UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file numbers: 33-53379
33-53379-01
Ferrellgas, L.P.
Ferrellgas Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1698481
Delaware 43-1677595
---------------------------- -------------------------------
(States or other jurisdictions (I.R.S. Employer Identification Nos.
incorporation or organization)
One Liberty Plaza, Liberty, Missouri 64068
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (816) 792-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
At November 15, 1996, Ferrellgas Finance Corp. had 1,000 shares of $1.00 par
value common stock outstanding.
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ferrellgas, L.P. and Subsidiaries
Consolidated Balance Sheets - October 31, 1996 and July 31, 1996 1
Consolidated Statements of Earnings -
Three months ended October 31, 1996 and 1995 2
Consolidated Statement of Partners' Capital -
Three months ended October 31, 1996 3
Consolidated Statements of Cash Flows -
Three months ended October 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Ferrellgas Finance Corp.
Balance Sheets - October 31, 1996 and July 31, 1996 7
Statements of Earnings - Three months ended October 31, 1996 and 1995 7
Statements of Cash Flows - Three months ended October 31, 1996 and 1995 8
Note to Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS October 31, 1996 July 31, 1996
- ------------------------------------------------------------- ----------------- --------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 20,808 $ 13,769
Accounts and notes receivable 94,848 70,118
Inventories 55,280 41,395
Prepaid expenses and other current assets 9,959 6,482
-------------- --------------
Total Current Assets 180,895 131,764
Property, plant and equipment, net 401,079 403,732
Intangible assets, net 109,032 107,960
Other assets, net 6,815 6,942
-------------- --------------
Total Assets $697,821 $650,398
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
- -------------------------------------------------------------
Current Liabilities:
Accounts payable $ 88,637 $ 48,400
Other current liabilities 39,289 37,695
Short-term borrowings 40,773 25,520
-------------- --------------
Total Current Liabilities 168,699 111,615
Long-term debt 291,910 279,112
Other liabilities 12,268 12,402
Contingencies and commitments
Partners' Capital
Limited partner 222,672 244,771
General partner 2,272 2,498
-------------- --------------
Total Partners' Capital 224,944 247,269
-------------- --------------
Total Liabilities and Partners' Capital $697,821 $650,398
============== ==============
See notes to consolidated financial statements
1
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands)
(unaudited)
For the three months ended
------------------------------------------
October 31, 1996 October 31, 1995
-------------------- --------------------
Revenues:
Gas liquids and related product sales $156,764 $114,529
Other 11,096 10,059
-------------------- --------------------
Total revenues 167,860 124,588
Cost of product sold (exclusive of
depreciation, shown separately below) 101,075 69,109
-------------------- --------------------
Gross profit 66,785 55,479
Operating expense 48,967 40,870
Depreciation and amortization expense 10,831 8,326
General and administrative expense 3,767 3,435
Vehicle and tank lease expense 1,480 1,086
-------------------- --------------------
Operating income 1,740 1,762
Interest expense (7,642) (9,012)
Interest income 379 256
Loss on disposal of assets (880) (384)
-------------------- --------------------
Net loss $ (6,403) $ (7,378)
==================== ====================
See notes to consolidated financial statements
2
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Limited General Total partners'
partner partner capital
---------------- --------------- -------------------
July 31, 1996 $ 244,771 $ 2,498 $ 247,269
Quarterly distributions (15,761) (161) (15,922)
Net loss (6,338) (65) (6,403)
---------------- --------------- -------------------
October 31, 1996 $ 222,672 $ 2,272 $ 224,944
================ =============== ===================
See notes to consolidated financial statements.
3
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the three months ended
----------------------------------
October 31, 1996 October 31, 1995
---------------- -----------------
Cash Flows From Operating Activities:
Net loss $ (6,403) $ (7,378)
Reconciliation of net loss to net cash from
operating activities:
Depreciation and amortization 10,831 8,326
Other 1,669 966
Changes in operating assets and liabilities
net of effects from business
acquisitions:
Accounts and notes receivable (25,032) (16,900)
Inventories (13,864) (9,130)
Prepaid expenses and other current assets (3,080) (4,699)
Accounts payable 40,237 16,196
Other current liabilities 2,331 (1,434)
Other (134) (339)
---------------- ----------------
Net cash provided (used) by operating activities 6,555 (14,392)
---------------- ----------------
Cash Flows From Investing Activities:
Business acquisitions (8,247) (1,650)
Capital expenditures (3,832) (3,649)
Other 1,219 464
---------------- ----------------
Net cash used by investing activities (10,860) (4,835)
---------------- ----------------
Cash Flows From Financing Activities:
Net additions to short-term borrowings 15,253 11,600
Additions to long-term debt 12,747 8,153
Reductions of long-term debt (337) (87)
Distributions (15,922) (15,813)
Other (397) 67
---------------- ----------------
Net cash provided by financing activities 11,344 3,920
---------------- ----------------
Increase (decrease) in cash and cash equivalents 7,039 (15,307)
Cash and cash equivalents - beginning of period 13,769 29,877
---------------- ----------------
Cash and cash equivalents - end of period $20,808 $14,570
================ ================
Cash paid for interest $ 10,795 $ 13,117
================ ================
See notes to consolidated financial statements
4
FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(unaudited)
A. The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the interim periods
presented. All adjustments to the financial statements were of a normal,
recurring nature.
B. The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from these
estimates.
C. The propane industry is seasonal in nature with peak activity during the
winter months. Therefore, the results of operations for the periods ended
October 31, 1996 and October 31, 1995 are not necessarily indicative of the
results to be expected for a full year.
D. Inventories consist of:
October 31, July 31,
(in thousands) 1996 1996
---------------- --------------
Liquefied propane gas and related products $47,523 $33,366
Appliances, parts and supplies 7,757 8,029
---------------- -------------
$55,280 $41,395
================ ==============
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.
Property, plant and equipment, net consist of:
October 31, July 31,
(in thousands) 1996 1996
--------------- ---------------
Property, plant and equipment $598,380 $596,107
Less: accumulated depreciation 197,301 192,375
---------------- -------------
$401,079 $403,732
=============== ===============
Intangibles, net consist of:
October 31, July 31,
(in thousands) 1996 1996
--------------- ---------------
Intangibles $208,180 $203,761
Less: accumulated amortization 99,148 95,801
---------------- -------------
$109,032 $ 107,960
=============== ===============
E. The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
contingent claims that are likely to have a material adverse effect on the
results of operations or financial condition of the Partnership.
5
F. On April 30, 1996, Ferrellgas, Inc. (the "General Partner") consummated
the purchase of all of the stock of Skelgas Propane, Inc. ("Skelgas"),
a subsidiary of Superior Propane, Inc. of Toronto, Canada. The cash
purchase price, after working capital adjustments, was $86,400,000.
As of May 1, 1996, the General Partner (i) caused Skelgas and each of its
subsidiaries to be merged into the General Partner and (ii) transferred all
of the assets of Skelgas and its subsidiaries to Ferrellgas, L.P., (the
"Operating Partnership"). In exchange, the Operating Partnership assumed
substantially all of the liabilities, whether known or unknown, associated
with Skelgas and its subsidiaries and their propane business (excluding
income tax liabilities). In consideration of the retention by the General
Partner of certain income tax liabilities, Ferrellgas Partners, L.P. (the
"Partnership") issued 41,203 Common Units to the General Partner. The
liabilities assumed by the Operating Partnership included the loan
agreement under which the General Partner borrowed funds to pay the
purchase price for Skelgas. Immediately following the transfer of assets
and related transactions described above, the Operating Partnership repaid
the loan with cash and borrowings under the Operating Partnership's
existing acquisition bank credit line. The total assets contributed to the
Operating Partnership (at the General Partner's cost basis) have been
preliminarily allocated as follows: (i) working capital of $17,972,000,
(ii) property, plant and equipment of $63,068,000 and (iii) the balance to
intangible assets. The transaction has been accounted for as a purchase
and, accordingly, the results of operations of Skelgas have been included
in the consolidated financial statements from the dates of contribution.
The following pro forma financial information assumes the acquisition of
Skelgas and the contribution of $157,592,000 by the limited and general
partners occurred as of August 1, 1995. The contribution occurred
subsequent to the Ferrellgas Partners, L.P. issuance of the 9 3/8%
$160,000,000 Senior Secured Notes in April, 1996.
Three months ended
--------------------------------
Pro Forma
October 31, October 31,
(in thousands) 1996 1995
--------------- ---------------
Total revenues $167,860 $138,634
Net loss (6,403) (7,022)
6
FERRELLGAS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas, L.P.)
BALANCE SHEETS
October 31, July 31,
ASSETS 1996 1996
- -------------------------------------------------------------------- ------------------- -------------------
(unaudited)
Cash $1,000 $1,000
------------------- -------------------
Total Assets $1,000 $1,000
=================== ===================
STOCKHOLDER'S EQUITY
- --------------------------------------------------------------------
Common stock, $1.00 par value; 2,000 shares
authorized; 1,000 shares issued and outstanding $1,000 $1,000
Additional paid in capital 545 545
Accumulated deficit (545) (545)
------------------- -------------------
Total Stockholder's Equity $1,000 $1,000
=================== ===================
STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended
---------------------------------------
October 31, October 31,
1996 1995
------------------- -----------------
General and administrative expense $ - $ 89
------------------- -----------------
Net loss $ - $(89)
=================== =================
See note to financial statements.
7
FERRELLGAS FINANCE CORP.
(A wholly owned subsidiary of Ferrellgas, L.P.)
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
-----------------------------------------
October 31, October 31,
1996 1995
-------------------- -----------------
Cash Flows From Operating Activities:
Net loss $ $ (89)
-------------------- -----------------
Cash used by operating activities - (89)
-------------------- -----------------
Cash Flows From Financing Activities:
Net advance from affiliate - 129
-------------------- -----------------
Cash provided by financing activities - 129
-------------------- -----------------
Increase in cash - 40
Cash - beginning of period 1,000 697
------------------- -------------------
Cash - end of period $1,000 $737
==================== =================
See note to financial statements.
NOTE TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
(unaudited)
The financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the interim periods presented. All
adjustments to the financial statements were of a normal, recurring nature.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the results of operations and
liquidity and capital resources of the Ferrellgas, L.P. (the "Partnership"
or "OLP"). Ferrellgas Finance Corp. has nominal assets and does not conduct
any operations. Accordingly, a discussion of the results of operations and
liquidity and capital resources is not presented.
Results of Operations
=====================
The propane industry is seasonal in nature with peak activity during the
winter months. Due to the seasonality of the business, results of operations for
the three months ended October 31, 1996 and 1995, are not necessarily indicative
of the results to be expected for a full year. Other factors affecting the
results of operations include competitive conditions, demand for product,
variations in weather and fluctuations in propane prices.
Three Months Ended October 31, 1996 vs. October 31, 1995
- --------------------------------------------------------
Total Revenues. Total revenues increased 34.7% to $167,860,000 as compared
to $124,588,000 in the first quarter of fiscal 1996, primarily due to retail
propane volumes, increased sales price per retail gallon and an increase in
revenues from other operations (wholesale marketing, chemical feedstocks and net
trading operations).
Retail volumes increased 23.5% to 162,281,000 gallons as compared to
131,368,000 gallons for the year ago quarter, primarily due to acquisitions, and
to a lesser extent a strong crop drying season and slightly colder temperatures
than the prior year. A volatile propane market during the quarter caused an
increase to the cost of product which in turn caused an increase in sales price
per gallon. Revenue from other operations increased by $6,281,000 primarily due
to increased wholesale marketing volumes and increased price per gallon.
Gross Profit. Gross profit increased 20.4% to $66,785,000 as compared to
$55,479,000 in the first quarter of fiscal 1996, primarily due to increased
retail propane volumes attributed to acquisition related growth. Management is
unable to assess whether the increases in product costs described above will
continue or the potential impact of such cost increases on gross profit.
Operating Expenses. Operating expenses increased 19.8% to $48,967,000 as
compared to $40,870,000 in the first quarter of fiscal 1996 primarily due to
acquisition related increases in personnel costs, plant and office expenses, and
vehicle and other expenses.
Depreciation and Amortization. Depreciation and amortization expense
increased 30.1% to $10,831,000 as compared to $8,326,000 for the year ago period
primarily due to acquisitions of propane businesses.
Interest expense. Interest expense decreased 15.2% to $7,642,000 as
compared to $9,012,000 from the year ago quarter. This decrease is primarily the
result of decreased borrowings and to a lesser extent a decrease in the overall
average interest rate paid by the Partnership on all borrowings.
9
Liquidity and Capital Resources
===============================
The ability of the OLP to satisfy its obligations is dependent upon future
performance, which will be subject to prevailing economic, financial, business
and weather conditions and other factors, many of which are beyond its control.
For the fiscal year ending July 31, 1997, the General Partner believes that the
OLP will have sufficient funds to meet its obligations and enable it to
distribute to the MLP sufficient funds to permit the MLP to meet its obligations
with respect to the MLP Senior Notes issued in April 1996, and enable it to
distribute the Minimum Quarterly Distribution ($0.50 per Unit) on all Common
Units and Subordinated Units. Future maintenance and working capital needs of
the OLP are expected to be provided by cash generated from future operations,
existing cash balances and the working capital borrowing facility. In order to
fund expansive capital projects and future acquisitions, the OLP may borrow on
existing bank lines or the MLP may issue additional Common Units. Toward this
purpose the MLP maintains a shelf registration statement with the Securities and
Exchange Commission for 1,887,420 Common Units representing limited partner
interests in the MLP. The Common Units may be issued from time to time by the
MLP in connection with the OLP's acquisition of other businesses, properties or
securities in business combination transactions.
Operating Activities. Cash provided by operating activities was $6,555,000
for the three months ended October 31, 1996, compared to $(14,392,000) for the
prior period. This increase is primarily due to the timing of payments on
increased purchases of inventory.
Investing Activities. During the three months ended October 31, 1996, the
Partnership made total acquisition capital expenditures of $7,724,000 (including
working capital acquired of $21,000). This amount was funded by $8,247,000 cash
payments (including $1,115,000 for transition costs previously accrued for
fiscal 1996 acquisitions) and $592,000 in other costs and consideration.
During the three months ended October 31, 1996, the Partnership made growth
and maintenance capital expenditures of $3,832,000 consisting primarily of the
following: 1) additions to Partnership-owned customer tanks and cylinders, 2)
vehicle lease buyouts, 3) relocating and upgrading district plant facilities,
and 4) development and upgrading computer equipment and software. Capital
requirements for repair and maintenance of property, plant and equipment are
relatively low since technological change is limited and the useful lives of
propane tanks and cylinders, the Partnership's principal physical assets, are
generally long. The Partnership 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 meeting
the Partnership's transportation equipment needs. The Partnership continues
seeking to expand its operations through strategic acquisitions of smaller
retail propane operations located throughout the United States. These
acquisitions will be funded through internal cash flow, external borrowings or
the issuance of additional Partnership interests. The Partnership does not have
any material commitments of funds for capital expenditures other than to support
the current level of operations. In fiscal 1997, the Partnership expects growth
and maintenance capital expenditures to increase slightly over fiscal 1996
levels.
Financing Activities. During the three months ended October 31, 1996, the
Partnership borrowed $28,000,000 from its Credit Facility to fund working
capital needs, business acquisitions and capital expenditures. At October 31,
1996, $72,500,000 of borrowings were outstanding under the revolving portion of
the Credit Facility. Letters of credit outstanding, used primarily to secure
obligations under certain insurance arrangements, totaled $26,430,000. At
October 31, 1996, the Operating Partnership had $106,070,000 available for
general corporate, acquisition and working capital purposes under the Credit
Facility.
On November 18, 1996, the Operating Partnership declared a cash
distribution of $25,506,613 to partners, payable December 13, 1996. The
distribution will fund Ferrellgas Partners, L.P.'s cash distribution of
$15,760,758 to its unitholders and interest payment on its Senior Subordinated
Notes of $9,541,667. The interest payment on the Notes covers the period from
the issue date of April 26, 1996 to December 14, 1996. Future interest payments
will cover six month periods.
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Amended and Restated Agreement of Limited Partnership of
Ferrellgas, L.P., dated as of April 23, 1996 (Incorporated
by reference to Exhibit 3 to the Partnership's Quarterly
Report on Form 10-Q filed June 12, 1996.)
3.2 Articles of Incorporation for Ferrellgas Finance Corp.
27.1 Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K
None.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FERRELLGAS, L.P.
By Ferrellgas, Inc. (General Partner)
Date: December 13, 1996 By /s/ Danley K. Sheldon
-----------------
Danley K. Sheldon
Senior Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS FINANCE CORP.
Date: December 13, 1996 By /s/ Danley K. Sheldon
-----------------
Danley K. Sheldon
Senior Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
12