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, 1997
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 of (I.R.S. Employer Identification Nos.)
incorporation or organization)
One Liberty Plaza, Liberty, Missouri 64068
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (816) 792-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
At November 17, 1997, 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, 1997
and July 31, 1997 1
Consolidated Statements of Earnings -
Three months ended October 31, 1997 and 1996 2
Consolidated Statement of Partners' Capital -
Three months ended October 31, 1997 3
Consolidated Statements of Cash Flows -
Three months ended October 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Ferrellgas Finance Corp.
Balance Sheets - October 31, 1997 and July 31, 1997 6
Statements of Earnings - Three months ended
October 31, 1997 and 1996 6
Note to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 2. CHANGES IN SECURITIES 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS October 31, July 31,
1997 1997
- ------------------------------------------------------------- --------------- --------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 9,335 $ 14,787
Accounts and notes receivable 77,266 61,835
Inventories 42,912 43,112
Prepaid expenses and other current assets 16,718 10,102
-------------- --------------
Total Current Assets 146,231 129,836
Property, plant and equipment, net 404,935 405,736
Intangible assets, net 111,257 112,058
Other assets, net 5,917 6,147
-------------- --------------
Total Assets $668,340 $653,777
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
- -------------------------------------------------------------
Current Liabilities:
Accounts payable $ 63,596 $ 39,322
Other current liabilities 33,638 47,546
Short-term borrowings 44,546 21,786
-------------- --------------
Total Current Liabilities 141,780 108,654
Long-term debt 332,022 327,334
Other liabilities 12,511 12,354
Contingencies and commitments
Partners' Capital
Limited partner 180,188 203,360
General partner 1,839 2,075
-------------- --------------
Total Partners' Capital 182,027 205,435
-------------- --------------
Total Liabilities and Partners' Capital $668,340 $653,777
============== ==============
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, 1997 October 31, 1996
-------------------- --------------------
Revenues:
Gas liquids and related product sales $143,051 $156,764
Other 10,154 11,096
-------------------- --------------------
Total revenues 153,205 167,860
Cost of product sold (exclusive of
depreciation, shown separately below) 86,616 101,075
-------------------- --------------------
Gross profit 66,589 66,785
Operating expense 50,063 48,967
Depreciation and amortization expense 11,537 10,831
General and administrative expense 4,421 3,767
Vehicle and tank lease expense 2,312 1,480
-------------------- --------------------
Operating income (loss) (1,744) 1,740
Interest expense (8,246) (7,642)
Interest income 397 379
Gain (loss) on disposal of assets 66 (880)
-------------------- --------------------
Net loss $ (9,527) $ (6,403)
==================== ====================
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, 1997 $ 203,360 $ 2,075 $ 205,435
Additions to capital in connection 2,020 21 2,041
with acquisitions
Quarterly distributions (15,761) (161) (15,922)
Net loss (9,431) (96) (9,527)
---------------- --------------- -------------------
October 31, 1997 $ 180,188 $ 1,839 $ 182,027
================ =============== ===================
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, October 31,
1997 1996
---------------- ---------------
Cash Flows From Operating Activities:
Net loss $ (9,527) $ (6,403)
Reconciliation of net loss to net cash from
operating activities:
Depreciation and amortization 11,537 10,831
Other 920 1,669
Changes in operating assets and liabilities net of
effects from business acquisitions:
Accounts and notes receivable (15,869) (25,032)
Inventories (422) (13,864)
Prepaid expenses and other current assets (6,614) (3,080)
Accounts payable 23,726 40,237
Other current liabilities (13,590) 2,331
Other 157 (134)
---------------- ---------------
Net cash provided (used) by operating activities (9,682) 6,555
---------------- ---------------
Cash Flows From Investing Activities:
Business acquisitions (2,744) (8,247)
Capital expenditures (4,480) (3,832)
Other 958 1,219
---------------- ---------------
Net cash used by investing activities (6,266) (10,860)
---------------- ---------------
Cash Flows From Financing Activities:
Net additions to short-term borrowings 22,760 15,253
Additions to long-term debt 3,853 12,747
Reductions of long-term debt (234) (337)
Distributions (15,922) (15,922)
Other 39 (397)
---------------- ---------------
Net cash provided by financing activities 10,496 11,344
---------------- ---------------
Increase (decrease) in cash and cash equivalents (5,452) 7,039
Cash and cash equivalents - beginning of period 14,787 13,769
---------------- ---------------
Cash and cash equivalents - end of period $9,335 $20,808
================ ===============
Cash paid for interest $ 12,923 $ 10,795
================ ===============
See notes to consolidated financial statements
4
FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(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, 1997 and October 31, 1996 are not necessarily indicative of the
results to be expected for a full year.
D. Inventories consist of:
October 31, July 31,
(in thousands) 1997 1997
---------------- --------------
Liquefied propane gas and related products $35,231 $35,351
Appliances, parts and supplies 7,681 7,761
---------------- --------------
$42,912 $43,112
================ ==============
In addition to inventories on hand, the Partnership enters into contracts
to buy product for supply purposes. Nearly all such contracts have terms
of less than one year and most call for payment based on market prices at
date of delivery. All fixed price contracts have terms of less than one
year.
Property, plant and equipment, net consist of:
October 31, July 31,
(in thousands) 1997 1997
--------------- ---------------
Property, plant and equipment $620,013 $614,974
Less: accumulated depreciation 215,078 209,238
--------------- ---------------
$404,935 $405,736
=============== ===============
Intangible assets, net consist of:
October 31, July 31,
(in thousands) 1997 1997
--------------- ---------------
Intangible assets $224,008 $221,269
Less: accumulated amortization 112,751 109,211
--------------- ---------------
$111,257 $112,058
=============== ===============
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
FERRELLGAS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas, L.P.)
BALANCE SHEETS
October 31, July 31,
ASSETS 1997 1997
- -------------------------------------------------------------------- ------------------- -------------------
(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 759 759
Accumulated deficit (759) (759)
------------------- -------------------
Total Stockholder's Equity $1,000 $1,000
=================== ===================
STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended
---------------------------------------
October 31, October 31,
1997 1996
------------------- -----------------
General and administrative expense $ - $ -
------------------- -----------------
Net loss $ - $ -
=================== =================
NOTE TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
(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.
6
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.
Statements included in this report that are not historical facts, including
a statement concerning the Partnership's belief that the it will have sufficient
funds to meet its obligations to enable it to distribute to Ferrellgas Partners,
L.P. ("the MLP") sufficient funds to permit the MLP to meet its obligations with
respect to the MLP Senior Notes issued in April 1996, and to enable it to
distribute the Minimum Quarterly Distribution ($0.50 per Unit) on all Common
Units and Subordinated Units, are forward-looking statements.
Such statements are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed in or implied by the
statements. The risks and uncertainties include but are not limited to the
following and their effect on the Partnership's operations: a) the effect of
weather conditions on demand for propane, b) price and availability of propane
supplies, c) the availability of capacity to transport propane to market areas,
d) competition from other energy sources and within the propane industry, e)
operating risks incidental to transporting, storing, and distributing propane,
f) changes in interest rates, g) governmental legislation and regulations, h)
energy efficiency and technology trends and (i) other factors that are discussed
in the Partnership's filings with the Securities and Exchange Commission.
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, 1997 and 1996, 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, 1997 vs. October 31, 1996
Total Revenues. Total revenues decreased 8.7% to $153,205,000 as compared
to $167,860,000 in the first quarter of fiscal 1997, primarily due to decreased
retail propane volumes and sales price per gallon and a decrease in revenues
from other operations (wholesale marketing, chemical feedstocks and net trading
operations), partially offset by increased sales volume due to the effect of
acquisitions.
Retail volumes decreased 4.8% to 154,495,000 gallons as compared to
162,281,000 gallons for the first quarter of fiscal 1997, primarily due to a
delay in deliveries of retail gallons caused by a lack of sustained cold weather
and due to a reduction in demand for crop drying gallons compared to the same
quarter last year. Revenue from other operations decreased by $6,102,000
primarily due to decreased wholesale marketing sales price per gallon and
volumes related to a weaker demand for agricultural gallons as compared to the
same quarter last year.
Gross Profit. Gross profit decreased 0.3% to $66,589,000 as compared to
$66,785,000 in the first quarter of fiscal 1997, primarily due to the effect of
decreased retail propane volumes and a decrease in wholesale marketing, trading
and chemical feedstocks marketing operations offset by the effect of increased
retail margins and the effect of acquisitions.
Operating Expenses. Operating expenses increased 2.2% to $50,063,000 as
compared to $48,967,000 in the first quarter of fiscal 1997 primarily due to
acquisition related increases in personnel costs, plant and office expenses, and
vehicle and other expenses.
7
Depreciation and Amortization. Depreciation and amortization expense
increased 6.5% to $11,537,000 as compared to $10,831,000 for the first quarter
of fiscal 1997 primarily due to acquisitions of propane businesses.
Interest expense. Interest expense increased 7.9% to $8,246,000 as compared
to $7,642,000 from the year ago quarter. This increase is primarily the result
of increased borrowings, offset by a small decrease in the overall average
interest rate paid by the Partnership on its borrowings.
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, 1998, 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 1,800,322 Common Units representing limited partner
interests in the MLP. The Common Units may be issued from time to time by the
MLP in connection with the OLP's acquisition of other businesses, properties or
securities in business combination transactions.
Operating Activities. Cash used by operating activities was $(9,682,000)
for the three months ended October 31, 1997, compared to cash provided by
operating activities of $6,555,000 for the prior period. This decrease is
primarily due to a decrease in volumes from other operations during the quarter
as compared to the first quarter of last year and its affect on accounts
receivable and accounts payable, and due to the timing of payments for purchases
of inventory.
Investing Activities. During the three months ended October 31, 1997, the
Partnership made total acquisition capital expenditures of $5,270,000. This
amount was funded by $2,744,000 cash payments (including $619,000 for transition
costs previously accrued for fiscal 1997 acquisitions) and $3,145,000 in other
costs and consideration.
During the three months ended October 31, 1997, the Partnership made growth
and maintenance capital expenditures of $4,480,000 consisting primarily of the
following: 1) relocating and upgrading district plant facilities, 2) additions
to Partnership-owned customer tanks and cylinders, 3) vehicle lease buyouts, and
4) upgrading computer equipment and software. Capital requirements for repair
and maintenance of property, plant and equipment are relatively low since
technological change is limited and the useful lives of propane tanks and
cylinders, the Partnership's principal physical assets, are generally long.
The Partnership meets its vehicle and transportation equipment fleet needs
by leasing light and medium duty trucks and tractors. The General Partner
believes vehicle leasing is a cost effective method for meeting the
Partnership's transportation equipment needs. The Partnership continues seeking
to expand its operations through strategic acquisitions of smaller retail
propane operations located throughout the United States. These acquisitions will
be funded through internal cash flow, external borrowings or the issuance of
additional Partnership interests. The Partnership does not have any material
commitments of funds for capital expenditures other than to support the current
level of operations. In fiscal 1998, the Partnership expects growth and
maintenance capital expenditures to increase slightly over fiscal 1997 levels.
8
Financing Activities. During the three months ended October 31, 1997, the
Partnership borrowed $26,613,000 from its Credit Facility to fund working
capital, business acquisitions and capital expenditures needs. At October 31,
1997, $113,150,000 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 $24,791,000. At
October 31, 1997, the Partnership had $67,059,000 available for
general corporate, acquisition and working capital purposes under the Credit
Facility.
On November 17, 1997, the Partnership declared a cash
distribution of $23,542,550 to partners, payable December 12, 1997. The
distribution will fund Ferrellgas Partners, L.P.'s cash distribution of
$15,804,747 to its partners and the $7,500,000 interest payment on its Senior
Subordinated Notes.
Adoption of New Accounting Standards: The Financial Accounting Standards
Board recently issued the following new accounting standards: Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information." SFAS Nos. 130 and 131 are required to be adopted by the
Partnership for the fiscal year ended July 31, 1999. The adoption of both
standards is not expected to have a material effect on the Partnership's
financial position or results of operations.
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.
9
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.
Incorporated by reference to same numbered exhibit to the
Partnership's Quarterly Report on Form 10-Q filed
December 13, 1996.)
10.1 First Amendment to Amended and Restated Credit Agreement
dated as of November 7,1997, 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.
27.1 Financial Data Schedule - Ferrellgas, L.P. (filed in
electronic format only)
27.2 Financial Data Schedule - Ferrellgas Finance Corp. (filed
in electronic format only)
(b) Reports on Form 8-K
None.
10
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 12, 1997 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 12, 1997 By /s/ Danley K. Sheldon
------------------------
Danley K. Sheldon
Senior Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)