10-Q 1 form10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 January 31, 2004 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: 001-11331 333-06693 000-50182 and 000-50183 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. Ferrellgas, L.P. Ferrellgas Finance Corp. (Exact name of registrants as specified in their charters) Delaware 43-1698480 Delaware 43-1742520 Delaware 43-1698481 Delaware 14-1866671 ---------------- ------------------ (States or other jurisdictions of (I.R.S. Employer incorporation or organization) Identification Nos.) One Liberty Plaza, Liberty, Missouri 64068 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act). Ferrellgas Partners, L.P. Yes [ X ] No [ ] Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp. Yes [ ] No [ X ] At February 27, 2004, the registrants had common units or shares outstanding as follows: Ferrellgas Partners, L.P. 39,736,833 Common Units Ferrellgas Partners Finance Corp. 1,000 Common Stock Ferrellgas, L.P. n/a n/a Ferrellgas Finance Corp. 1,000 Common Stock EACH OF FERRELLGAS PARTNERS FINANCE CORP. AND FERRELLGAS FINANCE CORP. MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1) OF FORM 10-Q AND ARE THEREFORE, WITH RESPECT TO EACH SUCH REGISTRANT, FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT. FERRELLGAS PARTNERS, L.P. FERRELLGAS PARTNERS FINANCE CORP. FERRELLGAS, L.P. FERRELLGAS FINANCE CORP. Table of Contents Page ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) Ferrellgas Partners, L.P. and Subsidiaries ------------------------------------------ Condensed Consolidated Balance Sheets - January 31, 2004 and July 31, 2003 1 Condensed Consolidated Statements of Earnings - Three and six months ended January 31, 2004 and 2003 2 Condensed Consolidated Statement of Partners' Capital - Six months ended January 31, 2004 3 Condensed Consolidated Statements of Cash Flows - Six months ended January 31, 2004 and 2003 4 Notes to Condensed Consolidated Financial Statements 5 Ferrellgas Partners Finance Corp. --------------------------------- Condensed Balance Sheets - January 31, 2004 and July 31, 2003 14 Condensed Statements of Earnings - Three and six months ended January 31, 2004 and 2003 14 Condensed Statements of Cash Flows - Six months ended January 31, 2004 and 2003 15 Note to Condensed Financial Statements 15 Ferrellgas, L.P. and Subsidiaries --------------------------------- Condensed Consolidated Balance Sheets - January 31, 2004 and July 31, 2003 16 Condensed Consolidated Statements of Earnings - Three and six months ended January 31, 2004 and 2003 17 Condensed Consolidated Statement of Partners' Capital - Six months ended January 31, 2004 18 Condensed Consolidated Statements of Cash Flows - Six months ended January 31, 2004 and 2003 19 Notes to Condensed Consolidated Financial Statements 20 Ferrellgas Finance Corp. ------------------------ Condensed Balance Sheets - January 31, 2004 and July 31, 2003 26 Condensed Statements of Earnings - Three and six months ended January 31, 2004 and from inception to January 31, 2003 26 Condensed Statements of Cash Flows - Six months ended January 31, 2004 and from inception to January 31, 2003 27 Note to Condensed Financial Statements 27 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 39 ITEM 4. CONTROLS AND PROCEDURES 40 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 40 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 40 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 40 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 40 ITEM 5. OTHER INFORMATION 40 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 41 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) (unaudited) January 31, July 31, ASSETS 2004 2003 -------------------------------------------------------------------------------- --------------- -------------- Current assets: Cash and cash equivalents $ 23,072 $ 11,154 Accounts and notes receivable, net 157,581 56,742 Inventories 83,976 69,077 Prepaid expenses and other current assets 8,819 8,306 --------------- -------------- Total current assets 273,448 145,279 Property, plant and equipment, net 698,457 684,917 Goodwill 124,190 124,190 Intangible assets, net 110,067 98,157 Other assets 8,609 8,853 --------------- -------------- Total assets $1,214,771 $ 1,061,396 =============== ============== LIABILITIES AND PARTNERS' CAPITAL -------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 116,813 $ 59,454 Other current liabilities 71,185 89,687 Short-term borrowings 42,700 - --------------- --------------- Total current liabilities 230,698 149,141 Long-term debt 900,396 888,226 Other liabilities 19,728 18,747 Contingencies and commitments (Note I) - - Minority interest 2,853 2,363 Partners' capital: Senior unitholder (1,994,146 units outstanding at both January 31, 2004 and July 31, 2003 - liquidation preference $79,766 at both January 31, 2004 and July 31, 2003) 79,766 79,766 Common unitholders (39,727,834 and 37,673,455 units outstanding at January 31, 2004 and July 31, 2003, respectively) 41,879 (15,602) General partner unitholder (421,434 and 400,683 units outstanding at January 31, 2004 and July 31, 2003, respectively) (58,736) (59,277) Accumulated other comprehensive loss (1,813) (1,968) --------------- --------------- Total partners' capital 61,096 2,919 --------------- --------------- Total liabilities and partners' capital $1,214,771 $ 1,061,396 =============== ===============
See notes to these condensed consolidated financial statements. 1 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per unit data) (unaudited) For the three months ended For the six months ended ---------------------------- -------------------------- January 31, January 31, January 31, January 31, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Revenues: Propane and other gas liquids sales $ 457,433 $ 439,301 $ 689,487 $ 634,201 Other 24,348 25,165 47,708 46,579 ----------- ----------- ----------- ----------- Total revenues 481,781 464,466 737,195 680,780 Cost of product sold (exclusive of depreciation, shown with amortization below) 286,899 254,718 446,148 378,390 ----------- ----------- ----------- ----------- Gross profit 194,882 209,748 291,047 302,390 Operating expense 79,804 79,677 152,283 148,105 Depreciation and amortization expense 12,665 10,261 23,860 20,156 General and administrative expense 8,982 7,759 15,873 14,661 Equipment lease expense 4,732 5,528 9,243 11,520 Employee stock ownership plan compensation charge 2,164 1,639 3,948 3,034 Loss on disposal of assets and other 1,926 1,125 3,552 1,796 ----------- ----------- ----------- ----------- Operating income 84,609 103,759 82,288 103,118 Interest expense (17,291) (16,084) (34,085) (30,780) Interest income 470 364 801 426 Early extinguishment of debt expense - - - (7,052) ----------- ----------- ----------- ----------- Earnings before minority interest and cumulative effect of change in accounting principle 67,788 88,039 49,004 65,712 Minority interest 733 937 595 822 ----------- ----------- ----------- ----------- Earnings before cumulative effect of change in accounting principle 67,055 87,102 48,409 64,890 Cumulative effect of change in accounting principle, net of minority interest of $28 - - - (2,754) ----------- ----------- ----------- ----------- Net earnings 67,055 87,102 48,409 62,136 Distribution to senior unitholder 1,994 2,743 3,988 5,525 Net earnings available to general partner unitholder 650 843 444 566 ----------- ----------- ----------- ----------- Net earnings available to common unitholders $ 64,411 $ 83,516 $ 43,977 $ 56,045 =========== =========== =========== =========== Basic earnings per common unit: Earnings available to common unitholders before cumulative effect of change in accounting principle $ 1.65 $ 2.31 $ 1.15 $ 1.62 Cumulative effect of change in accounting principle - - - (0.07) ----------- ----------- ----------- ----------- Net earnings available to common unitholders $ 1.65 $ 2.31 $ 1.15 $ 1.55 =========== =========== =========== =========== Diluted earnings per common unit: Earnings available to common unitholders before cumulative effect of change in accounting principle $ 1.64 $ 2.30 $ 1.14 $ 1.62 Cumulative effect of change in accounting principle - - - (0.07) ----------- ----------- ----------- ----------- Net earnings available to common unitholders $ 1.64 $ 2.30 $ 1.14 $ 1.55 =========== =========== =========== ===========
See notes to these condensed consolidated financial statements. 2 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (in thousands) (unaudited) Accumulated other Number of units comprehensive loss --------------------------------- -------------------- General General Total Senior Common partner Senior Common partner Risk Pension partners' unitholder unitholders unitholder unitholder unitholders unitholder management liability capital ---------- ----------- ---------- ---------- ----------- ---------- ---------- --------- --------- August 1, 2003 1,994.1 37,673.5 400.7 $ 79,766 $(15,602) $(59,277) $ - $(1,968) $ 2,919 Contribution in connection with ESOP compensation charge - - - - 3,869 39 - - 3,908 Common unit cash distribution - - - - (38,715) (391) - - (39,106) Senior unit cash and accrued distribution - - - - (3,948) (80) - - (4,028) Common units issued in public offering - 2,000.0 20.2 - 47,196 477 - - 47,673 Common units issued in connection with acquistions - 30.4 0.3 - 695 7 - - 702 Common unit options exercised - 23.9 0.2 - 459 5 - - 464 Comprehensive income: Net earnings - - - - 47,925 484 - - 48,409 Other comprehensive income: Pension liability adjustment - - - - - - - 174 174 Net loss on risk management derivatives - - - - - - (69) - (69) Reclassification of net gains on derivatives - - - - - - 50 - 50 --------- Comprehensive income 48,564 ---------- ----------- ---------- ---------- ----------- ---------- ---------- --------- --------- January 31, 2004 1,994.1 39,727.8 421.4 $ 79,766 $ 41,879 $(58,736) $(19) $(1,794) $61,096 ========== =========== ========== ========== =========== ========== ========== ========= =========
See notes to these condensed consolidated financial statements. 3 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the six months ended ------------------------------ January 31, January 31, 2004 2003 ------------- ------------- Cash flows from operating activities: Net earnings $ 48,409 $ 62,136 Reconciliation of net earnings to net cash provided by operating activities: Cumulative effect of change in accounting principle - 2,754 Early extinguishment of debt expense - 1,854 Depreciation and amortization expense 23,860 20,156 Employee stock ownership plan compensation charge 3,948 3,034 Loss on disposal of assets 2,824 786 Minority interest 595 822 Other 3,169 4,182 Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts and notes receivable, net (128,001) (111,337) Inventories (14,899) (20,391) Prepaid expenses and other current assets (538) 1,285 Accounts payable 57,275 46,012 Other current liabilities (10,140) (6,940) Other liabilities 882 (315) Accounts receivable securitization: Proceeds from new accounts receivable securitizations 30,000 60,000 Proceeds from collections reinvested in revolving period accounts receivable securitizations 419,466 303,837 Remittances of amounts collected as servicer of accounts receivable securitizations (423,466) (303,837) ------------- ------------- Net cash provided by operating activities 13,384 64,038 ------------- ------------- Cash flows from investing activities: Business acquisitions, net of cash acquired (38,142) (34,120) Capital expenditures - tank lease buyout - (155,600) Capital expenditures - technology initiative (3,612) (10,993) Capital expenditures - other (12,581) (7,509) Other 1,774 1,516 ------------- ------------- Net cash used in investing activities (52,561) (206,706) ------------- ------------- Cash flows from financing activities: Distributions (43,134) (42,129) Issuance of common units, net of issuance costs of $48 47,348 - Net additions to short-term borrowings 42,700 - Proceeds from issuance of debt 13,300 359,715 Principal payments on debt (9,877) (161,559) Cash paid for financing costs - (7,001) Proceeds from exercise of common unit options 459 1,576 Cash contribution from general partner 488 603 Redemption of senior units - (1,567) Minority interest activity (145) (506) Other (44) - ------------- ------------- Net cash provided by financing activities 51,095 149,132 ------------- -------------- Increase in cash and cash equivalents $ 11,918 $ 6,464 Cash and cash equivalents - beginning of period 11,154 19,781 ------------- -------------- Cash and cash equivalents - end of period $ 23,072 $ 26,245 ============= ============== Cash paid for interest $ 32,899 $ 28,551 ============= ==============
See notes to these condensed consolidated financial statements. 4 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2004 (Dollars in thousands, except per unit data, unless otherwise designated) (unaudited) A. Organization Ferrellgas Partners, L.P. ("Ferrellgas Partners") is a publicly traded limited partnership, owning a 99% limited partner interest in Ferrellgas, L.P. (the "Operating Partnership"). Ferrellgas Partners and the Operating Partnership are collectively referred to as "Ferrellgas." Ferrellgas, Inc. (the "General Partner"), a wholly-owned subsidiary of Ferrell Companies, Inc. ("Ferrell Companies"), has retained a 1% general partner interest in Ferrellgas Partners and also holds a 1.0101% general partner interest in the Operating Partnership, representing an effective 2% general partner interest in Ferrellgas on a combined basis. As General Partner, it performs all management functions required by Ferrellgas. The condensed consolidated financial statements of Ferrellgas reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal, recurring nature. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements and accompanying notes included in Ferrellgas' Annual Report on Form 10-K for the fiscal year ended July 31, 2003. B. Unit and stock-based compensation Ferrellgas accounts for the Ferrellgas Unit Option Plan (the "Unit Option Plan") and the Ferrell Companies, Inc. Incentive Compensation Plan (the "ICP") using the intrinsic value method under the provisions of Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees," for all periods presented and makes the fair value method pro forma disclosures required under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." Accordingly, no compensation cost has been recognized for the Unit Option Plan or for the ICP in the condensed consolidated statements of earnings. Had compensation cost for these plans been determined based upon the fair value at the grant date for awards under these plans, consistent with the methodology recommended under SFAS No. 123, Ferrellgas' net earnings and earnings per unit would have been adjusted as noted in the table below: 5 For the three months ended For the six months ended January 31, January 31, --------------------------- ------------------------ 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Net earnings available to common unitholders, as reported $64,411 $83,516 $43,977 $56,045 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards 240 207 475 413 ---------- ---------- ---------- ---------- Pro forma net earnings available to common unitholders $64,171 $83,309 $43,502 $55,632 ========== ========== ========== ========== Earnings per common unit: Basic earnings available to common unitholders before cumulative effect of change in accounting principle, as reported $1.65 $2.31 $1.15 $1.62 Basic earnings available to common unitholders, as reported 1.65 2.31 1.15 1.55 ----------------------------------------------------------------------------------------------------- Basic earnings available to common unitholders before cumulative effect of change in accounting principle, pro forma 1.64 2.30 1.13 1.61 Basic earnings available to common unitholders, pro forma 1.64 2.30 1.13 1.54 ----------------------------------------------------------------------------------------------------- Diluted earnings available to common unitholders before cumulative effect of change in accounting principle, as reported 1.64 2.30 1.14 1.62 Diluted earnings available to common unitholders, as reported 1.64 2.30 1.14 1.55 ----------------------------------------------------------------------------------------------------- Diluted earnings available to common unitholders before cumulative effect of change in accounting principle, pro forma 1.64 2.30 1.13 1.61 Diluted earnings available to common unitholders, pro forma 1.64 2.30 1.13 1.54 ----------------------------------------------------------------------------------------------------
6 C. Accounting estimates 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. Significant estimates impacting the condensed consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment assets, residual values of tanks, amortization methods of intangible assets and valuation methods of intangible assets and derivative commodity contracts. D. Reclassifications Certain reclassifications have been made to the six months ended January 31, 2003 condensed consolidated statement of cash flows to conform to the six months ended January 31, 2004 condensed consolidated statement of cash flows presentation. "Loss on disposal of assets" is disclosed separately in net cash provided by operating activities on the condensed consolidated statements of cash flows. This amount was previously classified as "Other" in net cash provided by operating activities in the six months ended January 31, 2003. E. Nature of operations Ferrellgas Partners is a holding entity that conducts no operations and has two subsidiaries, Ferrellgas Partners Finance Corp. and the Operating Partnership. Ferrellgas Partners owns a 100% equity interest in Ferrellgas Partners Finance Corp. No operations are conducted by or through Ferrellgas Partners Finance Corp., whose only purpose is to act as the co-issuer and co-obligor of any debt issued by Ferrellgas Partners. The Operating Partnership is the only operating subsidiary of Ferrellgas Partners. The Operating Partnership is engaged primarily in the retail distribution of propane and related equipment and supplies in the United States. The retail market is seasonal because propane is used primarily for heating in residential and commercial buildings. Therefore, the results of operations for the six months ended January 31, 2004 and 2003 are not necessarily indicative of the results to be expected for a full fiscal year. The Operating Partnership serves more than one million residential, industrial/commercial, agricultural and other customers. F. Cash and cash equivalents and non-cash activities For purposes of the condensed consolidated statements of cash flows, Ferrellgas considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less. Significant non-cash investing and financing activities are primarily related to the accounts receivable securitization and transactions with related parties and are disclosed in Note G - Accounts receivable securitization and Note N - Transactions with related parties, respectively. G. Accounts receivable securitization During the six months ended January 31, 2004, $26.0 million had been funded from the Operating Partnership's accounts receivable securitization facility. Ferrellgas renewed this facility effective September 23, 2003, for a 364-day commitment with Banc One, NA. At January 31, 2004, Ferrellgas did not have any remaining capacity to transfer additional trade accounts receivable. In accordance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," this transaction is reflected in the condensed consolidated financial statements as a sale of accounts receivable and a retained interest in transferred accounts receivable. The retained interest is classified on the condensed consolidated balance sheets within "Accounts and notes receivable, net." 7 H. Supplemental financial statement information Inventories consist of: January 31, July 31, 2004 2003 --------------- -------------- Propane gas and related products $65,461 $49,772 Appliances, parts and supplies 18,515 19,305 --------------- -------------- $83,976 $69,077 =============== ==============
In addition to inventories on hand, Ferrellgas enters into contracts to buy and sell product, primarily propane for supply procurement purposes. Nearly all of these contracts have terms of less than one year and most call for payment based on market prices at the date of delivery. All fixed price contracts have terms of less than one year. As of January 31, 2004, Ferrellgas had committed, for supply procurement purposes, to make net delivery of approximately 4.1 million gallons of propane at a fixed price. Property, plant and equipment, net consist of: January 31, July 31, 2004 2003 --------------- -------------- Property, plant and equipment $1,025,539 $1,002,199 Less: accumulated depreciation 327,082 317,282 --------------- -------------- $ 698,457 $ 684,917 =============== ==============
During the six months ended January 31, 2004, Ferrellgas placed in service $46.4 million of computer software, which will be depreciated using the straight-line method over its estimated useful life of 5 years. Intangible assets, net consist of: January 31, 2004 July 31, 2003 ------------------------------------------ ------------------------------------------ Gross Gross carrying Accumulated carrying Accumulated amount amortization Net amount amortization Net ---------- ---------------- ------------- ---------- ---------------- ------------- Customer lists $230,203 $(134,337) $ 95,866 $220,061 $(133,548) $86,513 Non-compete agreements 68,228 (54,027) 14,201 64,020 (52,376) 11,644 ---------- ---------------- ------------- ---------- ---------------- ------------- $298,431 $(188,364) $110,067 $284,081 $(185,924) $98,157 ========== ================ ============= ========== ================ =============
For the three months For the six months ended January 31, ended January 31, ------------------------ ---------------------- 2004 2003 2004 2003 ---------- ---------- -------- -------- Aggregate amortization expense $2,876 $3,199 $6,043 $6,304
Estimated amortization expense: For the years ended July 31, 2004 $ 11,991 2005 11,349 2006 10,823 2007 10,091 2008 9,158 8 Loss on disposal of assets and other For the three months ended For the six months ended consist of: January 31, January 31, ------------------------------ ---------------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Loss on disposal of assets $1,503 $ 546 $2,824 $ 786 Loss on transfer of accounts receivable related to the accounts receivable securitization 931 910 1,547 1,374 Service income related to the accounts receivable securitization (508) (331) (819) (364) ---------- ---------- ---------- ---------- $1,926 $1,125 $3,552 $1,796 ========== ========== ========== ==========
Shipping and handling expenses are classified in the following condensed consolidated statements of earnings line items: For the three months ended For the six months ended January 31, January 31, ------------------------------ ---------------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Operating expense $39,856 $37,291 $70,356 $67,070 Depreciation and amortization expense 2,146 1,505 4,182 3,177 Equipment lease expense 2,820 3,037 5,624 5,932 ---------- ---------- ---------- ---------- $44,822 $41,833 $80,162 $76,179 ========== ========== ========== ==========
I. Contingencies Ferrellgas' operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane. As a result, at any given time, Ferrellgas is threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. 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 will have a material adverse effect on the financial condition, results of operations and cash flows of Ferrellgas. Currently, Ferrellgas is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. J. Partners' capital Ferrellgas Partners' partnership agreement generally provides that it use the cash proceeds of any offering of common units to redeem a portion of its outstanding senior units, otherwise a "Material Event" would be deemed to have occurred and JEF Capital Management, Inc. ("JEF Capital Management") as the holder of the senior units, would thereafter have specified rights, such as the right to convert the senior units into common units or the right to register the senior units. By letter agreement dated November 20, 2003, JEF Capital Management agreed to waive the occurrence of a "Material Event" if Ferrellgas Partners issues common units at any time and from time to time on or prior to March 31, 2004, and does not use the cash proceeds from such offering or offerings to redeem a portion of the outstanding senior units. In consideration of the granting of the waiver, Ferrellgas Partners agreed not to redeem any outstanding senior units prior to March 31, 2004, and to reimburse JEF Capital Management for its reasonable legal fees incurred in connection with the execution of the waiver. On February 25, 2004, JEF Capital Management and Ferrellgas Partners extended the letter agreement through December 31, 2004. On December 1, 2003, Ferrellgas Partners received $47.4 million of cash pursuant to the issuance of 2.0 million common units to the public. In connection with this transaction, the General Partner contributed $0.5 million to maintain its 1% general partnership interest in Ferrellgas Partners. Ferrellgas then used the net proceeds to reduce the borrowings outstanding under its bank credit facility by approximately $38.3 million. The remaining proceeds were used for general partnership purposes, including the repayment of debt incurred to fund prior acquisitions. 9 K. Earnings per common unit Below is a calculation of the basic and diluted earnings per common unit in the condensed consolidated statements of earnings for the periods indicated. For diluted earnings per common unit purposes, the senior units were 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. Distributions to the senior unitholder decrease the net earnings available to common unitholders. Three months ended Six months ended ------------------------------ ------------------------------ January 31 January 31 January 31 January 31 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Net earnings available to common unitholders before cumulative effect of change in accounting principle $64,411 $83,516 $43,977 $58,771 Cumulative effect of change in accounting principle, net of minority interest and general partner interest of $56 - - - (2,726) ------------ ------------ ------------ ------------ Net earnings available to common unitholders $64,411 $83,516 $43,977 $56,045 ============ ============ ============ ============ ----------------------------------------------------------------------------------------------------------------- (in thousands) Weighted average common units outstanding 39,048.2 36,144.0 38,377.2 36,116.0 Dilutive securities 175.6 92.7 158.9 84.3 ------------ ------------ ------------ ------------ Weighted average common units outstanding plus dilutive securities 39,223.8 36,236.7 38,536.1 36,200.3 ----------------------------------------------------------------------------------------------------------------- Basic earnings per common unit: ------------------------------- Net earnings available to common unitholders before cumulative effect of change in accounting principle $1.65 $2.31 $1.15 $1.62 Cumulative effect of change in accounting principle, net of minority interest and general partner interest of $56 - - - (0.07) ------------ ------------ ------------ ------------ Net earnings available to common unitholders $1.65 $2.31 $1.15 $1.55 ============ ============ ============ ============ ----------------------------------------------------------------------------------------------------------------- Diluted earnings per common unit: -------------------------------- Net earnings available to common unitholders before cumulative effect of change in accounting principle $1.64 $2.30 $1.14 $1.62 Cumulative effect of change in accounting principle, net of minority interest and general partner interest of $56 - - - (0.07) ------------ ------------ ------------ ------------ Net earnings available to common unitholders $1.64 $2.30 $1.14 $1.55 ============ ============ ============ ============
10 L. Distributions On September 12, 2003, and December 15, 2003, Ferrellgas paid cash distributions of $1.00 and $0.50 per senior and common unit, respectively, for the three months ended July 31, 2003 and October 31, 2003. On February 24, 2004, Ferrellgas declared cash distributions of $1.00 and $0.50 per senior and common unit, respectively, for the three months ended January 31, 2004, that are expected to be paid on March 15, 2004. M. Adoption of new accounting standards The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," FASB Financial Interpretation No. 46 "Consolidation of Variable Interest Entities" and Emerging Issues Task Force ("EITF") 00-21 "Accounting for Revenue Arrangements with Multiple Deliverables." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for the fiscal year ending July 31, 2004. Ferrellgas has studied SFAS No. 150 and believes it will not have a material effect on its financial position, results of operations and cash flows. FASB Financial Interpretation No. 46 ("FIN 46") clarifies Accounting Research Bulletin No. 51, "Consolidated Financial Statements." If certain conditions are met, this interpretation requires the primary beneficiary to consolidate certain variable interest entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity investment at risk to permit the variable interest entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB issued a revision to FIN 46, which addresses new effective dates and certain implementation issues. The interpretation is generally effective for the periods ending after December 15, 2003. Among these issues is the addition of a scope exception for certain entities that meet the definition of a business, provided certain criteria are met. Ferrellgas currently believes it does not have any variable interest entities that would be subject to this revised interpretation. EITF No. 00-21 addresses how to account for arrangements that may involve multiple revenue-generating activities, such as the delivery or performance of multiple products, services, and/or rights to use assets. In applying this guidance, separate contracts with the same party, entered into at or near the same time, will be presumed to be a bundled transaction, and the consideration will be measured and allocated to the separate units based on their relative fair values. This consensus guidance will be applicable to agreements entered into in quarters beginning after June 15, 2003. Ferrellgas adopted this new accounting pronouncement beginning August 1, 2003. The implementation of this pronouncement did not have a material impact on Ferrellgas' financial position, results of operations and cash flows, because it does not enter into a significant number of arrangements that may involve multiple revenue-generating activities. N. Transactions with related parties Ferrellgas has no employees and is managed and controlled by its General Partner. Pursuant to Ferrellgas' partnership agreements, the General Partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas, and all other necessary or appropriate expenses allocable to Ferrellgas or otherwise reasonably incurred by its General Partner in connection with operating Ferrellgas' business. These costs, which include compensation and benefits paid to employees of the General Partner who perform services on their behalf, as well as related general and administrative costs, are as follows: 11 For the three months For the six months ended January 31, ended January 31, ------------------------ ----------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Reimbursable costs $55,237 $54,108 $104,044 $99,289 JEF Capital Management is beneficially owned by James E. Ferrell, the Chairman, President and Chief Executive Officer of the General Partner, and thus is an affiliate. Ferrellgas paid senior unit distributions of $4.0 million and $5.6 million to JEF Capital Management during the six months ended January 31, 2004 and 2003, respectively. On January 31, 2004, Ferrellgas accrued a senior unit distribution of $2.0 million that Ferrellgas expects to pay to JEF Capital Management on March 15, 2003. See Note J - Partners' capital - for disclosure of related party transactions with the General Partner and JEF Capital Management related to the issuance of common units on December 1, 2003. Ferrell Companies is the sole shareholder of the General Partner and owns 17.8 million common units of Ferrellgas Partners. Ferrell Propane, Inc. ("Ferrell Propane") is wholly-owned by the General Partner. During the six months ended January 31, 2004 and 2003, Ferrellgas Partners paid common unit distributions of $17.8 million, $0.1 million and $0.4 million to Ferrell Companies, Ferrell Propane and the General Partner, respectively. On February 24, 2004, Ferrellgas declared distributions to Ferrell Companies, Ferrell Propane and the General Partner of $8.9 million, $26 thousand and $0.2 million, respectively, that are expected to be paid on March 15, 2004. See Note J - Partners' capital - for disclosure of related party transactions with the General Partner and JEF Capital Management related to the issuance of common units on December 1, 2003. Ferrell International Limited is beneficially owned by James E. Ferrell and thus is an affiliate. Ferrellgas enters into transactions with Ferrell International Limited in connection with Ferrellgas' risk management activities and does so at market prices in accordance with Ferrellgas' affiliate trading policy approved by the General Partner's Board of Directors. These transactions include forward, option and swap contracts and are all reviewed for compliance with the policy. Ferrellgas also provides limited accounting services for Ferrell International Limited. Ferrellgas recognized the following net receipts (disbursements) from purchases, sales and commodity derivative transactions and for providing accounting services with Ferrell International Limited: For the three months For the six months ended January 31, ended January 31, ------------------------ ----------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Net receipts(disbursements) $ - $ 65 $ - $(245) Receipts from providing accounting services 10 10 20 20
These net purchases, sales and commodity derivative transactions with Ferrell International Limited are classified as cost of product sold on the condensed consolidated statements of earnings. There were no amounts due from or due to Ferrell International Limited at January 31, 2004. O. Subsequent event - announcement of anticipated contribution of membership interests of Blue Rhino LLC On February 9, 2004, Ferrellgas announced that a subsidiary of Ferrell Companies, Inc., the parent of the General Partner, intends to contribute to Ferrellgas Partners, and subsequently to the Operating Partnership, the membership interests in Blue Rhino LLC and its payment and specified other obligations under the agreement pursuant to which it acquired that entity. Terms of the contribution agreement call for the assumption of the subsidiary's obligation to pay $17 in cash for each share of Blue Rhino Corporation stock outstanding on the date of the closing of the merger by which the subsidiary will acquire Blue Rhino Corporation and subsequently convert it into a limited liability corporation. The total obligation assumed is anticipated to be approximately $340.0 million. Blue Rhino is the nations' leading provider of branded propane tank exchange service and complimentary products with 29,000 retail locations in 49 states and Puerto Rico. The transaction is expected to close during the last half of fiscal 2004. 12 FERRELLGAS PARTNERS FINANCE CORP. (A wholly-owned subsidiary of Ferrellgas Partners, L.P.) CONDENSED BALANCE SHEETS (in dollars) (unaudited) January 31, July 31, ASSETS 2004 2003 -------------------------------------------------------------------- ----------------- ---------------- 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 2,508 2,463 Accumulated deficit (2,508) (2,463) ----------------- ---------------- Total stockholder's equity $1,000 $1,000 ================= ================
CONDENSED STATEMENTS OF EARNINGS (unaudited) Three months ended Six months ended ----------------------------------- ----------------------------------- January 31, January 31, January 31, January 31, 2004 2003 2004 2003 --------------- ---------------- --------------- ---------------- General and administrative expense $ - $ - $ (45) $ - --------------- ---------------- --------------- ---------------- Net loss $ - $ - $ (45) $ - =============== ================ =============== ================
See note to these condensed financial statements. 14 FERRELLGAS PARTNERS FINANCE CORP. (A wholly-owned subsidiary of Ferrellgas Partners, L.P.) CONDENSED STATEMENTS OF CASH FLOWS (in dollars) (unaudited) For the six months ended -------------------------------------------- January 31, January 31, 2004 2003 ------------------ ------------------- Cash flows from operating activities: Net loss $ (45) $ - ------------------ ------------------- Cash used in operating activities (45) - ------------------ ------------------- Cash flows from financing activities: Capital contribution 45 - ------------------ ------------------- Cash provided by financing activities 45 - ------------------ ------------------- Change in cash - - Cash - beginning of period 1,000 1,000 ------------------ ------------------- Cash - end of period $1,000 $1,000 ================== ===================
See note to these condensed financial statements. NOTE TO CONDENSED FINANCIAL STATEMENTS JANUARY 31, 2004 (unaudited) A. Organization Ferrellgas Partners Finance Corp., a Delaware corporation, was formed on March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners, L.P. The condensed 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 condensed financial statements were of a normal, recurring nature. 15 FERRELLGAS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) January 31, July 31, ASSETS 2004 2003 -------------------------------------------------------------------------------- -------------- -------------- Current assets: Cash and cash equivalents $ 20,896 $ 10,816 Accounts and notes receivable, net 157,581 56,742 Inventories 83,976 69,077 Prepaid expenses and other current assets 8,043 7,629 -------------- -------------- Total current assets 270,496 144,264 Property, plant and equipment, net 698,457 684,917 Goodwill 124,190 124,190 Intangible assets, net 110,067 98,157 Other assets 4,305 4,163 -------------- -------------- Total assets $1,207,515 $1,055,691 ============== ============== LIABILITIES AND PARTNERS' CAPITAL ------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 116,536 $ 59,261 Other current liabilities 67,043 77,211 Short-term borrowings 42,700 - -------------- -------------- Total current liabilities 226,279 136,472 Long-term debt 680,915 668,657 Other liabilities 19,728 18,747 Contingencies and commitments (Note I) - - Partners' capital: Limited partner 279,553 231,420 General partner 2,853 2,363 Accumulated other comprehensive loss (1,813) (1,968) -------------- -------------- Total partners' capital 280,593 231,815 -------------- -------------- Total liabilities and partners' capital $1,207,515 $1,055,691 ============== ==============
See notes to these condensed consolidated financial statements. 16 FERRELLGAS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands) (unaudited) For the three months ended For the six months ended ------------------------------ ------------------------------ January 31, January 31, January 31, Janaury 31, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Revenues: Propane and other gas liquids sales $457,433 $439,301 $689,487 $634,201 Other 24,348 25,165 47,708 46,579 --------------- -------------- -------------- -------------- Total revenues 481,781 464,466 737,195 680,780 Cost of product sold (exclusive of depreciation, shown with amortization below) 286,899 254,718 446,148 378,390 --------------- -------------- -------------- -------------- Gross profit 194,882 209,748 291,047 302,390 Operating expense 79,739 79,406 152,151 147,834 Depreciation and amortization expense 12,665 10,261 23,860 20,156 General and administrative expense 8,982 7,759 15,873 14,661 Equipment lease expense 4,732 5,528 9,243 11,520 Employee stock ownership plan compensation charge 2,164 1,639 3,948 3,034 Loss on disposal of assets and other 1,926 1,125 3,552 1,796 --------------- -------------- -------------- -------------- Operating income 84,674 104,030 82,420 103,389 Interest expense (12,536) (11,687) (24,304) (22,442) Interest income 470 360 801 418 --------------- -------------- -------------- -------------- Earnings before cumulative effect of change in accounting principle 72,608 92,703 58,917 81,365 Cumulative effect of change in accounting principle - - - (2,782) --------------- -------------- -------------- -------------- Net earnings $ 72,608 $ 92,703 $ 58,917 $ 78,583 =============== ============== ============== ==============
See notes to these condensed consolidated financial statements. 17 FERRELLGAS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (in thousands) (unaudited) Accumulated other comprehensive loss ----------------------- Total Limited General Risk Pension partners' partner partner management liability capital ----------- ----------- ------------ --------- ----------- August 1, 2003 $231,420 $2,363 $ - $(1,968) $231,815 Contribution in connection with ESOP compensation charge 3,908 40 - - 3,948 Quarterly cash and accrued distributions (52,672) (538) - - (53,210) Net assets contributed by Ferrellgas Partners and general partner in connection with acquistions 38,575 393 - - 38,968 Comprehensive income: Net earnings 58,322 595 - - 58,917 Other comprehensive income: Pension liability adjustment 174 174 Net losses on risk management derivatives - - (69) - (69) Reclassification of net gains on derivatives - - 50 - 50 ----------- Comprehensive income 59,072 ----------- ----------- ------------ --------- ----------- January 31, 2004 $279,553 $2,853 $(19) $(1,794) $280,593 ============ =========== ============= ========== ===========
See notes to these condensed consolidated financial statements. 18 FERRELLGAS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the six months ended -------------------------------- January 31, January 31, 2004 2003 --------------- --------------- Cash flows from operating activities: Net earnings $ 58,917 $ 78,583 Reconciliation of net earnings to net cash provided by operating activities: Cumulative effect of change in accounting principle - 2,782 Depreciation and amortization expense 23,860 20,156 Employee stock ownership plan compensation charge 3,948 3,034 Loss on disposal of assets 2,824 786 Other 2,926 3,828 Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts and notes receivable, net (128,001) (111,337) Inventories (14,899) (20,391) Prepaid expenses and other current assets (438) 1,285 Accounts payable 57,275 46,012 Other current liabilities (10,311) (7,610) Other liabilities 882 (315) Accounts receivable securitization: Proceeds from new accounts receivable securitizations 30,000 60,000 Proceeds from collections reinvested in revolving period accounts receivable securitizations 419,466 303,837 Remittances of amounts collected as servicer of accounts receivable securitizations (423,466) (303,837) --------------- --------------- Net cash provided by operating activities 22,983 76,813 --------------- --------------- Cash flows from investing activities: Business acquisitions, net of cash acquired (38,142) (2,121) Capital expenditures - tank lease buyout - (155,600) Capital expenditures - technology initiative (3,612) (10,993) Capital expenditures - other (12,581) (7,509) Other 1,799 1,511 ----------------- ---------------- Net cash used in investing activities (52,536) (174,712) ----------------- ---------------- Cash flows from financing activities: Distributions (53,210) (50,048) Proceeds from issuance of debt 13,300 140,000 Principal payments on debt (1,423) (1,559) Net additions to short-term borrowings 42,700 - Cash paid for financing costs - (1,896) Cash contribution from partners 38,266 18,179 ----------------- ---------------- Net cash provided by financing activities 39,633 104,676 ----------------- ---------------- Increase in cash and cash equivalents $ 10,080 $ 6,777 Cash and cash equivalents - beginning of period 10,816 19,388 ----------------- ---------------- Cash and cash equivalents - end of period $ 20,896 $ 26,165 ================= ================ Cash paid for interest $ 23,361 $ 20,812 ================= ================
See notes to these condensed consolidated financial statements. 19 FERRELLGAS, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2004 (Dollars in thousands) (unaudited) A. Organization Ferrellgas, L.P. operates the propane business and assets of Ferrellgas Partners, L.P. ("Ferrellgas Partners"). The general partner of Ferrellgas, L.P. and Ferrellgas Partners is Ferrellgas, Inc. (the "General Partner"), a wholly-owned subsidiary of Ferrell Companies, Inc. ("Ferrell Companies"). The General Partner holds an approximate 1% general partner interest in Ferrellgas, L.P. and performs all management functions. Ferrellgas Partners, a publicly traded limited partnership, holds an approximate 99% interest in and consolidates Ferrellgas, L.P. The condensed consolidated financial statements of Ferrellgas, L.P. and subsidiaries reflect all adjustments, which are, in the opinion of management, necessary for a fair statement of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal, recurring nature. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in Ferrellgas, L.P.'s Annual Report on Form 10-K for the fiscal year ended July 31, 2003. B. Unit and stock-based compensation Ferrellgas, L.P. accounts for the Ferrellgas Unit Option Plan (the "Unit Option Plan") and the Ferrell Companies, Inc. Incentive Plan (the "ICP") using the intrinsic value method under the provisions of Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees," for all periods presented and makes the fair value method pro forma disclosures required under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." Accordingly, no compensation cost has been recognized for the Unit Option Plan or for the ICP in the condensed consolidated statements of earnings. Had compensation cost for these plans been determined based upon the fair value at the grant date for awards under these plans, consistent with the methodology recommended under SFAS No. 123, Ferrellgas, L.P.'s net earnings would have been adjusted as noted in the table below: For the three months For the six months ended January 31, ended January 31, ------------------------ ---------------------- 2004 2003 2004 2003 ---------- ---------- ---------- -------- Net earnings, as reported $72,608 $92,703 $58,917 $78,583 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards 245 211 485 422 ---------- ---------- ---------- -------- Pro forma net earnings $72,363 $92,492 $58,432 $78,161 ========== ========== ========== ========
20 C. Accounting estimates 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. Significant estimates impacting the condensed consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment assets, residual values of tanks, amortization methods of intangible assets and valuation methods of intangible assets and derivative commodity contracts. D. Reclassifications Certain reclassifications have been made to the six months ended January 31, 2003 condensed consolidated statement of cash flows to conform to the six months ended January 31, 2004 condensed consolidated statement of cash flows presentation. "Loss on disposal of assets" is disclosed separately in net cash provided by operating activities on the condensed consolidated statements of cash flows. This amount was previously classified as "Other" in net cash provided by operating activities in the six months ended January 31, 2003. E. Nature of operations Ferrellgas, L.P. is engaged primarily in the retail distribution of propane and related equipment and supplies in the United States. The retail market is seasonal because propane is used primarily for heating in residential and commercial buildings. Therefore, the results of operations for the six months ended January 31, 2004 and 2003 are not necessarily indicative of the results to be expected for a full fiscal year. F. Cash and cash equivalents and non-cash activities For purposes of the condensed consolidated statements of cash flows, Ferrellgas, L.P. considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less. Significant non-cash investing and financing activities are primarily related to the accounts receivable securitization and transactions with related parties and are disclosed in Note G - Accounts receivable securitization and Note L - Transactions with related parties, respectively. G. Accounts receivable securitization During the six months ended January 31, 2004, $26.0 million had been funded from Ferrellgas, L.P.'s accounts receivable securitization facility. Ferrellgas, L.P. renewed this facility effective September 23, 2003, for a 364-day commitment with Banc One, NA. At January 31, 2004, Ferrellgas, L.P. did not have any remaining capacity to transfer additional trade accounts receivable. In accordance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," this transaction is reflected in the condensed consolidated financial statements as a sale of accounts receivable and a retained interest in transferred accounts receivable. The retained interest is classified on the condensed consolidated balance sheets within "Accounts and notes receivable, net." H. Supplemental financial statement information Inventories consist of: January 31, July 31, 2004 2003 ---------------- ----------------- Propane gas and related products $65,461 $49,772 Appliances, parts and supplies 18,515 19,305 ---------------- ----------------- $83,976 $69,077 ================ =================
21 In addition to inventories on hand, Ferrellgas, L.P. enters into contracts to buy and sell product, primarily propane for supply procurement purposes. Nearly all of these contracts have terms of less than one year and most call for payment based on market prices at the date of delivery. All fixed price contracts have terms of less than one year. As of January 31, 2004, Ferrellgas, L.P. had committed, for supply procurement purposes, to make net delivery of approximately 4.1 million gallons of propane at a fixed price. Property, plant and equipment, net consist of: January 31, July 31, 2004 2003 ---------------- ----------------- Property, plant and equipment $1,025,539 $1,002,199 Less: accumulated depreciation 327,082 317,282 ---------------- ----------------- $ 698,457 $ 684,917 ================ =================
During the six months ended January 31, 2004, Ferrellgas, L.P. placed in service $46.4 million of computer software, which will be depreciated using the straight-line method over its estimated useful life of 5 years. Intangible assets, net consist of: January 31, 2004 July 31, 2003 ------------------------------------------ ------------------------------------------ Gross Gross carrying Accumulated carrying Accumulated amount amortization Net amount amortization Net ---------- ---------------- ----------- ---------- ---------------- ----------- Customer lists $230,203 $(134,337) $ 95,866 $220,061 $(133,548) $86,513 Non-compete agreements 68,228 (54,027) 14,201 64,020 (52,376) 11,644 ---------- ---------------- ----------- ---------- ---------------- ----------- $298,431 $(188,364) $110,067 $284,081 $(185,924) $98,157 ========== ================ =========== ========== ================ ============
For the three months For the six months ended January 31, ended January 31, ------------------------ ---------------------- 2004 2003 2003 2002 ---------- ---------- ---------- ---------- Aggregate amortization expense $2,876 $3,199 $6,043 $6,304
Estimated amortization expense: For the years ended July 31, 2004 $ 11,991 2005 11,349 2006 10,823 2007 10,091 2008 9,158 22 Loss on disposal of assets and other consists of: For the three months For the six months ended January 31, ended January 31, -------------------------- ------------------------ 2004 2003 2004 2003 -------- -------- -------- -------- Loss on disposal of assets $1,503 $ 546 $2,824 $ 786 Loss on transfer of accounts receivable related to the accounts receivable securitization 931 910 1,547 1,374 Service income related to the accounts receivable securitization (508) (331) (819) (364) -------- -------- -------- -------- $1,926 $1,125 $3,552 $1,796 ======== ======== ======== ========
Shipping and handling expenses are classified in the following condensed consolidated statements of earnings line items: For the three months For the six months ended January 31, ended January 31, -------------------------- ------------------------ 2004 2003 2004 2003 -------- -------- -------- -------- Operating expense $39,856 $37,291 $70,356 $67,070 Depreciation and amortization expense 2,146 1,505 4,182 3,177 Equipment lease expense 2,820 3,037 5,624 5,932 -------- -------- -------- -------- $44,822 $41,833 $80,162 $76,179 ======== ======== ======== ========
I. Contingencies Ferrellgas L.P.'s operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane. As a result, at any given time, Ferrellgas, L.P. is threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. 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 will have a material adverse effect on the financial condition, results of operations and cash flows of Ferrellgas, L.P. Currently, Ferrellgas L.P. is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. J. Distributions During the six months ended January 31, 2004, Ferrellgas, L.P. paid cash distributions of $53.2 million. On February 24, 2004, Ferrellgas L.P. declared a cash distribution of $22.3 million for the three months ended January 31, 2004, that is expected to be paid on March 15, 2004. K. Adoption of new accounting standards The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," FASB Financial Interpretation No. 46 "Consolidation of Variable Interest Entities" and Emerging Issues Task Force ("EITF") 00-21 "Accounting for Revenue Arrangements with Multiple Deliverables." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for the fiscal year ending July 31, 2004. Ferrellgas, L.P. has studied SFAS No. 150 and believes it will not have a material effect on its financial position, results of operations and cash flows. 23 FASB Financial Interpretation No. 46 ("FIN 46") clarified Accounting Research Bulletin No. 51, "Consolidated Financial Statements." If certain conditions are met, this interpretation requires the primary beneficiary to consolidate certain variable interest entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity investment at risk to permit the variable interest entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB issued a revision to FIN 46, which addresses new effective dates and certain implementation issues. The interpretation is generally effective for the periods ending after December 15, 2003. Among these issues is the addition of a scope exception for certain entities that meet the definition of a business, provided certain criteria are met. Ferrellgas, L.P. currently believes it does not have any variable interest entities that would be subject to this revised interpretation. EITF No. 00-21 addresses how to account for arrangements that may involve multiple revenue-generating activities, such as the delivery or performance of multiple products, services, and/or rights to use assets. In applying this guidance, separate contracts with the same party, entered into at or near the same time, will be presumed to be a bundled transaction, and the consideration will be measured and allocated to the separate units based on their relative fair values. This consensus guidance will be applicable to agreements entered into in quarters beginning after June 15, 2003. Ferrellgas, L.P. adopted this new accounting pronouncement beginning August 1, 2003. The implementation of this pronouncement did not have a material impact on Ferrellgas, L.P.'s financial position, results of operations and cash flows, because it does not enter into a significant number of arrangements that may involve multiple revenue-generating activities. L. Transactions with related parties Ferrellgas, L.P. has no employees and is managed and controlled by the General Partner. Pursuant to Ferrellgas, L.P.'s partnership agreement, the General Partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas, L.P., and all other necessary or appropriate expenses allocable to Ferrellgas, L.P. or otherwise reasonably incurred by the General Partner in connection with operating Ferrellgas L.P.'s business. These costs, which include compensation and benefits paid to employees of the General Partner who perform services on their behalf, as well as related general and administrative costs, are as follows: For the three months For the six months ended January 31, ended January 31, -------------------------- ------------------------ 2004 2003 2004 2003 -------- -------- -------- -------- Reimbursable costs $55,237 $54,108 $104,044 $99,289
Ferrellgas, L.P. paid to Ferrellgas Partners and the General Partner distributions of $52.7 million and $0.5 million, respectively, during the six months ended January 31, 2004. On February 24, 2004, Ferrellgas, L.P. declared distributions to Ferrellgas Partners, L.P. and the General Partner of $22.1 million and $0.2 million, respectively, that are expected to be paid on March 15, 2004. On December 1, 2003, Ferrellgas, L.P. received $38.6 million and $0.4 million in cash and net asset contributions from Ferrellgas Partners and the General Partner, respectively. Ferrellgas, L.P. then used the net cash proceeds to reduce the borrowings outstanding under its bank credit facility. Ferrell International Limited is beneficially owned by James E. Ferrell and thus is an affiliate. Ferrellgas, L.P. enters into transactions with Ferrell International Limited in connection with Ferrellgas L.P.'s risk management activities and does so at market prices in accordance with Ferrellgas L.P.'s affiliate trading policy approved by the General Partner's Board of Directors. These transactions include forward, option and swap contracts and are all reviewed for compliance with the policy. Ferrellgas also provides limited accounting services for Ferrell International Limited. Ferrellgas, L.P. recognized the following net receipts (disbursements) from purchases, sales and commodity derivative transactions and for providing accounting services with Ferrell International Limited: 24 For the three months For the six months ended January 31, ended January 31, -------------------------- ------------------------ 2004 2003 2004 2003 -------- -------- -------- -------- Net receipts(disbursements) $ - $65 $ - $(245) Receipts from providing accounting services 10 10 20 20
These net purchases, sales and commodity derivative transactions with Ferrell International Limited are classified as cost of product sold on the condensed consolidated statements of earnings. There were no amounts due from or due to Ferrell International Limited at January 31, 2004. M. Subsequent event - announcement of anticipated contribution of membership interests of Blue Rhino LLC On February 9, 2004, Ferrellgas, L.P. announced that a subsidiary of Ferrell Companies, Inc., the parent of the General Partner, intends to contribute to Ferrellgas Partners, and subsequently to Ferrellas, L.P., the membership interests in Blue Rhino LLC and its payment and specified other obligations under the agreement pursuant to which it acquired that entity. Terms of the contribution agreement call for the assumption of the subsidiary's obligation to pay $17 in cash for each share of Blue Rhino Corporation stock outstanding on the date of the closing of the merger by which the subsidiary will acquire Blue Rhino Corporation and subsequently convert it into a limited liability corporation. The total obligation assumed is anticipated to be approximately $340.0 million. Blue Rhino Corporation is the nations' leading provider of branded propane tank exchange service and complimentary products with 29,000 retail locations in 49 states and Puerto Rico. The transaction is expected to close during the last half of fiscal 2004. 25 FERRELLGAS FINANCE CORP. (A wholly-owned subsidiary of Ferrellgas, L.P.) CONDENSED BALANCE SHEETS (in dollars) (unaudited) January 31, July 31, ASSETS 2004 2003 -------------------------------------------------------------------- ------------------- ------------------- 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 700 515 Accumulated deficit (700) (515) ------------------- ------------------- Total stockholder's equity $1,000 $1,000 =================== ===================
CONDENSED STATEMENTS OF EARNINGS (unaudited) Three months From Six months From ended inception to ended inception to January 31, January 31, January 31, January 31, 2004 2003 2004 2003 ---------------- ------------ --------------- ------------ General and administrative expense $ 185 $ - $ 185 $ - ---------------- ------------ --------------- ------------ Net loss $ (185) $ - $ (185) $ - ================ ============ =============== ============
See note to these condensed financial statements. 26 FERRELLGAS FINANCE CORP. (A wholly-owned subsidiary of Ferrellgas, L.P.) CONDENSED STATEMENTS OF CASH FLOWS (in dollars) (unaudited) Six months ended From inception to January 31, January 31, 2004 2003 -------------------------- -------------------------- Cash flows from operating activities: Net loss $ (185) $ - -------------------------- -------------------------- Cash used in operating activities (185) - -------------------------- -------------------------- Cash flows from financing activities: Capital contribution 185 - -------------------------- -------------------------- Cash provided by financing activities 185 - -------------------------- -------------------------- Change in cash - - Cash - beginning of period 1,000 1,000 -------------------------- -------------------------- Cash - end of period $1,000 $1,000 ========================== ==========================
See note to these condensed financial statements. NOTE TO CONDENSED FINANCIAL STATEMENTS JANUARY 31, 2004 (unaudited) A. Organization Ferrellgas Finance Corp., a Delaware corporation, was formed on January 16, 2003 and is a wholly-owned subsidiary of Ferrellgas, L.P. The condensed 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 condensed financial statements were of a normal, recurring nature. 27 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our management's discussion and analysis of financial condition and results of operations relates to Ferrellgas Partners, L.P. and Ferrellgas, L.P. Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. have nominal assets, do not conduct any operations and have no employees. Ferrellgas Partners Finance Corp. may act as a co-obligor of future issuances of debt securities of Ferrellgas Partners and Ferrellgas Finance Corp. may act as co-obligor of future issuances of debt securities of Ferrellgas, L.P. Accordingly, and due to the reduced disclosure format, a discussion of the results of operations, liquidity and capital resources of Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. are not presented in this section. In this report, unless the context indicates otherwise: o when we refer to "us," "we," "our," or "ours," we generally mean Ferrellgas Partners, L.P. together with its consolidated subsidiaries, including Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp., except when used in connection with "common units" or "senior units," in which case these terms refer to Ferrellgas Partners, L.P.; o references to "Ferrellgas Partners" refer to Ferrellgas Partners, L.P. itself, without its consolidated subsidiaries; o references to the "operating partnership" refer to Ferrellgas, L.P., together with its consolidated subsidiaries, including Ferrellgas Finance Corp.; o references to our "general partner" refer to Ferrellgas, Inc.; o the term "unitholders" refers to holders of common units of Ferrellgas Partners; and o references to "Notes" refer to the notes to the condensed consolidated financial statements of Ferrellgas Partners and subsidiaries, as filed herewith. Ferrellgas Partners and the operating partnership are Delaware limited partnerships. Ferrellgas Partners is a holding entity that conducts no operations and has two direct subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partner's only significant assets are its approximate 99% limited partnership interest in the operating partnership and its 100% equity interest in Ferrellgas Partners Finance Corp. Our common units are listed on the New York Stock Exchange and our activities are substantially conducted through the operating partnership. The following is a discussion of our historical financial condition and results of operations and should be read in conjunction with our historical condensed consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The discussions set forth in the "Results of Operations" and "Liquidity and Capital Resources" sections generally refer to Ferrellgas Partners and its consolidated subsidiaries. However, there exists three material differences between Ferrellgas Partners and the operating partnership. Those three material differences are: o the partnerships incur different amounts of interest expense on their outstanding indebtedness; see pages 2 and 16 in their respective condensed consolidated financial statements; o during the six months ended January 31, 2003, Ferrellgas Partners incurred $7.1 million in expenses related to the early extinguishment of its debt; and o during the three months ended January 31, 2004, Ferrellgas Partners paid $8.5 million in cash on a short-term, non-interest bearing note related to the fiscal 2003 acquisition of Pro-Am, Inc. 28 Forward-looking statements Statements included in this report include forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. These statements often use words such as "anticipate," "believe," "intend," "plan," "projection," "forecast," "strategy," "position," "continue," "estimate," "expect," "may," "will," or the negative of those terms or other variations of them or comparable terminology. These statements often discuss plans, strategies, events or developments that we expect or anticipate will or may occur in the future and are based upon the beliefs and assumptions of our management and on the information currently available to them. In particular, statements, express or implied, concerning future operating results, or our ability to generate sales, income or cash flow are forward-looking statements. Forward-looking statements are not guarantees of future performance. You should not put undue reliance on any forward-looking statements. All forward-looking statements are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially from those expressed in or implied by these forward-looking statements. Many of the factors that will affect our future results are beyond our ability to control or predict. Some of our forward-looking statements include the following: o whether the operating partnership will have sufficient funds to meet its obligations, including its obligations under its debt securities, and to enable it to distribute to Ferrellgas Partners sufficient funds to permit Ferrellgas Partners to meet its obligations with respect to its existing securities; o whether Ferrellgas Partners and the operating partnership will continue to meet all of the quarterly financial tests required by the agreements governing their indebtedness; o the expectation that retail gallons sold, gross profit and interest expense in future periods will approximate those in prior periods; and o the expectation that future periods will have increased depreciation expense over the amount recognized during the same period in fiscal 2003. For a more detailed description of these and other forward-looking statements and for risk factors that may affect any forward-looking statements, see the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in Items 7 and 1, respectively, of our Annual Report on Form 10-K for our fiscal year ended July 31, 2003, as filed with the SEC on October 21, 2003. Results of Operations Overview We are the second largest retail marketer of propane in the United States based on retail gallons sold during fiscal 2003. We serve more than one million residential, industrial/commercial and agricultural and other customers in 45 states. Our operations primarily include the retail distribution and sale of propane and related equipment and supplies and extend from coast to coast with concentrations in the Midwest, Southeast, Southwest and Northwest regions of the country. Weather conditions have a significant impact on demand for propane for heating purposes. Accordingly, the volume of propane sold is directly affected by the severity of the winter weather in the regions we serve and can vary substantially from year to year. In any given area, sustained warmer-than-normal temperatures will tend to result in reduced propane use, while sustained colder-than-normal temperatures will tend to result in greater use. The market for propane is seasonal because of increased demand during the winter months primarily for the purpose of providing heating in residential and commercial buildings. Consequently, sales and operating profits are concentrated in our second and third fiscal quarters, which are during the winter heating season of November through March. Due to the seasonality of the retail distribution of propane, results of our operations for the six months ended January 31, 2004 and 2003 are not necessarily indicative of the results to be expected for a full fiscal year. Other factors affecting our results of operations include competitive conditions, energy commodity prices, demand for propane, timing of acquisitions and general economic conditions in the United States. 29 Our gross profit from the retail distribution of propane is primarily based on margins; that is the cents-per-gallon difference between our costs to purchase and distribute propane and the sale prices we charge our retail customers. The wholesale propane price per gallon is subject to various market conditions and may fluctuate based on changes in demand, supply and other energy commodity prices. We employ risk management activities that attempt to mitigate risks related to the purchasing, storing and transporting of propane. As we have grown through acquisitions, fixed costs such as personnel costs, equipment leases, depreciation and interest expense have increased. Historically, due to the seasonality of our business, these fixed costs have contributed to net losses in the first and fourth fiscal quarters. Gross profit earned in our second and third quarters provide sources of cash for these fixed costs. We continue to pursue our business strategies of using technology to improve operations, capitalizing on our national presence and economies of scale, employing a disciplined acquisition strategy and achieving internal growth and aligning employee interest with our investors. On February 9, 2004, we announced that a subsidiary of Ferrell Companies, Inc., the parent of the general partner, intends to contribute to Ferrellgas Partners, and subsequently to the operating partnership, the membership interests in Blue Rhino LLC and its payment and specified other obligations under the agreement pursuant to which it acquired that entity. Terms of the contribution agreement call for the assumption of the subsidiary's obligation to pay $17 in cash for each share of Blue Rhino Corporation stock outstanding on the date of the closing of the merger by which the subsidiary will acquire Blue Rhino Corporation and subsequently convert it into a limited liability corporation. The total obligation assumed is anticipated to be approximately $340 million. Blue Rhino is the nations' leading provider of branded propane tank exchange service and complimentary products with 29,000 retail locations in 49 states and Puerto Rico. The transaction is expected to close during the last half of fiscal 2004. Three Months Ended January 31, 2004 and January 31, 2003 (amounts in thousands) Increase/ Percentage Three months ended January 31, 2004 2003 (Decrease) Change ------------------------------- ---------- ---------- ---------- ---------- Retail propane gallons sold 318,767 360,388 (41,621) (11.5)% Propane and other gas liquids sales $457,433 $439,301 $18,132 4.1% Gross profit 194,882 209,748 (14,866) (7.1)% Operating income 84,609 103,759 (19,150) 18.5)% Interest expense 17,291 16,084 1,207 7.5%
Heating degree days, as reported by the National Oceanic and Atmospheric Administration ("NOAA"), were 2% warmer than normal during both the three months ended January 31, 2004 and the three months ended January 31, 2003. The combined temperatures for the first two months of the fiscal 2004 second quarter were 6% warmer than normal; however, temperatures for January were 3% colder than normal, with the coldest temperatures occurring in the last two weeks of January. Most of the colder temperatures in the first two months of the fiscal 2004 second quarter were concentrated in the northeastern portion of the country, where our customer base is smaller as compared to other regions of the country. Customer conservation and delayed deliveries caused by higher commodity prices also contributed significantly to the volume shortfall this quarter. The average propane sales price per gallon increased due to the effect of a significant increase in the wholesale cost of propane during the three months ended January 31, 2004 as compared to the prior year period. The wholesale market price at one of the major supply points, Mt. Belvieu, Texas, averaged $0.64 per gallon during the three months ended January 31, 2004, compared to an average of $0.54 per gallon in the prior year period. Other major supply points in the United States have also experienced significant increases. 30 Propane and other gas liquids sales increased $62.9 million compared to the prior year period primarily due to an increase in the average propane sales price per gallon. This increase was partially offset by the $44.8 million sales decrease due to reduced retail sales volumes which was primarily caused by the previously mentioned warmer temperatures and customer reaction to the higher wholesale cost of propane. Gross profit decreased $14.9 million primarily due to the decrease in our retail propane volumes, and to a lesser extent, a lower contribution from our risk management trading activities, causing gross profit to decrease by $3.1 million compared to the prior year period. This decrease in gross profit was partially offset by increased retail volumes from acquisitions and increased retail margins. Operating income decreased $19.2 million reflecting the previously mentioned decrease in gross profit and, to a lesser extent, an increase in depreciation and amortization expense. Depreciation and amortization expense increased primarily due to assets related to our technology initiative that were placed in service during the three months ended October 31, 2003 and acquisitions completed during fiscal 2003 and 2004. Interest expense increased 7.5% primarily due to increased borrowings related to the buyout of operating tank leases in December 2002 and to finance acquisitions completed in fiscal 2003. Interest expense of the operating partnership Interest expense increased 7.3% primarily due to increased borrowings related to the buyout of operating tank leases in December 2002 and to finance acquisitions in fiscal 2003. Six Months Ended January 31, 2004 and January 31, 2003 (amounts in thousands) Increase/ Percentage Six months ended January 31, 2004 2003 (Decrease) Change ------------------------------- ---------- ---------- ---------- ---------- Retail propane gallons sold 494,339 532,414 (38,075) (7.2)% Propane and other gas liquids sales $689,487 $634,201 $55,286 8.7% Gross profit 291,047 302,390 (11,343) (3.8)% Operating income 82,288 103,118 (20,830) (20.2)% Interest expense 34,085 30,780 3,305 10.7%
Heating degree days, as reported by NOAA, were 4% warmer than normal during the six months ended January 31, 2004 compared to 1% warmer than normal during the six months ended January 31, 2003. The combined temperatures for November and December 2003 were 6% warmer than normal; however, temperatures for January 2004 were 3% colder than normal, with the coldest temperatures occurring in the last two weeks of January. Most of the colder temperatures in November and December 2003 were concentrated in the northeastern portion of the country, where our customer base is smaller as compared to other regions of the country. Customer conservation and delayed deliveries caused by higher commodity prices also contributed significantly to the volume shortfall this period. The average sales price per gallon increased due to the effect of a significant increase in the wholesale cost of propane during fiscal 2004 as compared to the prior year period. The wholesale market price at one of the major supply points, Mt. Belvieu, Texas, averaged $0.59 per gallon during the six months ended January 31, 2004, compared to an average of $0.49 per gallon in the prior year period. Other major supply points in the United States have also experienced significant increases. Propane and other gas liquids sales increased $100.3 million compared to the prior year period primarily due to an increase in the average propane sales price per gallon. This increase was partially offset by the $45.0 million sales decrease due to reduced retail sales volumes which was primarily caused by warmer temperatures as discussed above. Gross profit decreased $11.3 million primarily due to the decrease in our retail propane volumes, and to a lesser extent, a lower contribution from our risk management trading activities, causing gross profit to decrease by $1.5 million This decrease in gross profit was partially offset by increased volumes from acquisitions and increased retail margins. 31 Operating income decreased $20.8 million reflecting the previously mentioned decrease in gross profit, an increase in operating expense and, to a lesser extent, an increase in depreciation and amortization expense. Operating expense increased primarily due to increased personnel expense related to acquisitions completed during fiscal 2003 and 2004. Depreciation and amortization expense increased primarily due to assets related to our technology initiative that were placed in service during the three months ended October 31, 2003 and acquisitions completed during fiscal 2003 and 2004. Interest expense increased 10.7% primarily due to increased borrowings related to the buyout of operating tank leases in December 2002 and to finance acquisitions completed in fiscal 2003. Interest expense of the operating partnership Interest expense increased 8.3% primarily due to increased borrowings related to the buyout of operating tank leases in December 2002 and to finance acquisitions in fiscal 2003. Forward-looking statements We expect retail gallons sold, gross profit and interest expense in the second half of fiscal 2004 to approximate the amounts reported in the prior year period. We anticipate operating income in the second half of fiscal 2004 to be unfavorable compared to the prior year period primarily due to increased depreciation expense. We expect net earnings in the second half of fiscal 2004 to be unfavorable compared to the prior year period primarily due the decrease in operating income and increased interest expense from increased borrowings. Liquidity and Capital Resources General Our cash requirements include working capital requirements, debt service payments, the required quarterly senior unit distribution, the minimum quarterly common unit distribution, capital expenditures and acquisitions. The minimum quarterly distribution of $0.50 expected to be paid on all common units on March 15, 2004, represents the thirty-eighth consecutive minimum quarterly distribution paid to our common unitholders dating back to October 1994. Working capital requirements are subject to the price of propane, the weather and other changes in the demand for propane. Relatively colder weather and higher propane prices during the winter heating season increase our working capital requirements. Our ability to satisfy our cash requirements is dependent upon our future performance, which will be subject to prevailing economic, financial, business and weather conditions and other factors, many of which are beyond our control. Due to the seasonality of the retail propane distribution business, a significant portion of our cash flow from operations is generated during the winter heating season which occurs during our second and third fiscal quarters. Our net cash provided by operating activities primarily reflect earnings from our business activities adjusted for depreciation and amortization and changes in our working capital accounts. Typically, we generate significantly lower net cash from operating activities in our first and fourth fiscal quarters as compared to the second and third fiscal quarters because fixed costs generally exceed gross profit during the non-peak heating season. Subject to meeting the financial tests discussed above, our general partner believes that the operating partnership will have sufficient funds available to meet its obligations, and to distribute to Ferrellgas Partners sufficient funds to permit Ferrellgas Partners to meet its obligations during fiscal 2004. In addition, our general partner believes that the operating partnership will have sufficient funds available to distribute to Ferrellgas Partners sufficient cash to pay the required quarterly distribution on the senior units and the minimum quarterly distribution on all of its common units during the remainder of fiscal 2004. 32 Our bank credit facility, public debt, private debt and accounts receivable securitization facility contain several financial tests and covenants restricting our ability to pay distributions, incur debt and engage in certain other business transactions. In general, these tests are based on our debt to cash flow ratio and cash flow to interest expense ratio. Our general partner currently believes that the most restrictive of these tests are debt incurrence limitations under the terms of our bank credit and accounts receivable securitization facilities and limitations on the payment of distributions within our 8.75% senior notes due 2012. The bank credit and accounts receivable securitization facilities generally limit the operating partnership's ability to incur debt if it exceeds prescribed ratios of either debt to cash flow or cash flow to interest expense. Our 8.75% senior notes restrict payments if a minimum ratio of cash flow to interest expense is not met, assuming certain exceptions to this ratio limit have previously been exhausted. This restriction places limitations on our ability to make restricted payments such as the payment of cash distributions to our unitholders. The cash flow used to determine these financial tests generally is based upon our most recent cash flow performance giving pro forma effect for acquisitions and divestitures made during the test period. Our bank credit facility, public debt, private debt and accounts receivable securitization facility do not contain early repayment provisions related to a decline in our credit rating. As of January 31, 2004, our general partner believes that we met all the required quarterly financial tests and covenants during the first and second quarters of fiscal 2004. Based upon current estimates of our cash flow, our general partner believes that we will be able to continue to meet all of the required quarterly financial tests and covenants for the remainder of fiscal 2004. However, if we were to encounter unexpected downturns in business operations in the future, such as significantly warmer than normal winter temperatures, a volatile energy commodity cost environment or continued economic downturn, we may not meet the applicable financial tests in future quarters. This failure could have a materially adverse effect on our operating capacity and cash flows and could restrict our ability to incur debt or to make cash distributions to our unitholders, even if sufficient funds were available. Depending on the circumstances, we may consider alternatives to permit the incurrence of debt or the continued payment of the quarterly cash distribution to our unitholders. No assurances can be given, however, that such alternatives can or will be implemented with respect to any given quarter. Our future capital expenditures and working capital needs are expected to be provided by a combination of cash generated from future operations, existing cash balances, the bank credit facility or the accounts receivable securitization facility. To fund expansive capital projects and future acquisitions, we may obtain funds on our facilities, we may issue additional debt to the extent permitted under existing financing arrangements or we may issue additional equity securities, including, among others, common units. Toward this purpose, in June 2003, a shelf registration statement was declared effective by the SEC for the periodic sale by us of up to $500 million of equity and/or debt securities. The registered securities are available to us for sale from time to time in the future to fund acquisitions, to reduce indebtedness, to redeem senior units or to provide funds for general corporate purposes. On December 1, 2003, we received $47.4 million, after underwriting discounts and commissions, from the issuance of 2.0 million common units to the public. We used the net proceeds, together with contributions made by the general partner to maintain its effective 2% general partner interest in us, to reduce borrowings outstanding under the bank credit facility of the operating partnership by $38.3 million and to repay debt incurred to fund prior acquisitions of $8.5 million. The remaining proceeds will be used for general partnership purposes of Ferrellgas Partners. See Note J - Partners' capital - to our condensed consolidated financial statements for further discussion of this common unit issuance. As of January 31, 2004, we had $419.8 million available from this shelf registration statement. We also maintain a shelf registration statement with the SEC for the issuance of approximately 2.0 million common units. We may issue these common units in connection with our acquisition of other businesses, properties or securities in business combination transactions. 33 Operating Activities Net cash provided by operating activities was $13.4 million for the six months ended January 31, 2004, compared to net cash provided by operating activities of $64.0 million for the prior fiscal year period. This decrease in cash provided by operating activities is primarily due to the lower proceeds from the accounts receivable securitization activity, and to a lesser extent a decrease in cash flow from operating activities before changes in working capital. Our working capital needs are typically highest during the winter heating season. Cash required to fund working capital during the six months ended January 31, 2004 was $95.4 million as compared to $91.7 million for the prior fiscal period. This use of working capital is primarily due to the timing of cash received from customers on accounts receivable and the cash needed to purchase inventory. Accounts receivable securitization Cash flows from the accounts receivable securitization facility decreased $34.0 million primarily due to management's decision at the end of fiscal 2003 to reduce the bank credit facility rather than remit greater amounts collected as servicer of accounts receivable securitizations. At the end of fiscal 2002, we did not have outstanding balances on either the bank credit facility or the accounts receivable securitization facility. This decision to use lower costs of capital at July 31, 2003, for working capital needs left the accounts receivable securitization facility with an effective $34.0 million outstanding as compared to no balance outstanding at July 31, 2002. During the winter heating season, we typically use the accounts receivable facility to meet our increased working capital needs. Consequently, we received the maximum funding of $26.0 million from this facility during the six months ended January 31, 2004 as compared to $60.0 million in the prior year period. We renewed this facility effective September 23, 2003, for a 364-day commitment with Banc One, NA. At January 31, 2004, we did not have any remaining capacity to transfer additional trade accounts receivable. In accordance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," this transaction is reflected in our condensed consolidated financial statements as a sale of accounts receivable and a retained interest in transferred accounts receivable. The operating partnership Net cash provided by operating activities was $23.0 million for the six months ended January 31, 2004, compared to net cash provided by operating activities of $76.8 million for the six months ended January 31, 2003. This decrease in cash provided by operating activities is primarily due to the previously mentioned lower proceeds from accounts receivable securitization activity and to a lesser extent a decrease in cash flow from operating activities before changes in working capital. Investing Activities During the six months ended January 31, 2004, net cash used by investing activities was $52.6 million, compared to $206.7 million for the six months ended January 31, 2003. This decrease in cash used in investing activities is primarily due to a one-time purchase of $155.6 million in fiscal 2003 of propane tanks and related assets that were previously leased. Acquisitions During the six months ended January 31, 2004, we used $38.1 million in cash for the acquisition of four retail propane companies. Capital expenditures We made cash capital expenditures of $16.2 million during the six months ended January 31, 2004 as compared to $18.5 million in the prior year period primarily due to the reduced capital expenditures related to our technology initiative that was placed in service during fiscal 2004. Capital expenditures during fiscal 2004 consisted primarily of expenditures for the betterment and replacement of property, plant and equipment. 34 Financing Activities During the six months ended January 31, 2004, net cash provided by financing activities was $51.1 million compared to $149.1 million for the six months ended January 31, 2003. This decrease in cash provided by financing activities was primarily due to the borrowings on our bank credit facility to finance the purchase of propane tanks and related assets that were previously leased in fiscal 2003, an $8.5 million payment on the non-interest bearing note related to the fiscal 2003 acquisition of Pro-Am, Inc., partially offset by the previously mentioned issuance of common units. Distributions We paid the required distributions on the senior units and the minimum quarterly distribution on all common units, as well as general partner interests, totaling $43.1 million during the six months ended January 31, 2004. The required quarterly distribution on the senior units and the minimum quarterly distribution on all common units for the three months ended January 31, 2004 of $22.3 million are expected to be paid on March 15, 2004 to holders of record on March 5, 2004. See related disclosure about the distributions of senior units in "Disclosures about Effects of Transactions with Related Parties." Credit Facility At January 31, 2004, $182.7 million of borrowings and $52.4 million of letters of credit were outstanding under our unsecured $307.5 million bank credit facility, which will terminate on April 28, 2006. Letters of credit are currently used to cover obligations primarily relating to requirements for insurance coverage and, and to a lesser extent, risk management activities. At January 31, 2004, we had $72.4 million available for working capital, acquisition, capital expenditure and general partnership purposes under the $307.5 million bank credit facility. All borrowings under our $307.5 million bank credit facility bear interest, at our option, at a rate equal to either: o a base rate, which is defined as the higher of the federal funds rate plus 0.50% or Bank of America's prime rate (as of January 31, 2004, the federal funds rate and Bank of America's prime rate were 1.03% and 4.0%, respectively); or o the Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of January 31, 2004, the one-month Eurodollar Rate was 1.01%). In addition, an annual commitment fee is payable on the daily unused portion of our $307.5 million bank credit facility at a per annum rate varying from 0.375% to 0.625% (as of January 31, 2004, the commitment fee per annum rate was 0.5%). We believe that the liquidity available from our $307.5 million bank credit facility and the accounts receivable securitization facility will be sufficient to meet our future working capital needs for fiscal 2004. See "Operating Activities" for discussion about our accounts receivable securitization facility. However, if we were to experience an unexpected significant increase in working capital requirements, our working capital needs could exceed our immediately available resources. Events that could cause increases in working capital borrowings or letter of credit requirements include, but are not limited to the following: o a significant increase in the wholesale cost of propane; o a significant delay in the collections of accounts receivable; o increased volatility in energy commodity prices related to risk management activities; o increased liquidity requirements imposed by insurance providers; o a significant downgrade in our credit rating; o decreased trade credit; or o a significant acquisition. 35 If one or more of these or other events caused a significant use of available funding, we may consider alternatives to provide increased working capital funding. No assurances can be given, however, that such alternatives would be available, or, if available, could be implemented. Long-term debt The following table summarizes our long-term debt obligations as of January 31, 2004: Principal payments due by fiscal year -------------------------------------------------------------------------------- Remainder 2008 and (in thousands) of 2004 2005 2006 2007 thereafter Total ------------- ------------ ------------ ------------ ------------ ------------- Long-term debt, including current portion $766 $2,568 $111,209 $38,474 $748,195 $901,212
The operating partnership The financing activities discussion above also applies to the operating partnership except for cash flows related to distributions and Ferrellgas Partners' $8.5 million payment on the non-interest bearing note to Pro-Am, Inc. Distributions The operating partnership paid cash distributions of $53.2 million during the six months ended January 31, 2004. On February 24, 2004, the operating partnership declared cash distributions of $22.3 million for the three months ended January 31, 2004, that are expected to be paid on March 15, 2004. Cash contributions from partners On December 1, 2003, the operating partnership received cash contributions of $37.9 million and $0.4 million from its limited partner, Ferrellgas Partners and its general partner, respectively. The operating partnership then used these net proceeds to reduce the borrowings outstanding under its $307.5 million bank credit facility. The following table summarizes the operating partnership's long-term debt obligations as of January 31, 2004: Principal payments due by fiscal year -------------------------------------------------------------------------------- Remainder 2008 and (in thousands) of 2004 2005 2006 2007 thereafter Total ------------- ------------ ------------ ------------ ------------ ------------- Long-term debt, including current portion $766 $2,568 $111,209 $38,474 $530,195 $683,212
36 Disclosures about Risk Management Activities Accounted for at Fair Value The following table summarizes the change in the unrealized fair value of contracts from our risk management trading activities for the three months ended January 31, 2004: Three Six months ended months ended January 31, 2004 January 31, 2004 (in thousands) -------------------- -------------------- Unrealized losses in fair value of contracts outstanding at beginning of period $(1,419) $(1,718) Other unrealized gains recognized 1,041 1,049 Less: realized losses recognized 1,161 870 -------------------- -------------------- Unrealized losses in fair value of contracts outstanding at January 31, 2004 $(1,539) $(1,539) ==================== ====================
The following table summarizes the maturity of contracts from our risk management trading activities for the valuation methodologies we utilized as of January 31, 2004: (in thousands) Fair value of contracts at period-end ------------------ Maturity less Source of fair value than 1 year ---------------------------------------------------- ------------------ Prices actively quoted $ (71) Prices provided by other external sources (1,468) Prices based on models and other valuation methods - ------------------ Unrealized losses in fair value of contracts outstanding at January 31, 2004 $(1,539) ================== See additional discussion about market, counterparty credit and liquidity risks related to our risk management trading activities and other risk management activities in Item 3 "Quantitative and Qualitative Disclosures about Market Risk." Disclosures about Effects of Transactions with Related Parties We have no employees and are managed and controlled by our general partner. Pursuant to our partnership agreements, our general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on our behalf, and all other necessary or appropriate expenses allocable to us or otherwise reasonably incurred by our general partner in connection with operating our business. These reimbursable costs, which totaled $104.0 million for the six months ended January 31, 2004, include compensation and benefits paid to employees of our general partner who perform services on our behalf, as well as related general and administrative costs. Ferrell Companies, Inc. ("Ferrell Companies") is the sole shareholder of our general partner and owns 17.8 million of our common units. Ferrell Propane, Inc. ("Ferrell Propane") is wholly owned by our general partner and owns 51 thousand of our common units. During the six months ended January 31, 2004, Ferrellgas Partners paid common unit distributions of $17.8 million and $0.1 million to Ferrell Companies and Ferrell Propane, respectively, for the three months ended July 31, 2003 and January 31, 2004. Also during the six months ended, Ferrellgas Partners and the operating partnership together paid the general partner distributions of $1.0 million for the three months ended July 31, 2003 and January 31, 2004. 37 JEF Capital Management, Inc. ("JEF Capital Management") is beneficially owned by James E. Ferrell, the Chairman, President and Chief Executive Officer of our general partner, and thus is an affiliate. JEF Capital Management is the holder of all of Ferrellgas Partners' issued and outstanding senior units. Ferrellgas Partners' partnership agreement generally provides that it use the cash proceeds of any offering of common units to redeem a portion of the outstanding senior units, otherwise a "Material Event" would be deemed to have occurred and JEF Capital Management, as the holder of the senior units, would thereafter have specified rights, such as the right to convert the senior units into common units or the right to register the senior units. By letter agreement dated November 20, 2003, JEF Capital Management agreed to waive the occurrence of a "Material Event" if Ferrellgas Partners issues common units at any time and from time to time on or prior to March 31, 2004, and does not use the cash proceeds from such offering or offerings to redeem a portion of the outstanding senior units. In consideration of the granting of the waiver, Ferrellgas Partners agreed not to redeem any outstanding senior units prior to March 31, 2004, and to reimburse JEF Capital Management for its reasonable legal fees not to exceed $70 thousand incurred in connection with the execution of the waiver. On February 25, 2004, JEF Capital Management and Ferrellgas Partners extended the letter agreement through December 31, 2004. We paid JEF Capital Management $4.0 million in senior unit distributions during the six months ended January 31, 2004. On February 24, 2004, we accrued a senior unit distribution of $2.0 million that is expected to be paid to JEF Capital Management on March 15, 2004. Ferrell International Limited is beneficially owned by James E. Ferrell and thus is an affiliate. We provide limited accounting services to Ferrell International Limited. During the six months ended January 31, 2004, we recognized net receipts from providing limited accounting services of $20 thousand. There were no amounts due from or due to Ferrell International Limited at January 31, 2004. We believe these related party transactions were under terms that were no less favorable to us than those available with third parties. Off-Balance Sheet Arrangements Our off-balance sheet arrangements include the leasing of transportation equipment, property, computer equipment and propane tanks. We account for these arrangements as operating leases. We believe these arrangements are a cost-effective method for financing our equipment needs. These off-balance sheet arrangements enable us to lease equipment from third parties rather than, among other options, purchase the equipment using on-balance sheet financing. Most of the operating leases involving our transportation equipment contain residual value guarantees. These transportation equipment lease arrangements are scheduled to expire over the next seven years. Most of these arrangements provide that the fair value of the equipment will equal or exceed a guaranteed amount, or we will be required to pay the lessor the difference. Although the fair values at the end of the lease terms have historically exceeded these guaranteed amounts, the maximum potential amount of aggregate future payments we could be required to make under these leasing arrangements, assuming the equipment is worthless at the end of the lease term, is currently $13.3 million. We do not know of any event, demand, commitment, trend or uncertainty that would result in a material change to these arrangements. The following table summarizes our future minimum rental payments and operating lease buyouts as of January 31, 2004: Future Minimum Rental and Buyout Amounts by Fiscal Year -------------------------------------------------------------------------------- Remainder 2008 and (in thousands) of 2004 2005 2006 2007 thereafter Total ------------- ------------ ------------ ------------ ------------ ------------- Operating lease rental payments $11,714 $19,545 $15,553 $11,508 $19,101 $77,421 Operating lease buyouts 590 6,037 2,247 7,148 8,622 24,644
38 Operating lease buyouts represent the maximum amount we would pay if we were to exercise our right to buyout the assets at the end of their lease term. Historically, we have been successful in renewing certain leases that are subject to buyouts. However, there is no assurance we will be successful in the future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our risk management activities primarily attempt to mitigate risks related to the purchasing, storing and transporting of propane. We generally purchase propane in the contract and spot markets from major domestic energy companies on a short-term basis. Our costs to purchase and distribute propane fluctuate with the movement of market prices. This fluctuation subjects us to potential price risk, which we attempt to minimize through the use of risk management activities. Our risk management activities include the use of energy commodity forward contracts, swaps and options traded on the over-the-counter financial markets and futures and options traded on the New York Mercantile Exchange. These risk management activities are conducted primarily to offset the effect of market price fluctuations on propane inventory and purchase commitments and to mitigate the price and inventory risk on sale commitments to our customers. Our risk management activities are intended to generate a profit, which we then apply to reduce our cost of product sold. The results of our risk management activities directly related to the delivery of propane to our retail customers, which include our supply procurement, storage and transportation activities, are presented in our discussion of retail margins and are accounted for at cost. The results of our other risk management activities are presented separately in our discussion of gross profit found in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" as risk management trading activities and are accounted for at fair value. Market risks associated with energy commodities are monitored daily by senior management for compliance with our commodity risk management policy. This policy includes an aggregate dollar loss limit and limits on the term of various contracts. We also utilize volume limits for various energy commodities and review our positions daily where we remain exposed to market risk, so as to manage exposures to changing market prices. Market, Credit and Liquidity Risk. New York Mercantile Exchange traded futures and options are guaranteed by the New York Mercantile Exchange and have nominal credit risk. We are exposed to credit risk associated with over-the-counter traded forwards, swaps and option transactions in the event of nonperformance by counterparties. For each counterparty, we analyze its financial condition prior to entering into an agreement, establish a credit limit and monitor the appropriateness of the limit. The change in market value of Exchange-traded futures contracts requires daily cash settlement in margin accounts with brokers. Over-the-counter instruments are generally settled at the expiration of the contract term. In order to minimize the liquidity risk of cash, margin or collateral requirements of counterparties for over-the-counter instruments, we attempt to balance maturities and positions with individual counterparties. Historically, our risk management activities have not experienced significant credit-related losses in any year or with any individual counterparty. Our risk management contracts do not contain material repayment provisions related to a decline in our credit rating. Sensitivity Analysis. We have prepared a sensitivity analysis to estimate the exposure to market risk of our energy commodity positions. Forward contracts, futures, swaps and options outstanding as of January 31, 2004, that were used in our risk management trading activities were analyzed assuming a hypothetical 10% adverse change in prices for the delivery month for all energy commodities. The potential loss in future earnings regarding these positions from a 10% adverse movement in market prices of the underlying energy commodities was estimated at $0.5 million for risk management trading activities and $0.1 million for other risk management activities as of January 31, 2004. The preceding hypothetical analysis is limited because changes in prices may or may not equal 10%, thus actual results may differ. At January 31, 2004, we had $182.7 million in variable rate amended bank credit facility borrowings. Thus, assuming a one percent increase in our variable interest rate, our interest rate risk related to the borrowings on our variable rate amended bank credit facility would result in a loss in future earnings of $1.8 million for the twelve months ending January 31, 2005. The preceding hypothetical analysis is limited because changes in interest rates may or may not equal one percent, thus actual results may differ. 39 ITEM 4. CONTROLS AND PROCEDURES An evaluation was performed with the participation of our management, including the principal executive officer and principal financial officer of our general partner, of the effectiveness of our disclosure controls and procedures (as such terms are defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based on that evaluation, our management, including the principal executive officer and principal financial officer of our general partner, concluded that such disclosure controls and procedures were designed to be and were effective as of January 31, 2004 to reasonably ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Because of these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all potential future conditions, regardless of how remote. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note I - Contingencies - to our condensed consolidated financial statements included elsewhere in this report. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 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. 40 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits The exhibits listed below are furnished as part of this Quarterly Report on Form 10-Q. Exhibits required by Item 601 of Regulation S-K of the Securities Act, which are not listed, are not applicable. Exhibit Number Description -------- ----------- 2.1 Contribution Agreement dated February 8, 2004, by and among FCI Trading Corp., Ferrellgas, Inc., Ferrellgas Partners, L.P. and Ferrellgas, L.P. Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed February 12, 2004. 3.1 Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P., dated as of February 18, 2003. Incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed February 18, 2003. 3.2 Certificate of Incorporation for Ferrellgas Partners Finance Corp. Incorporated by reference to the same numbered Exhibit to our Quarterly Report on Form 10-Q filed June 13, 1997. 3.3 Bylaws of Ferrellgas Partners Finance Corp. Incorporated by reference to the same numbered Exhibit to our Quarterly Report on Form 10-Q filed June 13, 1997. 3.4 Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P., dated as of October 14, 1998. Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed March 17, 1999. 3.5 First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed June 14, 2000. 3.6 Certificate of Incorporation of Ferrellgas Finance Corp. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Ferrellgas Partners, L.P. filed February 18, 2003. 3.7 Bylaws of Ferrellgas Finance Corp. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of Ferrellgas Partners, L.P. filed February 18, 2003. 4.1 Specimen Certificate evidencing Common Units representing Limited Partner Interests (contained in Exhibit 3.1 hereto as Exhibit A thereto). 4.2 Indenture, dated as of September 24, 2002, with form of Note attached, among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., and U.S. Bank National Association, as trustee, relating to 8 3/4% Senior Notes due 2012. Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed September 24, 2002. 41 Exhibit Number Description -------- ----------- 4.3 Ferrellgas, L.P., Note Purchase Agreement, dated as of July 1, 1998, relating to: $109,000,000 6.99% Senior Notes, Series A, due August 1, 2005, $37,000,000 7.08% Senior Notes, Series B, due August 1, 2006, $52,000,000 7.12% Senior Notes, Series C, due August 1, 2008, $82,000,000 7.24% Senior Notes, Series D, due August 1, 2010, and $70,000,000 7.42% Senior Notes, Series E, due August 1, 2013. Incorporated by reference to Exhibit 4.4 to our Annual Report on Form 10-K filed October 29, 1998. 4.4 Ferrellgas, L.P., Note Purchase Agreement, dated as of February 28, 2000, relating to: $21,000,000 8.68% Senior Notes, Series A, due August 1, 2006, $70,000,000 8.78% Senior Notes, Series B, due August 1, 2007, and $93,000,000 8.87% Senior Notes, Series C, due August 1, 2009. Incorporated by reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q filed March 16, 2000. 4.5 Registration Rights Agreement, dated as of December 17, 1999, by and between Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed December 29, 2000. 4.6 First Amendment to the Registration Rights Agreement, dated as of March 14, 2000, by and between Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q filed March 16, 2000. 4.7 Second Amendment to the Registration Rights Agreement, dated as of April 6, 2001, by and between Ferrellgas Partners, L.P. and The Williams Companies, Inc. Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed April 6, 2001. 4.8 Representations Agreement, dated as of December 17, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas, Inc., Ferrellgas, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.3 to our Current Report on Form 8-K filed December 29, 1999. 4.9 First Amendment to Representations Agreement, dated as of April 6, 2001, by and among Ferrellgas Partners, L.P., Ferrellgas, Inc., Ferrellgas, L.P. and The Williams Companies, Inc. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed April 6, 2001. 4.10 Waiver and Acknowledgement of No Material Event dated November 20, 2003, by and among Ferrellgas Partners, L.P., Ferrellgas, L.P., Ferrellgas, Inc. and JEF Capital Management, Inc. Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed November 24, 2003. * 4.11 Extension of Waiver and Acknowledgement of No Material Event dated February 25, 2004, by and among Ferrellgas Partners, L.P., Ferrellgas, L.P., Ferrellgas, Inc. and JEF Capital Management, Inc. 10.2 Receivable Interest Sale Agreement, dated as of September 26, 2000, by and between Ferrellgas, L.P., as originator, and Ferrellgas Receivables, L.L.C., as buyer. Incorporated by reference to Exhibit 10.17 to our Annual Report on Form 10-K filed October 26, 2000. 42 Exhibit Number Description -------- ----------- 10.3 First Amendment to the Receivable Interest Sale Agreement dated as of January 17, 2001, by and between Ferrellgas, L.P., as originator, and Ferrellgas Receivables, L.L.C., as buyer. Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q filed March 14, 2001. 10.4 Receivables Purchase Agreement, dated as of September 26, 2000, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by reference to Exhibit 10.18 to our Annual Report on Form 10-K filed October 26, 2000. 10.5 First Amendment to the Receivables Purchase Agreement, dated as of January 17, 2001, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q filed March 14, 2001. 10.6 Second Amendment to the Receivables Purchase Agreement dated as of September 25, 2001, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K filed October 25, 2001. 10.7 Third Amendment to the Receivables Purchase Agreement, dated as of September 24, 2002, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, NA, main office Chicago, as agent. 10.8 Fourth Amendment to the Receivables Purchase Agreement, dated as of September 23, 2003, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K filed October 21, 2003. 10.9 Purchase Agreement, dated as of November 7, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas, L.P and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed November 12, 1999. 10.10 First Amendment to Purchase Agreement, dated as of December 17, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas, L.P., and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K filed December 29, 1999. 10.11 Second Amendment to Purchase Agreement, dated as of March 14, 2000, by and among Ferrellgas Partners, L.P., Ferrellgas L.P., and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.1 to our Quarterly Report on Form 10-Q filed March 16, 2000. 43 Exhibit Number Description -------- ----------- 10.12 Third Amendment to Purchase Agreement dated as of April 6, 2001, by and among Ferrellgas Partners, L.P., Ferrellgas L.P. and The Williams Companies, Inc. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed April 6, 2001. 10.13 Agreement and Plan of Merger dated as of February 8, 2004, by and among Blue Rhino Corporation, FCI Trading Corp., Diesel Acquisition, LLC and Ferrell Companies, Inc. Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed February 12, 2004. 10.14 Unit Purchase Agreement dated February 8, 2004, between Ferrellgas Partners, L.P. and James E. Ferrell. Incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K filed February 12, 2004. # 10.15 Ferrell Companies, Inc. Supplemental Savings Plan, restated January 1, 2000. Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed February 18, 2003. # 10.16 Second Amended and Restated Ferrellgas Unit Option Plan. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed June 5, 2001. # 10.17 Ferrell Companies, Inc. 1998 Incentive Compensation Plan - Incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K filed October 29, 1998. # 10.18 Employment agreement between James E. Ferrell and Ferrellgas, Inc., dated July 31, 1998. Incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K filed October 29, 1998. # 10.19 Employment agreement between Patrick Chesterman and Ferrellgas, Inc. dated July 31, 2000. Incorporated by reference to Exhibit 10.19 to our Annual Report on Form 10-K filed October 26, 2000. # 10.20 Employment agreement between Kevin Kelly and Ferrellgas, Inc. dated July 31, 2000. Incorporated by reference to Exhibit 10.22 to our Annual Report on Form 10-K filed October 26, 2000. * 31.1 Certification of Ferrellgas Partners, L.P. pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. * 31.2 Certification of Ferrellgas Partners Finance Corp. pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. * 31.3 Certification of Ferrellgas, L.P. pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. * 31.4 Certification of Ferrellgas Finance Corp. pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. * 32.1 Certification of Ferrellgas Partners, L.P. pursuant to 18 U.S.C. Section 1350. * 32.2 Certification of Ferrellgas Partners Finance Corp. pursuant to 18 U.S.C. Section 1350. 44 Exhibit Number Description -------- ----------- * 32.3 Certification of Ferrellgas, L.P. pursuant to 18 U.S.C. Section 1350. * 32.4 Certification of Ferrellgas Finance Corp. pursuant to 18 U.S.C. Section 1350. * Filed herewith # Management contracts or compensatory plans. (b) Reports on Form 8-K Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp. filed three Form 8-K's during the three months ended January 31, 2004. Items Date of Report Reported Financial Statements Filed ------------------------------------------- -------- ------------------------------ Filed November 21, 2003 5, 7 Audited annual balance sheets and footnotes of Ferrellgas, Inc. Filed November 24, 2003 5, 7 None Filed December 1, 2003 5, 7 None
Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp. furnished two Form 8-K's during the three months ended January 31, 2004. Items Date of Report Reported Financial Statements Furnished ------------------------------------------- -------- ------------------------------ Furnished November 18, 2003 9 None Furnished November 24, 2003 7, 9, 12 None
45 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: March 10, 2004 By /s/ Kevin T. Kelly ------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: March 10, 2004 By /s/ Kevin T. Kelly ------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS, L.P. By Ferrellgas, Inc. (General Partner) Date: March 10, 2004 By /s/ Kevin T. Kelly ------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS FINANCE CORP. Date: March 10, 2004 By /s/ Kevin T. Kelly ------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)