10-Q 1 0001.txt 3RD QUARTER UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 30, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission file numbers: 1-11331 333-06693 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. (Exact name of registrants as specified in their charters) Delaware 43-1698480 Delaware 43-1742520 ---------------------------- ------------------------------- (States or other jurisdictions of (I.R.S. Employer Identification Nos.) incorporation or organization) One Liberty Plaza, Liberty, Missouri 64068 (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] At June 14, 2000, the registrants had units or shares outstanding as follows: Ferrellgas Partners, L.P. 31,307,116 Common Units Ferrellgas Partners Finance Corp. 1,000 Common Stock FERRELLGAS PARTNERS, L.P. and SUBSIDIARIES FERRELLGAS PARTNERS FINANCE CORP. Table of Contents PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Ferrellgas Partners, L.P. and Subsidiaries Consolidated Balance Sheets - April 30, 2000 and July 31, 1999 1 Consolidated Statements of Earnings - Three and nine months ended April 30, 2000 and 1999 2 Consolidated Statement of Partners' Capital - Nine months ended April 30, 2000 3 Consolidated Statements of Cash Flows - Nine months ended April 30, 2000 and 1999 4 Notes to Consolidated Financial Statements 5 Ferrellgas Partners Finance Corp. Balance Sheets - April 30, 2000 and July 31, 1999 12 Statements of Earnings - Three and nine months ended April 30, 2000 and 1999 12 Statements of Cash Flows - Nine months ended April 30, 2000 and 1999 13 Notes to Financial Statements 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 21 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 21 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22 ITEM 4. SUBMISSION TO A VOTE OF SECURITIES HOLDERS 22 ITEM 5. OTHER INFORMATION 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data)
April 30, July 31, ASSETS 2000 1999 ------------------------------------------------------------------------- ---------------- ------------ (unaudited) Current Assets: Cash and cash equivalents $ 12,766 $35,134 Accounts and notes receivable, net 117,537 58,380 Inventories 54,970 24,645 Prepaid expenses and other current assets 12,219 6,780 ---------------- ------------ Total Current Assets 197,492 124,939 Property, plant and equipment, net 532,943 405,292 Intangible assets, net 256,861 118,117 Other assets, net 10,571 8,397 ---------------- ------------ Total Assets $997,867 $656,745 ================ ============ LIABILITIES AND PARTNERS' CAPITAL ------------------------------------------------------------------------- Current Liabilities: Accounts payable $82,923 $60,754 Other current liabilities 66,183 48,266 Short-term borrowings 17,859 20,486 ---------------- ------------ Total Current Liabilities 166,965 129,506 Long-term debt 712,042 583,840 Other liabilities 19,202 12,144 Contingencies and commitments - - Minority interest 2,650 906 Partners' Capital: Senior common unitholders (4,539,211 units outstanding at April 30, 2000 - redeemable liquidation value - $177,139,946) 174,131 - Common unitholders (31,307,116 and 14,710,765 units outstanding at April 30, 2000 and July 31, 1999, respectively) (18,446) 1,215 Subordinated unitholders (0 and 16,593,721 units outstanding at April 30, 2000 and July 31, 1999, respectively) - (10,516) General partner (57,880) (59,553) Accumulated other comprehensive income (797) (797) ---------------- ------------ Total Partners' Capital 97,008 (69,651) ---------------- ------------ Total Liabilities and Partners' Capital $997,867 $656,745 ================ ============
See notes to consolidated financial statements. 1 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per-unit data) (unaudited)
For the three months ended For the nine months ended ---------------------------- ---------------------------- April 30, April 30, April 30, April 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Revenues: Gas liquids and related product sales $279,043 $161,192 $736,575 $495,735 Other 21,197 8,700 67,399 34,573 ------------- ------------- ------------- ------------- Total revenues 300,240 169,892 803,974 530,308 Cost of product sold (exclusive of depreciation, shown separately below) 176,274 70,171 439,627 230,211 ------------- ------------- ------------- ------------- Gross profit 123,966 99,721 364,347 300,097 Operating expense 70,556 52,811 197,074 160,763 Depreciation and amortization expense 17,382 12,156 43,381 35,273 Employee stock ownership plan compensation charge 840 800 2,893 2,490 General and administrative expense 7,070 5,366 18,213 14,231 Equipment lease expense 8,173 3,351 17,612 9,492 ------------- ------------- ------------- ------------- Operating income 19,945 25,237 85,174 77,848 Interest expense (15,531) (11,264) (42,809) (34,842) Interest income 959 330 1,568 874 Loss on disposal of assets 99 (495) (30) (1,007) ------------- ------------- ------------- ------------- Earnings before minority interest and extraordinary item 5,472 13,808 43,903 42,873 Minority interest 94 179 561 550 ------------- ------------- ------------- ------------- Earnings before extraordinary item 5,378 13,629 43,342 42,323 Extraordinary loss on early extinguishment of debt, net of minority interest of $130 - - - (12,786) ------------- ------------- ------------- ------------- Net earnings 5,378 13,629 43,342 29,537 Paid in kind distribution to senior common unitholders 4,428 N/A 6,568 N/A General partner's interest in net earnings 10 136 368 295 ------------- ------------- ------------- ------------- Limited partners' interest in net earnings $940 $13,492 $36,406 $29,242 ============= ============= ============= ============= Basic earnings per limited partner unit: Earnings before extraordinary item $ 0.03 $ 0.43 $ 1.16 $ 1.34 Extraordinary loss - - - (0.41) ------------- ------------- ------------- ------------- Net earnings $ 0.03 $ 0.43 $ 1.16 $ 0.93 ============= ============= ============= ============= Diluted earnings per limited partner unit: Earnings before extraordinary item $ 0.03 $ 0.43 $ 1.16 $ 1.34 Extraordinary loss - - - (0.41) ------------- ------------- ------------- ------------- Net earnings $ 0.03 $ 0.43 $ 1.16 $ 0.93 ============= ============= ============= =============
See notes to consolidated financial statements. 2 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (in thousands) (unaudited)
Number of units Accumulated ------------------------------------- other Senior Sub- Senior Sub- compre- Total common Common ordinated common Common ordinated General hensive partners' unitholders unitholders unitholders unitholders unitholders unitholders partner income capital ------------ ------------ ------------ ----------- ------------ ---------- ------------ ------- --------- August 1, 1999 - 14,710.8 16,593.7 $ - $ 1,215 $(10,516) $(59,553) $(797) $(69,651) Conversion of subordinated units into common units - 16,593.7 (16,593.7) - (10,516) 10,516 - - - Units issued in connection - with acquisitions: Common units - 2.6 - 45 - - - 45 Senior common units 4,375.0 - - 175,000 - - 1,768 - 176,768 Fees paid to issue senior common units - - - (8,925) - - - - (8,925) Accretion of discount on senior common units - - - 1,488 (1,472) - (16) - - Contribution from general partner in connection with ESOP compensation charge - - - - 2,837 - 28 - 2,865 Quarterly cash distributions - - - - (46,961) - (474) - (47,435) Accrued paid in kind distributions 164.2 - - 6,568 (6,503) - (66) - (1) Comprehensive income: Net earnings - - - - 42,909 - 433 - 43,342 ---------- Comprehensive income 43,342 ------------ ------------ ------------ ----------- ------------ ---------- ----------- -------- --------- April 30, 2000 4,539.2 31,307.1 - $174,131 $(18,446) $ - $(57,880) $(797) $97,008 ============ ============ ============ =========== ============ ========== ============ ======= =========
See notes to consolidated financial statements. 3 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
For the nine months ended ---------------------------------- April 30, 2000 April 30, 1999 ---------------- ----------------- Cash Flows From Operating Activities: Net earnings $43,342 $29,537 Reconciliation of net earnings to net cash provided by operating activities: Depreciation and amortization 43,381 35,273 Extraordinary loss, net of minority interest - 12,786 Employee stock ownership plan compensation charge 2,893 2,490 Other 4,622 4,461 Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts and notes receivable (39,926) (12,212) Inventories (14,088) 7,040 Prepaid expenses and other current assets (4,778) 1,491 Accounts payable (1,923) (6,360) Other current liabilities 915 561 Other liabilities (763) 2,305 ---------------- ----------------- Net cash provided by operating activities 33,675 77,372 ---------------- ----------------- Cash Flows From Investing Activities: Business acquisitions, net of cash acquired 55,548 (27,915) Capital expenditures (18,631) (20,558) Proceeds from sale leaseback transaction 25,000 - Cash paid for acquisition transaction fees (15,589) - Other 3,942 1,360 ---------------- ----------------- Net cash provided by (used in) investing activities 50,270 (47,113) ---------------- ----------------- Cash Flows From Financing Activities: Net reductions to short-term borrowings (2,627) (21,150) Additions to long-term debt 218,573 394,745 Reductions of long-term debt (274,743) (351,689) Cash paid for debt and lease financing costs (3,093) (12,528) Distributions (47,435) (47,418) Cash contribution from general partner 3,571 3 Other (559) (560) ---------------- ----------------- Net cash used in financing activities (106,313) (38,597) ---------------- ----------------- Decrease in cash and cash equivalents (22,368) (8,338) Cash and cash equivalents - beginning of period 35,134 16,961 ---------------- ----------------- Cash and cash equivalents - end of period $12,766 $8,623 ================ ================= Cash paid for interest $41,058 $33,973 ================ =================
See notes to consolidated financial statements. 4 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 2000 (unaudited) A. The consolidated financial statements of Ferrellgas Partners, L.P. and subsidiaries (the "Partnership" or "MLP") reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the interim periods presented. All adjustments to the financial statements were of a normal, recurring nature. These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended July 31, 1999. B. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. C. The propane industry is seasonal in nature with peak activity during the winter months. Therefore, the results of operations for the periods ended April 30, 2000 and April 30, 1999 are not necessarily indicative of the results to be expected for a full year.
D. Inventories consist of: April 30, July 31, (in thousands) 2000 1999 --------------- --------------- Liquefied propane gas and related products $32,970 $15,480 Appliances, parts and supplies 22,000 9,165 --------------- --------------- $54,970 $24,645 =============== ===============
In addition to inventories on hand, the Partnership enters into contracts to buy product for supply purposes. Nearly all such contracts have terms of less than one year and most call for payment based on market prices at date of delivery. All fixed price contracts have terms of less than one year. As of April 30, 2000, the Partnership had committed to take delivery of approximately 13,518,000 gallons at a fixed price for its estimated future retail propane sales.
Property, plant and equipment, net consist of: April 30, July 31, (in thousands) 2000 1999 --------------- --------------- Property, plant and equipment $790,602 $650,536 Less: accumulated depreciation 257,659 245,244 --------------- --------------- $532,943 $405,292 =============== =============== Intangible assets, net consist of: April 30, July 31, (in thousands) 2000 1999 --------------- --------------- Intangible assets $412,490 $257,390 Less: accumulated amortization 155,629 139,273 --------------- --------------- $256,861 $118,117 =============== ===============
5 E. Quarterly Distributions of Available Cash The Partnership makes quarterly cash distributions to its Common Unitholders 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. Reserves are retained in order to provide for the proper conduct of the Partnership business, or to provide funds for distributions with respect to any one or more of the next four fiscal quarters. Distributions are made within 45 days after the end of each fiscal quarter ending January, April, July and October to holders of record on the applicable record date. Distributions by the Partnership in an amount equal to 100% of its Available Cash, as defined in its Second Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the "Partnership Agreement"), will be made to the General Partner based upon the number of General Partner Units held in the Partnership and its interest in Ferrellgas, L.P. (the Operating Partnership" or "OLP"), currently an aggregate 2%, 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. The remaining Available Cash will be paid to the Senior Common Unitholders (see footnote G for discussion of the in kind distribution paid to the Senior Common Unitholders) and Common Unitholders (the "Unitholders"). The Senior Common Units have certain preference rights over the Common Units. See Notes G and I for additional information about the Senior Common Units.
F. Long-term debt consists of: April 30, July 31, (in thousands) 2000 1999 ---------------- --------------- Senior Notes Fixed rate, 7.16%, due 2005-2013 $350,000 $350,000 Fixed rate, 9.375%, due 2006 160,000 160,000 Fixed rate, 8.8%, due 2006-2009 184,000 - Credit Agreement Revolving credit loans, 9.2% and 8.5%, respectively, due 2003 3,741 58,314 Notes payable, 8.4% and 7.3% weighted average interest rates, Respectively, due 2000 to 2009 17,130 18,154 ---------------- --------------- 714,871 586,468 Less: current portion 2,829 2,628 ---------------- --------------- $712,042 $583,840 ================ ===============
On December 17, 1999, in connection with the purchase of Thermogas L.L.C. ("Thermogas Acquisition") (see Note J), the OLP assumed a $183,000,000 bridge loan that was originally issued by Thermogas L.L.C. ("Thermogas") and had a maturity date of June 30, 2000. On February 28, 2000, the OLP issued $184,000,000 of fixed rate Senior Notes which have maturities ranging from 2006 to 2009 and an average interest rate of 8.8% in order to refinance the $183,000,000 bridge loan. The additional $1,000,000 in borrowings was used to fund debt issuance costs. On December 17, 1999, in connection with the Thermogas Acquisition, the OLP paid off the balance remaining of $35,000,000 then outstanding on its $38,000,000 unsecured credit facility used for acquisitions, capital expenditures, and general corporate purposes. This outstanding credit facility was then terminated, leaving the OLP with the $145,000,000 credit facility as its only senior bank credit facility. 6 On April 18, 2000, the OLP entered into an amended and restated credit facility with a group of financial institutions. The unsecured $157,000,000 Credit Facility ("Credit Facility"), which expires June 30, 2003, consists of a $117,000,000 unsecured working capital, general corporate and acquisition facility, including a letter of credit facility, and a $40,000,000 revolving working capital facility. The $40,000,000 facility is subject to an annual reduction in outstanding balances to zero for 30 consecutive days. All borrowings under the Credit Facility bear interest, at the borrower's option, at a rate equal to either a) LIBOR plus an applicable margin varying from 1.25 percent to 2.25 percent or, b) the bank's base rate plus an applicable margin varying from 0.25 percent to 1.25 percent. Effective April 27, 2000, the Partnership entered into an interest rate swap agreement ("Swap Agreement") with Bank of America, related to the semi-annual interest payment due on the $160,000,000 fixed rate Senior Notes due 2006 ("MLP Senior Notes"). The Swap Agreement, which expires June 15, 2006, requires Bank of America to pay an amount based on the stated fixed interest rate (annual rate 9.375%) pursuant to the MLP Senior Notes equaling $7,500,000 every six months due on each June 15 and December 15. In exchange, the Partnership is required to make quarterly floating interest rate payments on the 15th of March, June, September and December based on an annual interest rate equal to the 3 month LIBOR interest rate plus 1.655% applied to the same notional amount of $160,000,000. Effective June 2, 2000, the OLP entered into an interest rate cap agreement ("Cap Agreement") with Bank of America, related to variable quarterly rent payments due pursuant to two operating tank lease agreements. The variable quarterly rent payments are determined based upon a floating LIBOR based interest rate. The Cap Agreement, which expires June 30, 2003, requires Bank of America to pay the OLP at the end of each March, June, September and December the difference, if any, between the applicable 3 month floating LIBOR interest rate and 9.3%, the cap, applied to the total obligation due each quarter under the two operating tank lease agreements. The total obligation under these two operating tank lease agreements as of April 30, 2000 was $159,600,000. G. Partners' Capital The Partnership's capital (after including the effect of an aggregate of 164,211.11 Senior Common Units issued in order to pay the applicable in-kind quarterly distributions) consists of 4,539,211.11 Senior Common Units, 31,307,116 Common Units representing the entire limited partner interest, and 316,233 General Partner Units representing a 1% General Partner interest. The Partnership Agreement contains specific provisions for the allocation of net earnings and loss to each of the partners for purposes of maintaining the partner capital accounts. In connection with the Thermogas Acquisition (See Note J) on December 17, 1999, the Partnership issued 4,375,000 Senior Common Units to Williams Natural Gas Liquids, Inc. ("Williams" or "Seller"). As of June 15, 2000, Williams held 4,539,211.11 Senior Common Units with a liquidation value of approximately $181,600,000 including accrued and unpaid distributions. The Senior Common Units entitle the holder to quarterly distributions from the MLP equivalent to 10 percent per annum of the liquidating value. Distributions are payable quarterly, in-kind, through issuance of additional Senior Common Units until the earlier of February 1, 2002 or the occurrence of a Material Event, as defined in the Partnership Agreement ("Material Event") after which distributions are payable in cash. The Senior Common Units are redeemable by the Partnership at any time, in whole or in part, upon payment in cash of the face value of the Senior Common Units and the amount of any accrued but unpaid distributions. 7 Williams has the right, subject to certain events and conditions, to convert any outstanding Senior Common Units into Common Units at the end of two years or upon the occurrence of a Material Event. Such conversion rights are contingent upon the Partnership not previously redeeming such securities, among other conditions. The Partnership also granted Williams demand registration rights at the end of two years or upon the occurrence of a Material Event with respect to any outstanding Senior Common Units (or Common Units into which they may be convertible). On June 5, 2000, at a special meeting of its common unitholders, the Partnership's common unitholders approved both the common unit conversion feature and an exemption under the Partnership Agreement to enable Williams to vote the Common Units, if such a conversion were to occur. Effective August 1, 1999, the Subordination period ended and the Subordinated Units converted to Common Units. Certain financial tests, which were primarily related to making the Minimum Quarterly Distribution on all Units, were satisfied for each of the three consecutive four quarter periods ending July 31, 1999. The Partnership maintains a shelf registration statement for Common Units representing limited partner interests in the Partnership. The Common Units may be issued from time to time by the Partnership in connection with the Partnership's acquisition of other businesses, properties or securities in business combination transactions. The Partnership also maintains another shelf registration statement for the issuance of Common Units, Deferred Participation Units, Warrants and Debt Securities. The Partnership Agreement allows the General Partner to issue an unlimited number of additional Partnership general and limited interests and other equity securities of the Partnership for such consideration and on such terms and conditions as shall be established by the General Partner without the approval of any Unitholders. H. Contingencies and Commitments The Partnership is threatened with or named as a defendant in various lawsuits that, 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 financial condition, results of operations or cash flows of the Partnership. On December 6, 1999, the OLP entered into, with Banc of America Leasing & Capital LLC, as lender, a $25,000,000 operating tank lease facility involving a portion of the OLP's customer tanks. This operating lease has a term that expires June 30, 2003 and may be extended for two additional one-year periods at the option of the OLP, if such extension is approved by the lessor. On December 17, 1999, immediately prior to the closing of the Thermogas Acquisition (See Note J), Thermogas entered into, with Banc of America Leasing & Capital LLC, as lender, a $135,000,000 operating tank lease facility involving a portion of its customer tanks. In connection with the Thermogas Acquisition, the OLP assumed all obligations under the $135,000,000 operating tank lease facility, which has terms and conditions similar to the December 6, 1999, $25,000,000 operating tank lease facility discussed above. On April 18, 2000, the OLP completed the syndication of both the $25,000,000 and $135,000,000 operating tank lease facilities to a group of banks and other financial institutions. 8 Certain property and equipment is leased under noncancellable operating leases which require fixed monthly rental payments and which expire at various dates through 2018. Future minimum lease commitments for such leases, including the aforementioned operating tank leases, are $29,309,000 in 2000, $33,356,000 in 2001, $29,088,000 in 2002, $23,765,000 in 2003, $4,971,000 in 2004 and $7,232,000 thereafter. I. Partnership Distributions On September 14, 1999, the Partnership paid a cash distribution of $0.50 per Common and Subordinated Unit for the quarter ended July 31, 1999. On December 14, 1999, the Partnership paid a cash distribution of $0.50 per Common Unit for the quarter ended October 31, 1999. On March 14, 2000, the Partnership paid a cash distribution of $0.50 per Common Unit for the quarter ended January 31, 2000. Additionally, on February 21, 2000, the Partnership declared an in-kind distribution to the Senior Common Unitholders of $2,140,000, payable by the issuance of 53,499 additional Senior Common Units. On May 19, 2000, the Partnership declared its third-quarter cash distribution of $0.50 per Common Unit, payable June 14, 2000. Additionally, on May 19, 2000, the Partnership declared an in-kind distribution to the Senior Common Unitholders of $4,428,499, payable by the issuance of 110,712 additional Senior Common Units. The Senior Common Unitholders will continue to receive quarterly distributions in-kind through issuance of additional Senior Common Units until the earlier of February 1, 2002 or the occurrence of a Material Event, after which distributions are payable in cash. J. Business Combinations On December 17, 1999, the Partnership purchased Thermogas, a subsidiary of Williams. At closing the Partnership entered into the following noncash transactions: a) issued $175,000,000 in Senior Common Units to the seller, b) assumed a $183,000,000 bridge loan, (see Note F) and c) assumed a $135,000,000 operating tank lease (see Note H). After the conclusion of these acquisition-related transactions, including the merger of the OLP and Thermogas, the Partnership acquired $61,842,000 of cash which remained on the Thermogas balance sheet at the acquisition date. The Partnership has paid $15,589,000 in additional costs and fees related to the acquisition between December 17, 1999 and April 30, 2000. As part of the Thermogas Acquisition, the OLP agreed to reimburse Williams for the value of working capital received by the Partnership in excess of $9,147,500. On June 6, 2000, the OLP and Williams agreed upon the amount of working capital that was acquired by the Partnership on December 17, 1999. The OLP reimbursed Williams $5,652,500 as final settlement of this working capital reimbursement obligation. The total assets contributed to the OLP (at the Partnership's cost basis) have been preliminarily allocated as follows: (i) working capital of $9,147,500, (ii) property, plant and equipment of $151,502,000, (iii) $60,200,000 to customer list, (iv) $18,500,000 to trademarks (v) $9,600,000 to assembled workforce and (vi) $62,387,000 to goodwill. The estimated fair values and useful lives of assets acquired are based on a preliminary valuation and are subject to final valuation adjustments. The Partnership intends to continue its analysis of the net assets of Thermogas to determine the final allocation of the total purchase price to the various assets acquired. The transaction has been accounted for as a purchase and, accordingly, the results of operations of Thermogas have been included in the consolidated financial statements from the date of acquisition. 9 The following pro forma financial information assumes that the Thermogas Acquisition occurred as of August 1, 1998:
Nine months ended -------------------------------- Pro Forma April 30, April 30, (in thousands, except per unit amounts) 2000 1999 --------------- ---------------- Total revenues $899,982 $733,590 Earnings before extraordinary item 26,897 41,216 Net earnings 26,897 28,430 Limited partners' interest in net earnings 26,628 28,146 Basic and diluted earnings per limited partner unit before extraordinary item $ 0.85 $ 1.30 Basic and diluted earnings per limited partner unit after extraordinary item $ 0.85 $ 0.90
K. Earnings Per Unit Below is a calculation of the basic and diluted Common Units (and Subordinated Units prior to August 1, 1999) used to calculate basic and diluted earnings per unit on the Statements of Earnings. (in thousands, except per unit data)
Three months ended Nine months ended April 30, 2000 April 30, 1999 Limited partners' interest in net earnings $940 $13,492 $36,406 $29,241 ---------------- ----------------- ----------------- ---------------- Weighted average common and subordinated units outstanding 31,307.1 31,299.4 31,306.6 31,296.8 Basic earnings per unit before extraordinary item $0.03 $0.43 $1.16 $1.34 ---------------- ----------------- ----------------- ---------------- Basic earnings per unit $0.03 $0.43 $1.16 $0.93 ================ ================= ================= ================
10
Three months ended Nine months ended April 30, April 30, April 30, April 30, 2000 1999 2000 April 1999 Limited partners' interest in net earnings $940 $13,492 $36,406 $29,241 ---------------- ----------------- ----------------- ---------------- Weighted average common and subordinated units outstanding 31,307.1 31,299.4 31,306.6 31,296.8 Dilutive securities - options 0.0 0.0 0.0 28.8 ---------------- ----------------- ----------------- ---------------- Weighted average out-standing units + dilutive units 31,307.1 31,299.4 31,306.6 31,325.6 =============== ================= ================= ================ Diluted earnings per unit before extraordinary item $0.03 $0.43 $1.16 $1.34 ================ ================= ================= ================ Diluted earnings per unit $0.03 $0.43 $1.16 $0.93 ================ ================= ================= ================
For diluted earnings per unit purposes, the Senior Common Units have been excluded as they are considered contingently issuable Common Units for which all necessary conditions for their issuance have not been satisfied as of the end of the reporting period. 11 FERRELLGAS PARTNERS FINANCE CORP. (a wholly owned subsidiary of Ferrellgas Partners, L.P.) BALANCE SHEETS
April 30, July 31, ASSETS 2000 1999 -------------------------------------------------------------------- ------------------ ------------------- (unaudited) Cash $1,000 $1,000 ------------------ ------------------- Total Assets $1,000 $1,000 ================== =================== STOCKHOLDER'S EQUITY -------------------------------------------------------------------- Common stock, $1.00 par value; 2,000 shares authorized; 1,000 shares issued and outstanding $1,000 $1,000 Additional paid in capital 1,259 774 Accumulated deficit (1,259) (774) ------------------ ------------------- Total Stockholder's Equity $1,000 $1,000 ================== ===================
STATEMENTS OF EARNINGS (unaudited) Three Months Ended Nine Months Ended ----------------------------------------------------------------------- April 30, April 30, April 30, April 30, 2000 1999 2000 1999 ----------------- ------------------ ----------------- ---------------- General and administrative expense $ 249 $ 181 $ 485 $ 226 ----------------- ------------------ ----------------- ---------------- Net loss $(249) $ (181) $(485) $(226) ================= ================== ================= ================
See notes to financial statements. 12 FERRELLGAS PARTNERS FINANCE CORP. (A wholly owned subsidiary of Ferrellgas Partners, L.P.) STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended -------------------------------------------------- April 30, April 30, 2000 1999 --------------------- ------------------------ Cash Flows From Operating Activities: Net loss $(485) $(226) --------------------- ------------------------ Cash used in operating activities (485) (226) --------------------- ------------------------ Cash Flows From Financing Activities: Capital contribution 485 226 --------------------- ------------------------ Cash provided by financing activities 485 226 --------------------- ------------------------ Change in cash - - Cash - beginning of period 1,000 1,000 --------------------- ------------------------ Cash - end of period $1,000 $1,000 ===================== ========================
See notes to financial statements. NOTES TO FINANCIAL STATEMENTS April 30, 2000 (unaudited) A. Ferrellgas Partners Finance Corp., a Delaware corporation, was formed on March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners, L.P. B. The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the financial statements were of a normal, recurring nature. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the results of operations and liquidity and capital resources of Ferrellgas Partners, L.P. (the "Partnership" or "MLP"). Except for the $160,000,000 of 9 3/8% Senior Secured Notes issued in April 1996 by the MLP and the related interest expense, Ferrellgas, L.P. (the "Operating Partnership" or "OLP") accounts for nearly all of the consolidated assets, liabilities, sales and earnings of the MLP. When the discussion refers to the consolidated MLP, the term Partnership will be used. Ferrellgas Partners Finance Corp. has nominal assets and does not conduct any operations. Accordingly, a discussion of the results of operations and liquidity and capital resources is not presented. Forward-looking statements Certain statements included in this report that are not historical facts, including statements of whether or not the OLP will have sufficient funds to meet its obligations and to enable it to distribute to the MLP sufficient funds to permit the MLP to meet its obligations with respect to the MLP Senior Notes issued in April 1996, and sufficient funds to pay the required distribution on both the Senior Common Units (see Note E in the Consolidated Financial Statements included elsewhere in this report) and the Minimum Quarterly Distribution ("MQD") ($0.50 per Unit) on all Common Units, are forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements. The risks and uncertainties and their effect on the Partnership's operations include but are not limited to the following: a) the effect of weather conditions on demand for propane, b) price and availability of propane supplies, c) the availability of capacity to transport propane to market areas, d) competition from other energy sources and within the propane industry, e) operating risks incidental to transporting, storing, and distributing propane, f) changes in interest rates, g) governmental legislation and regulations, h) energy efficiency and technology trends, i) savings due to synergies realized from the integration of the operations acquired pursuant to the Thermogas Acquisition, and j) other factors that are discussed in the Risk Factor section of the Partnership's most recent 1933 Act filing with the Securities and Exchange Commission, Amendment No. 1 to Form S-3 Registration Statement, as filed February 5, 1999. Results of Operations The propane industry is seasonal in nature with peak activity during the winter months. Due to the seasonality of the business and the timing of business acquisitions, results of operations for the nine months ended April 30, 2000 and 1999, are not necessarily indicative of the results to be expected for a full year. Other factors affecting the results of operations include competitive conditions, demand for product, variations in weather and fluctuations in propane prices. As the Partnership has grown through acquisitions, fixed costs such as personnel costs, depreciation and interest expense have increased. Historically, these fixed cost increases have caused net losses in the first and fourth quarters and net income in the second and third quarters to be more pronounced. On December 17, 1999, the Partnership purchased Thermogas L.L.C. (the "Thermogas Acquisition" or "Thermogas"), a subsidiary of Williams. During the second quarter of fiscal 2000, the Partnership was able to identify the effect of the Thermogas Acquisition on the results of operations, because the Thermogas operations acquired were being operated separately from the existing Ferrellgas operations. Beginning in the third quarter of fiscal 2000, the Partnership began to implement its strategic and operating plans for the integration of Thermogas into the Partnership's existing operations. These integration actions resulted in the merging of retail locations and the related customer groups. Due to the extent of this integration, the Partnership is unable to quantify separately the effect of the Thermogas Acquisition in the discussion of results of operations in the current and future quarters. Three Months Ended April 30, 2000 vs. April 30, 1999 14 Total Revenues. Total gas liquids and related product sales increased 73.1% to $279,043,000 as compared to $161,192,000 in the third quarter of fiscal 1999, primarily due to the addition of Thermogas sales and increased sales price per gallon. For the quarter, temperatures were 18% warmer than normal and 12% warmer than last year as reported by the American Gas Association. Sales price per gallon increased due to the effect of a significant increase in the wholesale cost of propane as compared to the prior period. Retail volumes increased 36.6% to 261,994,000 gallons as compared to 191,783,000 gallons for the prior period, primarily due to the acquisition effect of Thermogas, partially offset by the effect of warmer weather. Other revenues increased by $12,497,000 primarily due to favorable results from the risk management operations. Gross Profit. Gross profit increased 24.3% to $123,966,000 as compared to $99,721,000 in the third quarter of fiscal 1999, primarily due to gross profit generated from the acquired Thermogas operations and, to a lesser extent, favorable results from the risk management operations, partially offset by lower retail margins and a reduction in gallons due to warmer weather. Last year's retail margins benefited significantly from a low wholesale cost environment. That cost environment was not repeated this year. Operating Expenses. Operating expenses increased 33.6% to $70,556,000 as compared to $52,811,000 in the third quarter of fiscal 1999 primarily due to expenses related to the acquired Thermogas operations. Depreciation and Amortization. Depreciation and amortization expense increased 43.0% to $17,382,000 as compared to $12,156,000 in the same quarter last year primarily due to the addition of intangibles and property, plant and equipment from the Thermogas Acquisition and other acquisitions of propane businesses. Equipment Lease Expense. Vehicle, tank and computer lease expense increased by $4,822,000 primarily due to the addition of the operating tank leases during the second quarter of fiscal 2000, and, to a lesser extent, increased operating lease facilities for new vehicles and computers for the retail locations. See Note H to the Consolidated Financial Statements included elsewhere in this report for additional information regarding the operating tank leases. Interest Expense. Interest expense increased 37.9% to $15,531,000 as compared to $11,264,000 in the third quarter of fiscal 1999. This increase is primarily the result of increased borrowings related to the Thermogas acquisition. As a result of the Thermogas Acquisition, which closed on December 17, 1999, the OLP assumed $183,000,000 in debt and also refinanced a portion of its existing revolving credit facility balances. On February 28, 2000, the OLP issued $184,000,000 of fixed rate Senior Notes which have maturities ranging from 2006 to 2009 and an average interest rate of 8.8% in order to repay the $183,000,000 in assumed debt. The additional $1,000,000 in borrowings was used to fund debt issuance costs. (see Financing Activities following) Nine Months Ended April 30, 2000 vs. April 30, 1999 Total Revenues. Total gas liquids and related product sales increased 48.6% to $736,575,000 as compared to $495,735,000 for the prior period, primarily due to the addition of Thermogas sales and increased sales price per gallon. For the fiscal year to date, temperatures were 14% warmer than normal and 6% warmer than last year as reported by the American Gas Association. Sales price per gallon increased due to the effect of a significant increase in the wholesale cost of propane as compared to the prior period. Retail volumes increased 24.1% to 729,467,000 gallons as compared to 587,711,000 gallons for the prior period, primarily due to the acquisition effect of Thermogas, partially offset by the effect of warmer weather. Other revenues increased by $32,826,000 primarily due to favorable results from risk management operations. 15 Gross Profit. Gross profit increased 21.4% to $364,347,000 as compared to $300,097,000 in the year ago period, primarily due to gross profit generated from the acquired Thermogas operations and, to a lesser extent, increased favorable results from the risk management operations, partially offset by lower retail margins. Last year's margins benefited significantly from a low wholesale cost environment. That cost environment was not repeated this year. In addition, while the wholesale cost of propane rapidly increased during the year, the sales price lagged the cost increase. Operating Expenses. Operating expenses increased 22.6% to $197,074,000 as compared to $160,763,000 in the first nine months of fiscal 2000 primarily due to operating expenses incurred due to the acquired Thermogas operations and higher risk management related operating expenses. Depreciation and Amortization. Depreciation and amortization expense increased 23.0% to $43,381,000 as compared to $35,273,000 for the same period last year primarily due to the addition of intangibles and property, plant and equipment from the Thermogas Acquisition and other acquisitions of propane businesses. Equipment Lease Expense. Vehicle, tank and computer lease expense increased by $8,120,000 due to the addition of the operating tank leases, and increased operating lease facilities for new vehicles and computers for retail locations. See Note H to the Consolidated Financial Statements included elsewhere in this report for additional information regarding the operating tank leases. Interest Expense. Interest expense increased 22.9% to $42,809,000 as compared to $34,842,000 in the first nine months of fiscal 2000. This increase is primarily the result of increased borrowings related to the Thermogas Acquisition and, to a lesser extent, an increase in the overall average interest rate paid by the Partnership. As a result of the Thermogas Acquisition closed on December 17, 1999, the OLP assumed $183,000,000 in debt and also refinanced a portion of its existing revolving credit facility balances. On February 28, 2000, the OLP issued $184,000,000 of fixed rate Senior Notes which have maturities ranging from 2006 to 2009 and an average interest rate of 8.8% in order to repay the $183,000,000 in assumed debt. The additional $1,000,000 in borrowings was used to fund debt issuance costs. The extraordinary charge in fiscal 1999 is due primarily to the payment of a $10,000,000 call premium related to the refinancing of $200,000,000 of fixed rate debt on August 5, 1998. The remaining costs relate to the write off of unamortized debt issuance costs related to refinancing of the fixed rate debt and revolving credit facility balances. (See Financing Activities following) Liquidity and Capital Resources The ability of the MLP to satisfy its obligations is dependent upon future performance, which will be subject to prevailing economic, financial, business and weather conditions and other factors, many of which are beyond its control. Due to the seasonality of the Partnership's retail propane business, a significant portion of the Partnership's cash flow from operations is typically generated during the winter heating season and the Partnership's corresponding second and third fiscal quarters. During the summer season and the Partnership's first and fourth fiscal quarters, it is not unusual for the Partnership to generate negative cash flow from operations due to lower retail sales offset by fixed expenses. As experienced in previous fiscal years, the next two fiscal quarters ended July 31, 2000, and October 31, 2000, are expected to generate negative cash flows from operations, and is typically the time period when the Partnership utilizes other sources of funds to meet its obligations. Subject to meeting certain financial tests discussed below, the General Partner believes that the OLP will have sufficient funds available to meet its obligations and enable it to distribute to the MLP sufficient funds to permit the MLP to meet its obligations with respect to the $160,000,000 senior secured notes issued in April 1996 ("MLP Senior Secured Notes") and enable it to distribute the MQD on all Common Units for the fiscal quarters ending July 31, 2000, and October 31, 2000. 16 The MLP Senior Secured Notes, the $350,000,000 OLP senior notes ("$350 million Senior Notes"), the $184,000,000 OLP senior notes issued in February 2000 ("$184 million Senior Notes"), the $157,000,000 amended and restated OLP credit facility ("Credit Facility") and the $25,000,000 and $135,000,000 OLP operating tank leases ("Tank Leases") (See Financing Activities following) contain several financial tests and covenants which restrict the Partnership's ability to pay distributions, incur debt and engage in certain other business transactions. These tests, in general, are based on the Partnership's debt to cash flow ratio and cash flow to interest expense ratio. The General Partner believes that the most restrictive of these tests currently are debt incurrence limitations within the Credit Facility and Tank Leases and limitations on the payment of distributions within the MLP Senior Secured Notes. The Credit Facility and Tank Leases limit the OLP's ability to incur debt if the OLP exceeds prescribed ratios of either debt to cash flow or cash flow to interest expense. The MLP Senior Secured Notes restrict payments if a minimum ratio of cash flow to interest expense is not met. This restriction places limitations on the Partnership's ability to make certain restricted payments which include, but are not limited to, the payment of distributions to unitholders. In general, the cash flow used to determine these financial tests is based upon the Partnership's most recent cash flow performance giving pro forma effect for acquisitions and divestitures made during the test period. The Partnership's financial performance during both fiscal 1999 and the first three quarters of fiscal 2000 have been adversely impacted by average temperatures that were among the warmest recorded in the last 100 years. In addition, during fiscal 2000, the Partnership has experienced high product costs which has negatively impacted retail margins. Despite these challenges, the Partnership has continued to meet all of its financial tests and covenants. These include the debt incurrence tests within the Credit Facility and Tank Leases and the MLP Senior Secured Notes restricted payment test, as well as other financial tests and covenants in the MLP Senior Secured Notes, the $350 million Senior Notes, the $184 million Senior Notes, Credit Facility and Tank Leases. Based upon current estimates of the Partnership's cash flow, the General Partner believes that it will be able to meet all of the required financial tests and covenants for the fiscal quarters ending July 31, 2000 and October 31, 2000. However, due to the lower than expected operating results experienced during the current fiscal year to date, if the Partnership were to encounter additional unexpected downturns in business operations, such as continued warmer than normal weather or high products costs, the Partnership may not meet certain financial tests during immediate future quarters. This could temporarily restrict the ability of the OLP to incur debt or the MLP's ability to make cash distributions to its Common Unitholders. Depending on the circumstances, the Partnership could consider alternatives to permit the incurrence of debt at the OLP or the continued payment by the MLP of the quarterly cash distribution to its Common Unitholders. No assurances can be given, however, that such alternatives can or will be implemented with respect to any given quarter. Future maintenance and working capital needs of the Partnership are expected to be provided by cash generated from future operations, existing cash balances and the working capital borrowing facility. In order to fund expansive capital projects and future acquisitions, the OLP may borrow on the existing Credit Facility, the MLP or OLP may issue additional debt (to the extent permitted under existing debt agreements) or the MLP may issue additional equity securities, including, among others, Common Units. Toward this purpose, on February 5, 1999, the MLP filed a shelf registration statement with the Securities and Exchange Commission (the "Commission") for the periodic sale of up to $300,000,000 in debt and/or equity securities. The registered securities would be available for sale by the Partnership in the future to fund acquisitions or to reduce indebtedness. Also, the MLP maintains a shelf registration statement with the Commission for 2,010,484 Common Units representing limited partner interests in the MLP. The Common Units may be issued from time to time by the MLP in connection with the OLP's acquisition of other businesses, properties or securities in business combination transactions. 17 On August 1, 1999, the subordination period ended and the Subordinated Units converted to Common Units. This conversion is more fully described in Note G of the Consolidated Financial Statements provided herein. Operating Activities. Cash provided by operating activities was $33,675,000 for the nine months ended April 30, 2000, compared to $77,372,000 for the prior period. This decrease in cash provided from operations is primarily due to the net effect of increased wholesale cost of product on accounts receivable, inventory, and accounts payable and to a lesser extent the timing of receipts and payments related to risk management activities. Investing Activities. During the nine months ended April 30, 2000, before the effect of the Thermogas Acquisition, the Partnership made total acquisition capital expenditures of $7,088,000. This amount was funded by $6,294,000 of cash payments, $601,000 of noncompete notes, $46,000 of Common Units issued and $147,000 of other costs and consideration. On December 17, 1999, the Partnership purchased Thermogas. At closing the Partnership entered into the following noncash transactions: a) issued $175,000,000 in Senior Common Units to the seller, b) assumed a $183,000,000 bridge loan, which was refinanced from the proceeds of the $184 million Senior Notes issued on February 28, 2000, and c) assumed a $135,000,000 operating tank lease. After the conclusion of these acquisition-related transactions, the Partnership acquired $61,842,000 of cash which remained on the Thermogas balance sheet. The Partnership has paid $15,589,000 in additional costs and fees related to the acquisition between December 17, 1999 and April 30, 2000. As part of the Thermogas Acquisition, the OLP agreed to reimburse Williams for the value of working capital received by the Partnership in excess of $9,147,500. On June 6, 2000, the OLP and Williams agreed upon the amount of working capital that was acquired by the Partnership on December 17, 1999. The OLP has reimbursed Williams $5,652,500 as final settlement of this working capital reimbursement obligation. The Partnership has accrued $7,033,000 in exit costs which it expects to incur within twelve months from the acquisition date as it implements the integration of the Thermogas operations. As of April 30, 2000, the Partnership has paid $449,000 of exit costs. Other than future effects from the Thermogas Acquisition, the Partnership does not have any material commitments of funds for capital expenditures other than to support the current level of operations. In fiscal 2000, the Partnership does not expect a significant increase in growth and maintenance capital expenditures resulting from the Thermogas Acquisition as compared to fiscal 1999 levels. During the nine months ended April 30, 2000, the Partnership made growth and maintenance capital expenditures of $18,631,000 consisting primarily of the following: 1) additions to Partnership-owned customer tanks and cylinders, 2) relocating and upgrading district plant facilities, 3) upgrading computer equipment and software, and 4) vehicle lease buyouts. Capital requirements for repair and maintenance of property, plant and equipment are relatively low since technological change is limited and the useful lives of propane tanks and cylinders, the Partnership's principal physical assets, are generally long. The Partnership meets its vehicle and transportation equipment fleet needs by leasing light and medium duty trucks, tractors and trailers. 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. Financing Activities. On February 28, 2000, the OLP issued the privately placed unsecured $184 18 million Senior Notes. The proceeds of the $184 million Senior Notes, which include three series with maturities ranging from year 2006 through 2009 and an average fixed interest rate of 8.8%, were used to retire $183,000,000 of OLP bridge loan financing assumed in connection with the Thermogas Acquisition. On December 6, 1999, the OLP entered into, with Banc of America Leasing & Capital, LLC. as lender, a $25,000,000 operating tank lease facility involving a portion of the OLP's customer tanks. This operating lease has a term that expires June 30, 2003 and may be extended for two additional one-year periods at the option of the OLP, if such extension is approved by the lessor. On December 17, 1999, immediately prior to the closing of the Thermogas Acquisition (See Note J), Thermogas entered into, with Banc of America Leasing & Capital, LLC as lender, a $135,000,000 operating tank lease facility involving a portion of its customer tanks. In connection with the acquisition of Thermogas, the OLP assumed all obligations under the $135,000,000 operating tank lease facility, which have terms and conditions similar to the December 6, 1999, $25,000,000 operating tank lease facility discussed above. On April 18, 2000, the Partnership completed the syndication of both the $25,000,000 and $135,000,000 operating tank lease facilities to a group of banks and other financial institutions. On August 4, 1998, the OLP issued the privately placed unsecured $350 million Senior Notes and entered into a Credit Facility with its existing banks. The proceeds of the Senior Notes, which include five series with maturities ranging from year 2005 through 2013 at an average fixed interest rate of 7.16%, were used to redeem $200,000,000 of OLP fixed rate senior notes issued in July 1994, including a 5% call premium, and to repay outstanding indebtedness under the former OLP revolving credit facility. On December 17, 1999, the OLP terminated its Additional Credit Facility agreement that it had entered into on April 30, 1999. This facility had provided for an unsecured facility for acquisitions, capital expenditures, and general corporate purposes. The outstanding Additional Credit Facility before its termination on December 17, 1999 was $35,000,000. On April 18, 2000, the Partnership entered into an amended and restated credit facility. This $157,000,000 Credit Facility, which expires on June 30, 2003 amends and restates the previous $145,000,000 Credit Facility. During the nine months ended April 30, 2000, the Partnership repaid $2,627,000 to its credit facility as it related to the funding of working capital, business acquisitions, and capital expenditure needs. At April 30, 2000, $21,600,000 of borrowings were outstanding under the Credit Facility. Nearly all of these borrowings carried an interest rate of LIBOR plus 2.25% or 8.44%. Letters of credit outstanding, used primarily to secure obligations under certain insurance arrangements, totaled $25,865,000. At April 30, 2000, the Operating Partnership had $109,535,000 available for general corporate, acquisition and working capital purposes under the Credit Facility. Based on the pricing grid contained in the Credit Facility, the current borrowing rate for future borrowings under the Credit Facility is 2.25% plus LIBOR. Effective April 27, 2000, the Partnership entered into an interest rate swap agreement ("Swap Agreement") with Bank of America, related to the semi-annual interest payment due on the $160,000,000 fixed rate Senior Notes due 2006 ("MLP Senior Notes"). The Swap Agreement, which expires June 15, 2006, requires Bank of America to pay the stated fixed interest rate (annual rate 9.375%) pursuant to the MLP Senior Notes equaling $7,500,000 every six months due on each June 15 and December 15. In exchange, the Partnership is required to make quarterly floating interest rate payments on the 15th of March, June, September and December based on an annual interest rate equal to the 3 month LIBOR interest rate plus 1.655% applied to the same notional amount of $160,000,000. Effective June 2, 2000, the OLP entered into an interest rate cap agreement ("Cap Agreement") with Bank of America, related to variable quarterly rent payments due pursuant to two operating tank lease agreements. The variable quarterly rent payments are determined based upon a floating LIBOR based interest rate. The Cap Agreement, which expires June 30, 2003, requires Bank of America to pay the OLP 19 at the end of each March, June, September and December the difference, if any, between the applicable 3 month floating LIBOR interest rate and a cap of 9.3%, applied to the total obligation due each quarter under the two operating tank lease agreements. The total obligation under these two operating tank lease agreements as of April 30, 2000 was $159,600,000. On May 19, 2000, the Partnership declared an in-kind cash distribution of $1.00 per Senior Common Unit payable by the issuance of additional Senior Common Units (see Notes G and I in the Consolidated Financial Statements included elsewhere in this report for additional information regarding the in-kind distributions to the Senior Common Unitholders) and $0.50 per Common Unit, payable June 14, 2000. Adoption of New Accounting Standards. The Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended by SFAS No. 137 is required to be adopted by the Partnership for the first quarter of fiscal 2001. The Partnership is currently assessing its impact on the Partnership's financial position, results of operations and cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in the Partnership's market risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices. Additionally, the Partnership seeks to mitigate its interest rate risk exposure on variable rate debt by entering into interest rate collar agreements. After the execution of the Swap Transaction, the Partnership effectively had $181,600,000 in variable rate debt and $25,000,000 notional amount of interest rate collar agreements effectively outstanding. Thus, assuming a 100 basis point increase in the variable interest rate to the Partnership, the interest rate risk related to the variable rate debt, the Swap Transaction and the associated interest rate collar agreements is not material to the financial statements. The Partnership's risk management activities utilize certain types of energy commodity forward contracts and swaps traded on the over-the-counter financial markets and futures traded on the New York Mercantile Exchange ("NYMEX" or "Exchange") to anticipate market movements, manage and hedge its exposure to the volatility of floating commodity prices and to protect its inventory positions. The Partnership's purchase price protection strategy activity also utilizes certain over-the-counter energy commodity options to limit overall price risk and to hedge its exposure to inventory price movements. Market risks associated with energy commodities are monitored daily for compliance with the Partnership's risk management trading policy. This policy includes specific dollar exposure limits, limits on the term of various contracts and volume limits for various energy commodities. The Partnership also utilizes loss limits and daily review of open positions to manage exposures to changing market prices. Market and Credit Risk. NYMEX traded futures are guaranteed by the Exchange and have nominal credit risk. The Partnership is exposed to credit risk associated with futures, swaps and option transactions in the event of nonperformance by counterparties. For each counterparty, the Partnership analyzes the financial condition prior to entering into an agreement, establishes credit limits and monitors the appropriateness of each limit. The change in market value of Exchange-traded futures contracts requires daily cash settlement in margin accounts with brokers. Forwards and most other over-the-counter instruments are generally settled at the expiration of the contract term. Sensitivity Analysis. The Partnership has prepared a sensitivity analysis to estimate the exposure to market risk of its energy commodity positions. Forward contracts, futures, swaps and options were analyzed assuming a hypothetical 10% change in forward prices for the delivery month for all energy commodities. The potential loss in future earnings from these positions from a 10% adverse movement in market prices of the underlying energy commodities is estimated at $1,500,000 as of April 30, 2000. The preceding hypothetical analysis is limited because changes in prices may or may not equal 10%. Thus, actual results may differ. 20 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On December 17, 1999, the Partnership purchased all of the member interests in Thermogas from Williams Natural Gas Liquids, Inc. in consideration for the issuance of Senior Common Units. (See Note J in the Consolidated Financial Statement contained elsewhere in this document.) The Senior Common Units represent limited partner interests in the Partnership, and their face value was $175,000,000 million. Williams Natural Gas Liquids qualified as an accredited investor (as that term is defined in Rule 501 of Regulation D) and was the only purchaser of the Senior Common Units. As a result, the issuance of Senior Common Units was exempted from the registration requirements of the Securities Act pursuant to Rule 506 of Regulation D. The Senior Common Units entitle the holder to annual distributions from the Partnership equivalent to 10 percent of face value. Distributions are payable quarterly in kind through issuance of further Senior Common Units until February 1, 2002, after which distributions are payable in cash. Distributions are also payable in cash upon the occurrence of a Material Event, as defined in the Partnership Agreement. These distributions are made to the holders of Senior Common Units in preference over holders of Common Units. Williams has the right, subject to certain events and conditions, to convert any outstanding Senior Common Units into Common Units either at the end of two years or upon the occurrence of a Material Event, as defined in the Partnership Agreement. On June 5, 2000, the Common Unitholders approved amendments to the MLP's partnership agreement to allow for the conversion of the Senior Common Units into Common Units in accordance with the terms of the partnership agreement and for those Common Units so converted to be able to vote, regardless of the restriction otherwise placed on voting if a holder owns more than 20% of the MLP. Additionally, on June 5, 2000, the General Partner amended the MLP's and the OLP's partnership agreements, as allowed therein, to allow the MLP and the OLP to structure and complete transactions when the General Partner may not have the cash available to make the applicable capital contribution. Specifically, the amendments provide for the issuance of 316,233 General Partner Units in the MLP that represent the General Partner's current 1% interest. The General Partner is no longer obligated to make a capital contribution to the MLP upon the making of a capital contribution by another person or the issuance of MLP securities. However, if the General Partner does not make that capital contribution, its 1% interest in the MLP is reduced accordingly. Similar amendments were made with respect to the OLP partnership agreement, although no General Partner Units were issued with respect to the OLP. Generally, the General Partner is allowed at any time to make any capital contribution otherwise not made to retain its overall 2% interest in the MLP and the OLP. 21 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION TO A VOTE OF SECURITIES HOLDERS The Partnership held a special meeting of common unitholders on June 5, 2000. The common unitholders voted in favor of two proposals at the special meeting as follows: 1. A proposal to approve the conversion provisions related to our recently issued senior units to allow the holders of the senior units to elect to convert into our common units upon the earlier of February 1, 2002 or the occurrence of a material event, as defined in our partnership agreement: FOR AGAINST ABSTAIN 22,930,907 254,008 171,954 2. A proposal to amend the definition of "outstanding" in our partnership agreement to provide that Williams Natural Gas Liquids, Inc., its successors or The Williams Companies, Inc., as holders of common units obtained upon the conversion of the senior units, may vote their common units and shall be entitled to all other rights as our common unitholders: FOR AGAINST ABSTAIN 22,987,638 209,331 159,660 ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit No. Description of Exhibit 3.1 Second Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. dated as of June 5, 2000. 10.1 Third Amended and Restated Credit Agreement dated as of April 18, 2000, among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America National Trust and Savings Association, as administrative agent, and the other financial institutions party thereto. 10.2 First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. 10.3 Omnibus Amendment Agreement No. 2, Dated As Of April 18, 2000, In Respect Of Ferrellgas, LP TRUST NO. 1999-A Participation Agreement Lease Intended As Security Loan Agreement Each Dated As Of December 1, 1999 22 10.4 Omnibus Amendment Agreement No. 2 Dated As Of April 18, 2000 in respect ofTHERMOGAS TRUST NO. 1999-A Participation Agreement Lease Intended as Security Loan Agreement Each Dated As Of December 15, 1999 27.1 Financial Data Schedule - Ferrellgas Partners, L.P. (filed in electronic format only) 27.2 Financial Data Schedule - Ferrellgas Partners Finance Corp. (filed in electronic format only) (b) Reports on Form 8-K The Partnership filed the following reports on Form 8-K during the quarter ended April 30, 2000. (1) Form 8-K/A Amendment No. 1 dated March 1, 2000, reporting that Ferrellgas Partners, L.P. completed the acquisition of all of the member interests in Thermogas L.L.C. from Williams. This amendment includes the required audited and pro forma financial statements. (2) Form 8-K dated March 2, 2000, announcing that Ferrellgas Partners, L.P. operating subsidiary, Ferrellgas, L.P., completed the issuance of $184 million of fixed rate Senior Notes in a private placement to qualified institutional investors. The proceeds of the financing were used to pay off the temporary financing associated with the acquisition of Thermogas, the nation's fifth largest retail marketer of propane. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: June 14, 2000 By /s/ Kevin T. Kelly --------------------------------------------- Kevin T. Kelly Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: June 14, 2000 By /s/ Kevin T. Kelly --------------------------------------------- Kevin T. Kelly Chief Financial Officer (Principal Financial and Accounting Officer) 24 INDEX TO EXHIBITS Exhibit No. Description of Exhibit 3.1 Second Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. dated as of June 5, 2000. 10.1 Third Amended and Restated Credit Agreement dated as of April 18, 2000, among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America National Trust and Savings Association, as administrative agent, and the other financial institutions party thereto. 10.2 First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. 10.3 Omnibus Amendment Agreement No. 2, Dated As Of April 18, 2000, In Respect Of Ferrellgas, LP TRUST NO. 1999-A Participation Agreement Lease Intended As Security Loan Agreement Each Dated As Of December 1, 1999 10.4 Omnibus Amendment Agreement No. 2 Dated As Of April 18, 2000 in respect of THERMOGAS TRUST NO. 1999-A Participation Agreement Lease Intended as Security Loan Agreement Each Dated As Of December 15, 1999 27.1 Financial Data Schedule - Ferrellgas Partners, L.P. (filed in electronic format only) 27.2 Financial Data Schedule - Ferrellgas Partners Finance Corp. (filed in electronic format only) 25