets, are generally
long.
Cash Flows From Financing Activities. In July 1994, the
Operating Partnership issued $200,000,000 10% Fixed Rate Senior
Notes (the "Fixed Notes") due 2001 and $50,000,000 Floating Rate
Senior Notes (the "Floating Notes" and, together with the Fixed
Notes, the "Senior Notes") due 2001. The net proceeds, along
with the $255,006,000 limited partner contribution from the MLP
(described in Note A of the Operating Partnership's notes to
consolidated financial statements), were used to retire
$477,600,000 of indebtedness of the Company assumed by the
Operating Partnership. The retirement of the indebtedness
assumed by the Operating Partnership resulted in an extraordinary
loss of approximately $60,062,000 resulting from debt prepayment
premiums, consent fees and the write-off of unamortized discount
and financing costs.
The Fixed Notes are not redeemable prior to August 1, 1998.
Thereafter, the Operating Partnership has the option to redeem
the notes, in whole or part, at a premium. The Floating Notes
are redeemable at the option of the Operating Partnership on or
after August 1, 1995, in whole or part, at a redemption price
equal to 100% of the principal amount, plus accrued and unpaid
interest at the redemption date. The Floating Notes have
mandatory sinking fund payments of $5,000,000 on August 1, 1999
and 2000, to retire an aggregate 20% of the Floating Notes prior
to maturity.
On July 5, 1994, the Operating Partnership entered into a
$185,000,000 Credit Facility with Bank of America National Trust
& Savings Association ("BofA"), as Agent. The Credit Facility
permits borrowings of up to $100,000,000 on a senior unsecured
revolving line of credit basis ( the "Working Capital Facility"),
to fund working capital and general partnership requirements (of
which up to $50,000,000 is available to support letters of
credit). At July 31, 1994, $3,000,000 of borrowings were
outstanding under the revolving line of credit, and letters of
credit outstanding, used primarily to secure obligations under
certain insurance and leasing arrangements, totaled $35,701,000.
In addition, the Credit Facility permits borrowings up to
$85,000,000 on a senior unsecured basis (the "Expansion
Facility"). Under the Expansion Facility, $15,000,000 was
borrowed to retire existing indebtedness of the Operating
Partnership, and $70,000,000 is available to finance acquisitions
and for capital additions and improvements.
At the Operating Partnership's option, borrowings under the
Credit Facility may bear interest at the Base Rate (i.e. the
higher of the Federal funds rate plus 1/2% or BofA's reference
rate), or the LIBOR rate, in each case plus an applicable margin.
The Credit Facility is committed for up to a three year period,
at which time the Working Capital Facility will expire.
Borrowings under the Expansion Facility may be converted, at the
option of the Operating Partnership, to a three year term loan at
the end of the initial three-year period.
The Senior Notes and Credit Facility contain various
restrictive covenants applicable to the Operating Partnership and
its subsidiaries, the most restrictive relating to additional
indebtedness, sale and disposition of assets, and transactions
with affiliates. In addition, the Operating Partnership is
prohibited from making cash distributions of the Minimum
Quarterly Distribution if a default or event of default exists or
would exist upon making such distribution, or if the Operating
Partnership fails to meet certain coverage and capital
expenditure tests. With respect to the capital expenditure
tests, the Operating Partnership shall have in the aggregate made
"Capital Investments" (as defined in the Senior Note Indenture)
of $15,000,000 by July 31, 1995, $30,000,000 by July 31, 1996,
$45,000,000 by July 31, 1997, $70,000,000 by July 31, 1998,
$95,000,000 by July 31, 1999, and $120,000,000 by the end of
fiscal year 2000. The Operating Partnership is in compliance
with all requirements, tests, limitations and covenants related
to the Senior Notes and Credit Facility.
Effects of Inflation. In the past the Company has been able to
adjust its sales price of product in response to market demand,
cost of product, competitive factors and other industry trends.
Consequently, changing prices as a result of inflationary
pressures have not had a material adverse effect on profitability
although revenues may be affected. Inflation has not materially
impacted the results of operations and the General Partner does
not believe normal inflationary pressures will have a material
adverse effect on the profitability of the Operating Partnership
in the future.
Adoption of New Accounting Standards. As described in the
notes to the consolidated financial statements the Operating
Partnership has no employees and is managed and controlled by the
General Partner. The Operating Partnership assumed all
liabilities, which included specific liabilities related to the
following employee benefits for the benefit of the employees of
the General Partner.
The General Partner provides post retirement medical benefits
to a closed group of approximately 400 retired employees and
their spouses. The plan requires the General Partner to provide
primary medical benefits to the participants until age 65, at
which time the General Partner only pays a fixed amount of $55
per month per participant for medical benefits. Effective August
1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106_Employers' Accounting for Post retirement
Benefits Other Than Pensions which requires accrual of post
retirement benefits (such as health care benefits) during the
years an employee provides services. The General Partner elected
to amortize the post retirement benefit obligation over a period
not to exceed the average remaining life expectancy of the plan
participants (since all of the plan participants are retired).
The cumulative effect as of August 1, 1993, and impact for the
year ended July 31, 1994, of adopting this statement was not
material to the pro forma financial statements of the Operating
Partnership or the historical financial statements of the
Company.
The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 112_Employers' Accounting
For Postemployment Benefits which is effective for fiscal years
beginning after December 15, 1993. This statement requires that
employers recognize over the service lives of employees the costs
of postemployment benefits if certain conditions are met. The
General Partner does not believe that adoption of the statement
will have a material impact on the results of operations or
financial condition of the Operating Partnership.
Assets Contributed to the Operating Partnership. In connection
with the formation of the Operating Partnership, the General
Partner contributed certain assets including customer
relationships and customer tanks. The Internal Revenue Service
("IRS") has examined the General Partner's consolidated income
tax returns for the years ended July 31, 1987 and 1986, and has
proposed certain adjustments which relate to these contributed
assets. If the IRS were successful, the amount of amortization
and depreciation available to the General Partner could be
adversely affected. At this time, it is not possible to determine
the ultimate resolution of this matter and the impact, if any, to
the consolidated financial statements of the Operating
Partnership.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrants' Consolidated Financial Statements and the
Reports of Certified Public Accountants thereon and the
Supplementary Financial Information listed on the accompanying
Index to Financial Statements and Financial Statement Schedules
are hereby incorporated by reference.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
Partnership Management
The General Partner manages and operates the activities of the
Partnership, and the General Partner anticipates that its
activities will be limited to such management and operation.
Unitholders do not directly or indirectly participate in the
management or operation of the Partnership. The General Partner
owes a fiduciary duty to the Unitholders.
In September 1994, the General Partner appointed two persons
who are neither officers nor employees of the General Partner or
any affiliate of the General Partner to serve on a committee of
the Partnership (the "Audit Committee") with the authority to
review, at the request of the General Partner, specific matters
as to which the General Partner believes there may be a conflict
of interest in order to determine if the resolution of such
conflict proposed by the General Partner is fair and reasonable
to the Partnership. The Audit Committee will only review matters
relating to conflicts of interest at the request of the General
Partner, and the General Partner has sole discretion to determine
which matters, if any, to submit to the Audit Committee. Any
matters approved by the Audit Committee will be conclusively
deemed to be fair and reasonable to the Partnership, approved by
all partners of the Partnership and not a breach by the General
Partner of any duties it may owe the Partnership or the
Unitholders.
The Partnership does not directly employ any of the persons
responsible for managing or operating the Partnership. At July
31, 1994, 2,313 full-time and 778 temporary and part-time
individuals were employed by the General Partner.
Directors and Executive Officers of the General Partner
The following table sets forth certain information with respect
to the directors and executive officers of the Company. Each of
the persons named below is elected to their respective office or
offices annually. The executive officers are not subject to
employment agreements.
Director
Name Age Since Position
- - --------------------- ---- -------- --------------------------------------
James E. Ferrell......... 55 1984 President, Chairman of the Board and a
Director of the Company
Bradley A. Cochennet...... 40 _ Executive Vice President and
Managing Director, Retail
Danley K. Sheldon......... 36 _ Senior Vice President, Chief Financial
Officer and Managing Director
Rhonda E. Smiley........ 38 _ Vice President, Legal Affairs
Daniel M. Lambert......... 53 1994 Director of the Company
A. Andrew Levison......... 38 1994 Director of the Company.
James E. Ferrell_Mr. Ferrell has been with Ferrell or its
predecessors and its affiliates in various executive capacities
since 1965.
Bradley A. Cochennet_Mr. Cochennet has been Executive Vice
President since January 1993 and has been a Vice President of the
Company since 1985. Mr. Cochennet joined the Company in 1980.
Danley K. Sheldon_Mr. Sheldon has been Chief Financial Officer
of the Company since January 1994 and has served as Treasurer
since 1989. He joined the Company in 1986.
Rhonda E. Smiley_Ms. Smiley joined the Company in 1991 as
Director of Legal Affairs and has been a Vice President of the
Company since April 1994. Prior to joining the Company, Ms.
Smiley practiced law with Shook, Hardy & Bacon for ten years, the
last five years as a partner.
Daniel M. Lambert---Dr. Lambert was elected a director of the
Company in September 1994. Dr. Lambert has been President of
Baker University in Baldwin City, Kansas, since July 1, 1987.
A. Andrew Levison---Mr. Levison was elected a director of the
Company in September 1994. Mr. Levison has been a Managing
Director of Donaldson, Lufkin & Jenrette Securities Corporation
since 1989. Mr. Levison is also a director of Rickel Home Centers,
Inc., a leading full service home improvement retailer that
operates stores in the Northeastern United States.
Compensation of the General Partner
The General Partner receives no management fee or similar
compensation in connection with its management of the Partnership
and receives no remuneration other than:
(i) distributions in respect of its 2% general partner
interest, on a combined basis, in the Partnership and the
Operating Partnership; and
(ii) reimbursement for all direct and indirect costs and
expenses incurred on behalf of the Partnership, all selling,
general and administrative expenses incurred by the General
Partner for or on behalf of the Partnership and all other
expenses necessary or appropriate to the conduct of the
business of, and allocable to, the Partnership. The selling,
general and administrative expenses reimbursed include
specific employee benefit and incentive plans for the benefit
of the executive officers and employees of the General
Partner.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth the annual salary, bonuses and
all other compensation awards and payouts to the Chief Executive
Officer and to named executive officers of the Company, for the
fiscal years ended July 31, 1992, 1993 and 1994.
Long-Term Compensation
----------------------------------
Annual Compensation Awards Pay-outs
---------------------------------- ---------------------- ---------
Other Restricted Stock Long-Term
Annual Stock Options/ Incentive All Ot
Name and Salary Bonus Compensation Awards SARs Payouts Compens
Potential Position Year ($) ($) ($) ($) # ($) ($
- - -------------------------------- ---- ------- ------ ------------- ---------- -------- --------- -------
<C
James E. Ferrell
- - ----------------
Chairman and 1994 480,000 --- --- --- --- ---
Chief Executive Officer 1993 480,000 13,000 --- --- --- 1,502,080 (2) 25
1992 480,000 20,000 --- --- --- --- 32
Bradley A. Cochennet
- - --------------------
Executive Vice President and 1994 225,000 50,000 --- --- 2,678 --- 13
Managing Director, Retail 1993 150,000 --- --- --- 2,762 --- 9
1992 150,000 --- --- --- --- --- 12
Danley K. Sheldon
- - -----------------
Senior Vice President, Chief 1994 120,185 125,875 --- --- --- --- 7
Chief Financial Officer and 1993 115,000 --- --- --- --- --- 6
Managing Director 1992 103,320 --- --- --- --- --- 9
Rhonda K. Smiley
- - ----------------
Vice President, Legal Affairs 1994 133,070 25,875 --- --- --- --- 8
1993 125,375 9,900 --- --- --- ---
1992 63,743 --- --- --- --- ---
Brian M. Smith (4)
- - ------------------
Vice President, Marketing and 1994 111,575 52,901 --- --- --- --- 6
Communications 1993 99,354 --- --- --- --- --- 1
1992 70,192 --- --- --- --- ---
<FN>
(1) Includes (i) General Partner contributions of $10,487 to the
employee's 401(k) and profit sharing plans and (ii)
compensation of $12,433 resulting from the General Partner's
payment of split dollar life insurance premiums.
(2) Early purchase of all the employee's 64,000 Equity Units
under Ferrell's Long-Term Incentive Plan at a price of $23.47.
(3) General Partner contributions to the employee's 401(k) and
profit sharing plans.
(4) Mr. Smith resigned effective July 31, 1994.
</FN>
Stock Option Tables
The Board of Directors of Ferrell adopted the 1992 Key Employee
Stock Option Plan (the "Option Plan") on June 26, 1992. The
Option Plan reserves 100,000 shares of Class M Common Stock of
Ferrell for the purpose of allowing Ferrell to offer options on
the Class M Common Stock to officers and key employees of Ferrell
and the Company. The value of each share of Class M Common Stock
is determined by the Board of Directors of Ferrell and shall not
be less than fair market value of such stock on the date the
option is granted. The following table sets forth the option
grants for the fiscal year ended July 31, 1994:
Individual Grant Potential Realized
----------------------------------------------- Value at Assumed
Number of annual Rates of
Securities % of Total Stock Appreciations
Underlying Options Granted Exercise for Option Term(2)
Options to Employees Price Expiration ------------------
Name Granted in Fiscal Year ($/SH) Date 5% 10%
- - -------------------- --------- -------------- -------- --------- ------- --------
Bradley A. Cochennet 2,678 91% $56.01 08/02/03 $94,000 $239,000
Geoffrey H. Ramsden 261 9% $56.01 (1) (1) (1)
<FN>
(1) Mr. Ramsden's options terminated as a result of his
resignation in January 1994.
(2) These dollar amounts represent the potential realizable
value of each grant of options assuming that the market price
of the Class M Common Stock appreciates in value from the date
of grant at 5% and 10% annual rates and are not intended to
forecast possible future appreciation, if any, of the price of
the Class M Common Stock.
</FN>
The following table lists information on the named executive
officer's exercised/unexercised options for the fiscal year ended
July 31, 1994:
Value of
Number of Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
Number of at FY-End at FY-End
Shares ------------- ----------------
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized ($) Unexercisable Unexercisable($)
- - -------------------- ----------- ------------ ------------- ----------------
Bradley A. Cochennet _ _ 5,440/_ $435,461/_
Long-Term Incentive Plan Awards
The goal of Ferrell's Long-Term Incentive Plan (the "Plan") is
to attract and retain officers and key executives needed for the
continued growth and success of Ferrell and its affiliates
through long-term incentives in the form of units ("Equity
Units"). The plan is administered by the Compensation Committee
(the "Committee") of the Board of Directors of Ferrell. The
Committee members who hold an award under the Plan are ineligible
to vote on matters relating to the Plan. The Committee has the
authority to determine, within the express provisions of the
Plan, the individuals to whom awards will be granted; the amount,
size and terms of each such award; the time when awards will be
granted; and the objectives and conditions for earning such
awards. The Committee has the full and final authority to
interpret the provisions of the Plan, to decide all questions of
fact arising upon its application and to make all other
determinations necessary or advisable for the administration of
the plan.
The Equity Units awarded under the Plan, which are 100% vested,
are subject to purchase by Ferrell at a cash price related to the
increased value of Ferrell's common stock from 1986, as
determined pursuant to (i) an appraisal conducted by a nationally
recognized investment banking firm, (ii) the mean of the closing
bid and asked price of a class of Ferrell's common stock if a
class of Ferrell's common stock is publicly traded, or (iii) in
certain limited circumstances, including if the appraisal
referred to in (i) is more than 90 days old or if there is no
public market as referred to in (ii), the Committee shall
determine the value of the Equity Units. Unless purchased
earlier, Ferrell will purchase all of the issued and outstanding
Equity Units as of July 31, 1996. The value of the Equity Units
as of July 31, 1996 will be the value of Ferrell's common stock
as of such date, determined in accordance with the valuation
methods described above, less the "deemed" value of Ferrell's
common equity as of August 1, 1986.
As of July 31, 1994, a total of 30,000 Equity Units, awarded in
previous years, were outstanding to Bradley A. Cochennet, as
named in the Summary Compensation Table. During fiscal 1993,
James E. Ferrell had a total of 64,000 Equity Units repurchased
by Ferrell. No additional Equity Units were awarded under the
Plan in fiscal 1994, therefore, no long-term incentive plan
awards table is presented.
Compensation expense of $720,000 and $80,000 was recorded for
the fiscal years ended July 31, 1994 and 1993, respectively
pursuant to the Plan for the benefit of the Equity Unit holders.
As of July 31, 1994, a liability totaling approximately
$2,145,000 is recorded in the financial statements of Ferrell as
a result of the grants under this Plan.
Profit Sharing Plan
The Ferrell Profit Sharing Plan is a qualified defined
contribution plan (the "Profit Sharing Plan"). All full-time
employees of Ferrell or any of its direct or indirect wholly
owned subsidiaries with at least one year of service are eligible
to participate in the Profit Sharing Plan. The Board of Directors
of Ferrell determines the amount of the annual contribution to
the Profit Sharing Plan, which is purely discretionary. This
decision is based on the operating results of Ferrell for the
previous calendar year and anticipated future cash needs of the
General Partner and Ferrell. The contributions are allocated to
the Profit Sharing Plan participant's based on each participant's
wages or salary as compared to the total of all participants'
wages and salaries.
Historically, the annual contribution to the Profit Sharing
Plan has been 2% to 7% of each participant's annual wage or
salary. The Profit Sharing Plan also has a cash-or-deferred, or
401(k), feature allowing plan participants to specify a portion
of their pre-tax and/or after-tax compensation to be contributed
to the Profit Sharing Plan.
Compensation of Directors
The General Partner does not pay any additional remuneration to
its employees (or employees of, or legal counsel to, a direct or
indirect wholly-owned subsidiary) for serving as directors.
Directors who are not employees of the General Partner, a direct
or indirect wholly-owned subsidiary, or counsel to any of the
foregoing, receive a fee per meeting of $500, plus reimbursement
for out-of-pocket expenses.
Termination of Employment Arrangement
On January 3, 1991, Warren Gfeller resigned as President of the
Company and as Director of Ferrell. In connection with such
resignation, a severance agreement was executed by and among Mr.
Gfeller, the Company and Ferrell, whereby Mr. Gfeller would
receive $2.5 million, payable in four equal annual installments
commencing on or before January 11, 1991. As consideration for
these payments, Mr. Gfeller agreed not to compete with the
Company and to the termination and release of his participation
in the Ferrell Long-Term Incentive Plan and all bonus or
performance plans maintained by the Company and Ferrell.
In January 1994, Geoffrey H. Ramsden resigned as Vice President
and Chief Financial Officer of the Company. In connection with
Mr. Ramsden's resignation, Ferrell and Mr. Ramsden entered into a
severance agreement dated March 23, 1994. Pursuant to the terms
of the agreement, Mr. Ramsden received approximately $500,000 in
exchange for the repurchase of his Class M Stock and Equity Units
and the termination of all rights under Ferrell's bonus and
performance plans.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables set forth certain information as of July
31, 1994, regarding the beneficial ownership of (i) the Common
and Subordinated Units of the MLP and (ii) the Class A and
Class M common stock of Ferrell, the parent company of the
General Partner, by certain beneficial owners and all
directors of the General Partner and the Partnership, each of
the named executive officers and all directors and executive
officers as a group. The General Partner knows of no other
person beneficially owning more than 5% of the Common Units.
Ferrellgas Partners, L.P.
- - -------------------------
Units Percent
Title of Name and Address Beneficially of
Class of Beneficial Owner Owned (1) Class
- - ------------------------ -------------------------- ------------ -----
Common Units Ferrellgas, Inc. (2) 1,000,000 7.1%
Bradley Cochennet 500 *
Rhonda Smiley 500 *
Daniel M. Lambert 200 *
A. Andrew Levison 15,000 *
All Directors and Officers
as a Group 16,200 *
Subordinated Units Ferrellgas, Inc. (2) 16,543,721 100%
Ferrell Companies, Inc.
- - -----------------------
Units Percent
Title of Name and Address Beneficially of
Class of Beneficial Owner Owned (1) Class
- - ------------------------ -------------------------- ------------ -----
Class A Common Stock James E. Ferrell (3) 2,562,640 (4) 99.6%
All Directors and Officers
as a Group 2,573,100 100%
Class M Common Stock (5) All Directors and Officers 4,325 28.1%
as a Group
<FN>
* Less than 1%.
(1) Beneficial ownership for the purposes of the foregoing table
is defined by Rule 13d-3 under the Securities Exchange Act of
1934. Under that rule, a person is generally considered to be
the beneficial owner of a security if he has or shares the
power to vote or direct the voting thereof ("Voting Power") or
to dispose or direct the disposition thereof ("Investment
Power") or has the right to acquire either of those powers
within sixty (60) days.
(2) The address for Ferrellgas, Inc. is One Liberty Plaza,
Liberty, Missouri 64068.. On August 1, 1994, the General
Partner declared a dividend and distributed to Ferrell
1,000,000 Common Units and 1,650,000 Subordinated Units. The
dividend of the Common Units and Subordinated Units represent
7.1% and 10.0% of each Class, respectively.
(3) The address for James E. Ferrell and Elizabeth J. Ferrell,
is c/o Ferrell Companies, Inc., One Liberty Plaza, Liberty,
Missouri 64068.
(4) James E. Ferrell has sole Voting and Investment Power with
respect to 1,525,817 shares of Class A Common Stock held by
Mr. Ferrell as Trustee of the James E. Ferrell Revocable
Trust. Mr. Ferrell shares Voting and Investment Power with
respect to 1,036,823 shares of Class A Common Stock held by
himself and his wife, Elizabeth J. Ferrell, as joint tenants
with rights of survivorship.
(5) The shares of Class M Common Stock are restricted to
eligible employees of Ferrell and the Company and are non-
voting and non-transferable.
</FN>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Set forth below is a discussion of certain relationships and
related transactions among affiliates of the Partnership.
In connection with the formation of the Partnership,
substantially all of the assets and liabilities of the Company
were conveyed at historical cost to the Operating Partnership, as
described in the Ferrellgas Partners, L.P.'s notes to
consolidated financial statements.
The Partnership has no employees and is managed and controlled
by the General Partner. Pursuant to the Partnership Agreement,
the General Partner is entitled to reimbursement for all direct
and indirect expenses incurred or payments it makes on behalf of
the Partnership, and all other necessary or appropriate expenses
allocable to the Partnership or otherwise reasonably incurred by
the General Partner in connection with operating the
Partnership's business. These costs, which totaled $7,561,000
from inception to July 31, 1994, include compensation and
benefits paid to officers and employees of the General Partner,
and general and administrative costs. In addition, the
conveyance of the net assets of the Company to the Partnership
included the assumption of specific liabilities related to
employee benefit and incentive plans for the benefit of the
officers and employees of the General Partner. The conveyance of
the net assets of the Company to the Partnership and the details
of the employee benefit plans are described in the Ferrellgas
Partners, L.P.'s notes to the consolidated financial statements.
A. Andrew Levison, a director of Ferrell and the Company, is a
Managing Director of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"). DLJ acted as an underwriter with regard to
the public offering of Common Units and Senior Notes described in
Note A of the Ferrellgas Partners, L.P.'s notes to the
consolidated financial statements and was paid total fees of
$5,100,000.
The law firm of Smith, Gill, Fisher & Butts, a Professional
Corporation, is general counsel to the Partnership, General
Partner, Ferrell and their respective subsidiaries and
affiliates. David S. Mouber, a director of Ferrell at July 31,
1994, is a member of such law firm. The Partnership, Ferrell and
their respective subsidiaries paid such firm fees of $151,000
from inception to July 31, 1994.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements.
See "Index to Financial Statements" set forth on page F-1.
2. Financial Statement Schedules.
See "Index to Financial Statement Schedules" as set forth
on page S-1.
3. Exhibits.
See "Index to Exhibits" set forth on page E-1.
(b) Reports on Form 8-K.
Reports on Form 8-K were filed by the Partnership on August
15, September 26 and October 4, 1994, and are incorporated
herein by reference. The contents of the reports are
briefly summarized below:
On August 15, 1994, the Registrants reported that the
previously announced offering of 13,100,000 Common Units
representing limited partners interests in Ferrellgas
Partners, L.P. was consummated, concurrent with the offering
by Ferrellgas, L.P. of $250,000,000 Senior Notes due 2001.
On September 26, 1994, the Registrants reported that Daniel
M. Lambert and A. Andrew Levison were appointed to the Board
of Directors of Ferrellgas, Inc., the General Partner.
On October 4, 1994, the Registrants reported that
Ferrellgas, Inc., the General Partner of Ferrellgas
Partners, L.P. and Ferrellgas, L.P., entered into a
definitive Purchase Agreement with Vision Energy Resources,
Inc. ("Vision") for the purchase of the propane business
owned and operated by Vision for a cash purchase price of
$45,000,000. Following the closing of the transaction, the
General Partner intends to transfer the assets of Vision to
the Partnership.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has 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)
By /s/ James E. Ferrell
James E. Ferrell
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
/s/ James E. Ferrell Chairman of the Board, October 20, 1994
James E. Ferrell Chief Executive Officer and
Director (Principal Executive
Officer)
/s/ Daniel M. Lambert Director October 20, 1994
Daniel M. Lambert
/s/ A. Andrew Levison Director October 20, 1994
A. Andrew Levison
/s/ Danley K. Sheldon Senior Vice President/Chief October 20, 1994
Danley K. Sheldon Financial Officer (Principal
Financial and Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FERRELLGAS, L.P.
By Ferrellgas, Inc.
(General Partner)
By /s/ James E. Ferrell
James E. Ferrell
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
/s/ James E. Ferrell Chairman of the Board, October 20, 1994
James E. Ferrell Chief Executive Officer and
Director (Principal Executive
Officer)
/s/ Daniel M. Lambert Director October 20, 1994
Daniel M. Lambert
/s/ A. Andrew Levison Director October 20, 1994
A. Andrew Levison
/s/ Danley K. Sheldon Senior Vice President/Chief October 20, 1994
Danley K. Sheldon Financial Officer (Principal
Financial and Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FERRELLGAS FINANCE CORP.
By /s/ James E. Ferrell
James E. Ferrell
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated:
Signature Title Date
/s/ James E. Ferrell Chairman of the Board, October 20, 1994
James E. Ferrell Chief Executive Officer and
Sole Director (Principal
Executive Officer)
/s/ Danley K. Sheldon Senior Vice President/Chief October 20, 1994
Danley K. Sheldon Financial Officer (Principal
Financial and Accounting Officer)
INDEX TO EXHIBITS
The exhibits listed on the accompanying Exhibit Index are
filed as part of this report. Exhibits required by Item 601 of
Regulation S-K which are not listed are not applicable.
Exhibit
Number Description
*** 3.1 Agreement of Limited Partnership of Ferrellgas Partners, L.P.
* 3.2 Agreement of Limited Partnership of Ferrellgas, L.P.
dated as of July 5, 1994.
* 10.1 Credit Agreement dated as of July 5, 1994, among
Ferrellgas, L.P., Stratton Insurance Company, Inc.,
Ferrellgas, Inc., Bank of America National Trust and
Savings Association, as agent, and the other financial
institutions party thereto.
* 10.2 Indenture dated as of July 5, 1994, among Ferrellgas,
L.P., Ferrellgas Finance Corp. and Norwest Bank
Minnesota, National Association, as Trustee, relating
to $200,000,000 10% Series A Fixed Rate Senior Notes
due 2001 and $50,000,000Series B Floating Rate Senior Notes due
2001.
10.4 Assignment and Agreement dated as of January 1, 1989,
between BP Oil Company and Ferrell Petroleum, Inc., as
amended.
** 10.5 Ferrell Long-Term Incentive Plan, dated June 23, 1987,
between Ferrell and the participants in the Plan.
** 10.6 Ferrell 1992 Key Employee Stock Option Plan.
** 10.7 Contribution, Conveyance and Assumption Agreement between
Ferrellgas, the Partnersihp and the Operating Partnership.
10.8 First Amendment to Contribution, Conveyance and Assumption Agreement
between Ferrellgas, the Partnership and the Operating Partnership.
** 21.1 List of subsidiaries.
** 23.1 Consent of Deloitte & Touche, LLP.
27 Ferrellgas Partners, L.P. and Subsidiary Financial Data Schedule
27.1 Ferrellgas, L.P. and Subsidiaries Financial Data Schedule
27.2 Ferrellgas Finance Corp. Financial Data Schedule
27.3 Ferrellgas, Inc. and Subsidiaries (PREDECESSOR) Financial
Data Schedule
* Incorporated by reference to the same numbered Exhibit to
the Registrant's Current Report on Form 8-K filed August 15,
1994.
** Incorporated by reference to the same numbered Exhibit to
Registrant's Registration Statement on Form S-1
(Registration No. 33-53383).
*** Incorporated by reference to the same numbered Exhibit to
Registrant's Registration Statement on Form S-1
(Registration No. 33-55185).
INDEX TO FINANCIAL STATEMENTS
- - -----------------------------
Ferrellgas Partners, L.P. and Subsidiary
- - ----------------------------------------
Independent Auditors' Report
Consolidated Balance Sheet - July 31, 1994
Consolidated Statement of Operations -
Inception to July 31, 1994 and Pro Forma
July 31, 1993
Consolidated Statement of Partners Capital -
Inception to July 31, 1994
Consolidated Statement of Cash Flows -
Inception to July 31, 1994
Notes to Consolidated Financial Statements
Ferrellgas, L.P. and Subsidiaries
- - ---------------------------------
Independent Auditors' Report
Consolidated Balance Sheet - July 31, 1994
Consolidated Statement of Operations -
Inception to July 31, 1994 and Pro Forma
July 31, 1993
Consolidated Statement of Partners' Capital -
Inception to July 31, 1994
Consolidated Statement of Cash Flows -
Inception to July 31, 1994
Notes to Consolidated Financial Statements
Ferrellgas Finance Corp.
- - ------------------------
Independent Auditors' Report
Balance Sheet - July 31, 1994
Statement of Stockholder's Equity -
Inception to July 31, 1994
Statement of Cash Flows -
Inception to July 31, 1994
Notes to Financial Statement
Ferrellgas, Inc. and Subsidiaries (Predecessor)
- - -----------------------------------------------
Independent Auditors' Report
Consolidated Balance Sheet -
June 30, 1994 and July 31, 1993
Consolidated Statement of Operations -
Eleven Months Ended June 30, 1994 and
Years Ended July 31, 1993 and 1992
Consolidated Statement of Partners' Capital -
Eleven Months Ended June 30, 1994 and
Years Ended July 31, 1993 and 1992
Consolidated Statement of Cash Flows -
Eleven Months Ended June 30, 1994 and
Years Ended July 31, 1993 and 1992
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the accompanying consolidated balance
sheet of Ferrellgas Partners, L.P. and subsidiary as of July
31, 1994, and the related consolidated statements of
operations, partners' capital and cash flows for the period
from inception (April 19, 1994) to July 31, 1994. These
financial statements are the responsibility of the
Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Ferrellgas, L.P. and subsidiary as of July 31,
1994, and the results of their operations and their cash
flows for the period from inception (April 19, 1994) to July
31, 1994, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 16, 1994 (October 14, 1994 as to Note O.)
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
July 31,
1994
---------
ASSETS
Current Assets:
Cash and cash equivalents $14,535
Accounts and notes receivable (net of
allowance for doubtful accounts of $798) 50,780
Inventories 43,562
Prepaid expenses and other current assets 2,042
---------
Total Current Assets 110,919
Property, plant and equipment, net 294,765
Intangible assets, net 63,291
Other Assets, net 8,218
---------
Total Assets $477,193
=========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable $46,368
Other current liabilities 26,590
Short-term borrowing 3,000
Payable to general partner 13
---------
Total Current Liabilities 75,971
Long-term debt 267,062
Other liabilities 11,528
Minority interest 1,239
Partners' Capital
Common unitholders (units issued - 14,100,000) 84,532
Subordinated unitholder (units issued - 16,593,721) 99,483
General partner (62,622)
---------
Total Partners' Capital 121,393
---------
Total Liabilities and Partners' Capital $477,193
=========
[FN]
See notes to consolidated financial statements.
<FN/>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except unit data)
Inception to July 31,
--------------------------
Pro Forma
1994 1993
(unaudited)
----------- ------------
Revenues:
Gas liquids and related product sales $22,411 $24,696
Other 2,155 1,839
--------- ----------
Total revenues 24,566 26,535
Costs and expenses:
Cost of product sold 13,211 16,300
Operating 10,078 8,299
Depreciation and amortization 2,383 2,490
General and administrative 935 1,053
Vehicle leases 350 375
--------- ----------
Total costs and expenses 26,957 28,517
--------- ----------
Operating loss (2,391) (1,982)
Loss on disposal of assets (97) (16)
Interest income 73 50
Interest expense (2,662) (2,374)
Minority interest 51 44
--------- ----------
Loss before extraordinary loss (5,026) (4,278)
Extraordinary loss on early
extinguishment of debt 60,062 -
Minority interest in extraordinary loss (607) -
--------- ----------
Net loss (64,481) (4,278)
General partner's interest in net loss (64,481) (4,278)
--------- ----------
Limited partners' interest in net loss $ - $ -
========= ==========
Net loss per unit:
Loss before extraordinary loss $ - $ -
Extraordinary loss - -
--------- ----------
Net loss per unit $ - $ -
========= ==========
Number of units used in computation 30,693,721 30,693,721
=========== ==========
[FN]
See notes to consolidated financial statements.
<FN/>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands, except unit data)
Number of units Total
------------------------ General partners'
Common Subordinated Common Subordinated partner capital
---------- ---------- ------- ------- --------- ---------
Balance April 19, 1994 - - $ - $ - $ - $ -
Contributions 14,100,000 16,593,721 84,532 99,483 1,859 185,874
Net loss - - - - (64,481) (64,481)
---------- ---------- ------- ------- --------- ---------
Balance July 31, 1994 14,100,000 16,593,721 $84,532 $99,483 ($62,622) $121,393
========== ========== ======= ======= ========= =========
[FN]
See notes to consolidated financial statements.
<FN/>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Inception
to
July 31,
1994
---------
Cash Flows From Operating Activities:
Net loss ($64,481)
Reconciliation of net loss to net
cash from operating activities:
Extraordinary loss(net of minority interest) 59,455
Depreciation and amortization 2,383
Other 22
Decrease (increase) in assets:
Accounts and notes receivable 196
Inventories (5,631)
Prepaid expenses and other current assets 618
Decrease in liabilities:
Accounts payable (2,809)
Other current liabilities (1,733)
Other liabilities (35)
---------
Net cash used by operating activities (12,015)
---------
Cash Flows From Investing Activities:
Capital expenditures (2,768)
Proceeds from asset sales 35
Net additions to other assets (4)
---------
Net cash used by investing activities (2,737)
---------
Cash Flows From Financing Activities:
Additions to long-term debt 265,000
Net issuance of common units 255,006
Cash transfer from predecessor company 39,791
Additions to short-term borrowing 3,000
Reductions to long-term debt (477,903)
Additional payments to retire debt (48,364)
Additions to financing costs (6,575)
Minority activity (544)
Net payment to general partner (124)
---------
Net cash provided by financing activities 29,287
---------
Increase in Cash and Cash Equivalents 14,535
Cash and cash equivalents - Beginning of period -
---------
Cash and Cash Equivalents - End of Period $14,535
=========
[FN]
See notes to consolidated financial statements.
<FN/>
FERRELLGAS PARTNERS, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION TO JULY 31, 1994
A. Partnership Organization and Formation:
Ferrellgas Partners, L.P. was formed April 19, 1994, and is a
publicly traded limited partnership, owning a 99% limited
partner interest in Ferrellgas, L.P. (the "Operating
Partnership"), both Delaware limited partnerships, and
collectively known as the Partnership. Ferrellgas Partners,
L.P., was formed to acquire and hold a limited partner
interest in the Operating Partnership. The Operating
Partnership was formed to acquire, own and operate the propane
business and assets of Ferrellgas Inc. (the "Company" or
"General Partner'"). The Company has retained a 1% general
partner interest in Ferrellgas Partners, L.P. and also holds a
1% general partner interest in the Operating Partnership,
representing a 2% general partner interest in the Partnership
on a combined basis. As General Partner of the Partnership,
the Company performs all management functions required for the
Partnership.
On July 5, 1994, the Partnership completed an initial public
offering of 13,100,000 Common Units representing limited
partner interests (the "Common Units") at $21 per Common Unit.
The 13,100,000 Common Units represent a 41.8% limited partner
interest in the Partnership. Concurrent with the closing of the
offering, the Company contributed all of its propane business
and assets to the Partnership (excluding approximately
$39,000,000 in cash, payables to or receivables from parent and
affiliates and an investment in the Class B Stock of Parent) in
exchange for 1,000,000 Common Units, 16,593,721 Subordinated
Units and Incentive Distribution Rights, representing a 56.2%
limited partner interest in the Partnership, in addition to the
2% general partner interest in the Partnership. In connection
with the contribution of the propane business and assets by
the Company, the Operating Partnership assumed all of the
liabilities, whether known or unknown, associated with such
assets (other than income tax liabilities). The book value of
the assets being contributed to the Partnership was
approximately $67,000,000 less than the liabilities assumed by
the Operating Partnership, as described in Note B.
Concurrent with this offering, the Operating Partnership
completed the issuance of 10% Fixed Rate Senior Notes due 2001
in the aggregate principal amount of $200,000,000 and Floating
Rate Senior Notes due 2001 in the aggregate principal amount
of $50,000,000 (collectively, the "Senior Notes"). As
described in Note G, the net proceeds from the sale of the
Common Units and from the issuance of the Senior Notes were
used to retire approximately $477,600,000 in indebtedness
assumed by the Operating Partnership.
B. Summary of Significant Accounting Policies:
(1) Principles of consolidation:
The accompanying consolidated financial statements present
the consolidated financial position, results of operations
and cash flows of the Partnership. The Company's 1% General
Partner interest in Ferrellgas, L.P. is accounted for as a
minority interest. All material intercompany profits,
transactions and balances have been eliminated.
The propane industry is seasonal in nature with peak
activity during the winter months. Therefore, the results
of operations of the Partnership from the inception to July
31, 1994, are not indicative of the results to be expected
for a full fiscal year. See Note N for the unaudited pro
forma statement of operations for the fiscal years ended
July 31, 1994 and 1993.
(2) Inventories:
Inventories are stated at the lower of cost or market using
average cost and actual cost methods.
The Partnership enters into forward purchase/sale agreements
and options involving propane and related products which are
for trading purposes. To the extent such contracts are
entered into at fixed prices and thereby subject the
Partnership to market risk, the contracts are accounted for
on a mark-to-market basis.
(3) Property, plant and equipment and other non-current
assets:
Property, plant and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are computed by the straight-line method over
the estimated useful lives of the assets ranging from two to
thirty years. Expenditures for maintenance and routine
repairs are expensed as incurred.
Intangible assets, consisting primarily of customer location
values and goodwill, are stated at cost, net of amortization
computed on the straight-line method over fifteen years for
customer location values and forty years for goodwill. The
General Partner evaluates the intangible assets for
impairment by calculating the anticipated cash flow
attributable to such acquisitions over their expected
remaining life. Such expected cash flows, on an
undiscounted basis, are compared to the carrying value of
the tangible and intangible assets, and if impairment is
indicated, the carrying value of the intangible assets are
adjusted. Accumulated amortization of intangible assets
totaled $68,489,000 as of July 31, 1994.
Other assets consist primarily of non-current notes
receivable and deferred financing costs. The deferred
financing costs are amortized using the effective interest
method over the terms of the respective debt agreements.
Accumulated amortization of other assets totaled $1,860,000
as of July 31, 1994.
(4) Income taxes:
The Partnership is a limited partnership. As a result, the
Partnership's income or loss for Federal income tax purposes
is included in the tax returns of the individual partners.
Accordingly, no recognition has been given to income taxes
in the accompanying financial statements of the Partnership.
Net income for financial statement purposes may differ
significantly from taxable income reportable to unitholders
as a result of differences between the tax basis and
financial reporting basis of assets and liabilities and the
taxable income allocation requirements under the Partnership
agreement.
(5) Consolidated statement of cash flows:
In connection with the formation of the Partnership, certain
non-cash investing and financing activities occurred.
Effective July 5, 1994, substantially all of the propane
assets and liabilities of the Company were conveyed at
historical cost to the Operating Partnership and the
Operating Partnership began operating activities. Net
liabilities assumed by the Operating Partnership are as
follows:
July 5, 1994
-------------
(in thousands)
Cash $39,791
Accounts receivable 50,747
Inventories 37,931
Prepaid expenses and other current assets 2,660
Property, plant and equipment, net 293,729
Intangible assets, net 64,050
Other assets 9,327
---------
Total Assets Conveyed 498,235
---------
Accounts Payable 49,177
Other current liabilities 30,296
Long-term debt, net 476,441
Other non-current liabilities 9,557
---------
Total Liabilities Assumed 565,471
---------
Net liabilities assumed by the Operating Partnership ($67,236)
=========
For purposes of the consolidated statement of cash flows,
the Partnership considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Interest paid totaled $6,093,000 from inception to July 31,
1994.
(6) Net Income per Unit
Net income per unit is computed by dividing net income,
after deducting the General Partner's 1% interest, by the
weighted average number of outstanding Common Units and
Subordinated Units (a total of 30,693,721 as of July 31,
1994). As described in Note G and H, the net loss before
extraordinary loss of approximately $5,026,000, and the
extraordinary loss from early extinguishment of debt of
approximately $60,062,000 is allocated 100% to the
General Partner. Accordingly, there is no net income per
unit calculation attributable to the limited partners from
inception to July 31, 1994.
C. Quarterly Distributions of Available Cash:
The Partnership will make 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 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 (i) distributions of Available Cash
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. Prior
to the end of the Subordination Period but not prior to August
1, 1997, 5,531,240 Subordinated Units held by the Company will
convert into Common Units if (i) distributions of Available
Cash on the Common Units and Subordinated Units equaled or
exceeded the Minimum Quarterly Distribution for each of the
two consecutive four-quarter period preceding August 1, 1997,
and (ii) the operating cash generated by the Partnership in
each of such four-quarter periods equaled or exceeded 125% of
the Minimum Quarterly Distribution on all Common Units and all
Subordinated Units. Upon expiration of the Subordination
Period, all remaining Subordinated Units will convert to
Common Units.
The Partnership will make distributions of all of its Available
Cash 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. The first distribution for the
period from July 5, 1994 through October 31, 1994 will be made
on or before December 15, 1994.
D. Inventories:
July 31, 1994
-------------
(in thousands)
Liquified propane gas and related products $38,890
Appliances, parts and supplies 4,672
-------
$43,562
=======
In addition to inventories on hand, the Partnership enters into
contracts to buy product for supply purposes. All such
contracts have terms of less than one year and call for
payment based on market prices at date of delivery.
E. Property, Plant and Equipment:
July 31, 1994
-------------
(in thousands)
Land and improvements $18,589
Buildings and improvements 23,005
Vehicles 37,283
Furniture and fixtures 17,776
Bulk equipment and market facilities 33,091
Tanks and customer equipment 317,631
Other 5,097
--------
452,472
Less accumulated depreciation and amortization 157,707
--------
$294,765
========
F. Other Current Liabilities:
July 31, 1994
-------------
(in thousands)
Current portion of long-term debt $1,311
Accrued insurance 6,624
Accrued interest 2,161
Accrued Payroll 9,394
Other 7,100
-------
$26,590
=======
G. Long-Term Debt:
July 31, 1994
-------------
(in thousands)
Fixed rate senior Notes, interest at 10%, due August 1,
2001 $200,000
Floating rate senior notes, interest at LIBOR rate plus
applicable margin (7.875% at July 31, 1994), due August 1,
2001 50,000
Credit Facility term loan borrowings, interest at applicable
rate (7.375% at July 31, 1994), due 2001 15,000
Notes payable, including approximately $2,056,000
secured by property and equipment, interest rates ranging
from noninterest-bearing to 12%, due on various dates
through 2001 3,373
--------
268,373
Less current portion 1,311
--------
$267,062
========
Concurrent with the closing of the sale of the Common Units
described in Note A, the Operating Partnership issued
$250,000,000 aggregate principal amount of Senior Notes due
2001. The net proceeds, along with the net proceeds of the
offering of Common Units, were used to retire $477,600,000 of
indebtedness of the Company assumed by the Operating
Partnership. The retirement of the indebtedness assumed by
the Operating Partnership resulted in an extraordinary loss of
approximately $60,062,000 resulting from debt prepayment
premiums, consent fees and the write-off of unamortized
discount and financing costs. As described in Note H, the
extraordinary loss is allocated 100% to the General Partner in
accordance with the partner capital allocation provisions of
the partnership agreement.
The $200,000,000 Fixed Rate Senior Notes are not redeemable
prior to August 1, 1998. Thereafter, the Partnership has the
option to redeem the notes, in whole or part, at a premium.
The $50,000,000 aggregate principal amount of Floating Rate
Senior Notes (the "Floating Notes") are redeemable at the
option of the Partnership on or after August 1, 1995, in whole
or part, at a redemption price equal to 100% of the principal
amount, plus accrued and unpaid interest at the redemption
date. The Floating Notes have mandatory sinking fund payments
of $5,000,000 on August 1, 1999 and 2000, to retire an
aggregate 20% of the Floating Notes prior to maturity.
On July 5, 1994 , the Operating Partnership entered into a
$185,000,000 Credit Facility with Bank of America National
Trust & Savings Association ("BofA"), as Agent. The Credit
Facility permits borrowings of up to $100,000,000 on a senior
unsecured revolving line of credit basis ( the "Working
Capital Facility"), to fund working capital and general
partnership requirements (of which up to $50,000,000 is
available to support letters of credit). At July 31, 1994,
$3,000,000 of borrowings were outstanding under the revolving
line of credit, and letters of credit outstanding, used
primarily to secure obligations under certain insurance and
leasing arrangements, totaled $35,701,000. In addition, the
Credit Facility permits borrowings up to $85,000,000 on a
senior unsecured basis (the "Expansion Facility"). Under the
Expansion Facility, $15,000,000 was borrowed to retire
existing indebtedness of the Operating Partnership, and
$70,000,000 is available to finance acquisitions and for
capital additions and improvements.
At the Operating Partnership's option, borrowings under the
Credit Facility may bear interest at the Base Rate (i.e. the
higher of the Federal funds rate plus 1/2% or BofA's
reference rate), or the LIBOR rate, in each case plus an
applicable margin. The Credit Facility is committed for up to
a three year period, at which time the Working Capital
Facility will expire. Borrowings under the Expansion Facility
may be converted, at the option of the Operating Partnership,
to a three year term loan at the end of the initial three-year
period.
The Senior Notes and Credit Facility contain various
restrictive covenants applicable to the Operating Partnership
and its subsidiaries, the most restrictive relating to
additional indebtedness, sale and disposition of assets, and
transactions with affiliates. In addition, the Operating
Partnership is prohibited from making cash distributions of the
Minimum Quarterly Distribution if a default or event of default
exists or would exist upon making such distribution, or if the
Operating Partnership fails to meet certain coverage and
capital expenditure tests. With respect to the capital
expenditure tests, the Operating Partnership shall have in the
aggregate made "Capital Investments" (as defined in the Senior
Note Indenture) of $15,000,000 by July 31, 1995, $30,000,000 by
July 31, 1996, $45,000,000 by July 31, 1997, $70,000,000 by
July 31, 1998, $95,000,000 by July 31, 1999, and $120,000,000
by the end of fiscal year 2000. The Partnership is in
compliance with all requirements, tests, limitations and
covenants related to the Senior Notes and Credit Facility.
Annual principal payments on long-term debt for each of the
next five fiscal years are $1,250,000 in 1995, $716,000 in
1996, $1,510,000 in 1997, $5,127,000 in 1998 and $5,082,000 in
1999.
H. Partner's Capital
Partner's capital consists of 14,100,000 Common Units
representing an effective 45% limited partner interest in the
Partnership, of which 1,000,000 Common Units, representing an
effective 3.2% interest in the Partnership, are owned by
Ferrellgas, Inc.; 16,593,721 Subordinated Units representing
an effective 53% limited partner interest in the Partnership
are also owned by Ferrellgas, Inc.; and a 2% General Partner
interest.
The Agreement of Limited Partnership of Ferrellgas Partners,
L.P. (the "Partnership Agreement") contains specific
provisions for the allocation of net income and loss to each
of the partners for purposes of maintaining the partner
capital accounts. In addition, the Partnership Agreement
contains special provisions for the allocation of the
extraordinary loss from the retirement of indebtedness, and
the net loss from operations of the Partnership from the
closing date on July 5, 1994, to July 31, 1994. In accordance
with these special provisions of the Partnership Agreement, the
extraordinary loss of $60,062,000 is allocated 100% to the
General Partner and will not be reallocated to the limited
partners in the next taxable year. The net loss from
operations of approximately $5,026,000 is allocated 100% to
the General Partner from inception of the Partnership to the
last day of the taxable year ending July 31, 1994. An amount
equal to 99% of this net loss will be reallocated to the
limited partners in the following taxable year based on their
ownership percentages.
During the Subordination Period, the Partnership may issue up
to 7,000,000 Common Units (excluding Common Units issued in
connection with conversion of Subordinated Units into Common
Units) or an equivalent number of securities ranking on a
parity with the Common Units and an unlimited number of
partnership interests junior to the Common Units without a
Unit holder vote. The Partnership may also issue additional
Common Units during the Subordination Period in connection
with acquisitions if certain cash flow criteria are met.
After the Subordination Period, the Partnership Agreement
authorizes the General Partner to cause the Partnership to
issue an unlimited number of additional general and limited
partner 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.
I. Transactions with Related Parties:
The Partnership has no employees and is managed and controlled
by the General Partner. Pursuant to the Partnership Agreement,
the General Partner is entitled to reimbursement for all
direct and indirect expenses incurred or payments it makes on
behalf of the Partnership, and all other necessary or
appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with
operating the Partnership's business. These costs, which
totaled $7,561,000 from inception to July 31, 1994, include
compensation and benefits paid to officers and employees of
the General Partner, and general and administrative costs. In
addition, the conveyance of the net assets of the Company to
the Partnership described in Note A included the assumption of
specific liabilities related to employee benefit and incentive
plans for the benefit of the officers and employees of the
General Partner. The details of these employee benefit plans
are described in Notes K and L.
A. Andrew Levison, a director of the Ferrell Companies, Inc.
("Ferrell"), is a Managing Director of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"). DLJ acted as an
underwriter with regard to the public offering of Common Units
and Senior Notes described in Note A, and was paid fees of
$5,100,000.
The law firm of Smith, Gill, Fisher & Butts, a Professional
Corporation, is general counsel to the Partnership, General
Partner, Ferrell and their respective subsidiaries and
affiliates. David S. Mouber, a director of Ferrell at July
31, 1994, is a member of such law firm. The Partnership,
Ferrell and their respective subsidiaries paid such firm fees
of $151,000 from inception to July 31, 1994.
J. Contingencies and Commitments:
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, after taking
into consideration the Partnership's insurance coverage and
its existing reserves, management is of the opinion that there
are no known uninsured claims or known contingent claims that
are likely to have a material adverse effect on the results of
operations or financial condition of the Partnership.
In connection with the formation of the Partnership, the
General Partner contributed certain assets including customer
relationships and customer tanks. The Internal Revenue
Service ("IRS") has examined the General Partner's
consolidated income tax returns for the years ended July 31,
1987 and 1986, and has proposed certain adjustments which
relate to these contributed assets. If the IRS were
successful, the amount of amortization and depreciation
available to the General Partner could be adversely affected.
At this time, it is not possible to determine the ultimate
resolution of this matter and the impact, if any, to the
consolidated financial statements of the Partnership.
Certain property and equipment is leased under noncancellable
operating leases which require fixed monthly rental payments
and which expire at various dates through 2016. Rental
expense under these leases totaled $725,000 for the one month
ended July 31, 1994. Future minimum lease commitments for
such leases are $7,569,000 in 1995, $5,286,000 in 1996,
$3,438,000 in 1997, $1,537,000 in 1998 and $409,000 in 1999.
K. Employee Benefits:
As described in Note A and I, the Partnership has no employees
and is managed and controlled by the General Partner. The
Partnership assumed all liabilities, which included specific
liabilities related to the following employee benefit and
incentive plans for the benefit of the officers and employees
of the General Partner.
The General Partner and its parent have a defined contribution
profit-sharing plan which covers substantially all employees
with more than one year of service. Contributions are made to
the plan at the discretion of the parent's Board of Directors.
This plan also provides for matching contributions under a
cash or deferred arrangement (401(k) plan) based upon
participant salaries and employee contributions to the plan.
There were no contributions under the profit sharing provision
or 401(k) provision of the plan from inception to July 31,
1994.
The General Partner has a defined benefit plan that provides
participants who were covered under a previously terminated
plan with a guaranteed retirement benefit at least equal to
the benefit they would have received under the terminated
plan. Benefits under the terminated plan are determined by
years of credited service and salary levels. The General
Partner's funding policy for this plan is to contribute
amounts deductible for Federal income tax purposes. Plan
assets consist primarily of corporate stocks and bonds, U.S.
Treasury bonds and short-term cash investments.
The following table sets forth the plan's projected funded
status for the respective periods based on the most recent
actuarial valuations:
Actuarially computed pension expense includes the following components:
From
Inception to
July 31, 1994
-------------
(in thousands)
Service Cost $ 21
Interest on Obligations 31
Actual Return on Plan Assets 89
Amortization and Deferral of:
Prior Service Cost (3)
Gain (15)
Deferred Asset (Gain)/Loss (115)
------
Actuarially Computed Pension Expense $8
======
Actuarial present value of benefit obligations is summarized as follows:
July 31, 1994
-------------
(in thousands)
Vested Benefit Obligation $2,474
======
Accumulated Benefit Obligation $2,977
======
Projected Benefit Obligation $4,798
Less: Plan Assets at Fair Value 2,853
------
Benefit Obligation in Excess of
Plan Assets 1,945
Unrecognized Prior Service Cost 298
Unrecognized Gain 1,828
------
Accrued Benefit Obligation $4,071
======
The actuarial computations assumed a discount rate, annual
salary increase and expected long-term rate of return on plan
assets of 8%, 5% and 9.5%, respectively, from inception to
July 31, 1994.
In fiscal 1987, Ferrell established the Ferrell Companies, Inc.
Long-Term Incentive Plan (the "Plan"). The Plan provides long-
term incentives to officers and executives of Ferrell and its
subsidiaries in the form of units ("Equity Units"). The Plan
provides for the redemption of the Equity Units after July 31,
1996, based upon the excess of an appraised value of Ferrell
as of July 31, 1996, over a minimum value established at Plan
inception. Earned awards are 100% vested by the participants
. Compensation expense charges (credits) representing
increases (decreases) in the estimated value of the vested
Equity Units are recorded by the Partnership. No compensation
expense was charged from inception to July 31, 1994.
L. Employee Benefits Other Than Pensions:
The General Partner provides postretirement medical benefits to
a closed group of approximately 400 retired employees and
their spouses. The plan requires the General Partner to
provide primary medical benefits to the participants until age
65, at which time the General Partner pays a fixed amount of
$55 per month per participant for medical benefits. The
General Partner elected to amortize the postretirement benefit
obligation over a period not to exceed the average remaining
life expectancy of the plan participants (since all of the
plan participants are retired). As described in Note A and I,
the Partnership assumed all liabilities associated with this
benefit obligation.
The actuarial liabilities for these postretirement benefits,
none of which have been funded, are as follows at July 31,
1994:
Accumulated Postretirement Benefit Obligation-Retirees $2,270,000
Fair Value of Assets 0
----------
Unfunded Status $2,270,000
==========
Net periodic postretirement benefit cost from inception to July 31,
1994, included the following components:
Interest Cost on Obligation $16,183
Amortization of Transition Obligation 19,036
-------
Net Periodic Postretirement Benefit Cost $35,219
=======
The accumulated postretirement benefit obligation was
determined using a discount rate of 7.75% and a health care
cost trend rate of 10% in fiscal year 1994, 8% in fiscal years
1995 through 1997 and 5% thereafter for any individuals who
have not attained the age of 65 by such cut-off dates.
Benefits relate to a closed group of retirees whose benefits
convert to a fixed monthly supplement at age 65. Because of
the nature of this group, a 1% change in the assumed health
care cost trend rates does not have a significant impact on
net periodic postretirement benefit cost or the accumulated
postretirement benefit obligation.
The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 112 - Employers'
Accounting For Postemployment Benefits which is effective for
fiscal years beginning after December 15, 1993. This
statement requires that employers recognize over the service
lives of employees the costs of postemployment benefits if
certain conditions are met. The General Partner does not
believe that adoption of the statement will have a material
impact on results of operations or financial condition of the
Partnership.
M. Disclosures About Off Balance Sheet Risk and Fair Value of
Financial Instruments:
Statement of Financial Accounting Standards No. 107 -
Disclosures about Fair Value of Financial Instruments,
requires disclosures regarding the fair value of financial
instruments which can be reasonably determined. The following
methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is
practicable to estimate that value:
Current Assets. The carrying amount of cash and cash
equivalents approximates fair value because of the short
maturity of those instruments.
Short-Term Borrowings. The carrying value of short-term
borrowings approximates fair value as of July 31, 1994.
Long-Term Debt. The estimated fair value of the Partnership's
long-term debt was $269,547,000 as of July 31, 1994. The fair
value is estimated based on quoted market prices discounted
cash flows.
Options and Forward Contracts. The Partnership is a party to
certain option and forward contracts in connection with its
trading activities involving various liquified petroleum
products. Contracts are executed with private counterparties
and to a lesser extent on national mercantile exchanges. Open
contract positions are summarized as follows:
As of July 31, 1994
(In thousands except price per gallon data)
As of July 31, 1994
(In thousands, except price per gallon data)
Market
Volume in Price Maturity Contract Value of Unrealized
Gallons (per gallon) Dates Amounts Contracts Gain/(Loss)
------- ---------- ----------------- ------- ------- ----------
Exchange Traded Option
Contracts to Buy 8,358 $0.30-0.31 Nov 1994-Jan 1995 $2,522 $2,603 $81
Exchange Traded Option
Contracts to (Sell) (6,174) $0.29-0.55 Sep-Oct 1994 (1,935) (2,000) (65)
Forward Contracts to Buy 78,636 $0.19-0.38 Aug-Dec 1994 21,897 22,359 462
Forward Contracts to (Sell) (30,562) $0.30-0.39 Aug 1994-Jan 1995 (9,801) (9,892) (91)
------- -------- -------- ---------
Total 50,258 $12,683 $13,070 $387
======= ======== ======== =========
Risks related to these contracts arise from the possible
inability of counterparties to meet the terms of their
contracts and changes in underlying product prices. The
Partnership attempts to minimize market risk through the
enforcement of its trading policies, which include total
inventory limits and loss limits, and attempts to minimize
credit risk through application of its credit policies.
N. Pro Forma Consolidated Statements of Earnings (Unaudited):
The accompanying pro forma consolidated statement of earnings
for the fiscal year ended July 31, 1994, was derived from the
historical statement of operations of the Company for the
eleven months ended June 30, 1994, and the statement of
operations of the Partnership from inception to July 31, 1994.
The pro forma statement of earnings for the fiscal year ended
July 31, 1993, was derived from the historical statement of
earnings of the Company. The pro forma consolidated
statements of earnings of the Partnership should be read in
conjunction with the consolidated financial statements of the
Partnership and the Company and the notes thereto. The
objective of this data is to show the effects on the
historical financial information as if the transactions
described in Note A had occurred on August 1 of each year
presented. The accompanying pro forma consolidated statements
of earnings are for comparative purposes and are not
indicative of the results of future operations of the
Partnership:
Pro Forma Year Ended July 31,
1994 1993
-------- ---------
(in thousands)
Revenues:
Gas liquids and related sales $499,696 $516,891
Other 26,860 25,054
-------- --------
Total revenues 526,556 541,945
======== ========
Costs and expenses:
Cost of product sold 269,306 298,033
Operating 145,136 139,617
Depreciation and amortization 28,835 30,840
General and administrative 10,358 10,579
Vehicle leases 4,290 4,823
-------- --------
Total costs and expenses 457,925 483,892
-------- --------
Operating income: 68,631 58,053
Loss on disposal of assets (1,312) (1,153)
Interest income 1,123 898
Interest expense (28,130) (29,220)
Minority interest (403) (286)
-------- --------
Earnings before extraordinary item $39,909 $28,292
======== ========
Earnings before extraordinary item per unit $1.29 $0.91
======== ========
O. Subsequent Event:
On August 22, 1994, the Partnership filed with the Securities
and Exchange Commission a shelf registration statement on Form
S-1 to register 2,400,000 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.
On September 30, 1994, the General Partner entered into a
definitive Purchase Agreement with Vision Energy Resources,
Inc. ("Vision") for the purchase of the propane business owned
and operated by Vision for a cash purchase price of $45
million. The closing of the transaction is subject to
customary conditions, including the expiration of the
applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act. Following the closing of the
transaction, the General Partner intends to transfer the
assets of Vision to Ferrellgas, L.P.
On October 14, 1994, the General Partner adopted the Ferrellgas,
Inc. Unit Option Plan (the "Unit Option Plan"), which authorizes
the issuance of options (the "Unit Options") covering up to
750,000 Subordinated Units to certain officers and employees
of the General Partner, of which 657,000 options have been
granted. The Unit Options granted have an exercise price of
$16.80 per Subordinated Unit, will vest over a three to five
year period (depending on the employee) and will expire on the
tenth anniversary of the date of the grant. Upon conversion of
100% of the Subordinated Units held by the General Partner and
its affiliates, the Unit Options granted will convert to Common
Unit Options.
To the Partners of
Ferrellgas, L.P.
Liberty, Missouri
We have audited the accompanying consolidated balance
sheet of Ferrellgas, L.P. and subsidiaries as of July 31,
1994, and the related consolidated statements of operations,
partners' capital and cash flows for the period from
inception (April 22, 1994) to July 31, 1994. These
financial statements are the responsibility of the
Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Ferrellgas, L.P. and subsidiaries as of July 31,
1994, and the results of their operations and their cash
flows for the period from inception (April 22, 1994) to July
31, 1994, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 16, 1994 (September 30, 1994 as to Note N.)
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
July 31,
ASSETS 1994
---------
Current Assets:
Cash and cash equivalents $14,535
Accounts and notes receivable (net of
allowance for doubtful accounts of $798) 50,780
Inventories 43,562
Prepaid expenses and other current assets 2,042
---------
Total Current Assets 110,919
Property, plant and equipment, net 294,765
Intangible assets, net 63,291
Other Assets, net 8,218
---------
Total Assets $477,193
=========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable $46,368
Short-term borrowing 3,000
Other current liabilities 26,590
Payable to general partner 13
---------
Total Current Liabilities 75,971
Long-term debt 267,062
Other liabilities 11,528
Partners' Capital
Limited partner 121,393
General partner 1,239
---------
Total Partners' Capital 122,632
---------
Total Liabilities and Partners' Capital $477,193
=========
<FN>
See notes to consolidated financial statements.
</FN>
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
Inception to July 31,
-------------------------
Pro Forma
1994 1993
(unaudited)
--------- --------
Revenues:
Gas liquids and related product $22,411 $24,696
sales
Other 2,155 1,839
--------- --------
Total revenues 24,566 26,535
Costs and expenses:
Cost of product sold 13,211 16,300
Operating 10,078 8,299
Depreciation and amortization 2,383 2,490
General and administrative 935 1,053
Vehicle leases 350 375
--------- --------
Total costs and expenses 26,957 28,517
--------- --------
Operating loss (2,391) (1,982)
Loss on disposal of assets (97) (16)
Interest income 73 50
Interest expense (2,662) (2,374)
--------- --------
Loss before extraordinary loss (5,077) (4,322)
Extraordinary loss on early
extinguishment of debt 60,062 -
--------- --------
Net loss ($65,139) ($4,322)
========= ========
<FN>
See notes to consolidated financial statements.
</FN>
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
Total
Limited General partners'
partner partner capital
--------- ------- ---------
Balance April 22, 1994 $ - $ - $ -
Contributions 185,874 1,897 187,771
Net loss (64,481) (658) (65,139)
--------- ------- ---------
Balance July 31, 1994 $121,393 $1,239 $122,632
========= ======= =========
<FN>
See notes to consolidated financial statements.
</FN>
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Inception
to
July 31,
1994
---------
Cash Flows From Operating Activities:
Net loss ($65,139)
Reconciliation of net loss to net
cash from operating activities:
Extraordinary loss 60,062
Depreciation and amortization 2,383
Other 22
Decrease (increase) in assets:
Accounts and notes receivable 196
Inventories (5,631)
Prepaid expenses and other current assets 618
Decrease in liabilities:
Accounts payable (2,809)
Other current liabilities (1,733)
Other liabilities (35)
---------
Net cash used by operating activities (12,066)
---------
Cash Flows From Investing Activities:
Capital expenditures (2,768)
Proceeds from asset sales 35
Net additions to other assets (4)
---------
Net cash used by investing activities (2,737)
---------
Cash Flows From Financing Activities:
Additions to long-term debt 265,000
Net contribution from partners 255,006
Cash transfer from predecessor company 39,791
Additions to short-term borrowing 3,000
Reductions to long-term debt (477,903)
Additional payments to retire debt (48,857)
Additions to financing costs (6,575)
Net payment to general partner (124)
---------
Net cash provided by financing activities 29,338
---------
Increase in Cash and Cash Equivalents 14,535
Cash and cash equivalents - Beginning of period -
---------
Cash and Cash Equivalents - End of Period $14,535
=========
<FN>
See notes to consolidated financial statements.
</FN>
FERRELLGAS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION TO JULY 31, 1994
A. Partnership Organization and Formation:
Ferrellgas, L.P. (the "Partnership") was formed April 22, 1994,
as a Delaware limited partnership to acquire, own and operate
the propane business and substantially all of the assets of
Ferrellgas Inc. (the "Company" or "General Partner").
Ferrellgas Partners, L.P. (the "Master Partnership") is a
Delaware limited partnership and holds a 99% interest in the
Partnership as the sole limited partner. The Company holds a
1% interest in the Partnership as the General Partner and
performs all management functions required for the
Partnership.
On July 5, 1994, the Master Partnership completed an initial
public offering of 13,100,000 Common Units representing
limited partner interests (the "Common Units") at $21 per
Common Unit. Concurrent with the closing of the offering, the
Company contributed all of its propane business and assets to
the Partnership (excluding approximately $39,000,000 in cash,
payables to or receivables from parent and affiliates and an
investment in the Class B Stock of Parent) in exchange for
1,000,000 Common Units, 16,593,721 Subordinated Units and
Incentive Distribution Rights, representing additional limited
partner interests in the Master Partnership, as well as a 2%
general partner interest in the Master Partnership and the
Partnership, on a combined basis. In connection with the
contribution of the propane business and assets by the
Company, the Partnership assumed all of the liabilities,
whether known or unknown, associated with such assets (other
than income tax liabilities). The book value of the assets
contributed to the Partnership was approximately $67,000,000
less than the liabilities assumed by the Partnership, as
described in Note B.
Concurrently with this offering, the Partnership completed the
issuance of 10% Fixed Rate Senior Notes due 2001 in the
aggregate principal amount of $200,000,000 and Floating Rate
Senior Notes due 2001 in the aggregate principal amount of
$50,000,000 (collectively the "Senior Notes"). As described
in Note G, the net proceeds from the sale of the Common Units
and from the issuance of the Senior Notes were used to retire
approximately $477,600,000 in indebtedness assumed by the
Partnership.
B. Summary of Significant Accounting Policies:
(1) Principles of consolidation:
The accompanying consolidated financial statements present
the consolidated financial position, results of operations
and cash flows of the Partnership and its wholly-owned
subsidiaries, Ferrellgas Finance Corp., and Stratton
Insurance Company All material intercompany profits,
transactions and balances have been eliminated.
The propane industry is seasonal in nature with peak
activity during the winter months. Therefore, the results
of operations from inception to July 31, 1994, are not
indicative of the results to be expected for a full fiscal
year. See Note M for the unaudited pro forma statement of
operations for the fiscal years ended July 31, 1994 and
1993.
(2) Inventories:
Inventories are stated at the lower of cost or market using
average cost and actual cost methods.
The Partnership enters into forward purchase/sale agreements
and options involving propane and related products which are
for trading purposes. To the extent such contracts are
entered into at fixed prices and thereby subject the
Partnership to market risk, the contracts are accounted for
on a mark-to-market basis.
(3) Property, plant and equipment and other non-current
assets:
Property, plant and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are computed by the straight-line method over
the estimated useful lives of the assets ranging from two to
thirty years. Expenditures for maintenance and routine
repairs are expensed as incurred.
Intangible assets, consisting primarily of customer location
values and goodwill, are stated at cost, net of amortization
computed on the straight-line method over fifteen years for
customer location values and forty years for goodwill. The
General Partner evaluates the intangible assets for
impairment by calculating the anticipated cash flow
attributable to such acquisitions over their expected
remaining life. Such expected cash flows, on an
undiscounted basis, are compared to the carrying value of
the tangible and intangible assets, and if impairment is
indicated, the carrying value of the intangible assets are
adjusted. Accumulated amortization of intangible assets
totaled $68,489,000 as of July 31, 1994.
Other assets consist primarily of non-current notes
receivable and deferred financing costs. The deferred
financing costs are amortized using the effective interest
method over the terms of the respective debt agreements.
Accumulated amortization of other assets totaled $1,860,000
as of July 31, 1994.
(4) Income taxes:
The Partnership is a limited partnership. As a result, the
Partnership's income or loss for Federal income tax purposes
is included in the tax returns of the individual partners.
Accordingly, no recognition has been given to income taxes
in the accompanying financial statements of the Partnership.
Net income for financial statement purposes may differ
significantly from taxable income reportable to unitholders
as a result of differences between the tax basis and
financial reporting basis of assets and liabilities and the
taxable income allocation requirements under the Partnership
agreement.
(5) Consolidated statement of cash flows:
In connection with the formation of the Partnership, certain
non-cash investing and financing activities occurred.
Effective July 5, 1994, substantially all of the propane
assets and liabilities of the Company were conveyed at
historical cost to the Partnership and the Partnership began
operating activities. Net liabilities assumed by the
Partnership are as follows:
July 5, 1994
-------------
(in thousands)
Cash $39,791
Accounts receivable 50,747
Inventories 37,931
Prepaid expenses and other current assets 2,660
Property, plant and equipment, net 293,729
Intangible assets, net 64,050
Other assets 9,327
--------
Total Assets Conveyed 498,235
--------
Accounts Payable 49,177
Other current liabilities 30,296
Long-term debt, net 476,441
Other non-current liabilities 9,557
--------
Total Liabilities Assumed 565,471
--------
Net liabilities assumed by the Partnership ($67,236)
=========
For purposes of the consolidated statement of cash flows,
the Partnership considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Interest paid totaled $6,093,000 from inception to July 31,
1994.
C. Quarterly Distributions of Available Cash:
The Partnership will make 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 by the Partnership in an amount equal to 100% of
its Available Cash will be made 99% to the Master Partnership
and 1% to the General Partner. The Partnership will make
distributions of all of its Available Cash 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. The first distribution for the period from July 5, 1994
through October 31, 1994 will be made on or before December
14, 1994.
D. Inventories:
July 31, 1994
-------------
(in thousands)
Liquified propane gas and related products $38,890
Appliances, parts and supplies 4,672
-------
$43,562
=======
In addition to inventories on hand, the Partnership enters into
contracts to buy product for supply purposes. All such
contracts have terms of less than one year and call for
payment based on market prices at date of delivery.
E. Property, Plant and Equipment:
July 31, 1994
-------------
(in thousands)
Land and improvements $18,589
Buildings and improvements 23,005
Vehicles 37,283
Furniture and fixtures 17,776
Bulk equipment and market facilities 33,091
Tanks and customer equipment 317,631
Other 5,097
--------
452,472
Less accumulated depreciation and amortization 157,707
--------
$294,765
========
F. Other Current Liabilities:
July 31, 1994
-------------
(in thousands)
Current portion of long-term debt $1,311
Accrued insurance 6,624
Accrued interest 2,161
Accrued Payroll 9,394
Other 7,100
-------
$26,590
=======
G. Long-Term Debt:
July 31, 1994
-------------
(in thousands)
Fixed rate senior Notes, interest at 10%, due August 1,
2001 $200,000
Floating rate senior notes, interest at LIBOR rate plus
applicable margin (7.875% at July 31, 1994), due August 1,
2001 50,000
Credit Facility term loan borrowings, interest at applicable
rate (7.375% at July 31, 1994), due 2001 15,000
Notes payable, including approximately $2,056,000
secured by property and equipment, interest rates ranging
from noninterest-bearing to 12%, due on various dates
through 2001 3,373
--------
268,373
Less current portion 1,311
--------
$267,062
========
Concurrent with the closing of the sale of the Common Units
described in Note A, the Partnership issued $250,000,000
aggregate principal amount of Senior Notes due 2001. The net
proceeds, along with the net proceeds of the offering of
Common Units, were used to retire $477,600,000 of indebtedness
of the Company assumed by the Partnership. The retirement of
the indebtedness assumed by the Partnership resulted in an
extraordinary loss of approximately $60,062,000 resulting from
debt prepayment premiums, consent fees and the write-off of
unamortized discount and financing costs.
The $200,000,000 Fixed Rate Senior Notes are not redeemable
prior to August 1, 1998. Thereafter, the Partnership has the
option to redeem the notes, in whole or part, at a premium.
The $50,000,000 aggregate principal amount of Floating Rate
Senior Notes (the "Floating Notes") are redeemable at the
option of the Partnership on or after August 1, 1995, in whole
or part, at a redemption price equal to 100% of the principal
amount, plus accrued and unpaid interest at the redemption
date. The Floating Notes have mandatory sinking fund payments
of $5,000,000 on August 1, 1999 and 2000, to retire an
aggregate 20% of the Floating Notes prior to maturity.
On July 5, 1994 , the Partnership entered into a $185,000,000
Credit Facility with Bank of America National Trust & Savings
Association ("BofA"), as Agent. The Credit Facility permits
borrowings of up to $100,000,000 on a senior unsecured
revolving line of credit basis ( the "Working Capital
Facility"), to fund working capital and general partnership
requirements (of which up to $50,000,000 is available to
support letters of credit). At July 31, 1994, $3,000,000 of
borrowings were outstanding under the revolving line of
credit, and letters of credit outstanding, used primarily to
secure obligations under certain insurance and leasing
arrangements totaled $35,701,000. In addition, the Credit
Facility permits borrowings up to $85,000,000 on a senior
unsecured basis (the "Expansion Facility"). Under the
Expansion Facility, $15,000,000 was borrowed to retire
existing indebtedness of the Partnership, and $70,000,000 is
available to finance acquisitions and capital additions and
improvements.
At the Partnership's option, borrowings under the Credit
Facility may bear interest at the Base Rate (i.e. the higher
of the Federal funds rate plus 1/2% or BofA's reference rate),
or the LIBOR rate, in each case plus an applicable margin.
The Credit Facility is committed for up to a three year
period, at which time the Working Capital Facility will
expire. Borrowings under the Expansion Facility may be
converted, at the option of the Partnership, to a three year
term loan at the end of the initial three-year period.
The Senior Notes and Credit Facility contain various
restrictive covenants applicable to the Partnership and its
subsidiaries, the most restrictive relating to additional
indebtedness, sale and disposition of assets, and transactions
with affiliates. In addition, the Partnership is prohibited
from making cash distributions of the Minimum Quarterly
Distribution if a default or event of default exists or would
exist upon making such distribution, or if the Partnership
fails to meet certain coverage and capital expenditure
tests. With respect to the capital expenditure tests, the
Partnership shall have in the aggregate made "Capital
Investments" (as defined in the Senior Note Indenture)
of $15,000,000 by July 31, 1995, $30,000,000 by July 31, 1996,
$45,000,000 by July 31, 1997, $70,000,000 by 1998, $95,000,000
by July 31, 1999 and $120,000,000 by the end of fiscal
year 2000. The Partnership is in compliance with all
requirements, tests, limitations and covenants related to the
Senior Notes and Credit Facility.
Annual principal payments on long-term debt for each of the
next five fiscal years are $1,250,000 in 1995, $716,000 in
1996, $1,510,000 in 1997, $5,127,000 in 1998 and $5,082,000 in
1999.
H. Transactions with Related Parties:
The Partnership has no employees and is managed and controlled
by the General Partner. Pursuant to the partnership agreement,
the General Partner is entitled to reimbursement for all
direct and indirect expenses incurred or payments it makes on
behalf of the Partnership, and all other necessary or
appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with
operating the Partnership's business. These costs, which
totaled $7,561,000 from inception to July 31, 1994, include
compensation and benefits paid to officers and employees of
the General Partner, and general and administrative costs. In
addition, the conveyance of the net assets of the Company to
the Partnership described in Note A included the assumption of
specific liabilities related to employee benefit and incentive
plans for the benefit of the officers and employees of the
General Partner. The details of these employee benefit plans
are described in Notes J and K.
A. Andrew Levison, a director of Ferrell Companies, Inc.
("Ferrell") at July 31, 1994, is a Managing Director of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ").
DLJ acted as an underwriter with regard to the public offering
of Common Units and Senior Notes described in Note A, and was
paid total fees of $5,100,000.
The law firm of Smith, Gill, Fisher & Butts, a Professional
Corporation, is general counsel to the Partnership, General
Partner, Ferrell and their respective subsidiaries and
affiliates. David S. Mouber, a director of Ferrell at July
31, 1994, is a member of such law firm. The Partnership,
Ferrell and their respective subsidiaries paid such firm fees
of $151,000 from inception to July 31, 1994.
I. Contingencies and Commitments:
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, after taking
into consideration the Partnership's insurance coverage and
its existing reserves, management is of the opinion that there
are no known uninsured claims or known contingent claims that
are likely to have a material adverse effect on the results of
operations or financial condition of the Partnership.
In connection with the formation of the Partnership, the
General Partner contributed certain assets including customer
relationships and customer tanks. The Internal Revenue
Service ("IRS") has examined the General Partner's
consolidated income tax returns for the years ended July 31,
1987 and 1986, and has proposed certain adjustments which
relate to these contributed assets. If the IRS were
successful, the amount of amortization and depreciation
available to the General Partner could be adversely affected.
At this time, it is not possible to determine the ultimate
resolution of this matter and the impact, if any, to the
consolidated financial statements of the Partnership.
Certain property and equipment is leased under noncancellable
operating leases which require fixed monthly rental payments
and which expire at various dates through 2016. Rental
expense under these leases totaled $725,000 for the one month
ended July 31, 1994. Future minimum lease commitments for
such leases are $7,569,000 in 1995, $5,286,000 in 1996,
$3,438,000 in 1997, $1,537,000 in 1998 and $409,000 in 1999.
J. Employee Benefits:
As described in Note A and H, the Partnership has no employees
and is managed and controlled by the General Partner. The
Partnership assumed all liabilities, which included specific
liabilities related to the following employee benefit and
incentive plans for the benefit of the officers and employees
of the General Partner.
The General Partner and its parent have a defined contribution
profit-sharing plan which covers substantially all employees
with more than one year of service. Contributions are made to
the plan at the discretion of the parent's Board of Directors.
This plan also provides for matching contributions under a
cash or deferred arrangement (401(k) plan) based upon
participant salaries and employee contributions to the plan.
There were no contributions under the profit sharing provision
or 401(k) provision of the plan from inception to July 31,
1994.
The General Partner has a defined benefit plan that provides
participants who were covered under a previously terminated
plan with a guaranteed retirement benefit at least equal to
the benefit they would have received under the terminated
plan. Benefits under the terminated plan are determined by
years of credited service and salary levels. The General
Partner's funding policy for this plan is to contribute
amounts deductible for Federal income tax purposes. Plan
assets consist primarily of corporate stocks and bonds, U.S.
Treasury bonds and short-term cash investments.
The following table sets forth the plan's projected funded
status for the respective periods based on the most recent
actuarial valuations:
Actuarially computed pension expense includes the following components:
From
Inception to
July 31, 1994
-------------
(in thousands)
Service Cost $ 21
Interest on Obligations 31
Actual Return on Plan Assets 89
Amortization and Deferral of:
Prior Service Cost (3)
Gain (15)
Deferred Asset (Gain)/Loss (115)
------
Actuarially Computed Pension Expense $8
======
Actuarial present value of benefit obligations is summarized as follows:
July 31, 1994
-------------
(in thousands)
Vested Benefit Obligation $2,474
======
Accumulated Benefit Obligation $2,977
======
Projected Benefit Obligation $4,798
Less: Plan Assets at Fair Value 2,853
------
Benefit Obligation in Excess of
Plan Assets 1,945
Unrecognized Prior Service Cost 298
Unrecognized Gain 1,828
------
Accrued Benefit Obligation $4,071
======
The actuarial computations assumed a discount rate, annual
salary increase and expected long-term rate of return on plan
assets of 8%, 5% and 9.5%, respectively, from inception to
July 31, 1994.
In fiscal 1987, Ferrell established the Ferrell Companies, Inc.
Long-Term Incentive Plan (the "Plan"). The Plan provides long-
term incentives to officers and executives of Ferrell and its
subsidiaries in the form of units ("Equity Units"). The Plan
provides for the redemption of the Equity Units after July 31,
1996, based upon the excess of an appraised value of Ferrell
as of July 31, 1996, over a minimum value established at Plan
inception. Earned awards were 100% vested by the participants
at July 31, 1993. Compensation expense charges (credits)
representing increases (decreases) in the estimated value of
the vested Equity Units are recorded by the Partnership. No
compensation expense was charged from inception to July 31,
1994.
K. Employee Benefits Other Than Pensions:
The General Partner provides postretirement medical benefits to
a closed group of approximately 400 retired employees and
their spouses. The plan requires the General Partner to
provide primary medical benefits to the participants until age
65, at which time the General Partner only pays a fixed amount
of $55 per month per participant for medical benefits. The
General Partner elected to amortize the postretirement benefit
obligation over a period not to exceed the average remaining
life expectancy of the plan participants (since all of the
plan participants are retired). As described in Note A and H,
the Partnership assumed all liabilities associated with this
benefit obligation.
The actuarial liabilities for these postretirement benefits,
none of which have been funded, are as follows at July 31,
1994:
Accumulated Postretirement Benefit Obligation-Retirees $2,270,000
Fair Value of Assets 0
----------
Unfunded Status $2,270,000
==========
Net periodic postretirement benefit cost from inception to July 31,
1994, included the following components:
Interest Cost on Obligation $16,183
Amortization of Transition Obligation 19,036
-------
Net Periodic Postretirement Benefit Cost $35,219
=======
The accumulated postretirement benefit obligation was
determined using a discount rate of 7.75% and a health care
cost trend rate of 10% from inception to July 31, 1994, 8% in
fiscal years 1995 through 1997 and 5% thereafter for any
individuals who have not attained the age of 65 by such cut-
off dates.
Benefits relate to a closed group of retirees whose benefits
convert to a fixed monthly supplement at age 65. Because of
the nature of this group, a 1% change in the assumed health
care cost trend rates does not have a significant impact on
net periodic postretirement benefit cost or the accumulated
postretirement benefit obligation.
The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 112 - Employers'
Accounting For Postemployment Benefits which is effective for
fiscal years beginning after December 15, 1993. This
statement requires that employers recognize over the service
lives of employees the costs of postemployment benefits if
certain conditions are met. The General Partner does not
believe that adoption of the statement will have a material
impact on results of operations or financial condition of the
Partnership.
L. Disclosures About Off Balance Sheet Risk and Fair Value of
Financial Instruments:
Statement of Financial Accounting Standards No. 107 -
Disclosures about Fair Value of Financial Instruments,
requires disclosures regarding the fair value of financial
instruments which can be reasonably determined. The following
methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is
practicable to estimate that value:
Current Assets. The carrying amount of cash and cash
equivalents approximates fair value because of the short
maturity of those instruments.
Short-Term Borrowings. The carrying value of short-term
borrowings approximates fair value as of July 31, 1994.
Long-Term Debt. The estimated fair value of the Partnership's
long-term debt was $269,547,000 as of July 31, 1994. The fair
value is estimated based on discounted cash flows.
Option and Forward Contracts. The Partnership is a party to
certain option and forward contracts in connection with its
trading activities involving various liquified petroleum
products. Contracts are executed with private counterparties
and to a lesser extent on national mercantile exchanges. Open
contract positions are summarized as follows:
As of July 31, 1994
(In thousands, except price per gallon data)
As of July 31, 1994
(In thousands, except price per gallon data)
Market
Volume in Price Maturity Contract Value of Unrealized
Gallons (per gallon) Dates Amounts Contracts Gain/(Loss)
------- ---------- ----------------- ------- ------- ----------
Exchange Traded Option
Contracts to Buy 8,358 $0.30-0.31 Nov 1994-Jan 1995 $2,522 $2,603 $81
Exchange Traded Option
Contracts to (Sell) (6,174) $0.29-0.55 Sep-Oct 1994 (1,935) (2,000) (65)
Forward Contracts to Buy 78,636 $0.19-0.38 Aug-Dec 1994 21,897 22,359 462
Forward Contracts to (Sell) (30,562) $0.30-0.39 Aug 1994-Jan 1995 (9,801) (9,892) (91)
------- -------- -------- ---------
Total 50,258 $12,683 $13,070 $387
======= ======== ======== =========
Risks related to these contracts arise from the possible
inability of counterparties to meet the terms of their
contracts and changes in underlying product prices. The
Partnership attempts to minimize market risk through the
enforcement of its trading policies, which include total
inventory limits and loss limits, and attempts to minimize
credit risk through application of its credit policies.
M. Pro Forma Consolidated Statements of Earnings (Unaudited):
The accompanying pro forma consolidated statement of earnings
for the fiscal year ended July 31, 1994, was derived from the
historical statement of operations of the Company for the
eleven months ended June 30, 1994, and the statement of
operations of the Partnership for the one month ended July 31,
1994. The pro forma statement of earnings for the fiscal year
ended July 31, 1993, was derived from the historical statement
of earnings of the Company. The pro forma consolidated
statements of earnings of the Partnership should be read in
conjunction with the consolidated financial statements of the
Partnership and the Company and the notes thereto. The
objective of this data is to show the effects on the
historical financial information as if the transactions
described in Note A had occurred on August 1 of each year
presented. The accompanying pro forma consolidated statements
of earnings are for comparative purposes and are not
indicative of the results of future operations of the
Partnership:
Pro Forma Year Ended July 31,
1994 1993
-------- ---------
(in thousands)
Revenues:
Gas liquids and related sales $499,696 $516,891
Other 26,860 25,054
-------- --------
Total revenues 526,556 541,945
======== ========
Costs and expenses:
Cost of product sold 269,306 298,033
Operating 145,136 139,617
Depreciation and amortization 28,835 30,840
General and administrative 10,358 10,579
Vehicle leases 4,290 4,823
-------- --------
Total costs and expenses 457,925 483,892
-------- --------
Operating income: 68,631 58,053
Loss on disposal of assets (1,312) (1,153)
Interest income 1,123 898
Interest expense (28,130) (29,220)
-------- --------
Earnings before extraordinary item $40,312 $28,578
======== ========
N. Subsequent Event:
On September 30, 1994, the General Partner entered into a
definitive Purchase Agreement with Vision Energy Resources,
Inc. ("Vision") for the purchase of the propane business owned
and operated by Vision for a cash purchase price of $45
million. The closing of the transaction is subject to
customary conditions, including the expiration of the
applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act. Following the closing of the
transaction, the General Partner intends to transfer the
assets of Vision to the Partnership.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas Finance Corp.
Liberty, Missouri
We have audited the accompanying balance sheet of Ferrellgas
Finance Corp. (a wholly-owned subsidiary of Ferrellgas,
L.P.), as of July 31, 1994, and the related statements of
stockholder's equity and cash flows for the period from
inception (April 28, 1994) to July 31, 1994. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of Ferrellgas
Finance Corp. as of July 31, 1994, and its cash flows for
the period from inception (April 28, 1994) to July 31, 1994,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 16, 1994
FERRELLGAS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas, L.P.)
BALANCE SHEET AS OF JULY 31, 1994
ASSETS
Cash $1,000
------
Total Assets $1,000
======
STOCKHOLDER'S EQUITY
Common stock, $1.00 par value; 2,000 shares
authorized; 1,000 shares issued and outstanding $1,000
------
Total Stockholder's Equity $1,000
======
FERRELLGAS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas, L.P.)
STATEMENT OF STOCKHOLDER'S EQUITY
Common stock Total
----------------------- stockholder's
Shares Dollars equity
------- ------- -------
Balance April 28, 1994 - $ - $ -
Contributions 1,000 1,000 1,000
------- ------- -------
Balance July 31, 1994 1,000 $1,000 $1,000
======= ======= =======
FERRELLGAS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas, L.P.)
STATEMENT OF CASH FLOWS FROM INCEPTION TO JULY 31, 1994
Cash Flows From Operating Activities:
--------
Cash from operating activities $ -
--------
Cash Flows From Investing Activities:
--------
Cash from investing activities -
--------
Cash Flows From Financing Activities:
Issuance of common stock 1,000
--------
Cash provided by financing 1,000
activities --------
Increase in Cash 1,000
Cash - Beginning of period -
--------
Cash - End of Period $1,000
========
FERRELLGAS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas, L.P.)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
Ferrellgas Finance Corp. (the "Company"), a Delaware
corporation, was formed on April 28, 1994, and is a wholly-
owned subsidiary of Ferrellgas, L.P. (the "Partnership").
Ferrellgas, L.P. was formed April 22, 1994, as a Delaware
limited partnership. The Partnership was formed to acquire,
own and operate substantially all of the assets of
Ferrellgas, Inc. ("Ferrellgas"). Ferrellgas conveyed
substantially all of its assets to the Partnership
(excluding cash, receivables from parent and affiliates and
an investment in the Class B Stock of Parent) and all of the
liabilities, whether known or unknown, associated with such
assets (other than income tax liabilities).
The Partnership contributed $1,000 to the Company on May 20,
1994. There have been no other transactions involving the
Company as of July 31, 1994.
In July, 1994, the Partnership issued 10% Fixed Rate Senior
Notes (the "Fixed Notes") due 2001 in the aggregate
principal amount of $200,000,000 and Floating Rate Senior
Notes (the "Floating Notes" and together with the Fixed
Notes the "Senior Notes") due 2001 in the aggregate
principal amount of $50,000,000. The $200,000,000 Fixed
Rate Senior Notes are not redeemable prior to August 1,
1998. Thereafter, the Partnership has the option to redeem
the notes, in whole or part, at a premium. The $50,000,000
aggregate principal amount of Floating Notes are redeemable
at the option of the Partnership on or after August 1, 1995,
in whole or part, at a redemption price equal to 100% of the
principal amount, plus accrued and unpaid interest at the
redemption date. The Floating Notes have mandatory sinking
fund payments of $5,000,000 on August 1, 1999 and 2000, to
retire an aggregate 20% of the Floating Notes prior to
maturity. The Company is acting as co-obligor for the
Senior Notes.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas, Inc.
Liberty, Missouri
We have audited the accompanying consolidated balance
sheet of Ferrellgas, Inc. (a wholly owned subsidiary of
Ferrell Companies, Inc.) and subsidiaries as of June 30,
1994 and July 31, 1993, and the related consolidated
statements of operations, stockholder's equity and cash
flows for the eleven months ended June 30, 1994, and for
each of the two years in the period ended July 31, 1993.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Ferrellgas, Inc. and subsidiaries as of June 30,
1994 and July 31, 1993, and the results of their operations
and their cash flows for the eleven months ended June 30,
1994, and for each of the two years in the period ended July
31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Note I to the consolidated financial
statements, the Internal Revenue Service has proposed
certain adjustments to the Company's consolidated income tax
returns for the years ended July 31, 1987 and 1986. The
ultimate outcome of this matter cannot presently be
determined. Accordingly, no provision for any loss that may
result upon resolution of this matter has been made in the
accompanying consolidated financial statements.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 16, 1994 (October 14. 1994, as to Note N)
FERRELLGAS,INC.
(a wholly owned subsidiary of Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
June 30, July 31,
1994 1993
--------- --------
ASSETS
Current Assets:
Cash and cash equivalents $54,367 $32,706
Short-term investments 24,508 25,040
Accounts and notes receivable including related
party (1994 - $671; 1993 - $500), net of allowance
for doubtful accounts (1994 - $906; 1993 - $607) 51,868 52,190
Inventories 37,931 23,652
Prepaid expenses and other current assets 2,661 1,898
Receivable from parent and affiliate 50 916
--------- --------
Total Current Assets 171,385 136,402
Property, plant and equipment, net 293,729 303,816
Intangible assets, net 64,051 72,537
Investment in Class B redeemable common stock of parent 36,031 36,031
Other Assets, net, including notes receivable from
related parties (1994 - $14,105; 1993 - $10,909) 23,468 21,833
Note receivable from parent 4,000 -
Deferred income taxes - 2,757
--------- ---------
Total Assets $592,664 $573,376
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $49,177 $32,946
Other current liabilities 30,296 29,048
--------- ---------
Total Current Liabilities 79,473 61,994
Long-term debt 476,441 489,589
Other liabilities 9,542 10,434
Deferred income taxes 4,379 -
Stockholder's Equity:
Common stock, one dollar par value;
10,000 shares authorized; 990 shares issued 1 1
Additional paid-in capital 32,863 32,863
Accumulated deficit (10,035) (21,505)
--------- ---------
Total Stockholder's Equity 22,829 11,359
--------- ---------
Total Liabilities and Stockholder's Equity $592,664 $573,376
========= =========
<FN>
See notes to consolidated financial statements.
</FN>
FERRELLGAS,INC.
(a wholly owned subsidiary of Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
Eleven
months
ended Year ended July 31,
June 30, --------------------
1994 1993 1992
--------- --------- ---------
Revenues:
Gas liquids and related product sales $477,285 $516,891 $480,088
Other 24,705 25,054 21,041
--------- --------- ---------
Total revenues 501,990 541,945 501,129
Costs and expenses:
Cost of product sold 256,095 298,033 267,279
Operating 135,058 139,617 134,165
Depreciation and amortization 26,452 30,840 31,196
General and administrative 8,923 10,079 7,561
Vehicle leases 3,940 4,823 4,520
--------- --------- ---------
Total costs and expenses 430,468 483,392 444,721
--------- --------- ---------
Operating income 71,522 58,553 56,408
Loss on disposal of assets (1,215) (1,153) (1,959)
Interest income, including related parties
(1994 - $1,018; 1993 - $725; 1992 - $890) 3,599 3,266 4,401
Interest expense, including parent and affiliate
(1993 - $153; 1992 - $180) (53,693) (60,071) (61,219)
--------- --------- ---------
Earnings (loss) before income taxes
and extraordinary loss 20,213 595 (2,369)
Income tax expense (benefit) 7,876 486
(669) --------- --------- ---------
Earnings (loss) before extraordinary loss 12,337 109 (1,700)
Extraordinary loss on early extinguishment
of debt, net of income taxes
(1994 - $531; 1993 - $543; 1992 - $6,116) 867 886 9,979
--------- --------- ---------
Net earnings (loss) $11,470 ($777) ($11,679)
========= ========= =========
<FN>
See notes to consolidated financial statements.
</FN>
FERRELLGAS,INC.
(a wholly owned subsidiary of Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
Number of Additional Total
common Common paid-in Accumulated stockholder's
shares stock capital deficit equity
--------- ------ ------- --------- -------
Balance August 1, 1991 990 $1 $30,735 ($9,049) $21,687
Capital transaction -
Ferrell Companies, Inc.
Long-Term Incentive Plan - - (1,200) - (1,200)
Net loss - - - (11,679) (11,679)
--------- ------ ------- --------- -------
Balance July 31, 1992 990 1 29,535 (20,728) 8,808
Capital contribution
from parent - - 3,277 - 3,277
Capital transaction -
Ferrell Companies, Inc.
Long-Term Incentive Plan - - 51 - 51
Net loss - - - (777) (777)
--------- ------ ------- --------- -------
Balance July 31, 1993 990 1 32,863 (21,505) 11,359
Net earnings - - - 11,470 11,470
--------- ------ ------- --------- -------
Balance June 30, 1994 990 $1 $32,863 ($10,035) $22,829
========= ====== ======= ========= =======
<FN>
See notes to consolidated financial statements.
</FN>
FERRELLGAS,INC.
(a wholly owned subsidiary of Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Eleven
months
ended Year ended July 31,
June 30, -------------------
1994 1993 1992
-------- -------- ---------
Cash Flows From Operating Activities:
Net earnings (loss) $11,470 ($777) ($11,679)
Reconciliation of net earnings (loss) to
net cash from operating activities:
Extraordinary loss 867 886 9,979
Depreciation and amortization 26,452 30,840 31,196
Other 5,130 5,236 7,007
Decrease (increase) in assets:
Accounts and notes receivable (816) (252) (1,475)
Inventories (14,279) 10,229 (12,447)
Prepaid expenses and other current assets (763) 977 (801)
Increase (decrease) in liabilities:
Accounts payable 16,231 (11,918) 3,742
Other current liabilities 2,236 1,729 (1,912)
Other liabilities (1,072) 131 325
Deferred income taxes 7,667 (120) (970)
-------- -------- ---------
Net cash provided by operating activities 53,123 36,961 22,965
-------- -------- ---------
Cash Flows From Investing Activities:
Net short-term investment activity 532 (1,875) (23,165)
Capital expenditures (10,277) (14,188) (20,392)
Proceeds from asset sales 777 1,983 3,040
Net additions to intangibles (62) (82) (3,175)
Net additions to other assets (1,221) 1 (520)
-------- -------- ---------
Net cash used by investing activities (10,251) (14,161) (44,212)
-------- -------- ---------
Cash Flows From Financing Activities:
Additions to long-term debt - 81 246,804
Reductions to long-term debt (13,640) (12,796) (212,637)
Additional payments to retire debt (1,190) (1,195) (11,983)
Additions to financing costs (51) (627) (4,918)
Reacquisition of Class B redeemable common stock - (3,218) (9,092)
Net advances to related party (3,196) (59) (3,832)
Net advances to parent and affiliates (3,134) (239) (2,907)
-------- -------- ---------
Net cash provided (used) by financing activities (21,211) (18,053) 1,435
-------- -------- ---------
Increase (decrease) in Cash and Cash Equivalents 21,661 4,747 (19,812)
Cash and cash equivalents - Beginning of year 32,706 27,959 47,771
-------- -------- ---------
Cash and Cash Equivalents - End of Period $54,367 $32,706 $27,959
======== ======== ========
<FN>
See notes to consolidated financial statements.
</FN>
FERRELLGAS, INC.
(a wholly owned subsidiary of
Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE ELEVEN MONTHS ENDED JUNE 30, 1994
AND FOR THE YEARS ENDED JULY 31, 1993 AND 1992
A. Basis of Presentation:
The accompanying consolidated financial statements and related
notes present the consolidated financial position, results of
operations and cash flows of Ferrellgas, Inc. (the "Company")
and its subsidiaries. The Company is a wholly-owned
subsidiary of Ferrell Companies, Inc. ("Ferrell" or "Parent").
On July 5, 1994, Ferrellgas Partners, L.P. completed an initial
public offering of 13,100,000 Common Units representing
limited partner interests (the "Common Units") at $21 per
Common Unit. The 13,100,000 Common Units represent a 41.8%
limited partner interest in the Partnership. Ferrellgas
Partners, L.P. was formed April 19, 1994, owning a 99% limited
partner interest in Ferrellgas, L.P. (the "Operating
Partnership"), both Delaware limited partnerships, and
collectively known as the Partnership. Ferrellgas Partners,
L.P. was formed to acquire and hold a limited partner interest
in the Operating Partnership. The Operating Partnership was
formed to own and operate the propane business and
substantially all of the assets of the Company.
Concurrent with the closing of the initial public offering, the
Company contributed all of its propane business and assets to
the Partnership (excluding approximately $39,000,000 in cash,
payables to or receivables from parent and affiliates and an
investment in the Class B Stock of Parent) in exchange for
1,000,000 Common Units, 16,593,721 Subordinated Units and
Incentive Distribution Rights, representing a 56.2% limited
partner interest in the Partnership as well as a 2% general
partner interest in the Partnership and the Operating
Partnership on a combined basis. In connection with the
contribution of the propane business and assets by the
Company, the Operating Partnership assumed all of the
liabilities, whether known or unknown, associated with such
assets (other than income tax liabilities).
Concurrent with this offering, the Operating Partnership
completed the issuance of 10% Fixed Rate Senior Notes due 2001
in the aggregate principal amount of $200,000,000 and Floating
Rate Senior Notes due 2001 in the aggregate principal amount
of $50,000,000 (collectively, the "Senior Notes"). The net
proceeds from the sale of the Common Units and from the
issuance of the Senior Notes were used to retire approximately
$477,600,000 in indebtedness assumed by the Operating
Partnership.
B. Summary of Significant Accounting Policies:
(1) Principles of consolidation:
The consolidated financial statements include the accounts
of the Company and its subsidiaries. All material
intercompany profits, transactions and balances have been
eliminated.
The propane industry is seasonal in nature with peak
activity during the winter months. Therefore, the results
of operations for the eleven months ended June 30, 1994, are
not indicative of the results to be expected for a full
fiscal year.
(2) Reclassifications:
Certain reclassifications have been made to the 1993 and
1992 consolidated statement of cash flows in order to
conform with the 1994 presentation.
(3) Short-term investments:
Short-term investments consist of U.S. Treasury Bills and
U.S. government obligations with remaining maturities as of
June 30, 1994, ranging from approximately two to eight
months. Short-term investments are carried at cost which
approximates market value.
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 115 -
Accounting for Certain Investments in Debt and Equity
Securities, which is effective for fiscal years beginning
after December 15, 1993. The statement addresses the
accounting and reporting for certain investments in debt and
equity securities and expands the use of fair value
accounting for those securities but retains the use of the
amortized cost method for investments that the Company has
the positive intent and ability to hold to maturity. The
Company does not believe that the adoption of this statement
will have a material effect on the results of operations or
financial condition of the Company.
(4) Inventories:
Inventories are stated at the lower of cost or market using
average cost and actual cost methods.
The Company enters into forward purchase/sale agreements and
options involving propane and related products which are for
trading purposes. To the extent such contracts are entered
into at fixed prices and thereby subject the Company to
market risk, the contracts are accounted for on a mark-to-
market basis.
(5) Property, plant and equipment and other non-current
assets:
Property, plant and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are computed by the straight-line method over
the estimated useful lives of the assets ranging from two to
thirty years. Expenditures for maintenance and routine
repairs are expensed as incurred.
On August 1, 1991, the Company revised the estimated useful
lives of storage tanks from twenty to thirty years in order
to more closely reflect expected useful lives of the assets.
The effect of this change in accounting estimate resulted in
a favorable impact on loss before extraordinary loss of
$3,763,000 for the year ended July 31, 1992.
Intangible assets, consisting primarily of customer location
values and goodwill, are stated at cost, net of amortization
computed on the straight-line method over fifteen years for
customer location values and forty years for goodwill. The
Company evaluates its intangible assets for impairment by
calculating the anticipated cash flow attributable to such
acquisitions over their expected remaining life. Such
expected cash flows, on an undiscounted basis, are compared
to the carrying value of the tangible and intangible assets,
and if impairment is indicated, the carrying value of the
intangible assets are adjusted. Accumulated amortization of
intangible assets totaled $67,730,000 as of June 30, 1994,
and $59,181,000 as of July 31, 1993.
Other assets consist primarily of non-current notes
receivable and deferred financing costs. The deferred
financing costs are amortized using the effective interest
method over the terms of the respective debt agreements.
Accumulated amortization of other assets totaled $9,845,000
as of June 30, 1994, and $7,592,000 as of July 31, 1993.
(6) Income taxes:
The Company files a consolidated Federal income tax return
with its parent and affiliates. Income taxes are computed
as though each company filed its own income tax return in
accordance with the Company's tax sharing agreement.
Deferred income taxes are provided as a result of temporary
differences between financial and tax reporting as described
in Note H, using the asset/liability method. Deferred
income taxes are recognized for the tax consequences of
temporary differences between the financial statement
carrying amounts and the tax basis of existing assets and
liabilities.
(7) Consolidated statement of cash flows:
For purposes of the consolidated statement of cash flows,
the Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Interest paid totaled $55,681,000 for the eleven months
ended June 30, 1994, and $57,563,000 and $59,054,000 for the
two fiscal years ended July 31, 1993 and 1992, respectively.
In 1993, the Company received capital contributions, as
described in Note L, from its parent.
In connection with the early extinguishment of certain
senior notes in 1994 and 1993 and the refinancing of
subordinated debentures in 1992, as described in Note G, the
Company recorded non-cash extraordinary losses from the
write-off of financing costs, net of income tax benefits, of
$129,000, $145,000 and $2,550,000, respectively.
C. Inventories:
June 30, July 31,
1994 1993
------- -------
(in thousands)
Liquified propane gas and related products $33,339 $19,378
Appliances, parts and supplies 4,592 4,274
------- -------
$37,931 $23,652
======= =======
In addition to inventories on hand, the Company enters into
contracts to buy product for supply purposes. All such
contracts have terms of less than one year and call for
payment based on market prices at date of delivery.
D. Property, Plant and Equipment:
June 30, July 31,
1994 1993
-------- --------
(in thousands)
Land and improvements $18,584 $18,459
Buildings and improvements 22,958 23,001
Vehicles 37,305 37,564
Furniture and fixtures 17,599 16,402
Bulk equipment and market facilities 33,197 33,612
Tanks and customer equipment 317,321 314,127
Other 3,063 1,456
-------- --------
450,027 444,621
Less accumulated depreciation and amortization 156,298 140,805
-------- --------
$293,729 $303,816
======== ========
E. Investment in Class B Redeemable Common Stock of Parent:
The investment in Class B redeemable common stock of parent
represents all of the authorized and issued shares of the
parent's Class B redeemable common stock. All shares were
purchased from unrelated parties and are recorded at
historical cost. As described in Note N, the Class B
redeemable common stock was dividended to Ferrell in July
1994. Such transaction was contingent upon the successful
completion of the public offerings described in Note A and
would not otherwise have been consummated.
F. Other Current Liabilities:
June 30, July 31,
1994 1993
------- -------
(in thousands)
Current portion of long-term debt $1,279 $1,766
Accrued insurance 8,964 8,846
Accrued interest 5,609 10,374
Accrued Payroll 9,072 3,273
Other 5,372 4,789
------- -------
$30,296 $29,048
======= =======
G. Long-Term Debt:
June 30, July 31,
1994 1993
-------- --------
(in thousands)
Fixed rate senior Notes, interest at 12%, due in August
1996 $177,600 $189,500
Floating rate senior notes, interest at applicable LIBOR
rate plus 2.25% (6.5% at June 30, 1994), due in August 1996 50,000 50,000
Senior subordinated debentures, interest at 11 5/8%,
$250,000,000 face amount, due in December 2003 246,461 246,293
Notes payable, including approximately $2,292,000 and
$2,975,000 secured by property and equipment, interest
rates ranging from noninterest-bearing to 12%, due on
various dates through 2001 3,659 5,562
-------- --------
477,720 491,355
Less current portion 1,279 1,766
-------- --------
$476,441 $489,589
======== ========
For the eleven months ended June 30, 1994, the Company
reacquired $11,900,000 of its fixed rate senior notes, at an
approximate price of 110.00% of face value together with
accrued interest. The early extinguishment of senior notes
resulted in an extraordinary loss from debt premium and write-
off of financing costs of approximately $867,000, net of
income tax benefit of $531,000.
In fiscal year 1993, the Company reacquired $10,500,000 of its
fixed rate senior notes, at an approximate price of 111.35% of
face value, together with accrued interest. The early
extinguishment of senior notes resulted in an extraordinary
loss from debt premium and write-off of financing costs of
approximately $886,000, net of income tax benefit of $543,000.
In December 1991, the Company issued, at 98.418% of face value,
$250,000,000 of 11 5/8% senior subordinated debentures due
2003. A portion of the proceeds were used to reacquire the
Company's existing subordinated debt, together with a
prepayment premium, leaving the remainder available to finance
future acquisitions and for additional working capital
purposes. The refinancing of the subordinated debt resulted
in an extraordinary loss from prepayment premium and write-off
of financing costs of approximately $9,979,000, net of income
tax benefit of $6,116,000.
The Company has a $50,000,000 bank credit facility which
terminates July 31, 1995. The facility provides for a working
capital facility and a letter of credit facility. At June 30,
1994, there were no borrowings outstanding under the working
capital facility and letters of credit outstanding under the
letter of credit facility, which are used primarily to secure
obligations under certain insurance and leasing arrangements,
totaled $33,423,000. Such letters of credit reduce the
amount otherwise available for borrowings under the facility.
The various agreements for the senior notes and bank credit
facility have similar requirements for maintaining certain
working capital and net worth amounts and meeting interest
coverage tests. These loan agreements and the senior
subordinated debentures also place various limitations on the
Company, the most restrictive relating to additional
indebtedness and guarantees, sale and disposition of assets,
intercompany transactions, common stock issuance, and
essentially prohibit the payment of dividends. The Company is
in compliance with all requirements, tests, limitations and
covenants related to the senior notes and bank credit
facility. The senior notes and bank credit agreement are
collateralized by the stock of the Company.
Annual principal payments on long-term debt for each of the
next five fiscal years are $1,279,000 in 1995, $988,000 in
1996, $227,869,000 in 1997, $126,000 in 1998 and $82,000 in
1999.
H. Income Taxes:
Income tax expense (benefit) consists of (in thousands):
Eleven Months Fiscal Years Ended
Ended July 31,
June 30, -------------------
1994 1993 1992
-------------- ------ ---------
Current $209 $606 $301
Deferred 7,136 (663) (7,086)
-------------- ------ ---------
$7,345 ($57) ($6,785)
============== ====== =========
Allocated to:
Operating activities $7,876 $486 ($669)
Extraordinary loss (531) (543) (6,116)
-------------- ------ ---------
$7,345 ($57) ($6,785)
============== ====== =========
Deferred taxes result from temporary differences in the
recognition of income and expense for tax and financial
statement purposes. The significant temporary differences and
related deferred tax provision (benefit) are as follows (in
thousands):
Eleven Months Fiscal Years Ended
Ended July 31,
June 30, -------------------
1994 1993 1992
------------- ------- --------
Depreciation expense $104 $1,568 $7,010
Net operating loss 9,258 (1,975) (9,055)
Net cash, accrual and other differences (2,696) (752) (5,427)
Amortization 470 496 386
------------- ------- --------
$7,136 ($663) ($7,086)
============= ======= ========
For Federal income tax purposes, the Company has net operating
loss carryforwards of approximately $201,000,000 at June 30,
1994 available to offset future taxable income. These net
operating loss carryforwards expire at various dates through
2009.
A reconciliation between the effective tax rate and the
statutory Federal rate follows (amounts in thousands):
Eleven Months Fiscal Years Ended July 31,
Ended ------------------------------------
June 30, 1994 1993 1992
---------------- ---------------- -----------------
Amount % Amount % Amount %
------ ------ ------ ------ -------- ------
Income tax expense (benefit)
at statutory rate $6,585 35.0 ($284) (34.0) ($6,278) (34.0)
Statutory surtax (188) (1.0) - - - -
State income taxes, net of
Federal benefit 827 4.4 182 21.8 (518) (2.7)
Nondeductible meal and
entertainment expense 54 0.3 36 4.3 42 0.2
Other 67 0.3 9 1.1 (31) (0.2)
------ ------ ------ ------ -------- ------
$7,345 39.0 ($57) (34.0) ($6,785) (34.0)
====== ====== ====== ====== ======== ======
The significant components of the net deferred tax asset
(liability) included in the Consolidated Balance Sheet are as
follows (in thousands):
June 30, July 31,
1994 1993
--------- ---------
Deferred tax liabilities:
Difference between book and tax basis of
property and intangible assets ($99,333) ($86,533)
Other 0 (3,267)
--------- ---------
Total deferred tax liabilities (99,333) (89,800)
Deferred tax assets:
Operating loss carryforwards 78,189 85,790
Reserves not currently deductable 14,963 6,767
Other 1,802 0
--------- ---------
Total deferred tax assets 94,954 92,557
--------- ---------
Net deferred tax asset (liability) ($4,379) $2,757
========= =========
I. Contingencies and Commitments:
The Company 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, after taking
into consideration the Company's insurance coverage and its
existing reserves, management is of the opinion that there are
no known uninsured claims or known contingent claims that are
likely to have a material adverse effect on the results of
operations or financial condition of the Company.
I. Contingencies and Commitments (cont'd.):
The Internal Revenue Service ("IRS") has examined the Company's
consolidated income tax returns for the years ended July 31,
1987 and 1986, and has proposed certain adjustments which
relate principally to the purchase price allocations for an
acquisition made during 1987. The IRS has proposed to
disallow $61,000,000 of deductions taken or to be taken for
depreciation of customer tanks for which the Company asserts
the methods and principles used during the valuation of the
customer tanks are defensible. Also, the IRS has proposed to
disallow $90,000,000 of deductions for amortization of
customer relationships taken or to be taken in the Company's
consolidated income tax returns. On April 20, 1993, the
United States Supreme Court held in Newark Morning Ledger v.
United States that a taxpayer may amortize customer based
intangibles if that taxpayer can prove such intangibles are
capable of being valued and the value diminishes over time.
The Company contends it has met this burden of proof and feels
this recent Supreme Court decision supports the positions
taken during the Company's allocation of purchase price to
customer relationships. The Company intends to vigorously
defend against these proposed adjustments and is in the
process of protesting these adjustments through the appeals
process of the IRS. At this time, it is not possible to
determine the ultimate resolution of this matter.
Certain property and equipment is leased under noncancellable
operating leases which require fixed monthly rental payments
and which expire at various dates through 2016. Rental
expense under these leases totaled $9,556,000 for the eleven
months ended June 30, 1994, and $10,903,000 and $10,317,000
for the two fiscal years ended July 31, 1993 and 1992. Future
minimum lease commitments for such leases are $7,716,000 in
1995, $5,400,000 in 1996, $3,529,000 in 1997, $1,642,000 in
1998 and $457,000 in 1999.
J. Employee Benefits:
The Company and its parent have a defined contribution profit-
sharing plan which covers substantially all employees with
more than one year of service. Contributions are made to the
plan at the discretion of the parent's Board of Directors.
This plan also provides for matching contributions under a
cash or deferred arrangement (401(k) plan) based upon
participant salaries and employee contributions to the plan.
Company contributions under the profit sharing provision of
the plan were $1,200,000 for the eleven months ended June 30,
1994, and were $1,000,000 and $2,711,000 for the two fiscal
years ended July 31, 1993 and 1992, respectively. Company
matching contributions to the plan under the 401(k) provision
of the plan were $1,445,000 for the eleven months ended June
30, 1994, and were $1,541,000 and $1,420,000 for the two
fiscal years ended July 31, 1993 and 1992, respectively.
The Company has a defined benefit plan that provides
participants who were covered under a previously terminated
plan with a guaranteed retirement benefit at least equal to
the benefit they would have received under the terminated
plan. Benefits under the terminated plan are determined by
years of credited service and salary levels. The Company's
funding policy for this plan is to contribute amounts
deductible for Federal income tax purposes. Plan assets
consist primarily of corporate stocks and bonds, U.S. Treasury
bonds and short-term cash investments.
The following table sets forth the plan's projected funded
status for the respective periods based on the most recent
actuarial valuations:
Actuarially computed pension expense includes the following
components (in thousands):
Eleven Months Fiscal Years Ended
Ended July 31,
June 30, -------------------
1994 1993 1992
-------------- ------ ---------
Service Cost $225 $285 $218
Interest on Obligations 338 378 407
Actual Return on Plan Assets 286 (448) (320)
Amortization and Deferral of:
Prior Service Cost (28) (31) 1
Gain (170) (98) (98)
Deferred Asset (Gain)/Loss (578) 157 108
Actuarially Computed Pension -------------- ------ ---------
Pension Expense $73 $243 $316
============== ====== =========
Actuarial present value of benefit obligations is summarized as
follows (in thousands):
June 30, July 31,
1994 1993
------ ------
Actuarial present value of benefit obligations:
Vested Benefit Obligation $2,474 $2,215
====== ======
Accumulated Benefit Obligation $2,978 $2,747
====== ======
Projected Benefit Obligation $4,798 $4,917
Less: Plan Assets at Fair Value 2,853 3,605
------ ------
Benefit Obligation in Excess of
Plan Assets 1,945 1,312
Unrecognized Prior Service Cost 298 329
Unrecognized Gain 1,828 2,573
------ ------
Accrued Benefit Obligation $4,071 $4,214
====== ======
The actuarial computations assumed a discount rate, annual
salary increase and expected long-term rate of return on plan
assets of 8%, 5% and 9.5%, respectively, for the eleven months
ended June 30, 1994, and for fiscal year 1993 and 1992.
In fiscal 1987, Ferrell established the Ferrell Companies, Inc.
Long-Term Incentive Plan (the "Plan"). The Plan provides long-
term incentives to officers and executives of Ferrell and its
subsidiaries in the form of units ("Equity Units"). The Plan
provides for the redemption of the Equity Units after July 31,
1996, based upon the excess of an appraised value as of July
31, 1996, over a minimum value established at Plan inception.
Earned awards are 100% vested by the participants. Because
the participants are primarily employees of Ferrellgas,
compensation expense charges (credits) representing increases
(decreases) in the estimated value of the vested Equity Units
are recorded by the Company. Compensation expense charged
(credited) to income was $720,000 for the eleven months ended
June 30, 1994, and was $80,000 and $(1,934,000), respectively,
for the two fiscal years ended July 31, 1993 and 1992.
K. Employee Benefits Other Than Pensions:
The Company provides postretirement medical benefits to a
closed group of approximately 400 retired employees and their
spouses. The plan requires the Company to provide primary
medical benefits to the participants until age 65, at which
time the Company only pays a fixed amount of $55 per month per
participant for medical benefits. Effective August 1, 1993,
the Company adopted Statement of Financial Accounting
Standards No. 106 - Employers' Accounting for Postretirement
Benefits Other Than Pensions which requires accrual of
postretirement benefits (such as health care benefits) during
the years an employee provides services. The Company elected
to amortize the postretirement benefit average obligation over
a period not to exceed the average remaining life expectancy
of the plan participants (since all of the plan participants
are retired). The cumulative effect as of August 1, 1993, and
impact for the eleven months ended June 30, 1994, of adopting
this statement was not material to the financial statements of
the Company.
The Company had expenses of $560,000 and $471,000 for the years
ended July 31, 1993 and 1992, respectively, on a pay-as-you-go-
basis relative to this postretirement benefit obligation.
The actuarial liabilities for these postretirement benefits,
none of which have been funded, are as follows at June 30,
1994:
Accumulated Postretirement Benefit Obligation-Retirees $2,270,000
Fair Value of Assets 0
----------
Unfunded Status $2,270,000
==========
Net periodic postretirement benefit cost for the eleven months
ended June 30, 1994, included the following components:
Interest Cost on Obligation $178,014
Amortization of Transition Obligation 209,391
--------
Net Periodic Postretirement Benefit Cost $387,405
========
The accumulated postretirement benefit obligation was
determined using a discount rate of 7.75% and a health care
cost trend rate of 10% in fiscal year 1994, 8% in fiscal years
1995 through 1997 and 5% thereafter for any individuals who
have not attained the age of 65 by such cut-off dates.
Benefits relate to a closed group of retirees whose benefits
convert to a fixed monthly supplement at age 65. Because of
the nature of this group, a 1% change in the assumed health
care cost trend rates does not have a significant impact on
net periodic postretirement benefit cost or the accumulated
postretirement benefit obligation.
The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 112 - Employers'
Accounting For Postemployment Benefits which is effective for
fiscal years beginning after December 15, 1993. This
statement requires that employers recognize over the service
lives of employees the costs of postemployment benefits if
certain conditions are met. The Company does not believe that
adoption of the statement will have a material impact on
results of operations or financial condition of the Company.
L. Transactions with Related Parties:
All notes receivable from related parties bear interest at the
prime rate plus 1.375% (8.125% at June 30, 1994) except for
one note totaling $9,843,000 which bears interest at the prime
rate (7.25% at June 30, 1994).
In 1993, the Company received capital contributions from its
Parent consisting of i) the forgiveness of a $3,015,000 long-
term note payable to affiliate, including interest, and ii) a
$262,000 note receivable from affiliate.
In the second and third quarter of fiscal year 1993, Ferrell
Leasing Corporation, a subsidiary of Ferrell Properties, Inc.,
sold to the Company for the fair market value of $4,100,000,
the land and two buildings comprising the Company's corporate
headquarters in Liberty, Missouri. James E. Ferrell, a
director and executive officer in the Company, owns all of the
issued and outstanding stock of Ferrell Properties, Inc.
Prior to the purchase of the buildings, the Company paid rent
to Ferrell Leasing of $403,000 and $692,000 in fiscal years
1993 and 1992, respectively.
A. Andrew Levison, a director of the parent, is a Managing
Director of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"). DLJ acted as placement agent with regard
to the senior subordinated notes issued in December 1991 and
was paid fees of $3,545,000.
The law firm of Smith, Gill, Fisher & Butts, a Professional
Corporation, is general counsel to the Company, the Parent and
their respective subsidiaries and affiliates. David S.
Mouber, a director of the Parent, is a member of such law
firm. The Company, the Parent and their respective
subsidiaries paid such firm fees of $1,243,000 for the eleven
months ended June 30, 1994, and paid fees of $1,381,000 and
$2,189,000 during the two fiscal years ended July 31, 1993 and
1992, respectively.
M. Disclosures About Off Balance Sheet Risk and Fair Value of
Financial Instruments:
In fiscal year 1993, the Company adopted Statement of Financial
Accounting Standards No. 107 - Disclosures about Fair Value of
Financial Instruments which requires disclosing the fair value
of financial instruments which can be reasonably determined.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it
is practicable to estimate that value:
Current Assets. The carrying amount of cash and cash
equivalents and short-term investments approximates fair value
because of the short maturity of those instruments.
Long-term Debt. The estimated fair value of the Company's
long-term debt was $524,723,000 and $539,651,000 as of June 30,
1994 and July 31, 1994, respectively. The fair value is
estimated based on quoted market prices and discounted cash
flows.
Option and Forward Contracts. The Company is a party to
certain option and forward contracts in connection with its
trading activities involving various liquified petroleum
products. Contracts are executed with private counterparties
and to a lesser extent on national mercantile exchanges. Open
contract positions are summarized as follows:
As of June 30, 1994
(In thousands except price per gallon data)
Market
Volume in Price Maturity Contract Value of Unrealized
Gallons (per gallon) Dates Amounts Contracts Gain/(Loss)
------- ---------- ----------------- ------- ------- ----------
Exchange Traded Option
Contracts to Buy 8,820 $0.30 Aug 1994-Jan 1995 $2,662 $2,679 $17
Exchange Traded Option
Contracts to (Sell) (4,200) $0.29 Sep-94 (1,229) (1,230) (1)
Forward Contracts to Buy 62,661 $0.18-0.38 July-Dec 1994 16,450 16,466 16
Forward Contracts to (Sell) (9,513) $0.29-0.37 Aug 1994-Jan 1995 (3,023) (2,959) 64
------- -------- -------- ---------
Total 57,768 $14,860 $14,956 $96
======= ======== ======== =========
Risks related to these contracts arise from the possible
inability of counterparties to meet the terms of their
contracts and changes in underlying product prices. The
Company attempts to minimize market risk through the
enforcement of its trading policies, which include total
inventory limits and loss limits, and attempts to minimize
credit risk through application of its credit policies.
In connection with its trading activities, at July 31, 1993,
the Company had open forward and option contracts to buy
$10,394,000 and sell ($11,347,000) of various liquified
petroleum products expressed in dollars based on contract
prices. At July 31, 1992, similar contracts to buy were
$7,582,000 and to sell ($4,986,000). Net unrealized
gains/(losses) on those open position were $281,000 and $0,
respectively, at July 31, 1993 and 1992.
N. Subsequent Event
On July 26, 1994, the Company loaned Ferrell $25,000,000, on an
unsecured basis. This note bears interest at the prime rate
(7.25% at July 26, 1994), and is due on demand.
On July 27, 1994, the Company declared and paid a cash dividend
to Ferrell of approximately $12,919,000. In addition, the
Company declared a dividend and distributed certain assets to
Ferrell, consisting of the following: (i) $36,031,000
investment in Class B redeemable common stock of Ferrell, (ii)
note receivable from James E. Ferrell of $9,843,000, including
accrued interest through July 26, 1994, (iii) $1,331,000
accounts receivable from James E. Ferrell, (iv) notes
receivable from real estate affiliates of approximately
$4,792,000, including accrued interest through July 26, 1994,
(v) note receivable from Ferrell of approximately $4,054,000,
including accrued interest through July 26, 1994, (vi) other
assets of approximately $63,000 and (vii) the Incentive
Distribution Rights received by the Company in connection with
the initial public offering of the Partnership described in
Note A.
On August 1, 1994, the Company declared a dividend and
distributed to Ferrell 1,000,000 Common Units, 1,650,000
Subordinated Units received by the Company in connection with
the initial public offering of the Partnership described in
Note A. The dividend of the Common Units and Subordinated
Units represents an approximate 8% limited partner interest in
the Partnership.
On September 30, 1994, the General Partner entered into a
definitive Purchase Agreement with Vision Energy Resources,
Inc. ("Vision") for the purchase of the propane business owned
and operated by Vision for a cash purchase price of $45
million. The closing of the transaction is subject to
customary conditions, including the expiration of the
applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act. Following the closing of the
transaction, the General Partner intends to transfer the
assets of Vision to Ferrellgas, L.P.
On October 14, 1994, the General Partner adopted the Ferrellgas,
Inc. Unit Option Plan (the "Unit Option Plan"), which authorizes
the issuance of options (the "Unit Options") covering up to
750,000 Subordinated Units to certain officers and employees
of the General Partner, of which 657,000 options have been
granted. The Unit Options granted have an exercise price of
$16.80 per Subordinated Unit, will vest over a three to five
year period (depending on the employee) and will expire on the
tenth anniversary of the date of the grant. Upon conversion of
100% of the Subordinated Units held by the General Partner and
its affiliates, the Unit Options granted will convert to Common
Unit Options.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Ferrellgas Partners, L.P. and Subsidiary
- - ----------------------------------------
Independent Auditors' Report on Schedules
Schedule III Parent Company Only Balance Sheet
as of July 31, 1994, and Statement of
Operations and Partners Capital and
Statement of Cash Flows from inception
to July 31, 1994
Schedule V Property and Equipment from inception
to July 31, 1994
Schedule VI Accumulated Depreciation and Amortization
from inception to July 31, 1994
Schedule VIII Valuation and Qualifying Accounts from
inception to July 31, 1994
Schedule IX Short-term Borrowings from inception to
July 31, 1994
Schedule X Supplementary Income Statement Information
Ferrellgas, L.P. and Subsidiaries
- - ---------------------------------
Independent Auditors' Report on Schedules
Schedule V Property and Equipment from inception to
July 31, 1994
Schedule VI Accumulated Depreciation and Amortization
from inception to July 31, 1994
Schedule VIII Valuation and Qualifying Accounts from
inception to July 31, 1994
Schedule IX Short-term Borrowings from inception to
July 31, 1994
Schedule X Supplementary Income Statement Information
Ferrellgas, Inc. (Predecessor)
- - ------------------------------
Independent Auditors' Report on Schedules
Schedule I Marketable Securities - Other Security Investments
Schedule II Amounts Receivable from Related Parties
for the eleven months ended June 30, 1994
and for each of the two years ended
July 31, 1993
Schedule V Property and Equipment for the
eleven months ended June 30, 1994
and for each of the two years ended
July 31, 1993
Schedule VI Accumulated Depreciation and Amortization
for the eleven months ended June 30, 1994
and for each of the two years ended
July 31, 1993
Schedule VIII Valuation and Qualifying Accounts for the
eleven months ended June 30, 1994
and for each of the two years ended
July 31, 1993
Schedule IX Short-term Borrowings for the eleven
months ended June 30, 1994 and for each of
the two years ended July 31, 1994
Schedule X Supplementary Income Statement Information
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the consolidated financial statements of
Ferrellgas Partners, L.P. and subsidiary as of July 31,
1994, and for the period from inception (April 19, 1994) to
July 31, 1994, and have issued our report thereon dated
September 16, 1994 (October 14, 1994, as to Note O). Our
audit also included the financial statement schedules listed
at Item 14(a)2. These financial statement schedules are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audit.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material
respects the information therein set forth.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 16, 1994 (October 14, 1994, as to Note O)
FERRELLGAS PARTNERS, L.P. Schedule III
PARENT ONLY
BALANCE SHEET
(in thousands)
July 31,
1994
---------
ASSETS
Investment in Ferellgas, L.P. $121,393
---------
Total Assets $121,393
=========
PARTNERS' CAPITAL
Partners' Capital
Common unitholders $84,532
Subordinated unitholder 99,483
General partner (62,622)
---------
Total Partners' Capital $121,393
=========
FERRELLGAS PARTNERS, L.P. Schedule III
PARENT ONLY
STATEMENT OF OPERATIONS
(in thousands)
Inception to
July 31, 1994
-------------
Equity in loss of Ferrellgas, L.P. ($64,481)
---------
Net loss ($64,481)
=========
FERRELLGAS PARTNERS, L.P. Schedule III
PARENT ONLY
STATEMENT OF CASH FLOWS
(in thousands)
Inception to
July 31, 1994
-------------
Cash Flows From Operating Activities:
Net loss ($64,481)
Reconciliation of net loss to
net cash from operating activities:
Equity in loss of Ferrellgas, L.P. 64,481
---------
Net cash from operating activities -
---------
Cash Flows From Investing Activities:
Investment in Ferrellgas, L.P. (255,006)
---------
Net cash from investing activities (255,006)
---------
Cash Flows From Financing Activities:
Net issuance of common units 255,006
---------
Net cash from financing activities 255,006
---------
Increase in Cash and Cash Equivalents -
Cash and cash equivalents - Beginning of period -
---------
Cash and Cash Equivalents - End of Period $ -
=========
<FN>
Supplemental disclosure of non-cash financing activity:
- - -------------------------------------------------------
Effective July 5, 1994 substantially all of the propane assets and liabilities of Ferrellgas, Inc. were
conveyed at historical cost to Ferrellgas, L.P. in return for 1,000,000 Common Units, 16,593,721 Subordinated
Units and the Incentive Distribution Rights of Ferrellgas Partners, L.P., as well as a 2% general partner
interest in Ferrellgas Partners, L.P. and Ferrellgas, L.P., on a combined basis. Net liabilities assumed by
Ferrellgas, L.P. are as follows:
/FN>
July 5, 1994
------------
Cash $39,791
Accounts receivable 50,747
Inventories 37,931
Prepaid expenses and other current assets 2,660
Property, plant and equipment, net 293,729
Intangible assets, net 64,050
Other assets 9,327
---------
Total assets conveyed 498,235
---------
Accouts payable 49,177
Other current liabilities 30,296
Long-term debt, net 476,441
Other non-current liabilities 9,557
---------
Total liabilities assumed 565,471
---------
Net liabilities assumed by Ferrellgas, L.P. ($67,236)
=========
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule V
PROPERTY PLANT AND EQUIPMENT
(in thousands)
Period Ended
July 31, 1994
----------
Land and improvements $18,589
Buildings and improvements 23,005
Vehicles 37,283
Furniture and fixtures 17,776
Bulk equipment and market facilities 33,091
Tanks and customer equipment 317,631
Other 5,097
----------
$452,472
==========
Additions, at cost $2,750
==========
Retirements ($305)
==========
<FN>
Note 1: On July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical
cost to Ferrellgas, L.P. . Total property, plant and
equipment transferred to Ferrellgas, L.P. was $450,027.
Note 2: See notes to financial statements for a description of the methods and estimated
useful lives used in computing depreciation and amortization. Detail of additions and
retirements by major classification is not provided as the totals for such additions
and retirements are less than 10% of the total property, plant and equipment.
</FN>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY PLANT AND EQUIPMENT
(in thousands)
Additions
Charged to
Beginning Costs and End of
of Period Expenses Retirements Period
-------- ------- ----- --------
Inception to July 31, 1994
Land and improvements $1,775 $22 $ - $1,797
Buildings and improvements 7,381 90 - 7,471
Vehicles 25,818 253 140 25,931
Furniture and fixtures 12,732 205 - 12,937
Bulk equipment and market facilities 12,124 92 1 12,215
Tanks and customer equipment 96,468 940 52 97,356
-------- ------- ----- --------
$156,298 $1,602 $193 $157,707
======== ======= ===== ========
<FN>
On July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical
cost to Ferrellgas, L.P. . Total accumulated depreciation
and amortization of property, plant and equipment
transferred to Ferrellgas, L.P. was $156,298.
</FN>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule VIII
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Deductions Balance
beginning cost/ (amounts at end
Description of period expenses charged-off) of period
- - ---------------------------- --------- ------ -------- ---------
Inception to July 31, 1994
- - ----------------------------
Allowance for
uncollectible receivables $906 $119 $227 $798
======= ==== ====== =======
Accumulated amortization of
intangible assets $67,730 $759 $ - $68,489
======= ==== ====== =======
Accumulated amortization of
other assets $9,845 $23 $8,008 $1,860
======= ==== ====== =======
<FN>
On July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical
cost to Ferrellgas, L.P. . Total allowance for
uncollectable receivables, accumulated amortization of
intangible assets and accumulated amortization of other
assets transferred to Ferrellgas, L.P. was $906, $67,730 and
$9,845, respectively.
</FN>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule IX
SHORT-TERM BORROWINGS
(in thousands)
Weighted
Maximum average
Weighted amount Average interest
Balance average outstanding outstanding rate
at end interest during during during
Category of period rate the period the period the period*
- - ------------------------------ --------- ------- -------- --------- ---------
July 5, 1994 to July 31, 1994
- - ------------------------------
Working capital loan $3,000 7.375% $3,000 $1,000 7.375%
====== ====== ====== ====== ======
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
Charged to
costs and expenses
from inception to
July 31, 1994
-----------
1. Maintenance and repairs $791
======
2. Depreciation $1,602
Amortization of intangibles 759
Amortization of other assets 23
------
$2,384
======
Detail for the other items required for this schedule has been omitted
since each of the other items is less than 1% of total revenues.
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas, L.P.
Liberty, Missouri
We have audited the consolidated financial statements of
Ferrellgas, L.P. and subsidiaries as of July 31, 1994, and
for the period from inception (April 22, 1994) to July 31,
1994, and have issued our report thereon dated September 16,
1994 (September 30, 1994, as to Note N). Our audit also
included the financial statement schedules listed at Item
14(a)2. These financial statement schedules are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audit.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material
respects the information therein set forth.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 16, 1994 (September 30, 1994, as to Note N)
FERRELLGAS, L.P. AND SUBSIDIARIES Schedule V
PROPERTY PLANT AND EQUIPMENT
(in thousands)
Period Ended
July 31, 1994
----------
Land and improvements $18,589
Buildings and improvements 23,005
Vehicles 37,283
Furniture and fixtures 17,776
Bulk equipment and market facilities 33,091
Tanks and customer equipment 317,631
Other 5,097
----------
$452,472
==========
Additions, at cost $2,750
==========
Retirements ($305)
==========
<FN>
Note 1: On July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical
cost to Ferrellgas, L.P. . Total property, plant and
equipment transferred to Ferrellgas, L.P. was $450,027.
Note 2: See notes to financial statements for a description of the methods and estimated
useful lives used in computing depreciation and amortization. Detail of additions and
retirements by major classification is not provided as the totals for such additions
and retirements are less than 10% of the total property, plant and equipment.
</FN>
FERRELLGAS, L.P. AND SUBSIDIARIES Schedule VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY PLANT AND EQUIPMENT
(in thousands)
Additions
Charged to
Beginning Costs and End of
of Period Expenses Retirements Period
-------- ------- ----- --------
Inception to July 31, 1994
Land and improvements $1,775 $22 $ - $1,797
Buildings and improvements 7,381 90 - 7,471
Vehicles 25,818 253 140 25,931
Furniture and fixtures 12,732 205 - 12,937
Bulk equipment and market facilities 12,124 92 1 12,215
Tanks and customer equipment 96,468 940 52 97,356
-------- ------- ----- --------
$156,298 $1,602 $193 $157,707
======== ======= ===== ========
<FN>
On July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical
cost to Ferrellgas, L.P. . Total accumulated depreciation
and amortization of property, plant and equipment
transferred to Ferrellgas, L.P. was $156,298.
</FN>
FERRELLGAS, L.P. AND SUBSIDIARIES Schedule VIII
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Deductions Balance
beginning cost/ (amounts at end
Description of period expenses charged-off) of period
- - ---------------------------- --------- ------ -------- ---------
Inception to July 31, 1994
- - ----------------------------
Allowance for
uncollectible receivables $906 $119 $227 $798
======= ==== ====== =======
Accumulated amortization of
intangible assets $67,730 $759 $ - $68,489
======= ==== ====== =======
Accumulated amortization of
other assets $9,845 $23 $8,008 $1,860
======= ==== ====== =======
<FN>
On July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical
cost to Ferrellgas, L.P. . Total allowance for
uncollectable receivables, accumulated amortization of
intangible assets and accumulated amortization of other
assets transferred to Ferrellgas, L.P. was $906, $67,730 and
$9,845, respectively.
</FN>
FERRELLGAS, L.P. AND SUBSIDIARIES Schedule IX
SHORT-TERM BORROWINGS
(in thousands)
Weighted
Maximum average
Weighted amount Average interest
Balance average outstanding outstanding rate
at end interest during during during
Category of period rate the period the period the period*
- - ------------------------------ --------- ------- -------- --------- ---------
July 5, 1994 to July 31, 1994
- - ------------------------------
Working capital loan $3,000 7.375% $3,000 $1,000 7.375%
====== ====== ====== ====== ======
FERRELLGAS, L.P. AND SUBSIDIARIES Schedule X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
Charged to
costs and expenses
from inception to
July 31, 1994
-----------
1. Maintenance and repairs $791
======
2. Depreciation $1,602
Amortization of intangibles 759
Amortization of other assets 23
------
$2,384
======
Detail for the other items required for this schedule has been omitted
since each of the other items is less than 1% of total revenues.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas, Inc.
Liberty, Missouri
We have audited the consolidated financial statements of
Ferrellgas, Inc. and subsidiaries as of June 30, 1994 and
July 31, 1993, and for the eleven months ended June 30, 1994
and for each of the two years in the period ended July 31,
1993, and have issued our report thereon dated September 16,
1994 (October 14, 1994, as to Note N). Our audits also
included the financial statement schedules listed at Item
14(a)2. These financial statement schedules are the
responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material
respects the information therein set forth.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 16, 1994 (October 14, 1994, as to Note N)
FERRELLGAS, INC. AND SUBSIDIARIES Schedule I
MARKETABLE SECURITIES - OTHER INVESTMENTS
(in thousands)
Balance
Issuance/ Shares/ Market Sheet
Issuer Par Value Cost Value Value
------- ------- ------- -------
Balance at June 30, 1994
- - --------------------------------------
United States Treasury Bills
----------------------------
United States Government $15,000 $14,471 $14,633 $14,471 (1)
United States Treasury Notes
----------------------------
United States Government $5,000 $5,042 $5,071 $5,042 (1)
United States Government Obligations
------------------------------------
Federal Home Loan Bank $5,000 $4,995 $4,848 $4,995 (1)
Class B Redeemable Comon Stock
------------------------------
Ferrell Companies, Inc. 643 (4) $36,031 $36,031 (2) $36,031 (3)
Year ended July 31, 1993
- - --------------------------------------
United States Treasury Bills
----------------------------
United States Government $15,000 $14,497 $14,703 $14,497 (1)
United States Treasury Notes
----------------------------
United States Government $5,000 $5,116 $5,171 $5,116 (1)
Corporate Commercial Paper
--------------------------
Beta Finance, Inc. $2,500 $2,474 $2,474 $2,474 (1)
General Electric Capital Corp. $3,000 $2,953 $2,977 $2,953 (1)
Class B Redeemable Comon Stock
------------------------------
Ferrell Companies, Inc. 643 (4) $36,031 $36,031 (2) $36,031 (3)
Year ended July 31, 1992
- - --------------------------------------
United States Treasury Bills
----------------------------
United States Government $24,000 $23,165 $23,600 $23,165 (1)
Class B Redeemable Comon Stock
------------------------------
Ferrell Companies, Inc. 576 $32,813 $32,813 (2) $32,813 (3)
<FN>
(1) Short-term investments on Consolidated Balance Sheet.
(2) Class B redeemable common stock is not publicly traded. Therefore, for this
schedule market value is considered to be the same as historical cost.
(3) Investment in Class B redeemable common stock of parent (eliminated in consolidation)
on Balance Sheet.
(4) Total authorized and issued shares of Ferrell's Class B redeemable common stock.
</FN>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND EMPLOYEES
(in thousands)
Balance at end
Balance at of period
beginning Amounts ---------------------
Name of Debtor of period Additions Collected Current Not Current
- - --------------------------------- --------- --------- --------- ------- -----------
Eleven months ended June 30, 1994
- - ---------------------------------
One Liberty Plaza, Inc. (1) $3,000 $ - $ - $ - $3,000
====== ====== ====== ====== ======
Ferrell Development, Inc. (1) $1,500 $ - $ - $ - $1,500
====== ====== ====== ====== ======
Ferrell Properties, Inc. (1) $262 $ - $ - $ - $262
====== ====== ====== ====== ======
James E. Ferrell (2) $6,647 $4,268 $1,072 $500 $9,343
====== ====== ====== ====== ======
Year ended July 31, 1993
- - ---------------------------------
One Liberty Plaza, Inc. (1) $3,000 $ - $ - $ - $3,000
====== ====== ====== ====== ======
Ferrell Development, Inc. (1) $1,500 $ - $ - $ - $1,500
====== ====== ====== ====== ======
Ferrell Properties, Inc. (1) $ - $262 (3) $ - $ - $262
====== ====== ====== ====== ======
James E. Ferrell (2) $6,588 $4,400 $4,341 $500 $6,147
====== ====== ====== ====== ======
Year ended July 31, 1992
- - ---------------------------------
One Liberty Plaza, Inc. (1) $3,000 $ - $ - $ - $3,000
====== ====== ====== ====== ======
Ferrell Development, Inc. (1) $1,500 $ - $ - $ - $1,500
====== ====== ====== ====== ======
James E. Ferrell (2) $2,756 $5,480 $1,648 $1,000 $5,588
====== ====== ====== ====== ======
<FN>
(1) Notes are due December 31, 1997, and bear interest at the prime rate plus 1.375%.
(2) Note is due on demand and bears interest at the prime rate.
(3) Contributed by Ferrell in fiscal year 1993.
</FN>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule V
PROPERTY PLANT AND EQUIPMENT
(in thousands)
Eleven months
ended Year ended Year ended
June 30, 1994 July 31, 1993 July 31, 1992
------------- ------------- -------------
Land and improvements $18,584 $18,459 $17,150
Buildings and improvements 22,958 23,001 20,339
Vehicles 37,306 37,564 39,205
Furniture and fixtures 17,599 16,402 14,194
Bulk equipment and market facilities 33,196 33,612 32,051
Tanks and customer equipment 317,321 314,127 313,634
Other 3,063 1,456 99
------------- ------------- -------------
$450,027 $444,621 $436,672
============= ============= =============
Additions, at cost $9,843 $14,187 $20,392
============= ============= =============
Retirements $4,437 $6,238 $10,560
============= ============= =============
<FN>
NOTE: See Notes to financial statements for a description of the methods and estimated
useful lives used in computing depreciation and amortization. Detail of additions and
retirements by major classification is not provided as the totals for such additions and
retirements are less than 10% of the total property, plant and equipment for each period.
</FN>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY PLANT AND EQUIPMENT
(in thousands)
Additions
Charged to
Beginning Costs and End of
of Period Expenses Retirements Period
--------- --------- ----------- ---------
Eleven months ended June 30, 1994
- - ------------------------------------
Land and improvements $1,551 $242 $18 $1,775
Buildings and improvements 6,703 973 295 7,381
Vehicles 24,010 2,874 1,066 25,818
Furniture and fixtures 10,503 2,328 99 12,732
Bulk equipment and market facilities 10,806 1,354 36 12,124
Tanks and customer equipment 87,232 9,888 652 96,468
--------- --------- ----------- ---------
$140,805 $17,659 $2,166 $156,298
========= ========= =========== =========
Year ended July 31, 1993
- - ------------------------------------
Land and improvements $1,293 $263 $5 $1,551
Buildings and improvements 5,831 996 124 6,703
Vehicles 21,804 4,466 2,260 24,010
Furniture and fixtures 8,162 2,433 92 10,503
Bulk equipment and market facilities 9,186 1,712 92 10,806
Tanks and customer equipment 77,270 10,579 617 87,232
--------- --------- ----------- ---------
$123,546 $20,449 $3,190 $140,805
========= ========= =========== =========
Year ended July 31, 1992
- - ------------------------------------
Land and improvements $1,049 $248 $4 $1,293
Buildings and improvements 5,033 979 181 5,831
Vehicles 20,403 5,107 3,706 21,804
Furniture and fixtures 6,742 2,072 652 8,162
Bulk equipment and market facilities 7,955 1,507 276 9,186
Tanks and customer equipment 67,455 10,573 758 77,270
--------- --------- ----------- ---------
$108,637 $20,486 $5,577 $123,546
========= ========= =========== =========
FERRELLGAS, INC. AND SUBSIDIARIES Schedule VIII
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Deductions Balance
beginning cost/ (amounts at end
Description of period expenses charged-off) of period
- - --------------------------------- -------- -------- ------- --------
Eleven months ended June 30, 1994
- - ---------------------------------
Allowance for
uncollectible receivables $607 $1,569 $1,270 $906
======== ======== ======= ========
Accumulated amortization of
intangible assets $59,181 $8,549 $ - $67,730
======== ======== ======= ========
Accumulated amortization of
other assets $7,592 $2,626 $373 $9,845
======== ======== ======= ========
Year ended July 31, 1993
- - ---------------------------------
Allowance for
uncollectible receivables $837 $1,343 $1,573 $607
======== ======== ======= ========
Accumulated amortization of
intangible assets $49,188 $9,993 $ - $59,181
======== ======== ======= ========
Accumulated amortization of
other assets $5,286 $2,538 $232 $7,592
======== ======== ======= ========
Year ended July 31, 1992
- - ---------------------------------
Allowance for
uncollectible receivables $1,005 $2,071 $2,239 $837
======== ======== ======= ========
Accumulated amortization of
intangible assets $38,901 $10,306 $19 $49,188
======== ======== ======= ========
Accumulated amortization of
other assets $6,895 $2,654 $4,263 $5,286
======== ======== ======= ========
FERRELLGAS, INC. AND SUBSIDIARIES Schedule IX
SHORT-TERM BORROWINGS
(in thousands)
Weighted
Maximum average
Weighted amount Average interest
Balance average outstanding outstanding rate
at end interest during during during
Category of year rate the year the year the year*
- - --------------------------------- ------- -------- -------- -------- ---------
Eleven months ended June 30, 1994
- - ---------------------------------
(There were no short-term borrowings during the eleven months ended June 30,
1994.)
Year ended July 31, 1993
- - ---------------------------------
(There were no short-term borrowings during the fiscal year ended July 31, 1993.)
Year ended July 31, 1992
- - ---------------------------------
Working capital loan $ - - % $1,000 $453 7.82%
======= ======== ======== ======== =========
Revolving loan $ - - % $4,275 $2,640 7.53%
======= ======== ======== ======== =========
<FN>
* Based upon the actual rate in effect and the average daily outstanding balance.
</FN>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
Charged to costs and expenses
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Eleven
months ended Year ended Year ended
June 30, 1994 July 31, 1993 July 31, 1992
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1. Maintenance and repairs $8,544 $10,110 $9,855
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2. Depreciation $17,659 $20,472 $20,486
Amortization of intangibles 8,549 9,993 10,306
Amortization of other assets 2,626 2,538 2,654
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$28,834 $33,003 $33,446
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Note: Detail for the other items required for this schedule has been omitted since each of the other items
is less than 1% of total revenues.
</FN>