UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended July 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file numbers 1-11331
333-06693
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1698480
Delaware 43-1742520
- ---------------------------- ------------------------------
(State or other jurisdictions of (I.R.S. Employer Identification
incorporation or organization)
One Liberty Plaza, Liberty, Missouri 64068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 792-1600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Units New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value as of September 16, 1997, of the registrant's Common
Units held by nonaffiliates of the registrant, based on the reported closing
price of such units on the New York Stock Exchange on such date, was
approximately $307,849,089.
At September 16, 1997,Ferrellgas Partners, L.P.had units outstanding as follows:
14,612,580 Common Units
16,593,721 Subordinated Units
Documents Incorporated by Reference: None
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FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
1997 FORM 10-K ANNUAL REPORT
Table of Contents
Page
PART I
ITEM 1. BUSINESS.....................................................1
ITEM 2. PROPERTIES...................................................8
ITEM 3. LEGAL PROCEEDINGS............................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND
RELATED UNITHOLDER MATTERS....................................9
ITEM 6. SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.............10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..........................17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS..........17
ITEM 11. EXECUTIVE COMPENSATION.......................................19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...............................................22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K..........................................23
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PART I
ITEM 1. BUSINESS.
Business of Ferrellgas Partners, L.P.
Ferrellgas Partners, L.P. (the "Master Limited Partnership" or the "MLP"),
is a Delaware limited partnership which was formed on April 19, 1994. The MLP's
Common Units are listed on the New York Stock Exchange. The MLP's activities are
conducted through its subsidiary Ferrellgas, L.P. (the "Operating Partnership"
or the "OLP"). The MLP, with a 99% limited partner interest, is the sole limited
partner of the Operating Partnership. The MLP and the Operating Partnership are
together referred to herein as the "Partnership". The Operating Partnership
accounts for nearly all of the MLP's consolidated assets, sales and operating
earnings. The MLP's consolidated net earnings also reflect interest expense
related to $160 million of 9 3/8% Senior Secured Notes issued by the MLP in
April 1996.
Business of Ferrellgas, L.P.
The Operating Partnership, a Delaware limited partnership, was formed on
April 22, 1994, to acquire, own and operate the propane business and assets of
Ferrellgas, Inc. (the "Company", "Ferrellgas", and "General Partner"). The
Company has retained a 1% general partner interest in the MLP and also holds a
1.0101% general partner interest in the Operating Partnership, representing a 2%
general partner interest in the Partnership on a combined basis. As General
Partner of the Partnership, the Company performs all management functions
required for the Partnership.
General
The Partnership is engaged in the sale, distribution, marketing and trading
of propane and other natural gas liquids. The discussion that follows focuses on
the Partnership's retail operations and its other operations, which consist
primarily of propane and natural gas liquids trading operations, chemical
feedstocks marketing and wholesale propane marketing, all of which were conveyed
to the Partnership on July 5, 1994. All historical references prior to July 5,
1994 relate to the operations as conducted by the Company.
The General Partner believes that the Partnership is the second largest
retail marketer of propane in the United States (as measured by gallons sold),
serving more than 800,000 residential, industrial/commercial and agricultural
customers in 45 states and the District of Columbia through approximately 513
retail outlets with 295 satellite locations in 38 states (some outlets serve
interstate markets). For the Partnership's fiscal years ended July 31, 1997,
1996 and 1995, annual retail propane sales volumes were 694 million, 650
million, and 576 million gallons, respectively. The retail propane business of
the Partnership consists principally of transporting propane purchased in the
contract and spot markets, primarily from major oil companies, to its retail
distribution outlets and then to tanks located on its customers' premises, as
well as to portable propane cylinders.
The General Partner also believes that the Partnership is a leading natural
gas liquids trading company. Annual propane and natural gas liquids trading,
chemical feedstocks and wholesale propane sales volumes were approximately 1.2
billion, 1.7 billion and 1.5 billion gallons during the fiscal years ended July
31, 1997, 1996 and 1995, respectively.
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Retail Operations
Formation
Ferrell Companies, Inc. ("Ferrell"), the parent of Ferrellgas, was founded
in 1939 as a single retail propane outlet in Atchison, Kansas and was
incorporated in 1954. In 1984, a subsidiary was formed under the name
Ferrellgas, Inc. to operate the retail propane business previously conducted by
Ferrell. Ferrell is primarily owned by James E. Ferrell and his family. The
Company's initial growth largely resulted from small acquisitions in the rural
areas of eastern Kansas, northern and central Missouri, Iowa, Western Illinois,
Southern Minnesota, South Dakota and Texas. In July 1984, the Company acquired
propane operations with annual retail sales volumes of approximately 33 million
gallons and in December 1986, the Company acquired propane operations with
annual retail sales volumes of approximately 395 million gallons. These major
acquisitions and many other smaller acquisitions significantly expanded and
diversified the Company's geographic coverage. In July 1994, the propane
business and assets of the Company were contributed to the Partnership.
Business Strategy
The Partnership's business strategy is to continue Ferrellgas' historical
focus on residential and commercial retail propane operations and to expand its
operations through strategic acquisitions of smaller retail propane operations
located throughout the United States and through increased competitiveness and
efforts to acquire new customers. The propane industry is relatively fragmented,
with the ten largest retail distributors possessing approximately 33% of the
total retail propane market and much of the industry consisting of over 5,000
local or regional distributors. The Partnership's retail operations account for
approximately 8% of the retail propane purchased in the United States, as
measured by gallons sold. Since 1986, and as of July 31, 1997, Ferrellgas has
acquired 108 smaller independent propane retailers which Ferrellgas believes
were not individually material, except for the acquisition of Skelgas Propane,
Inc. ("Skelgas") in May 1996 and Vision Energy Resources, Inc. ("Vision") in
November 1994. For the fiscal years ended July 31, 1997 to 1993, the Partnership
or its predecessor invested approximately $38.8 million, $108.8 million, $70.1
million, $3.4 million, and $0.9 million, respectively, to acquire operations
with annual retail sales of approximately 20.5 million, 111.8 million, 70.0
million, 2.9 million, and 0.7 million gallons of propane, respectively.
The Partnership intends to concentrate its acquisition activities in
geographical areas in close proximity to the Partnership's existing operations
and to acquire propane retailers that can be efficiently combined with such
existing operations to provide an attractive return on investment after taking
into account the efficiencies which may result from such combination. However,
the Partnership will also pursue acquisitions which broaden its geographic
coverage. The Partnership's goal in any acquisition will be to improve the
operations and profitability of these smaller companies by integrating them into
the Partnership's established supply network. The General Partner regularly
evaluates a number of propane distribution companies which may be candidates for
acquisition. The General Partner believes that there are numerous local retail
propane distribution companies that are possible candidates for acquisition by
the Partnership and that the Partnership's geographic diversity of operations
helps to create many attractive acquisition opportunities. The Partnership
intends to fund acquisitions through internal cash flow, external borrowings or
the issuance of additional Common Units. The Partnership's ability to accomplish
these goals will be subject to the continued availability of acquisition
candidates at prices attractive to the Partnership. There is no assurance the
Partnership will be successful in sustaining the recent level of acquisitions or
that any acquisitions that are made will prove beneficial to the Partnership.
In addition to growth through acquisitions, the General Partner
believes that the Partnership may also achieve growth within its existing
propane operations. As a result of its experience in responding to competition
and in implementing more efficient operating standards, the General Partner
believes that it has positioned the Partnership to be more successful in direct
competition for customers. The Partnership currently has marketing programs
underway which focus specific resources toward this effort.
2
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Marketing
Natural gas liquids are derived from petroleum products and sold in
compressed or liquefied form. Propane, the predominant type of natural gas
liquid, is typically extracted from natural gas or separated during crude oil
refining. Although propane is gaseous at normal pressures, it is compressed into
liquid form at relatively low pressures for storage and transportation. Propane
is a clean-burning energy source, recognized for its transportability and ease
of use relative to alternative forms of stand alone energy sources.
In the residential and commercial markets, propane is primarily used for
space heating, water heating and cooking. In the agricultural market propane is
primarily used for crop drying, space heating, irrigation and weed control. In
addition, propane is used for certain industrial applications, including use as
engine fuel, which is burned in internal combustion engines that power vehicles
and forklifts and as a heating or energy source in manufacturing and drying
processes.
The retail propane marketing business generally involves large numbers of
small volume deliveries averaging approximately 200 gallons each. The market
areas are generally rural but also include suburban areas for industrial
applications where natural gas service is not available.
The Partnership utilizes marketing programs targeting both new and existing
customers emphasizing its superior ability to deliver propane to customers as
well as its training and safety programs. The Partnership sells propane
primarily to four specific markets: residential, industrial/commercial,
agricultural and other (principally to other propane retailers and as engine
fuel). During the fiscal year ended July 31, 1997, sales to residential
customers accounted for 61% of retail gross profit, sales to industrial and
other commercial customers accounted for 24% of retail gross profit, and sales
to agricultural and other customers accounted for 15% of retail gross profit.
Residential sales have a greater profit margin, more stable customer base and
tend to be less sensitive to price changes than the other markets served by the
Partnership. No single customer of the Partnership accounts for 10% or more of
the Partnership's consolidated revenues.
Profits in the retail propane business are primarily based on margins, the
cents-per-gallon difference between the purchase price and the sales price of
propane. The Partnership generally purchases propane in the contract and spot
markets, primarily from major oil companies, on a short-term basis, therefore,
its supply costs fluctuate with market price fluctuations. Should wholesale
propane prices decline in the future, the Partnership's margins on its retail
propane distribution business should increase in the short-term because retail
prices tend to change less rapidly than wholesale prices. Should the wholesale
cost of propane increase, for similar reasons retail margins and profitability
would likely be reduced at least for the short-term until retail prices can be
increased. Retail propane customers typically lease their storage tanks from
their propane distributors. Approximately 70% of the Partnership's customers
lease their tank from the Partnership. The lease terms and, in some states,
certain fire safety regulations, restrict the filling of a leased tank solely to
the propane supplier that owns the tank. The cost and inconvenience of switching
tanks minimizes a customers tendency to switch among suppliers of propane on the
basis of minor variations in price.
The retail market for propane is seasonal because it is used primarily for
heating in residential and commercial buildings. Consequently, sales and
operating profits are concentrated in the second and third fiscal quarters
(November through April). To the extent necessary, the Partnership will reserve
cash inflows from the second and third quarters for distribution to holders of
Common Units in the first and fourth fiscal quarters. In addition, sales volume
traditionally fluctuates from year to year in response to variations in weather,
prices and other factors, although the Partnership believes that the broad
geographic distribution of its operations helps to minimize exposure to regional
weather or economic patterns. Long-term, historic weather data from the National
Climatic Data Center indicate that the average annual temperatures have remained
relatively constant over the last 30 years with fluctuations occurring on a
year-to-year basis only. During times of colder-than-normal winter weather, the
Company has been able to take advantage of its large, efficient distribution
network to help avoid supply disruptions such as those experienced by some of
its competitors, thereby broadening its long-term customer base.
3
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Supply and Distribution
The Partnership purchases propane primarily from major domestic oil
companies. Supplies of propane from these sources have traditionally been
readily available, although no assurance can be given that supplies of propane
will be readily available in the future. As a result of (i) the Partnership's
ability to buy large volumes of propane and (ii) the Partnership's large
distribution system and underground storage capacity, the General Partner
believes that the Partnership is in a position to achieve product cost savings
and avoid shortages during periods of tight supply to an extent not generally
available to other retail propane distributors. The Partnership is not dependent
upon any single supplier or group of suppliers, the loss of which would have a
material adverse effect on the Partnership. For the year ended July 31, 1997, no
supplier at any single delivery point provided more than 10% of the
Partnership's total domestic propane supply. A portion of the Partnership's
propane inventory is purchased under supply contracts which typically have a one
year term and a fluctuating price relating to spot market prices. Certain of the
Partnership's contracts specify certain minimum and maximum amounts of propane
to be purchased thereunder. The Partnership may purchase and store inventories
of propane in order to help insure uninterrupted deliverability during periods
of extreme demand. The Partnership owns three underground storage facilities
with an aggregate capacity of approximately 184 million gallons. Currently,
approximately 142 million gallons of this capacity is leased to third parties.
The remaining space is available for the Partnership's use.
Propane is generally transported from natural gas processing plants and
refineries, pipeline terminals and storage facilities to retail distribution
outlets and wholesale customers by railroad tank cars leased by the Partnership
and highway transport trucks owned or leased by the Partnership. The Partnership
operates a fleet of transport trucks to transport propane from refineries,
natural gas processing plants or pipeline terminals to its retail distribution
outlets. Common carrier transport trucks may be used during the peak delivery
season in the winter months or to provide service in areas where economic
considerations favor common carrier use. Propane is then transported from the
Partnership's retail distribution outlets to customers by its fleet of 1,605
bulk delivery trucks, which are fitted generally with 2,000 to 3,000 gallon
propane tanks. Propane storage tanks located on the customers' premises are then
filled from the delivery truck. Propane is also delivered to customers in
portable cylinders.
Industry and Competition
Industry
Based upon information contained in the Energy Information Administration's
Annual Energy Review 1996 magazine, propane accounts for approximately 3-4% of
household energy consumption in the United States, an average level which has
remained relatively constant for the past 19 years. It competes primarily with
natural gas, electricity and fuel oil as an energy source principally on the
basis of price, availability and portability. Propane serves as an alternative
to natural gas in rural and suburban areas where natural gas is unavailable or
portability of product is required. Propane is generally more expensive than
natural gas on an equivalent BTU basis in locations served by natural gas,
although propane is often sold in such areas as a standby fuel for use during
peak demands and during interruption in natural gas service. The expansion of
natural gas into traditional propane markets has historically been inhibited by
the capital costs required to expand distribution and pipeline systems. Although
the extension of natural gas pipelines tends to displace propane distribution in
the neighborhoods affected, the Partnership believes that new opportunities for
propane sales arise as more geographically remote neighborhoods are developed.
Propane is generally less expensive to use than electricity for space heating,
water heating and cooking and competes effectively with electricity in those
parts of the country where propane is cheaper than electricity on an equivalent
BTU basis. Although propane is similar to fuel oil in application, market demand
and price, propane and fuel oil have generally developed their own distinct
geographic markets. Because residential furnaces and appliances that burn
propane will not operate on fuel oil, a conversion from one fuel to the other
requires the installation of new equipment. The Partnership's residential retail
propane customers, therefore, will have an incentive to switch to fuel oil only
if fuel oil becomes significantly less expensive than propane. Likewise, the
Partnership may be unable to expand its customer base in areas where fuel oil is
widely used, particularly the Northeast, unless propane becomes significantly
less expensive than fuel oil. Alternatively, many industrial customers who use
propane as a heating fuel have the capacity to switch to other fuels, such as
fuel oil, on the basis of availability or minor variations in price. Propane
generally is becoming increasingly favored over fuel oil and other alternative
sources of fuel as an environmentally preferred energy source.
4
<PAGE>
Competition
In addition to competing with marketers of other fuels, the Partnership
competes with other companies engaged in the retail propane distribution
business. Competition within the propane distribution industry stems from two
types of participants: the larger multi-state marketers, and the smaller, local
independent marketers. Based upon information contained in the National Propane
Gas Association's LP-Gas Market Facts and the January 1997 issue of LP Gas
magazine, the Partnership believes that the ten largest multi-state retail
marketers of propane, including the Partnership, account for approximately 33%
of the total retail sales of propane in the United States. Based upon
information contained in industry publications, the Partnership also believes no
single marketer has a greater than 10% share of the total market in the United
States and that the Partnership is the second largest retail marketer of propane
in the United States, with a market share of approximately 8% as measured by
volume of national retail propane sales.
Most of the Partnership's retail distribution outlets compete with three or
more marketers or distributors. The principal factors influencing competition
among propane marketers are price and service. The Partnership competes with
other retail marketers primarily on the basis of reliability of service and
responsiveness to customer needs, safety and price. Each retail distribution
outlet operates in its own competitive environment because retail marketers
locate in close proximity to customers to lower the cost of providing service.
The typical retail distribution outlet has an effective marketing radius of
approximately 25 miles.
Other Operations
The other operations of the Partnership consist principally of: (1)
trading, (2) chemical feedstocks marketing and (3) wholesale propane marketing.
The Partnership, through its natural gas liquids trading operations and
wholesale marketing, has become one of the largest independent traders of
propane and natural gas liquids in the United States. The Partnership owns no
properties that are material to these operations. These operations may utilize
available space in the Partnership's underground storage facilities in the
furtherance of these businesses. Because the Partnership possesses a large
distribution system, underground storage capacity and the utility to buy large
volumes of propane, the General Partner believes that the Partnership is in a
position to achieve product cost savings and avoid shortages during periods of
tight supply to an extent not generally available to other retail propane
distributors.
Trading
The Partnership's traders are engaged in trading propane and other natural
gas liquids for the Partnership's account and for supplying the Partnership's
retail and wholesale propane operations. The Partnership primarily trades
products purchased from its over 110 suppliers, however, it also conducts
transactions on the New York Mercantile Exchange. Trading activity is conducted
primarily to generate a profit independent of the retail and wholesale
operations, but is also conducted to insure the availability of propane during
periods of short supply. Propane represents over 50% of the Partnership's total
trading volume, with the remainder consisting principally of various other
natural gas liquids. The Partnership attempts to minimize trading risk through
the enforcement of its trading policies, which include total inventory limits
and loss limits, and attempts to minimize credit risk through credit checks and
application of its credit policies. However, there can be no assurance that
historical experience or the existence of such policies will prevent trading
losses in the future. For the Partnership's fiscal years ended July 31, 1997,
1996 and 1995 net revenues of $5.5 million, $7.3 million, and $5.8 million,
respectively, were derived from trading activities.
5
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Chemical Feedstocks Marketing
The Partnership is also involved in the marketing of refinery and
petrochemical feedstocks. Petroleum by-products are purchased from refineries
and sold to petrochemical plants. The Partnership leases 361 railroad tank cars
to facilitate product delivery. Revenues of $29.8 million, $44.4 million and
$91.9 million were derived from such activities for the Partnership's fiscal
years ended July 31, 1997, 1996 and 1995, respectively.
Wholesale Marketing
The Partnership engages in the wholesale distribution of propane to other
retail propane distributors. During the fiscal years ended July 31, 1997, 1996
and 1995, the Partnership sold 123 million, 104 million and 96 million gallons,
respectively, of propane to wholesale customers and had revenues attributable to
such sales of $68.7 million, $42.6 million and $33.5 million, respectively.
Employees
The Partnership has no employees and is managed by the General Partner
pursuant to the Partnership Agreement. At July 31, 1997, the General Partner had
3,370 full-time employees and 837 temporary and part-time employees. At July 31,
1997, the General Partner's full-time employees were employed in the following
areas:
Retail Locations 2,834
Transportation and Storage 219
Corporate Offices (Liberty, MO & Houston, TX) 317
-----------
Total 3,370
==========
Approximately one percent of the General Partner's employees are
represented by six local labor unions, which are all affiliated with the
International Brotherhood of Teamsters. The General Partner has not experienced
any significant work stoppages or other labor problems.
The Partnership's supply, trading, chemical feedstocks marketing,
distribution scheduling and product accounting functions are operated primarily
out of the Partnership's offices located in Houston, by a total full-time
corporate staff of 83 people.
Governmental Regulation; Environmental and Safety Matters
From August 1971 until January 1981, the United States Department of Energy
regulated the price and allocation of propane. The Partnership is no longer
subject to any similar regulation.
Propane is not a hazardous substance within the meaning of federal and
state environmental laws. In connection with all acquisitions of retail propane
businesses that involve the purchase of real estate, the Partnership conducts a
due diligence investigation to attempt to determine whether any substance other
than propane has been sold from or stored on any such real estate prior to its
purchase. Such due diligence includes questioning the sellers, obtaining
representations and warranties concerning the sellers' compliance with
environmental laws and visual inspections of the properties, whereby employees
of the General Partner look for evidence of hazardous substances or the
existence of underground storage tanks.
6
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With respect to the transportation of propane by truck, the Partnership is
subject to regulations promulgated under the Federal Motor Carrier Safety Act.
These regulations cover the transportation of hazardous materials and are
administered by the United States Department of Transportation ("DOT"). National
Fire Protection Association Pamphlet No. 58, which establishes a set of rules
and procedures governing the safe handling of propane, or comparable
regulations, have been adopted as the industry standard in a majority of the
states in which the Partnership operates. There are no material environmental
claims pending and the Partnership complies in all material respects with all
material governmental regulations and industry standards applicable to
environmental and safety matters, except as it relates to the DOT Final Interim
Rule on emergency shut off valves on bobtail vehicles. The DOT has taken the
position that all existing emergency shut off devices used on propane cargo
vessels fail to comply with the existing Emergency Discharge Control Regulation
49CFR 178.337-11. Accordingly, the DOT has issued a Final Interim Rule that
requires all transporters of propane to implement revised procedures to ensure
immediate activation of the emergency shut off device in the event of a
catastrophic failure of a cargo vehicle's discharge system. The Partnership is
in compliance with Final Interim Rule as to transport vehicles, and is working
with both the DOT and outside experts to develop a system for bobtail vehicles
that complies with the existing Emergency Discharge Control Regulations as well
as the provisions of the Final Interim Rule.
Service Marks and Trademarks
The Partnership markets retail propane under the "Ferrellgas" tradename and
uses the tradename "Ferrell North America" for its other operations. In
addition, the Partnership has a trademark on the name "FerrellMeter," its
patented gas leak detection device. The Company contributed all of its rights,
title and interest in such tradenames and trademark in the continental United
States to the Partnership. The General Partner will have an option to purchase
such tradenames and trademark from the Partnership for a nominal value if the
General Partner is removed as general partner of the Partnership other than for
cause. If the General Partner ceases to serve as the general partner of the
Partnership for any other reason, it will have the option to purchase such
tradenames and trademark from the Partnership for fair market value.
Business of Ferrellgas Finance Corp. and Ferrellgas Partners Finance Corp.
Ferrellgas Finance Corp. (the "OLP Finance Corp."), a Delaware corporation,
was formed April 28, 1994, and is a wholly-owned subsidiary of the Operating
Partnership. Ferrellgas Partners Finance Corp. (the "MLP Finance Corp") a
Delaware corporation (together with the OLP Finance Corp., the "Finance Corps.")
was formed on March 28, 1996, and is a wholly-owned subsidiary of the MLP. The
Finance Corps. have nominal assets and do not conduct any operations, but serve
as co-obligors for securities issued by the Operating Partnership and the MLP.
Certain institutional investors that might otherwise be limited in their ability
to invest in securities issued by partnerships by reasons of the legal
investment laws of their states of organization or their charter documents, may
be able to invest in the Operating Partnership's or MLP's securities because the
Finance Corps. are co-obligors. Accordingly, a discussion of the results of
operations, liquidity and capital resources of the Finance Corps. are not
presented. See the Finance Corp's. notes to financial statements for a
discussion of the securities with respect to which the Finance Corps. are
serving as co-obligor.
7
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ITEM 2. PROPERTIES.
The Partnership owns or leases the following transportation equipment which
is utilized primarily in retail operations, except for railroad tank cars, which
are used primarily by chemical feedstocks operations.
Owned Leased Total
Truck tractors ......................... 106 48 154
Transport trailers...................... 256 31 287
Bulk delivery trucks.................... 951 654 1,605
Pickup and service trucks............... 1,015 442 1,457
Railroad tank cars...................... - 361 361
The transport trailers have an average capacity of approximately 9,000
gallons. The bulk delivery trucks are generally fitted with 2,000 to 3,000
gallon propane tanks. Each railroad tank car has a capacity of approximately
30,000 gallons.
A typical retail distribution outlet is located on one to three acres of
land and includes a small office, a workshop, bulk storage capacity of 18,000
gallons to 60,000 gallons and a small inventory of stationary customer storage
tanks and portable propane cylinders that the Partnership provides to its retail
customers for propane storage. The Partnership owns the land and buildings of
about 50% of its retail outlets and leases the remaining facilities on terms
customary in the industry and in the applicable local markets.
Approximately 697,000 propane tanks are owned by the Partnership, most of
which are located on customer property and leased to those customers. The
Partnership also owns approximately 638,000 portable propane cylinders, most of
which are leased to industrial and commercial customers for use in manufacturing
and processing needs, including forklift operations, and to residential
customers for home heating and cooking, and to local dealers who purchase
propane from the Partnership for resale.
The Partnership owns underground storage facilities at Hutchinson, Kansas;
Adamana, Arizona; and Moab, Utah. At July 31, 1997, the capacity of these
facilities approximated 88 million gallons, 88 million gallons and 8 million
gallons, respectively (an aggregate of approximately 184 million gallons).
Currently, approximately 142 million gallons of this capacity is leased to third
parties. The remaining space is available for the Partnership's use.
The Partnership owns the land and two buildings (50,245 square feet of
office space) comprising its corporate headquarters in Liberty, Missouri, and
leases the 27,696 square feet of office space in Houston, Texas, where its
trading, chemical feedstocks marketing and wholesale marketing operations are
primarily located.
The Partnership believes that it has satisfactory title to or valid rights
to use all of its material properties and, although some of such properties are
subject to liabilities and leases and, in certain cases, liens for taxes not yet
currently due and payable and immaterial encumbrances, easements and
restrictions, the Partnership does not believe that any such burdens will
materially interfere with the continued use of such properties in its business,
taken as a whole. In addition, the Partnership believes that it has, or is in
the process of obtaining, all required material approvals, authorizations,
orders, licenses, permits, franchises and consents of, and has obtained or made
all required material registrations, qualifications and filings with, the
various state and local governmental and regulatory authorities which relate to
ownership of the Partnership's properties or the operations of its business.
8
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ITEM 3. LEGAL PROCEEDINGS.
Propane is a flammable, combustible gas. Serious personal injury and
property damage can occur in connection with its transportation, storage or use.
The Partnership, in the ordinary course of business, is threatened with or is
named as a defendant in various lawsuits which, among other items, seek actual
and punitive damages for product liability, personal injury and property damage.
The Partnership maintains liability insurance policies with insurers in such
amounts and with such coverages and deductibles as the General Partner believes
is reasonable and prudent. However, there can be no assurance that such
insurance will be adequate to protect the Partnership from material expenses
related to such personal injury or property damage or that such levels of
insurance will continue to be available in the future at economical prices. It
is not possible to determine the ultimate disposition of these matters discussed
above; however, management is of the opinion that there are no known claims or
known contingent claims that are likely to have a material adverse effect on the
results of operations or financial condition of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders of the
Partnership during the fiscal year ended July 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS.
The Common Units, representing common limited partner interests in the
Partnership, are listed and traded on the New York Stock Exchange under the
symbol FGP. The Common Units began trading on June 28, 1994, at an initial
public offering price of $21.00 per Common Unit. As of September 16, 1997, there
were 775 registered Common Unitholders of record. The following table sets forth
the high and low sales prices for the Common Units on the NYSE and the cash
distributions declared per Common Unit for the periods indicated.
<TABLE>
<CAPTION>
Common Unit Price Range Distributions
-------------------------------------------
High Low Declared per Unit
--------------------- --------------------- ---------------------
1996 1997 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $23.00 $23.50 $21.00 $22.50 $0.50 $0.50
Second Quarter 24.50 22.88 21.25 20.75 0.50 0.50
Third Quarter 24.25 23.00 21.88 21.13 0.50 0.50
Fourth Quarter 23.50 23.00 21.25 21.25 0.50 0.50
</TABLE>
The Partnership also has issued Subordinated Units, all of which are held
by the Company, for which there is no established public trading market.
The Partnership makes quarterly cash distributions of its Available Cash,
as defined by the MLP's Partnership Agreement. Available Cash is generally
defined as consolidated cash receipts less consolidated cash disbursements and
changes in cash reserves established by the General Partner for future
requirements.
The Partnership is not subject to federal income tax. Instead, Unitholders
are required to report their allocable share of the Partnership's income, gain,
loss, deduction and credit, regardless of whether the Partnership makes
distributions.
9
<PAGE>
ITEM 6. SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.
The following table presents selected consolidated historical and pro forma
financial data of the Partnership and Predecessor.
(in thousands, except per unit data)
<TABLE>
<CAPTION>
Ferrellgas Partners L.P. (Predecessor)
---------------------------------------------------------------------- --------------------------------
Historical Pro Forma Historical Historical Eleven Historical
Year Ended July 31, Year Ended Inception to Months Ended, Year Ended
--------------------------------------- July 31, July 31, July 31, July, 31
1997 1996 1995 1994 (1) 1994 1994 1993
----------- ------------ ------------ ------------ ------------ -------------- --------------
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues $804,298 $653,640 $596,436 $526,556 $ 24,566 $501,990 $ 541,945
Depreciation and amortization 43,789 37,024 32,014 28,835 2,383 26,452 30,840
Operating income (loss) 68,819 62,506 55,927 68,631 (2,391) 71,522 58,553
Interest expense 45,769 37,983 31,993 28,130 2,662 53,693 60,071
Earnings (loss) from continuing 23,218 24,312 23,820 39,909 (5,026) 12,337 109
operations
Earnings from continuing 0.74 0.77 0.76 1.29
operations per unit
Cash distributions declared per 2.00 2.00 1.65
unit (3)
Balance Sheet Data (at end
of period):
Working capital $ 18,111 $ 15,294 $ 28,928 $ 34,948 $ 34,948 $ 91,912 $ 74,408
Total assets 657,076 654,295 578,596 477,193 477,193 592,664 573,376
Pay to (rec from) parent and (4,050) (916)
affiliates
Long-term debt 487,334 439,112 338,188 267,062 267,062 476,441 489,589
Stockholder's equity 22,829 11,359
Partners' Capital:
Common Unitholders $ 52,863 $ 71,323 $ 84,489 $ 84,532 $ 84,532
Subordinated Unitholders 50,337 71,302 91,824 99,483 99,483
General Partner (2) (58,417) (58,016) (57,676) (62,622) (62,622)
Operating Data:
Retail propane sales volumes 693,995 650,214 575,935 564,224 23,915 $540,309 553,413
(in gallons)
Capital expenditures (4):
Maintenance $ 10,137 $ 6,657 $ 8,625 $ 5,688 $ 911 $ 4,777 $ 10,527
Growth 6,055 6,654 11,097 4,032 983 3,049 2,851
Acquisition 38,780 108,803 70,069 3,429 878 2,551 897
----------- ------------ ------------ ------------ ------------ ------------ ------------
Total $ 54,972 $122,114 $ 89,791 $ 13,149 $ 2,772 $ 10,377 $ 14,275
=========== ============ ============ ============ ============ ============ ============
Supplemental Data:
Earnings (loss) before $ 12,608 $ 99,530 $ 87,941 $ 97,466 $ (8) $ 97,974 $ 89,393
interest and taxes (5)
</TABLE>
(1) The pro forma year ended July 31, 1994 includes the eleven months ended
June 30, 1994 and historical financial data of the Partnership for the
period from inception, July 5, 1994, to July 31, 1994 (adjusted principally
for the pro forma effect on interest expense resulting from the early
retirement of debt net of additional borrowings).
(2) Pursuant to the MLP's Partnership Agreement, the net loss from continuing
operations of $5,026,000 was allocated 100% to the General Partner from
inception of the Partnership to the last day of the taxable year ending
July 31, 1994. An amount equal to 99% of this net loss was reallocated to
the limited partners in the taxable year ending July 31, 1995 based on
their ownership percentage. In addition, the retirement of debt assumed by
the Partnership resulted in an extraordinary loss of approximately
$60,062,000 resulting from debt prepayment premiums, consent fees and the
write-off of unamortized discount and financing costs. In accordance with
the Partnership Agreement, this extraordinary loss was allocated 100% to
the General Partner and was not reallocated to the limited partners in the
next taxable year.
(3) No cash distributions were declared by the Partnership from inception
to July 31, 1994. The $0.65 distribution made at the end of the 1995 first
quarter included $0.50 for the first quarter 1995 and $0.15 for the
inception period.
10
<PAGE>
(4) The Partnership's capital expenditures fall generally into three
categories: (i) maintenance capital expenditures, which include
expenditures for repair and replacement of property, plant and equipment;
(ii) growth capital expenditures, which include expenditures for purchases
of new propane tanks and other equipment to facilitate expansion of the
Partnership's customer base and operating capacity; and (iii) acquisition
capital expenditures, which include expenditures related to the
acquisitions of retail propane operations. Acquisition capital expenditures
represent total cost of acquisition less working capital acquired.
(5) EBITDA is calculated as operating income (loss) plus depreciation and
amortization. EBITDA is not intended to represent cash flow and does not
represent the measure of cash available for distribution. EBITDA is a
non-GAAP measure, but provides additional information for evaluating the
Partnership's ability to make the Minimum Quarterly Distribution. In
addition, EBITDA is not intended as an alternative to earnings (loss) from
continuing operations or net earnings (loss).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
consolidated financial statements and the notes thereto included elsewhere in
this Form 10-K.
Statements included in this report that are not historical facts, including a
statement concerning the Partnership's belief that the OLP will have sufficient
funds to meet its obligations to enable it to distribute to the MLP sufficient
funds to permit the MLP to meet its obligations with respect to the MLP Senior
Notes issued in April 1996, and to enable it to distribute the Minimum Quarterly
Distribution ($0.50 per Unit) on all Common Units and Subordinated Units, are
forward-looking statements.
Such statements are subject to risks and uncertainties that could cause
actual results to differ materially from those expressed in or implied by the
statements. The risks and uncertainties include but are not limited to the
following and their effect on the Partnership's operations: a) the effect of
weather conditions on demand for propane, b) price and availability of propane
supplies, c) the availability of capacity to transport propane to market areas,
d) competition from other energy sources and within the propane industry, e)
operating risks incidental to transporting, storing, and distributing propane,
f) changes in interest rates g) governmental legislation and regulations, h)
energy efficiency and technology trends and (i) other factors that are discussed
in the Partnership's filings with the Securities and Exchange Commission.
General
The Partnership is engaged in the sale, distribution, marketing and trading
of propane and other natural gas liquids. The Partnership's revenue is derived
primarily from the retail propane marketing business. The General Partner
believes the Partnership is the second largest retail marketer of propane in the
United States, based on gallons sold, serving more than 800,000 residential,
industrial/commercial and agricultural customers in 45 states and the District
of Columbia through approximately 513 retail outlets and 295 satellite
locations. Annual retail propane sales volumes were 694 million, 650 million,
and 576 million gallons for the fiscal years ended July 31, 1997, 1996, and
1995, respectively.
The retail propane business of the Partnership consists principally of
transporting propane purchased in the contract and spot markets, primarily from
major oil companies, to its retail distribution outlets and then to tanks
located on the customers' premises, as well as to portable propane cylinders. In
the residential and commercial markets, propane is primarily used for space
heating, water heating and cooking. In the agricultural market, propane is
primarily used for crop drying, space heating, irrigation and weed control. In
addition, propane is used for certain industrial applications, including use as
an engine fuel, which is burned in internal combustion engines that power
vehicles and forklifts and as a heating or energy source in manufacturing and
drying processes.
11
<PAGE>
The Partnership is also engaged in the trading of propane and other natural
gas liquids, chemical feedstocks marketing and wholesale propane marketing.
Through its natural gas liquids trading operations and wholesale marketing, the
Partnership is one of the largest independent traders of propane and natural gas
liquids in the United States. In fiscal year 1997, the Partnership's wholesale
and trading sales volume was approximately 1.2 billion gallons of propane and
other natural gas liquids, over 50% of which was propane.
The Partnership's traders are engaged in trading propane and other natural
gas liquids for the Partnership's account and for supplying the Partnership's
retail and wholesale propane operations. The Partnership primarily trades
products purchased from its over 110 suppliers, however, it also conducts
transactions on the New York Mercantile Exchange. Trading activity is conducted
primarily to generate a profit independent of the retail and wholesale
operations, but is also conducted to insure the availability of propane during
periods of short supply. Propane represents over 50% of the Partnership's total
trading volume, with the remainder consisting principally of various other
natural gas liquids. The Partnership attempts to minimize trading risk through
the enforcement of its trading policies, which include total inventory limits
and loss limits, and attempts to minimize credit risk through credit checks and
application of its credit policies. However, there can be no assurance that
historical experience or the existence of such policies will prevent trading
losses in the future. For the Partnership's fiscal years ended July 31, 1997,
1996 and 1995, net revenues from trading activities were $5.5 million, $7.3
million and $5.8 million, respectively.
Selected Quarterly Financial Data
(in thousands, except per unit data)
Due to the seasonality of the retail propane business, first and fourth
quarter revenues, gross profit and net earnings are consistently less than the
comparable second and third quarter results. Other factors affecting the results
of operations include competitive conditions, demand for product, variations in
the weather and fluctuations in propane prices.
Fiscal 1997
During the first three quarters of fiscal 1997, the Partnership experienced
increased revenues and gross profit due to the affect of acquisitions in the
fourth quarter of fiscal 1996 and significantly higher wholesale propane product
costs, partially offset by the impact of warmer weather. The fourth quarter
gross profit was negatively affected by a cumulative inventory costing
adjustment that related to the prior three quarters. This inventory costing
adjustment contributed to approximately .3%, 1.4%, and 1.0%, as a percentage of
revenues, of the Partnership's gross profit increase in the first, second and
third quarters of fiscal 1997, respectively. In addition, net earnings (loss)
for the third and fourth quarters of fiscal 1997 were positively affected by
favorable general liability claims experience. The following presents the
Partnership's selected quarterly financial data for the two years ended July 31,
1997.
12
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended July 31, 1997
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues $167,860 $347,056 $192,873 $ 96,509
Gross profit 66,785 143,291 84,855 39,239
Net earnings (loss) (10,298) 54,412 9,676 (30,572)
Net earnings (loss) per
limited partner unit (0.33) 1.73 0.31 (0.97)
Fiscal year ended July 31, 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ----------- -----------
Revenues $124,588 $238,381 $190,743 $99,928
Gross profit 55,479 111,909 85,480 44,458
Earnings (loss) before
extraordinary loss (7,303) 41,476 18,012 (27,873)
Earnings (loss) before
extraordinary loss per limited
partner unit (0.23) 1.32 0.57 (0.88)
Net earnings (loss) (1) (7,303) 41,476 18,012 (28,838)
</TABLE>
(1) Reflects a $965 extraordinary loss on early retirement of debt, net of
minority interest of $10.
Results of Operations
Fiscal Year Ended July 31, 1997 versus Fiscal Year Ended July 31, 1996
Total Revenues. Total revenues increased 23.0% to $804,298,000 as compared
to $653,640,000 in the prior year, primarily due to increased sales price per
retail gallon, increased retail propane volumes, and to a lesser extent an
increase in revenues from other operations (net trading operations, wholesale
propane marketing and chemical feedstocks marketing).
A volatile propane market during the first half of fiscal 1997 caused a
significant increase in the cost of product which in turn caused an increase in
sales price per gallon. Retail volumes increased by 6.7% or 44 million gallons,
primarily due to the increase in volumes related to acquisitions partially
offset by the affect of warmer weather during fiscal 1997 as compared to fiscal
1996 and by customer conservation efforts. Fiscal 1997 winter temperatures, as
reported by the American Gas Association, were 6% warmer than the prior year and
4% warmer than normal.
The 10.2% increase in revenues from other operations to $103,971,000 is due
to an increase in wholesale marketing volumes and sales price per gallon,
partially offset by a decrease in chemical feedstocks marketing revenues.
Wholesale marketing volumes increased primarily due to the effect of
acquisitions while price increased as a result of increased cost of product.
Chemical feedstocks volumes decreased as a result of decreased availability of
product from refineries and decreased demand from petrochemical companies.
Unrealized gains and losses on options, forwards, and futures contracts were not
significant at July 31, 1997 and 1996, respectively.
13
<PAGE>
Gross Profit. Gross profit increased 12.4% to $334,170,000 as compared to
$297,326,000 in the 1996 fiscal year, primarily due to an increase in retail
sales gross margin, partially offset by a decrease in gross profits from other
operations. Retail operations results increased primarily due to the increase in
volumes attributed to acquisitions and an increase in retail margins, partially
offset by the effect of warmer weather and customer conservation efforts.
Wholesale marketing and chemical feedstocks is comprised of low margin sales,
therefore, the net increase in revenues did not significantly affect gross
profit.
Operating Expenses. Operating expenses increased 10.5% to $198,298,000 as
compared to $179,462,000 in the prior year primarily due to acquisition related
increases in personnel costs, plant and office expenses, and vehicle and other
expenses, partially offset by favorable general liability claims experience.
Depreciation and Amortization. Depreciation and amortization expense
increased 18.3% to $43,789,000 as compared to $37,024,000 for the prior year due
primarily to acquisitions of propane businesses.
Interest expense. Interest expense increased 20.5% over the prior year.
This increase is primarily the result of the MLP's issuance of $160,000,000 of 9
3/8% Senior Secured Notes in April 1996, (the "MLP Senior Notes") the proceeds
of which were primarily used to fund acquisitions made in fiscal 1996, partially
offset by an overall decrease in interest rates on borrowings during the year.
Fiscal Year Ended July 31, 1996 versus Fiscal Year Ended July 31, 1995
Total Revenues. Total revenues increased 9.6% as compared to the prior
year, primarily due to increased retail propane volumes and increased sales
price per retail gallon, partially offset by the decline in revenues from other
operations (net trading operations, wholesale propane marketing and chemical
feedstocks marketing).
Retail volumes increased by 12.9% or 74 million gallons, primarily due to
the affect of colder weather during fiscal 1996 as compared to fiscal 1995 and
acquisition related growth. Fiscal 1996 winter temperatures, as reported by the
American Gas Association, were 14.3% colder than the prior year and 3.0% colder
than normal. Colder winter temperatures also caused higher cost of product which
in turn produced a corresponding increase in sales price per gallon as compared
to the prior fiscal year.
The 28.5% decrease in revenues from other operations to $94,318,000 is
primarily due to a decrease in chemical feedstocks marketing revenues due to a
decrease in sales volume and selling price. Both volume and price decreased as a
result of decreased availability of product from refineries and decreased demand
from petrochemical companies. Unrealized gains and losses on options, forwards,
and futures contracts were not significant at July 31, 1996 and 1995,
respectively.
The acquisition of Skelgas in May 1996 did not have a significant affect on
fiscal 1996 revenues due to the expected low retail volumes in the fourth
quarter of fiscal 1996. The Partnership expects fiscal 1997 retail propane
revenues to increase primarily due to the full fiscal year impact of the Skelgas
acquisition. Due to, among other factors, the uncertainty in both fiscal 1997
temperature levels and sales price per gallon, the Partnership is unable to
predict the impact of the Skelgas acquisition on future revenues. During the
nine months ended April 30, 1996, Skelgas sold approximately 87 million retail
propane gallons, however, temperatures were 3.0% colder than normal.
Gross Profit. Gross profit increased 15.8% as compared to the 1995 fiscal
year, primarily due to a $28,415,000 increase in retail sales gross margin and
to a lesser extent gross profits from other operations. Retail operations
results increased primarily due to the increase in retail volumes. Other
operations increased $11,027,000 mainly due to the increased activity of a
non-retail transportation operation. This increased activity did not materially
impact income from continuing operations due to the related increase in
operating expenses. Chemical feedstocks is comprised of low margin sales,
therefore, the decrease in revenues did not significantly impact gross profit.
14
<PAGE>
Operating Expenses. Operating expenses increased 17.1% over the prior year.
The increase is primarily attributable to acquisitions of propane and increased
activity in the non-retail transportation operations as compared to the prior
year.
Depreciation and Amortization. Depreciation and amortization expense
increased 15.6% over the prior year due primarily to acquisitions of propane
businesses.
Interest expense and extraordinary loss. Interest expense increased 18.7%
over the prior year. This increase is primarily the result of the MLP's issuance
the MLP Senior Notes, the increased net borrowings from the Operating
Partnership's revolving credit loans during the first nine months of the year,
partially offset by decreasing interest rates during the first nine months of
the year.
The extraordinary charge of $965,000 is due to the write off of unamortized
debt issuance costs as a result of the refinancing of the $50,000,000 of
floating rate debt previously issued by the Operating Partnership.
Liquidity and Capital Resources
The ability of the MLP to satisfy its obligations is dependent upon future
performance, which will be subject to prevailing economic, financial, business
and weather conditions and other factors, many of which are beyond its control.
For the fiscal year ending July 31, 1998, the General Partner believes that the
OLP will have sufficient funds to meet its obligations and enable it to
distribute to the MLP sufficient funds to permit the MLP to meet its obligations
with respect to the MLP Senior Notes issued in April 1996, and enable it to
distribute the Minimum Quarterly Distribution ($0.50 per Unit) on all Common
Units and Subordinated Units. Future maintenance and working capital needs of
the Partnership are expected to be provided by cash generated from future
operations, existing cash balances and the working capital borrowing facility.
In order to fund expansive capital projects and future acquisitions, the OLP may
borrow on existing bank lines, the MLP or OLP may issue additional debt or the
MLP may issue additional Common Units. Toward this purpose the MLP maintains a
shelf registration statement with the Securities and Exchange Commission for
1,887,420 Common Units representing limited partner interests in the MLP. The
Common Units may be issued from time to time by the MLP in connection with the
OLP's acquisition of other businesses, properties or securities in business
combination transactions.
Operating Activities. Cash provided by operating activities was $75,087,000
for the year ended July 31, 1997, compared to $65,096,000 in the prior year.
This increase is primarily due to the decrease in accounts receivable related to
timing of trading activity at year end and increased earnings prior to non-cash
deductions.
Investing Activities. The Partnership made total acquisition capital
expenditures of $40,200,000 (including working capital acquired of $1,420,000)
during fiscal 1997. This amount was funded by $36,114,000 cash payments
(including $795,000 for transition costs previously accrued for fiscal 1996
acquisitions) and $4,881,000 in other costs and consideration.
During the year ended July 31, 1997, the Partnership made growth and
maintenance capital expenditures of $16,192,000 primarily for the following
purposes: 1) additions to Partnership-owned customer tanks and cylinders, 2)
vehicle lease buyouts, 3) relocating the Houston office and relocating and
upgrading district plant facilities, and 4) development of an enhanced gas
inventory management system and upgrading computer equipment and software.
Capital requirements for repair and maintenance of property, plant and equipment
are relatively low since technological change is limited and the useful lives of
propane tanks and cylinders, the Partnership's principal physical assets, are
generally long. The Partnership maintains its vehicle and transportation
equipment fleet by leasing light and medium duty trucks and tractors. The
General Partner believes vehicle leasing is a cost effective method for meeting
the Partnership's transportation equipment needs. The Partnership continues to
seek expansion of its operations through strategic acquisitions of smaller
retail propane operations located throughout the United States. These
acquisitions will be funded through internal cash flow, external borrowings or
the issuance of additional Partnership interests. The Partnership does not have
any material commitments of funds for capital expenditures other than to support
the current level of operations. In fiscal 1998, the Partnership expects growth
and maintenance capital expenditures to increase slightly over fiscal 1997
levels.
15
<PAGE>
Financing Activities. During the fiscal year ended July 31, 1997, the
Partnership borrowed $41,729,000 under its $255,000,000 Credit Facility (the
"Credit Facility") to fund expected seasonal working capital needs, business
acquisitions, and capital expenditures. At July 31, 1997, $86,400,000 of
borrowings were outstanding under the revolving portion of the Credit Facility.
In addition, letters of credit outstanding, used primarily to secure obligations
under certain insurance arrangements, totaled $24,102,000. At July 31, 1997, the
Operating Partnership had $94,498,000 available for general corporate,
acquisition and working capital purposes under the Credit Facility. The
Partnership typically has significant cash needs during the first quarter due to
expected low revenues, increasing inventories and the Partnership's cash
distribution paid in mid-September.
On April 26, 1996, the MLP issued the MLP Senior Notes. The MLP Senior
Notes will be redeemable at the option of the Partnership, in whole or in part,
at any time on or after June 15, 2001. The MLP Senior Notes will become
guaranteed by the OLP on a senior subordinated basis if certain conditions are
met. The Amended and Restated Credit Agreement and the OLP Senior Note Indenture
currently prohibit the OLP from guaranteeing any indebtedness unless, among
meeting other conditions, the fixed charge coverage ratio for the OLP meets
certain levels at prescribed dates. Currently the OLP does not meet such
conditions and, therefore, there can be no assurance as to whether or when this
guarantee will occur. Interest is payable semi-annually in arrears on June 15
and December 15. The OLP also has outstanding $200,000,000 of 10% Fixed Rate
Senior Notes due 2001. These notes are redeemable, at the option of the OLP,
anytime on or after August 1, 1998 with a premium through August 1, 2000.
On July 31, 1996, the OLP amended and restated its $205,000,000 Credit
Facility (with Bank of America National Trust & Savings Association ("BofA"), as
Agent. Among other changes, the amendment increased the maximum borrowing amount
to $255,000,000 and extended the termination date of the revolving line of
credit to July 1999. The unsecured Credit Facility permits borrowings of up to
$185,000,000 on a senior unsecured revolving line of credit basis to fund
general corporate, working capital and acquisition purposes (of which up to
$50,000,000 is available to support letters of credit). The Credit Facility also
provides an unsecured revolving line of credit for additional working capital
needs of $20,000,000. The Partnership anticipates either exercising a renewal
for up to one year or refinancing any amounts still owed in July 1999. The
Credit Facility also includes an unsecured term loan due June 1, 2001 (the
"Refinancing Loan ") which was used to refinance the OLP's $50,000,000 Floating
Rate Series B Senior Notes (the "Floating Senior Notes").
To offset the variable rate characteristic of the Credit Facility, the OLP
has entered into interest rate collar agreements, expiring between June and
December 1998 with three major banks, that effectively limit interest rates on a
certain notional amount between 4.9% and 6.5% under the current pricing
arrangement. At July 31, 1997, the total notional principal amount of these
agreements was $125,000,000.
During the year ended July 31, 1997, the Partnership paid cash
distributions of $2.00 per limited partner unit. These distributions covered the
period from May 1, 1996 to April 30, 1997. On August 19, 1997, the Partnership
declared its fourth-quarter cash distribution of $0.50 per limited partner unit,
which was paid September 12, 1997. The Partnership's annualized distribution is
presently $2.00 per limited partner unit.
16
<PAGE>
The MLP Senior Notes, the OLP Fixed Rate Senior Notes and Credit Facility
contain various restrictive covenants applicable to the MLP, the Operating
Partnership and its subsidiaries, the most restrictive relating to additional
indebtedness, sale and disposition of assets, and transactions with affiliates.
In addition, the Operating Partnership is prohibited from making cash
distributions of the Minimum Quarterly Distribution if a default or event of
default exists or would exist upon making such distribution, or if the Operating
Partnership fails to meet certain coverage tests. The MLP and the Operating
Partnership are in compliance with all requirements, tests, limitations and
covenants related to the MLP Senior Notes, the OLP Fixed Rate Senior Notes and
Credit Facility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Partnership's Consolidated Financial Statements and the Reports of
Certified Public Accountants thereon and the Supplementary Financial Information
listed on the accompanying Index to Financial Statements and Financial Statement
Schedules are hereby incorporated by reference. See Item 7 for Selected
Quarterly Financial Data.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
Partnership Management
The General Partner manages and operates the activities of the Partnership,
and the General Partner anticipates that its activities will be limited to such
management and operation. Unitholders do not directly or indirectly participate
in the management or operation of the Partnership. The General Partner owes a
fiduciary duty to the Unitholders.
In September 1994, the General Partner appointed two persons who are
neither officers nor employees of the General Partner or any affiliate of the
General Partner to serve on a committee of the Partnership (the "Audit
Committee") with the authority to review, at the request of the General Partner,
specific matters as to which the General Partner believes there may be a
conflict of interest in order to determine if the resolution of such conflict
proposed by the General Partner is fair and reasonable to the Partnership. The
Audit Committee will only review matters relating to conflicts of interest at
the request of the General Partner, and the General Partner has sole discretion
to determine which matters, if any, to submit to the Audit Committee. Any
matters approved by the Audit Committee will be conclusively deemed to be fair
and reasonable to the Partnership, approved by all partners of the Partnership
and not a breach by the General Partner of any duties it may owe the Partnership
or the Unitholders.
The Partnership does not directly employ any of the persons responsible for
managing or operating the Partnership. At July 31, 1997, 3,370 full-time and 837
temporary and part-time individuals were employed by the General Partner.
17
<PAGE>
Directors and Executive Officers of the General Partner
The following table sets forth certain information with respect to the
directors and executive officers of the General Partner at July 31, 1997. Each
of the persons named below is elected to their respective office or offices
annually. None of the executive officers have entered into employment agreements
with the General Partner.
Director
Name Age Since Position
James E. Ferrell 57 1984 Chairman of the Board, Chief
ExecutiveOfficer and a
Director of the General Partner
Danley K. Sheldon 39 President, Chief Financial
Officer and Treasurer
Patrick J. Chesterman 47 Senior Vice President, Supply
James M. Hake 37 Vice President, Acquisitions
Robert J. Wikse 48 Vice President, Administration
Daniel M. Lambert 56 1994 Director of the General Partner
A. Andrew Levison 41 1994 Director of the General Partner
James E. Ferrell--Mr. Ferrell has been with Ferrell or its predecessors and
its affiliates in various executive capacities since 1965.
Danley K. Sheldon--Mr. Sheldon has been President of the Company since
October 1996 and Chief Financial Officer of the Company since January 1994. He
has served as Treasurer since 1989 and joined the Company in 1986.
Patrick J. Chesterman--Mr. Chesterman has been Senior Vice President,
Supply since September 1997. After joining the Company in June, 1994, he had
one-year assignments as Vice President-Retail Operations, Director of Human
Resources and Director of Field Support. Prior to joining the Company, Mr.
Chesterman was Director of Fuels Policy and Operations for the U.S. Air Force.
James M. Hake--Mr. Hake has been Vice President, Acquisitions of the
Company since October, 1994. He joined the Company in 1986.
Robert J. Wikse--Mr. Wikse has been Vice President, Administration since
his appointment in January 1995. After joining the Company in July, 1991, he had
a three-year assignment as Region Director of Western US -Retail Operations.
Daniel M. Lambert---Dr. Lambert was elected a director of the Company in
September 1994. Dr. Lambert has been President of Baker University in Baldwin
City, Kansas, since July 1, 1987
A. Andrew Levison---Mr. Levison was elected a director of the Company in
September 1994. Mr. Levison has been a Managing Director of Donaldson, Lufkin &
Jenrette Securities Corporation since 1989.
18
<PAGE>
Compensation of the General Partner
The General Partner receives no management fee or similar compensation in
connection with its management of the Partnership and receives no remuneration
other than:
(i) distributions in respect of its 2% general partner interest, on a
combined basis, in the Partnership and the Operating Partnership; and
(ii) reimbursement for all direct and indirect costs and expenses incurred
on behalf of the Partnership, all selling, general and administrative
expenses incurred by the General Partner for or on behalf of the
Partnership and all other expenses necessary or appropriate to the conduct
of the business of, and allocable to, the Partnership. The selling, general
and administrative expenses reimbursed include specific employee benefit
and incentive plans for the benefit of the executive officers and employees
of the General Partner.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth the compensation for the past three years of
the Company's Chief Executive Officer ("CEO") and the Company's four most highly
compensated executive officers other than the Chief Executive Officer ("named
executive officers"), who were serving as executive officers at the end of the
1997 fiscal year.
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards Pay-outs
------------------------- --------------- ---------------
Stock Long-Term
Options/ Incentive All Other
Name and Salary Bonus SARs Payouts Compensation
Principal Position Year ($) ($) (#) ($) ($)
- --------------------------------- ------ ------------ ------------ --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
James E. Ferrell 1997 480,000 0 --- --- 32,126 (1)
Chairman and Chief Executive 1996 480,000 0 --- --- 16,801
Officer 1995 480,000 180,000 --- --- 36,977
Danley K. Sheldon 1997 218,221 0 30,000 --- 15,440 (1)
President, Chief Financial 1996 177,500 100,000 --- --- 13,972
Officer and Treasurer 1995 165,000 50,000 70,000 --- 15,897
Patrick J. Chesterman 1997 132,917 27,500 20,000 --- 9,087 (1)
Senior Vice President, Supply
James A. Hake 1997 120,000 90,000 15,000 --- 13,592 (1)
Vice President, Acquisitions 1996 120,000 85,000 --- --- 9,962
1995 112,583 60,000 36,000 --- 10,424
Robert J. Wikse 1997 125,000 14,700 --- --- 6,245 (1)
Vice President, Administration
</TABLE>
(1) Includes for Mr. Ferrell contributions of $14,814 to the employee's 401(k)
and profit sharing plans and compensation of $17,312 resulting from the
payment of life insurance premiums. Includes for Mr. Sheldon contributions
of $15,300 to the employee's 401(k) and profit sharing plans and
compensation of $140 resulting from the payment of life insurance premiums.
Includes for Mr. Chesterman contributions of $8,443 to the employee 401(k)
and profit sharing plans and compensation of $644 resulting from the
payment of life insurance premiums. Includes for Mr. Hake contributions of
$12,866 to the employee's 401(k) and profit sharing plans and compensation
of $726 resulting from the payment of life insurance premiums. Includes for
Mr. Wikse contributions of $5,985 to the employee's 401(k) and profit
sharing plans and compensation of $260 resulting from the payment of life
insurance premiums.
19
<PAGE>
Unit Options
On October 14, 1994, the General Partner adopted the Ferrellgas, Inc. Unit
Option Plan (the "Unit Option Plan") pursuant to which key employees are granted
options to purchase the MLP's Subordinated Units. The purpose of the Unit Option
Plan is to encourage certain employees of the General Partner to develop a
proprietary interest in the growth and performance of the Partnership, to
generate an increased incentive to contribute to the Partnership's future
success and prosperity, thus enhancing the value of the Partnership for the
benefit of its Unitholders, and to enhance the ability of the General Partner to
attract and retain key individuals who are essential to progress, growth and
profitability of the Partnership.
The Unit Options are exercisable beginning after July 31, 1999, assuming
the subordination period has lapsed at prices ranging from $16.80 to $21.67 per
unit, which is an estimate of the fair market value of the Subordinated Units at
the time of grant, vest immediately over a one to five year period, and expire
on the tenth anniversary of the date of grant. Upon conversion of the
Subordinated Units held by the General Partner and its affiliates, outstanding
Subordinated Unit Options will convert to Common Unit Options.
The following table lists information on the CEO and named executive
officers' Unit Options granted in the fiscal year ended July 31, 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grant
-----------------------------------------------------------
Number of
Securities % of Total
Underlying Options Granted to Exercise Grant Date
Options Employees in Price Expiration Present
Name Granted (1) Fiscal Year ($/Unit) Date Value $ (2)
- ----------------------------- ------------- -------------------- ------------ ----------- --------------
James E. Ferrell - - - - -
<S> <C> <C> <C> <C> <C> <C>
Danley K. Sheldon 30,000 14 20.19 8/1/06 23,000
Patrick J. Chesterman 20,000 9 20.19 8/1/06 16,000
James M. Hake 15,000 7 20.19 8/1/06 12,000
Robert J. Wikse - - - - -
(1) Unit Options generally vest over five years.
(2) Based on a binomial option valuation model. The key input variables used in
valuing the options were the following: risk-free interest rate - 5.85%;
distribution amount of $0.50 per unit per quarter; Common Unit price
volatility of 16.9% was used as an estimate of Subordinated Unit
volatility; options exercised on earliest possible dates, i.e., August 1,
1999, 2000 and 2001, assuming certain financial tests are achieved.
Additionally, it was assumed that the Partnership will make its Minimum
Quarterly Distribution each quarter and that the Subordination Period will
end in 1999. The New York Stock Exchange "Monthly Market Statistics Report"
was used and the volatility variable reflected 130 weeks of historical Unit
price trading data. No adjustments for non-transferability or risk of
forfeiture were made. The actual value, if any, a grantee may realize will
depend on the excess of the Unit price over the exercise price on the date
the option is exercised, so that there is no assurance the value realized
will be at or near the value estimated by the binomial option valuation
model.
The following table lists information on the CEO and named executive
officers' exercised/unexercised unit options for the fiscal year ended July 31,
1997.
</TABLE>
20
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FY AND FY-END OPTION SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options/SARs
Options/SARs at at FY-End ($)
FY-End (#)
------------------------- -----------------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ------------------------- -------------- -------------- ------------------------- ------------------------------
James E. Ferrell - - - -
<S> <C> <C> <C> <C>
Danley K. Sheldon 0 0 0/100,000 0/518,300
Patrick J. Chesterman 0 0 0/30,000 0/96,430
James M. Hake 0 0 0/51,000 0/265,350
Robert J. Wikse 0 0 0/20,000 0/124,000
</TABLE>
Profit Sharing Plan
The Ferrell Profit Sharing and 401(k) Investment Plan is a qualified
defined contribution plan (the "Profit Sharing Plan"). All full-time employees
of Ferrell or any of its direct or indirect wholly owned subsidiaries with at
least one year of service are eligible to participate in the Profit Sharing
Plan. In regards to the profit sharing portion, the Board of Directors of
Ferrell determines the amount of the annual contribution to the Profit Sharing
Plan, which is purely discretionary. This decision is based on the operating
results of Ferrell for the previous fiscal year and anticipated future cash
needs of the General Partner and Ferrell. The contributions are allocated to the
Profit Sharing Plan participants based on each participant's wages or salary as
compared to the total of all participants' wages and salaries.
Historically, the annual contribution to the Profit Sharing Plan has been
1% to 7% of each participant's annual wage or salary. The Profit Sharing Plan
also has a cash-or-deferred, or 401(k), feature allowing all full-time employees
to specify a portion of their pre-tax and/or after-tax compensation to be
contributed to the Profit Sharing Plan.
Supplemental Savings Plan
The Ferrell Supplemental Savings Plan was established October 1, 1994 in
order to provide certain management or highly compensated employees with
supplemental retirement income which is approximately equal in amount to the
retirement income that would have been provided to members of the select group
of employees under the terms of the 401(k) feature of the Profit Sharing Plan
based on such members' deferral elections thereunder, but which could not be
provided under the 401(k) feature of the Profit Sharing Plan due to application
of certain IRS rules and regulations.
Compensation of Directors
The General Partner does not pay any additional remuneration to its
employees for serving as directors. Directors who are not employees of the
General Partner receive a fee per meeting of $500, plus reimbursement for
out-of-pocket expenses.
21
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of July 31, 1997,
regarding the beneficial ownership of the Common and Subordinated Units of the
MLP by certain beneficial owners, all directors and named executive officers of
the General Partner and the Partnership, each of the named executive officers,
and all directors and executive officers of the General Partner as a group. The
General Partner knows of no other person beneficially owning more than 5% of the
Common Units.
<TABLE>
<CAPTION>
Ferrellgas Partners, L.P.
Units
Benefically Percentage
Title of Class Name and Address of Beneficial Owner Owned (1) of Class
- --------------- ------------------------------------ -------------- --------------
<S> <C> <C> <C>
Common Units James E. Ferrell 1,210,162 (2) 8.3
Goldman, Sachs & Co. 1,463,470 (3) 10.0
The Goldman Sachs Group 1,463,470 (3) 10.0
Danley K. Sheldon 1,000 *
Patrick J. Chesterman 200 *
Robert J. Wikse 500 *
James M. Hake 400 *
A. Andrew Levison 15,000 *
Daniel M. Lambert 575 *
All Directors and Officers as a Group 1,227,837 8.4
Subordinated Units James E. Ferrell 16,593,721 (2) 100.0
* Less than 1%
</TABLE>
(1) Beneficial ownership for the purposes of the foregoing table is defined by
Rule 13d-3 under the Securities Exchange Act of 1934. Under that rule, a
person is generally considered to be the beneficial owner of a security if
he has or shares the power to vote or direct the voting thereof ("Voting
Power") or to dispose or direct the disposition thereof ("Investment
Power") or has the right to acquire either of those powers within sixty
(60) days.
(2) The address for James E. Ferrell is c/o Ferrellgas, Inc., P.O. Box
4644, Houston, TX, 77210
Includes 1,210,162 Common Units and 16,593,721 Subordinated Units held by
Ferrellgas, Inc. a wholly owned subsidiary of Ferrell Companies, Inc. Mr.
Ferrell is the sole director of Ferrell Companies, Inc.
(3) The address for both Goldman Sachs Group, L.P. and Goldman, Sachs & Co.
is 85 Broad Street, New York, New York, 10004.
Goldman, Sachs & Co., a broker/dealer, and its parent Goldman Sachs Group,
L.P. are deemed to have shared voting power and shared dispositive power
over 1,463,470 Common Units owned by their customers.
Compliance With Section 16(a) of the Securities and Exchange Act
Section 16(a) of the Securities and Exchange Act of 1934 requires the
General Partner's officers and directors, and persons who own more than 10% of a
registered class of the Partnership's equity securities, to file reports of
beneficial ownership and changes in beneficial ownership with the Securities and
Exchange Commission ("SEC"). Officers, directors and greater than 10%
unitholders are required by SEC regulation to furnish the General Partner with
copies of all Section 16(a) forms.
Based solely on its review of the copies of such forms received by the
General Partner, or written representations from certain reporting persons that
no Form 5's were required for those persons, the General Partner believes that
during fiscal year 1997 all filing requirements applicable to its officers,
directors, and greater than 10% beneficial owners were met in a timely manner.
22
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Set forth below is a discussion of certain relationships and related
transactions among affiliates of the Partnership.
The Partnership has no employees and is managed and controlled by the
General Partner. Pursuant to the Partnership Agreement, the General Partner is
entitled to reimbursement for all direct and indirect expenses incurred or
payments it makes on behalf of the Partnership, and all other necessary or
appropriate expenses allocable to the Partnership or otherwise reasonably
incurred by the General Partner in connection with operating the Partnership's
business. These costs, which totaled $128,033,000 and $109,637,000 for the years
ended July 31, 1997 and 1996, include compensation and benefits paid to officers
and employees of the General Partner, and general and administrative costs. In
addition, the conveyance of the net assets of the Company to the Partnership
included the assumption of specific liabilities related to employee benefit and
incentive plans for the benefit of the officers and employees of the General
Partner. The conveyance of the net assets of the Company to the Partnership is
described in Note A of the Ferrellgas Partners, L.P. notes to the consolidated
financial statements.
Ferrell, the parent of the General Partner, and its other wholly-owned
subsidiaries engage in various investment activities including, but not limited
to, commodity investments and the trading thereof. The Partnership from time to
time acts as an agent on behalf of Ferrell to purchase and market natural gas
liquids and enter into certain trading activities. The Partnership charges all
direct and indirect expenses incurred in performing this agent role to Ferrell.
During the year ended July 31, 1997, the Partnership, as Ferrell's agent,
performed the following services: a) purchased 1,089,929 barrels of propane, b)
marketed and sold 619,929 barrels, and c) entered into certain hedging
arrangements. The Partnership charged Ferrell $73,078 for its direct and
indirect expenses incurred during fiscal year 1997. Of the 619,929 barrels of
propane sold, 534,929 barrels were sold to and used by the Partnership at the
applicable market prices (an aggregate of $13,128,765). The Partnership believes
these transactions were under terms that were no less favorable to the OLP than
those arranged with other parties.
A. Andrew Levison, a director of the General Partner is a Managing Director
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). DLJ acted as an
underwriter with regard to the private placement of $160,000,000 senior
subordinated notes issued in April 1996 and was paid fees of $4,000,000 in
fiscal 1996.
See Note L to the financial statements in Item 14 for discussion of
transactions involving acquisitions related to the General Partner and the
Partnership.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements.
See "Index to Financial Statements" set forth on page F-1.
2. Financial Statement Schedules.
See "Index to Financial Statement Schedules" set forth on page
S-1.
3. Exhibits.
See "Index to Exhibits" set forth on page E-1.
(b) Reports on Form 8-K.
None filed during the fiscal year ended July 31, 1997.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FERRELLGAS PARTNERS, L.P.
By Ferrellgas, Inc. (General Partner)
By /s/ James E. Ferrell
-------------------------
James E. Ferrell
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated:
Signature Title Date
/s/James E. Ferrell Chairman of the Board, 10/29/97
- ------------------- Chief Executive Officer and
James E. Ferrell Director (Principal Executive Officer)
/s/Daniel M. Lambert
- --------------------- Director 10/29/97
A. Andrew Levison
/s/A. Andrew Levinson
- --------------------- Director 10/29/97
A. Andrew Levison
/s/Danley K. Sheldon President and Chief Financial 10/29/97
- --------------------- Officer (Principal Financial
Danley K. Sheldon and Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FERRELLGAS PARTNERS FINANCE CORP.
By /s/ James E. Ferrell
-------------------------
James E. Ferrell
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated:
Signature Title Date
/s/James E. Ferrell Chairman of the Board, 10/29/97
- ------------------- Chief Executive Officer and
James E. Ferrell Sole Director (Principal
Executive Officer)
/s/Danley K. Sheldon Senior Vice President and Chief 10/29/97
- -------------------- Financial Officer (Principal
Danley K. Sheldon Financial and Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
The exhibits listed on the accompanying Exhibit Index are filed as part
of this report. Exhibits required by Item 601 of Regulation S-K which are not
listed are not applicable.
Exhibit
Number Description
(1) 2.1 Stock Purchase Agreement dated September 30, 1994,
between Ferrellgas, Inc. and Bell Atlantic Enterprises
International, Inc.
(2) 2.2 Agreement for Purchase and Sale of Stock dated March
23, 1996, between Superior Propane, Inc. and
Ferrellgas, Inc.
(3) 3.1 Agreement of Limited Partnership of Ferrellgas
Partners, L.P.
(4) 3.2 Articles of Incorporation for Ferrellgas Partners
Finance Corp.
(5) 3.3 Bylaws of Ferrellgas Partners Finance Corp.
(6) 4.1 Indenture dated as of July 5, 1994, among Ferrellgas,
L.P., Ferrellgas Finance Corp. and Norwest Bank
Minnesota, National Association, as Trustee, relating
to $200,000,000 10% Series A Fixed Rate Senior Notes
due 2001 and $50,000,000 Series B Floating Rate
Senior Notes due 2001.
(7) 4.2 Indenture dated as of April 26, 1996, among Ferrellgas
Partners, L.P., Ferrellgas Partners Finance Corp.,
Ferrellgas, L.P.as guarantor, and Amercan Bank National
Association, as Trustee, relating to $160,000,000
9 3/8% Senior Secured Notes due 2006.
(8) 4.3 Registration Rights Agreement dated as of April, 26,
1996, among Ferrellgas Partners, L.P., Ferrellgas
Partners Finance Corp., Ferrellgas, L.P., Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman,
Sachs & Co.
(9) 10.2 Agreement dated as of April 1, 1994, between BP
Exploration & Oil, Inc. and Ferrellgas, L.P. dba
Ferrell North America
(10)# 10.3 Ferrell Companies, Inc. Supplemental Savings Plan.
(11)# 10.4 Ferrellgas, Inc. Unit Option Plan.
(12) 10.5 Contribution, Conveyance and Assumption Agreement dated
as of November 1, 1994, among the Partnership, the
Operating Partnership and Ferrellgas, Inc.
(13) 10.6 First Amendment to Contribution, Conveyance and
Assumption Agreement between Ferrellgas, the
Partnership and the Operating Partnership.
(14) 10.7 Second Amendment to Contribution, Conveyance and
Assumption Agreement between Ferrellgas, the
Partnership and the Operating Partnership.
(15) 10.8 Purchase Agreement dated as of April 23, 1996, between
Ferrellgas Partners, L.P., Ferrellgas Partners
Finance Corp., Ferrellgas, Inc., Ferrellgas, L.P.,
Donaldson, Lufkin & Jenrette Securities Corporation
and Goldman, Sachs & Co.
(16) 10.9 Amended and Restated Agreement of Limited Partnership
of Ferrellgas, L.P. dated as of April 23, 1996.
E-1
<PAGE>
(17) 10.10 Pledge and Security Agreement dated as of April
26, 1996, among Ferrellgas Partners, L.P., Ferrellgas,
Inc., and American Bank National Association, as
collateral agent.
(18) 10.11 Amended and Restated Credit Agreement dated as of July
31, 1996, among Ferrellgas, L.P., Stratton Insurance
Company, Inc.,Ferrellgas, Inc.,Bank of America National
Trust and Savings Association, as agent, and the other
financial institutions party thereto.
(19) 21.1 List of subsidiaries.
27 Financial Data Schedules - Filed only with the EDGAR
version.
- ----------------------------------------------------------------------------
# Management contracts or compensatory plans.
(1) Incorporated by reference to the same numbered Exhibit to
Registrant's Registration Statement on Form S-1 File No.
33-55185 filed with the Commission on November 14, 1994
(2) Incorporated by reference to Exhibit 2.1 to Registrant's
Current Report on Form 8-K filed on May 6, 1996.
(3) Incorporated by reference to the same numbered Exhibit to the
Registrant's Current Report on Form 8-K filed August 15, 1994.
(4) Incorporated by reference to Exhibit same numbered Exhibit to
Registrant's Quarterly Report on Form 10-Q filed on June 13,
1997.
(5) Incorporated by reference to Exhibit same numbered Exhibit to
Registrant's Quarterly Report on Form 10-Q filed on June 13,
1997.
(6) Incorporated by reference to Exhibit 10.2 to the Registrant's
Current Report on Form 8-K filed August 15, 1994.
(7) Incorporated by reference to Exhibit 4.1 to Registrant's Current
Report on Form 8-K filed on May 6, 1996.
(8) Incorporated by reference to Exhibit 4.2 to Registrant's Current
Report on Form 8-K filed on May 6, 1996.
(9) Incorporated by reference to the Exhibit 10.4 to Registrant's
Annual Report on Form 10-K filed on October 20, 1994.
(10) Incorporated by reference to the Exhibit 10.7 to Registrant's
Annual Report on Form 10-K filed on October 17, 1995.
(11) Incorporated by reference to the Exhibit 10.8 to Registrant's
Registration Statement on Form S-1 File No. 33-55185 filed with
the Commission on November 14, 1994
(12) Incorporated by reference to the Exhibit 10.9 to Registrant's
Registration Statement on Form S-1 File No. 33-55185 filed with
the Commission on November 14, 1994
(13) Incorporated by reference to Exhibit 10.8 to Registrant's Annual
Report on Form 10-K filed on October 20, 1994.
(14) Incorporated by reference to the Exhibit 10.11 to Registrant's
Annual Report on Form 10-K filed on October 17, 1995.
E-2
<PAGE>
(15) Incorporated by reference to Exhibit 10.1 to Registrant's
Current Report on Form 8-K filed on May 6, 1996.
(16) Incorporated by reference to Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q filed on June 12, 1996.
(17) Incorporated by reference to Exhibit 10.2 to Registrant's
Current Report on Form 8-K filed on May 6, 1996.
(18) Incorporated by reference to the Exhibit 10.11 to Registrant's
Annual Report on Form 10-K filed on October 18, 1996.
(19) Incorporated by reference to the Exhibit 21.1 to Registrant's
Registration Statement on Form S-4 File No. 333-06693 filed
with the Commission on July 30, 1996
E-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Ferrellgas Partners, L.P. and Subsidiaries
Independent Auditors' Report....................................... F-2
Consolidated Balance Sheets - July 31, 1997 and 1996................F-3
Consolidated Statements of Earnings- Years ended July
31, 1997, 1996 and 1995........................................F-4
Consolidated Statements of Partners' Capital - Years ended
July 31, 1997, 1996 and 1995...................................F-5
Consolidated Statements of Cash Flows - Year ended July 31,
1997, 1996 and 1995...........................................F-6
Notes to Consolidated Financial Statements..........................F-7
Ferrellgas Partners Finance Corp.
Independent Auditors' Report......................................F-17
Balance Sheets - July 31, 1997 and 1996...........................F-18
Statements of Earnings - Year ended July 31, 1997 and
From the Date of inception to July 31, 1996..................F-19
Statements of Stockholder's Equity - Year ended July 31, 1997 and
From the Date of Inception to July 31, 1996..................F-20
Statements of Cash Flows - Year ended July 31, 1997 and
From the Date of Inception to July 31,1996...................F-21
Notes to Financial Statements.....................................F-22
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the accompanying consolidated balance sheets of Ferrellgas
Partners, L.P. and subsidiaries as of July 31, 1997 and 1996, and the related
consolidated statements of earnings, partners' capital and cash flows for the
years ended July 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ferrellgas Partners, L.P. and
subsidiaries as of July 31, 1997 and 1996, and the results of their operations
and their cash flows for the years ended July 31, 1997, 1996 and 1995, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 24, 1997
F-2
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
<TABLE>
<CAPTION>
July 31, July 31,
ASSETS 1997 1996
- ---------------------------------------------------------- ---------------- -----------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 14,788 $ 13,770
Accounts and notes receivable (net of
allowance for doubtful accounts of $1,234 and
$1,169 in 1997 and 1996, respectively) 61,835 70,118
Inventories 43,112 41,395
Prepaid expenses and other current assets 8,906 5,685
---------------- -----------------
Total Current Assets 128,641 130,968
Property, plant and equipment, net 405,736 403,732
Intangible assets, net 112,058 107,960
Other assets, net 10,641 11,635
--------------- -----------------
Total Assets $657,076 $654,295
================ =================
LIABILITIES AND PARTNERS' CAPITAL
- ----------------------------------------------------------
Current Liabilities:
Accounts payable $ 39,322 $ 48,400
Other current liabilities 49,422 41,754
Short-term borrowings 21,786 25,520
---------------- -----------------
Total Current Liabilities 110,530 115,674
Long-term debt 487,334 439,112
Other liabilities 12,354 12,402
Contingencies and commitments
Minority interest 2,075 2,498
Partners' Capital:
Common unitholders (14,612,580 units outstanding
in 1997 and 1996, respectively) 52,863 71,324
Subordinated unitholders (16,593,721 units outstanding
in 1997 and 1996, respectively) 50,337 71,302
General partner (58,417) (58,017)
---------------- -----------------
Total Partners' Capital 44,783 84,609
---------------- -----------------
Total Liabilities and Partners' Capital $657,076 $654,295
================ =================
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per unit data)
<TABLE>
<CAPTION>
For the year ended July 31,
----------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
Revenues:
<S> <C> <C> <C>
Gas liquids and related product sales $759,941 $612,593 $565,607
Other 44,357 41,047 30,829
------------------ ------------------ ------------------
Total revenues 804,298 653,640 596,436
Cost of product sold (exclusive of
depreciation, shown separately below) 470,128 356,314 339,641
------------------ ------------------ ------------------
Gross profit 334,170 297,326 256,795
Operating expense 198,298 179,462 153,226
Depreciation and amortization expense 43,789 37,024 32,014
General and administrative expense 15,831 13,221 11,357
Vehicle and tank lease expenses 7,433 5,113 4,271
------------------ ------------------ ------------------
Operating income 68,819 62,506 55,927
Interest expense (45,769) (37,983) (31,993)
Interest income 2,002 1,666 1,268
Loss on disposal of assets (1,439) (1,586) (1,139)
------------------ ------------------ ------------------
Earnings before income taxes,
minority interest and extraordinary loss 23,613 24,603 24,063
Minority interest 395 291 243
------------------ ------------------ ------------------
Earnings before extraordinary loss 23,218 24,312 23,820
Extraordinary loss on early extinguishment of debt,
net of minority interest of $10 - 965 -
------------------ ------------------ ------------------
Net earnings 23,218 23,347 23,820
General partner's interest in net earnings 232 233 238
------------------ ------------------ ------------------
Limited partners' interest in net earnings $ 22,986 $ 23,114 $ 23,582
================== ================== ==================
Net earnings per limited partner unit:
Earnings before extraordinary loss $ 0.74 $ 0.77 $ 0.76
Extraordinary loss - 0.03 -
------------------ ------------------ ------------------
Net earnings per limited partner unit $ 0.74 $ 0.74 $ 0.76
================== ================== ==================
Weighted average number of units outstanding 31,206.3 31,128.8 30,908.1
================== ================== ==================
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands)
<TABLE>
<CAPTION>
Number of units
------------------------------
General Total partners'
Common Subordinated Common Subordinated partner capital
------------ ---------------- ----------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
July 31, 1994 14,100.0 16,593.7 $84,532 $99,483 $ (62,622) $121,393
Special allocation of prior
year operating loss - - (2,312) (2,664) 4,976 -
Assets contributed in
connection with acquisitions - - 3,324 3,830 72 7,226
Common units issued in
connection with
acquisitions 298.9 - 6,600 - 66 6,666
Quarterly distributions - - (23,756) (27,380) (518) (51,654)
Adjustments to capital related to
resolution of income tax
contingencies - - 5,145 5,929 112 11,186
Net earnings - - 10,956 12,626 238 23,820
------------ ---------------- ----------- ---------------- ------------ ---------------
July 31, 1995 14,398.9 16,593.7 84,489 91,824 (57,676) 118,637
Assets contributed in
connection with acquisitions - - 284 325 6 615
Common units issued in
connection with
acquisitions 213.7 - 4,825 - 48 4,873
Quarterly distributions - - (29,047) (33,188) (628) (62,863)
Net earnings - - 10,773 12,341 233 23,347
------------ ---------------- ----------- ---------------- ------------ ---------------
July 31, 1996 14,612.6 16,593.7 71,324 71,302 (58,017) 84,609
Quarterly distributions - - (29,224) (33,188) (632) (63,044)
Net earnings - - 10,763 12,223 232 23,218
------------ ---------------- ----------- ---------------- ------------ ---------------
July 31, 1997 14,612.6 16,593.7 $52,863 $50,337 $ (58,417) $44,783
============ ================ =========== ================ ============ ===============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the year ended July 31,
----------------------------------------------------
1997 1996 1995
--------------- --------------- ----------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net earnings $23,218 $23,347 $23,820
Reconciliation of net earnings to net
cash from operating activities:
Depreciation and amortization 43,789 37,024 32,014
Minority interest 395 291 243
Extraordinary loss - 965 -
Other 6,056 4,478 3,191
Changes in operating assets and liabilities
net of effects from business acquisitions:
Accounts and notes receivable 6,685 (3,988) (906)
Inventories (906) 7,612 7,388
Prepaid expenses and other current assets (3,221) 765 (3,497)
Accounts payable (9,078) (10,576) 5,246
Accrued interest expense (1,171) 1,270 10,680
Other current liabilities 9,368 3,649 (11,703)
Other liabilities (48) 259 (446)
--------------- --------------- ----------------
Net cash provided by operating activities 75,087 65,096 66,030
--------------- --------------- ----------------
Cash Flows From Investing Activities:
Business acquisitions (36,114) (8,116) (19,677)
Capital expenditures (16,192) (13,011) (19,722)
Cash from acquired company - 9,620 -
Other 3,068 (1,587) 173
--------------- --------------- ----------------
Net cash used by investing activities (49,238) (13,094) (39,226)
--------------- --------------- ----------------
Cash Flows From Financing Activities:
Distributions (63,044) (62,863) (51,654)
Additions to long-term debt 45,463 222,268 85,000
Reductions of long-term debt (2,640) (234,082) (61,400)
Net reductions to short-term borrowings (3,734) 5,520 17,000
Minority interest activity (818) 1,002 (459)
Other (58) 46 51
--------------- --------------- ----------------
Net cash used by financing activities (24,831) (68,109) (11,462)
--------------- --------------- ----------------
Increase (decrease) in cash and cash equivalents 1,018 (16,107) 15,342
Cash and cash equivalents - beginning of period 13,770 29,877 14,535
--------------- --------------- ----------------
Cash and cash equivalents - end of period $14,788 $13,770 $29,877
=============== =============== ================
Cash paid for interest $44,516 $34,994 $19,918
=============== =============== ================
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
FERRELLGAS PARTNERS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
A. Partnership Organization and Formation
Ferrellgas Partners, L.P. (the "MLP") was formed April 19, 1994, and is a
publicly traded limited partnership, owning a 99% limited partner interest
in Ferrellgas, L.P. (the "Operating Partnership" or "OLP"). The MLP and the
OLP are both Delaware limited partnerships, and are collectively referred to
as the Partnership. Ferrellgas Partners, L.P., was formed to acquire and
hold a limited partner interest in the Operating Partnership. The Operating
Partnership was formed to acquire, own and operate the propane business and
assets of Ferrellgas, Inc. (the "Company" or "General Partner"), a
wholly-owned subsidiary of Ferrell Companies, Inc. ("Ferrell"). The Company
has retained a 1% general partner interest in Ferrellgas Partners, L.P. and
also holds a 1.0101% general partner interest in the Operating Partnership,
representing a 2% general partner interest in the Partnership on a combined
basis. As General Partner of the Partnership, the Company performs all
management functions required for the Partnership.
B. Summary of Significant Accounting Policies
(1) Nature of operations: The Partnership is engaged primarily in the sale,
distribution, marketing and trading of propane and other natural gas liquids
throughout the United States. The retail market is seasonal because propane
is used primarily for heating in residential and commercial buildings. The
Partnership serves more than 800,000 residential, industrial/commercial and
agricultural customers.
(2) Accounting estimates: The preparation of financial statements in
conformity with generally accepted accounting principles ("GAAP") requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reported period. Actual results could
differ from these estimates. Significant estimates impacting the financial
statements include reserves that have been established for product liability
and other claims.
(3) Principles of consolidation: The accompanying consolidated financial
statements present the consolidated financial position, results of
operations and cash flows of the Partnership and its wholly-owned
subsidiary, Ferrellgas Partners Finance Corp. The Company's 1.0101% General
Partner interest in Ferrellgas, L.P. is accounted for as a minority
interest. All material intercompany profits, transactions and balances have
been eliminated.
(4) Cash and cash equivalents: For purposes of the Consolidated Statements
of Cash Flows, the Partnership considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
(5) Inventories: Inventories are stated at the lower of cost or market
using average cost and actual cost methods.
F-7
<PAGE>
(6) Property, plant and equipment and intangible assets: Property, plant and
equipment is stated at cost less accumulated depreciation. Expenditures for
maintenance and routine repairs are expensed as incurred. Depreciation is
calculated using the straight-line method based on estimated useful lives of
the assets ranging from two to thirty years. Intangible assets, consisting
primarily of customer location values and goodwill, are stated at cost, net
of amortization calculated using the straight-line method over periods
ranging from 5 to 40 years. Accumulated amortization of intangible assets
totaled $109,211,000 and $95,801,000 as of July 31, 1997 and 1996,
respectively.
(7) Accounting for derivative commodity contracts: The Partnership enters
into commodity forward and futures purchase/sale agreements and commodity
options involving propane and related products which are used both for
trading and overall risk management purposes. To the extent such contracts
are entered into at fixed prices and thereby subject the Partnership to
market risk, the contracts are accounted for using the fair value method.
Under the fair value method, derivatives are carried on the balance sheet at
fair value with changes in that value recognized in earnings. The
Partnership classifies all earnings from derivative commodity contracts as
other revenue on the statement of earnings and as net income on the cash
flow statement.
(8) Income taxes: The Partnership is a limited partnership. As a result, the
Partnership's earnings or loss for Federal income tax purposes is included
in the tax returns of the individual partners. Accordingly, no recognition
has been given to income taxes in the accompanying financial statements of
the Partnership. Net earnings for financial statement purposes may differ
significantly from taxable income reportable to unitholders as a result of
differences between the tax basis and financial reporting basis of assets
and liabilities and the taxable income allocation requirements under the
Partnership Agreement.
(9) Net earnings (loss) per limited partner unit: Net earnings (loss) per
limited partner unit is computed by dividing net earnings, after deducting
the General Partner's 1% interest, by the weighted average number of
outstanding Common Units, Subordinated Units and the dilutive effect (if
any) of Subordinated Unit options. In accordance with the terms of the
Partnership Agreement, the Partnership reallocated 99% of the initial year's
net loss before extraordinary loss ($4,976,000) based on ownership
percentages to the limited partners in 1995. The fiscal 1995 special
allocation of the prior year operating loss to the limited partners resulted
in a reduction in equity of $0.16 per limited partner unit.
(10) Unit-based compensation: The Partnership accounts for its Unit Option
Plan under the provisions of Accounting Principles Board ("APB")
No. 25, "Accounting for Stock Issued to Employees,"and makes the pro forma
information disclosures required under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation."
(11) Adoption of new accounting standards: The Financial Standards
Accounting Board recently issued the following new accounting standards:
SFAS No. 128, "Earnings Per Share", SFAS No. 130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures About Segments of an Enterprise
and Related Information."
SFAS No. 128 is required to be adopted by the Partnership during the
three-month period ending January 31, 1998. The adoption of this statement
is not expected to have a material effect on the calculation of earnings per
unit. SFAS Nos. 130 and 131 are required to be adopted by the Partnership
for the fiscal year ended July 31, 1998. The adoption of both standards are
not expected to have material effect on the Partnership's financial position
or results of operations.
F-8
<PAGE>
C. Quarterly Distributions of Available Cash
The Partnership makes quarterly cash distributions of all of its "Available
Cash", generally defined as consolidated cash receipts less consolidated
cash disbursements and net changes in reserves established by the General
Partner for future requirements. These reserves are retained to provide for
the proper conduct of the Partnership business, or to provide funds for
distributions with respect to any one or more of the next four fiscal
quarters.
Distributions by the Partnership in an amount equal to 100% of its Available
Cash will generally be made 98% to the Common and Subordinated Unitholders
(the "Unitholders") and a 2% to the General Partner, subject to the payment
of incentive distributions to the holders of Incentive Distribution Rights
to the extent that certain target levels of cash distributions are achieved.
To the extent there is sufficient Available Cash, the holders of Common
Units have the right to receive the "Minimum Quarterly Distribution" ($0.50
per Unit), plus any "arrearages", prior to any distribution of Available
Cash to the holders of Subordinated Units. Common Units will not accrue
arrearages for any quarter after the "Subordination Period" (as defined
below) and Subordinated Units will not accrue any arrearages with respect to
distributions for any quarter.
In general, the Subordination Period will continue indefinitely until the
first day of any quarter beginning on or after August 1, 1999, in which (i)
distributions of Available Cash constituting Cash from Operations (as
defined in the Partnership Agreement) equal or exceed the Minimum Quarterly
Distribution on the Common Units and the Subordinated Units for each of the
three consecutive four quarter periods immediately preceding such date and
(ii) the Partnership has invested at least $50 million in acquisitions and
capital additions or improvements to increase the operating capacity of the
Partnership. Prior to the end of the Subordination Period, 5,531,240
Subordinated Units held by the Company may convert into Common Units if (i)
distributions of Available Cash on the Common Units and Subordinated Units
equal or exceed the Minimum Quarterly Distribution for each of the two
consecutive four-quarter period preceding August 1, 1997, and (ii) the Cash
from Operations generated by the Partnership in each of such four-quarter
periods equaled or exceeded 125% of the Minimum Quarterly Distribution on
all Common Units and all Subordinated Units. Upon expiration of the
Subordination Period, all remaining Subordinated Units will convert to
Common Units.
The Partnership makes distributions of all of its Available Cash within 45
days after the end of each fiscal quarter ending January, April, July and
October to holders of record on the applicable record date.
<TABLE>
<CAPTION>
D. Supplemental Balance Sheet Information
Inventories consist of:
(in thousands) 1997 1996
-------------- --------------
<S> <C> <C>
Liquefied propane gas and related products $35,351 $33,366
Appliances, parts and supplies 7,761 8,029
-------------- --------------
$43,112 $41,395
============== ==============
In addition to inventories on hand, the Partnership enters into
contracts to buy product for supply purposes. Nearly all such contracts
have terms of less than one year and most call for payment based on
market prices at date of delivery. All fixed price contracts have terms
of less than one year.
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Property, plant and equipment consist of:
<S> <C> <C>
(in thousands) 1997 1996
------------- --------------
Land and improvements $29,849 $ 26,024
Buildings and improvements 39,907 39,376
Vehicles 54,879 55,860
Furniture and fixtures 23,985 22,074
Bulk equipment and district facilities 59,876 43,203
Tanks and customer equipment 402,608 403,770
Other 3,870 5,800
------------- --------------
614,974 596,107
Less: accumulated depreciation 209,238 192,375
------------- --------------
$405,736 $403,732
============== ==============
</TABLE>
Depreciation expense totaled $29,960,000, $25,101,000, and $21,649,000,
for the years ended July 31, 1997, 1996, and 1995, respectively.
<TABLE>
<CAPTION>
Other current liabilities consist of:
<S> <C> <C>
(in thousands) 1997 1996
-------------- -------------
Accrued insurance $ 7,327 $ 6,638
Accrued interest 13,071 14,242
Accrued payroll 8,161 7,062
Other 20,863 13,812
-------------- -------------
$49,422 $41,754
============== =============
</TABLE>
E. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of:
<S> <C> <C>
(in thousands) 1997 1996
------------- ------------
Senior Notes
Fixed rate, 10%, due 2001 (1) $200,000 $200,000
Fixed rate, 9.375%, due 2006 (2) 160,000 160,000
Credit Agreement
Term loan, 6.25% and 6%, due 2001 (3) 50,000 50,000
Revolving credit loans, 6.25% and 8.25%, due 1999 (3) 64,614 18,980
Notes payable, 6.4% and 5.7% weighted average interest rates,
respectively, due 1997 to 2007 (4) 14,567 11,742
------------- ------------
489,181 440,722
Less: current portion 1,847 1,610
------------- ------------
$487,334 $439,112
============= ============
</TABLE>
F-10
<PAGE>
(1) The OLP fixed rate Senior Notes, issued in June, 1994, are general
unsecured obligations of the OLP and rank on an equal basis in right
of payment with all senior indebtedness of the OLP and senior to all
subordinated indebtedness of the OLP. The Senior Notes are redeemable
at the option of the OLP anytime on or after August 1, 1998 with a
premium until August 1, 2000.
(2) The MLP fixed rate Senior Secured Notes issued in April 1996, will be
redeemable at the option of the MLP, in whole or in part, at any time
on or after June 15, 2001. The notes are secured by the MLP's
partnership interest in the OLP. The notes will become guaranteed by
the OLP on a senior subordinated basis if certain conditions are met.
The OLP's Credit Agreement relating to the Credit Facility ("Credit
Agreement") and the OLP Indenture relating to the $200,000,000 Senior
Notes ("OLP Indenture") currently prohibit the OLP from guaranteeing
any indebtedness unless, among meeting other conditions, the fixed
charge coverage ratio for the OLP meets certain levels at prescribed
dates. Currently the OLP does not meet such conditions and, therefore,
there can be no assurance as to whether or when this guarantee will
occur. The Senior Secured Notes bear interest from the date of
issuance, payable semi-annually in arrears on June 15 and December 15
of each year.
(3) On July 31, 1996, the OLP amended and restated its $205,000,000 Credit
Facility (the "Credit Facility") with a major bank as Agent. The
unsecured Credit Facility now consists of a $50,000,000 term loan
facility, a $185,000,000 revolving credit facility for general
corporate, working capital and acquisition purposes (of which
$50,000,000 is available to support letters of credit) and a
$20,000,000 revolving working capital facility, which is subject to an
annual reduction in outstandings to $0 for 30 consecutive days. All
borrowings under the current pricing arrangement bear interest at
either LIBOR plus an applicable margin varying from 0.425% to 1.375%
or the Bank's Base rate, depending on the nature of the borrowing. The
Bank's Base rates at July 31, 1997 and 1996 were 8.50% and 8.25%,
respectively. To offset the variable rate characteristic of the Credit
Facility, the OLP entered into interest rate collar agreements,
expiring between June and December 1998, with three major banks
limiting the floating rate portion of LIBOR-based loan interest rates
on a notional amount of $125,000,000 to between 4.9% and 6.5%.
(4) The notes payable are secured by approximately $4,542,000 and
$4,714,000 of property and equipment at July 31, 1997 and 1996,
respectively.
At July 31, 1997 and 1996, $21,786,000 and $25,520,000, respectively, of
short-term borrowings were outstanding under the revolving line of credit
and letters of credit outstanding, used primarily to secure obligations
under certain insurance arrangements, totaled $24,102,000 and $26,824,000,
respectively.
The OLP Indenture and Credit Agreement contain various restrictive
covenants applicable to the Operating Partnership and its subsidiaries, the
most restrictive relating to additional indebtedness, sale and disposition
of assets, and transactions with affiliates. In addition, the Operating
Partnership is prohibited from making cash distributions of the Minimum
Quarterly Distribution if a default or event of default exists or would
exist upon making such distribution, or if the Operating Partnership fails
to meet certain coverage and capital expenditure tests. The Partnership is
in compliance with all requirements, tests, limitations and covenants
related to the Senior Note Indenture and Credit Agreement.
Annual principal payments on long-term debt for each of the next five
fiscal years are $1,847,000 in 1998, $66,805,000 in 1999, $2,131,000 in
2000, $52,996,000 in 2001 and $200,876,000 in 2002.
During fiscal year 1996, the Partnership recognized an extraordinary loss
from the write-off of unamortized financing costs of approximately
$965,000, net of minority interest of $10,000, resulting from the early
extinguishment of $50,000,000 of its floating rate senior notes.
F-11
<PAGE>
F. Partners' Capital
Partners' capital consists of 14,612,580 Common Units representing a 46%
limited partner interest, 16,593,721 Subordinated Units representing a 53%
limited partner interest, and a 1% General Partner interest.
The Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the
"Partnership Agreement") contains specific provisions for the allocation of
net earnings and loss to each of the partners for purposes of maintaining
the partner capital accounts.
During the Subordination Period, the Partnership may issue up to 7,000,000
Common Units (excluding Common Units issued in connection with conversion
of Subordinated Units into Common Units) or an equivalent number of
securities ranking on a parity with the Common Units and an unlimited
number of partnership interests junior to the Common Units without a
Unitholder vote. The Partnership may also issue additional Common Units
during the Subordination Period in connection with acquisitions if certain
cash flow criteria are met. After the Subordination Period, the Partnership
Agreement authorizes the General Partner to cause the Partnership to issue
an unlimited number of additional general and limited partner interests and
other equity securities of the Partnership for such consideration and on
such terms and conditions as shall be established by the General Partner
without the approval of any Unitholders.
The Partnership maintains a shelf registration statement for Common Units
representing limited partner interests in the Partnership. The Common Units
may be issued from time to time by the Partnership in connection with the
Partnership's acquisition of other businesses, properties or securities in
business combination transactions.
In connection with the formation of the Partnership, the General Partner
contributed certain assets and liabilities. Pursuant to an examination by
the Internal Revenue Service, certain adjustments which relate to these
contributed assets resulted in additional deferred taxes recorded by the
General Partner in fiscal 1995. This noncash adjustment retroactively
increased the basis of the assets the General Partner contributed to the
Operating Partnership by $11,300,000 which, in turn, caused an increase to
the General Partner's contributed capital which was allocated pro rata
among all partners. In addition, Operating Partnership goodwill also
increased by $11,300,000 (to be amortized prospectively over a period of 15
years). These adjustments were not material to the Partnership's financial
position or its results of operations or liquidity, nor have they affected
the limited partners' tax basis in the Partnership units.
G. Transactions with Related Parties
The Partnership has no employees and is managed and controlled by the
General Partner. Pursuant to the Partnership Agreement, the General Partner
is entitled to reimbursement for all direct and indirect expenses incurred
or payments it makes on behalf of the Partnership, and all other necessary
or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business. These costs, which totaled $128,033,000,
$109,637,000 and $100,750,000 for the years ended July 31, 1997, 1996 and
1995, respectively, include compensation and benefits paid to officers and
employees of the General Partner, and general and administrative costs. In
addition, the conveyance of the net assets of the Company to the
Partnership on July 5, 1994, (the date the MLP completed an initial public
offering) included the assumption of specific liabilities related to
employee benefit and incentive plans for the benefit of the officers and
employees of the General Partner. See Note L for discussion of transactions
involving acquisitions related to the General Partner and the Partnership.
F-12
<PAGE>
Ferrell, the parent of the General Partner, and its other wholly-owned
subsidiaries engage in various investment activities including, but not
limited to, commodity investments and the trading thereof. The Partnership
from time to time acts as an agent on behalf of Ferrell to purchase and
market natural gas liquids and enter into certain trading activities. The
Partnership charges all direct and indirect expenses incurred in performing
this agent role to Ferrell. During the year ended July 31, 1997, the
Partnership, as Ferrell's agent, performed the following services: a)
purchased 1,089,929 barrels of propane, b) marketed and sold 619,929
barrels, and c) entered into certain hedging arrangements. The Partnership
charged Ferrell $73,078 for its direct and indirect expenses incurred
during fiscal year 1997. Of the 619,929 barrels of propane sold, 534,929
barrels were sold to and used by the Partnership at the applicable market
prices (an aggregate of $13,128,765). Management believes these
transactions were under terms that were no less favorable to the
Partnership than those arranged with other parties.
A. Andrew Levison, a director of the General Partner, is a Managing
Director of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ").
DLJ acted as an underwriter with regard to the private placement of
$160,000,000 Senior Secured Notes issued in April 1996 and was paid fees of
$4,000,000 in 1996.
H. Contingencies and Commitments
The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
known contingent claims that are likely to have a material adverse effect
on the results of operations or financial condition of the Partnership.
Certain property and equipment is leased under noncancellable operating
leases which require fixed monthly rental payments and which expire at
various dates through 2016. Rental expense under these leases totaled
$13,169,000, $12,054,000, and $11,233,000, for the years ended July 31,
1997, 1996 and 1995, respectively. Future minimum lease commitments for
such leases are $11,095,000 in 1998, $9,494,000 in 1999, $8,101,000 in
2000, $5,732,000 in 2001, $2,364,000 in 2002 and $521,296 thereafter.
I. Employee Benefits
The Partnership has no employees and is managed and controlled by the
General Partner. The Partnership assumed all liabilities, which included
specific liabilities related to the following employee benefit plans for
the benefit of the officers and employees of the General Partner.
The General Partner and its parent, Ferrell have a defined contribution
profit-sharing plan which covers substantially all employees with more than
one year of service. Contributions are made to the plan at the discretion
of Ferrell's Board of Directors. This plan, which qualifies under section
401(k) of the Internal Revenue Code, also provides for matching
contributions under a cash or deferred arrangement based upon participant
salaries and employee contributions to the plan. Contributions for the
years ended July 31, 1997, 1996 and 1995, respectively, were $3,000,000,
$1,160,000 and $1,300,000 under the profit sharing provision and were
$1,542,000, $1,388,000 and $1,407,000 under the 401(k) provision.
F-13
<PAGE>
J. Unit Options
The Ferrellgas, Inc. Unit Option Plan (the "Unit Option Plan") currently
authorizes the issuance of options (the "Unit Options") covering up to
850,000 Subordinated Units to certain officers and employees of the General
Partner. The Unit Options are exercisable beginning after July 31, 1999,
assuming the Subordination Period has elapsed at exercise prices ranging
from $16.80 to $21.67 per unit, which is an estimate of the fair market
value of the Subordinated Units at the time of grant, vest immediately or
over a one to five year period, and expire on the tenth anniversary of the
date of grant. Upon conversion of the Subordinated Units held by the
General Partner and its affiliates, outstanding Subordinated Unit Options
granted will convert to Common Unit Options.
The Partnership accounts for stock-based compensation using the intrinsic
value method prescribed in APB No. 25 and related Interpretations.
Accordingly, no compensation cost has been recognized for the Unit Option
Plan. Had compensation cost for the Unit Option Plan been determined based
upon the fair value of the grant date for awards under these plans
consistent with the methodology prescribed under SFAS 123, the
Partnership's net income and earnings per share would have been reduced by
approximately $29,000 or less than $0.01 per unit and $7,000 or less than
$0.01 per unit for the 1997 and 1996 fiscal years, respectively. The fair
value of the options granted during the 1997 and 1996 fiscal years was
determined using a binomial option valuation model with the following
assumptions: a) distribution amount of $0.50 per unit per quarter, b)
average Common Unit price volatility of 16.9% was used as an estimate of
Subordinated Unit volatility, c) the risk-free interest rate used was 5.9%,
and d) the expected life of the option is 5 years.
<TABLE>
<CAPTION>
Number Weighted Average Weighted
of Exercise Price Average Fair
Units Value
------------ -------------------- ---------------
------------ -------------------- ---------------
<S> <C> <C> <C>
Outstanding, July 31, 1995 701,500 $ 16.98
Granted 99,750 19.96 $0.34
Forfeited (132,825) 17.21
------------
Outstanding, July 31, 1996 668,425 17.38
Granted 216,500 20.23 $0.52
Forfeited (157,325) 18.02
------------
Outstanding, July 31, 1997 727,600 $18.09
------------
Options exercisable, July 31, 1997 0
------------
Options Outstanding at July 31, 1997
-------------------------------------------------
Range of option prices at end of year $16.80-$21.67
Weighted average remaining contractual life 8.1 years
</TABLE>
K. Disclosures About Off Balance Sheet Risk and Fair Value of Financial
Instruments
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of the instruments. Short-term borrowings
approximate fair value as of July 31, 1997 and 1996. The estimated fair
value of the Partnership's long-term debt was $507,134,000 and $440,122,000
as of July 31, 1997 and 1996, respectively. The fair value is estimated
based on quoted market prices adjusted for discounted cash flows.
F-14
<PAGE>
Interest Rate Collar Agreements. The Partnership has entered into various
interest rate collar agreements involving the exchange of fixed and
floating interest payment obligations without the exchange of the
underlying principal amounts. At July 31, 1997, the total notional
principal amount of these agreements was $125,000,000 and the fair value of
these agreements was immaterial to the financial position or results of
operations of the Partnership. The counterparties to these agreements are
large financial institutions. The interest rate collar agreements subject
the Partnership to financial risk that will vary during the life of these
agreements in relation to market interest rates. The mark to market
adjustment applicable to the portion of the notional amount in excess of
variable rate indebtedness at July 31, 1997 was not material to the
financial position or the results of operations of the Partnership.
Option Commodity Contracts. The Partnership is a party to certain option
contracts, involving various liquefied petroleum products, for overall risk
management purposes in connection with its supply and trading activities.
Contracts are executed with private counterparties and to a lesser extent
on national mercantile exchanges. Open contract positions are summarized
below.
Forward and Futures Commodity Contracts. The Partnership is a party to
certain forward and futures contracts for trading purposes. Net gains from
trading activities were $5,476,000, $7,323,000, $5,818,000, for the years
ended July 31, 1997, 1996, and 1995, respectively. Such contracts permit
settlement by delivery of the commodity. Open contract positions are
summarized below (assets are defined as purchases or long positions and
liabilities are sales or short positions).
<TABLE>
<CAPTION>
As of July 31
(In thousands, except price per gallon data)
Derivative Commodity Instruments Held for Derivative Commodity
Purposes Other than Trading Instruments Held for
(Options) Trading Purposes
(Forward and Futures)
------------------------------------------- ---------------------------------------------------
1997 1996 1997 1996
-------------------- ------------------- ----------------------- -----------------------
Asset Liab. Asset Liab. Asset Liab. Asset Liab.
--------- ---------- -------- ---------- ----------- ----------- ----------- -----------
Volume
<S> <C> <C> <C> <C> <C> <C> <C>
(gallons) 14,406 (13,189) 21 - 165,739 (187,744) 178,011 (153,990)
Price(cent)/gal) 38-35 50-35 30 - 40-32 43-33 37-33 40-35
Maturity 8/97- 9/97- 8/96- 8/97- 8/97- 8/96- 8/96-
Dates 3/98 2/98 12/96 - 3/98 7/98 7/97 3/97
Contract
Amounts ($) 10,193 (13,164) 1,575 - 64,859 (75,578) 64,223 (62,917)
Fair Value ($) 10,244 (13,071) 1,609 - 62,925 (73,217) 65,972 (62,623)
Unrealized
gain (loss) ($) 51 93 34 - (1,934) 2,361 1,749 294
</TABLE>
Risks related to these contracts arise from the possible inability of
counterparties to meet the terms of their contracts and changes in
underlying product prices. The Partnership attempts to minimize market risk
through the enforcement of its trading policies, which include total
inventory limits and loss limits, and attempts to minimize credit risk
through application of its credit policies.
F-15
<PAGE>
L. Acquisitions
During the year ended July 31, 1997, the Partnership made acquisitions of
businesses valued at $40,200,000 (including working capital acquired of
$1,420,000). This amount was funded by $36,114,000 cash payments and
noncash transactions totaling $4,086,000 in other costs and consideration.
On April 30, 1996, the General Partner consummated the purchase of all of
the stock of Skelgas Propane, Inc. ("Skelgas"), a subsidiary of Superior
Propane, Inc. of Toronto, Canada. The cash purchase price, after working
capital adjustments, was $89,404,000.
As of May 1, 1996, the General Partner (i) caused Skelgas and each of its
subsidiaries to be merged into the General Partner and (ii) transferred all
of the assets of Skelgas and its subsidiaries to the Operating Partnership.
In exchange, the Operating Partnership assumed substantially all of the
liabilities, whether known or unknown, associated with Skelgas and its
subsidiaries and their propane business (excluding income tax liabilities).
In consideration of the retention by the General Partner of certain income
tax liabilities, the Partnership issued 41,203 Common Units to the General
Partner. The liabilities assumed by the Operating Partnership included the
loan agreement under which the General Partner borrowed funds to pay the
purchase price for Skelgas. Immediately following the transfer of assets
and related transactions described above, the Operating Partnership repaid
the loan with cash and borrowings under the Operating Partnership's
existing acquisition bank credit line. The total assets contributed to the
Operating Partnership (at the General Partner's cost basis) have been
allocated as follows: (i) working capital of $17,168,000, (ii) property,
plant and equipment of $60,947,000 and (iii) and the balance to intangible
assets. In total, during the year ended July 31, 1996, the Partnership made
acquisitions and received contributions of businesses valued at
$128,165,000 (including working capital acquired of $19,362,000). This
amount was funded by $8,116,000 of cash payments and the following noncash
transactions: $108,120,000 debt assumed, $4,825,000 issuance of Partnership
units, and $7,104,000 other costs and consideration.
All transactions have been accounted for similar to purchase accounting and,
accordingly, the results of operations of all acquisitions have been
included in the consolidated financial statements from their dates of
contribution. The following pro forma financial information assumes the
Skelgas transaction occurred at the beginning of the period presented and
also includes the pro forma effects of the Partnership's issuance of the
$160,000,000 of 9 3/8% Senior Notes in April 1996 (as described in Note E):
(in thousands, except per unit amounts)
-------------------------------------------------------------
(unaudited) Pro Forma Year
Ended
July 31, 1996
-----------------
Total revenues $732,372
Income before extraordinary loss 21,734
Net earnings 20,769
Net earnings per limited partner unit $ 0.66
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas Partners Finance Corp.
Liberty, Missouri
We have audited the accompanying balance sheets of Ferrellgas Partners Finance
Corp. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.), as of July 31,
1997, and 1996, and the related statement of earnings, stockholder's equity and
cash flows for the year ended July 31, 1997 and the period from inception (April
8, 1996) to July 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Ferrellgas Partners Finance Corp. as of July
31, 1997 and 1996, and the results of its operations and its cash flows for the
year ended July 31, 1997 and the period from inception (April 8, 1996) to July
31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 24, 1997
F-17
<PAGE>
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, July 31,
ASSETS 1997 1996
----------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
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 327 42
Accumulated deficit (327) (42)
----------------- -----------------
Total Stockholder's Equity 1,000 1,000
----------------- -----------------
Total Liabilities and Stockholder's Equity $1,000 $1,000
================= =================
</TABLE>
See notes to financial statements
F-18
<PAGE>
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
For the From
year ended inception to
July 31, 1997 July 31, 1996
----------------- --------------------
<S> <C> <C>
Revenues $ - $ -
General and administrative expense 285 42
----------------- --------------------
Net loss $(285) $(42)
================= ====================
</TABLE>
See notes to financial statements
F-19
<PAGE>
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common stock Total
--------------------------- Additional Accumulated stockholder's
Shares Dollars paid in capital deficit equity
------------- ------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
April 8, 1996 0 $ 0 $ 0 $ 0 $ 0
------------- ------------ ----------------- ----------------- ------------------
Capital Contribution 1,000 1,000 42 - 1,042
Net loss - - - (42) (42)
------------- ------------ ----------------- ----------------- ------------------
July 31, 1996 1,000 1,000 42 (42) 1,000
Capital Contribution - - 285 - 285
Net loss - - - (285) (285)
------------- ------------ ----------------- ----------------- ------------------
July 31, 1997 1,000 $1,000 $327 $(327) $1,000
============= ============ ================= ================= ==================
</TABLE>
See notes to financial statements
F-20
<PAGE>
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the From
year ended incepetion to
July 31, 1997 July 31, 1996
----------------- ----------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $(285) $(42)
----------------- ----------------
Cash used by operating activities (285) (42)
----------------- ----------------
Cash Flows From Financing Activities:
Capital contribution 285 1,042
Net advance from affiliate 0 0
----------------- ----------------
Cash provided by financing activities 285 1,042
----------------- ----------------
Increase (decrease) in cash 0 1,000
Cash - beginning of period 1,000 0
----------------- ----------------
Cash - end of period $1,000 $1,000
================= ================
</TABLE>
See notes to financial statements
F-21
<PAGE>
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
A. Formation
Ferrellgas Partners, Finance Corp. (the "Finance Corp."), a Delaware
corporation,was formed on March 28,1996 and is a wholly-owned subsidiary of
Ferrellgas Partners, L.P. (the "Partnership").
The Partnership contributed $1,000 to the Finance Corp. on April 8, 1996
in exchange for 1,000 shares of common stock.
B. Commitment
On April 26, 1996, the Partnership issued $160,000,000 of 9 3/8% Senior
Secured Notes due 2006 (the "Senior Notes"). The Senior Notes will be
redeemable at the option of the Partnership, in whole or in part, at any
time on or after June 15, 2001. The Senior Notes will become guaranteed
by the Operating Partnership (the "OLP") on a senior subordinated basis
if certain conditions are met. Certain OLP's credit agreements and the
indentures currently prohibit the OLP from guaranteeing any indebtedness
unless, among meeting other conditions, the fixed charge coverage ratio
for the OLP meets certain levels at prescribed dates. Currently the OLP
does not meet such conditions and, therefore, there can be no assurance
as to whether or when this guarantee will occur. Interest is payable
semi-annually in arrears on June 15 and December 15 of each year.
The Finance Corp. serves as a co-obligor for the Senior Notes.
C. Income Taxes
Income taxes have been computed as though the Company files its own
income tax return. Deferred income taxes are provided as a result of
temporary differences between financial and tax reporting using the
asset/liability method. Deferred income taxes are recognized for the tax
consequences of temporary differences between the financial statement
carrying amounts and tax basis of existing assets and liabilities.
Due to the inability of the Company to utilize the deferred tax benefit
of $17 associated with the current year net operating loss carryforward
of $306, of which $21 expires July 31, 2011, and $285 expires July 31,
2012, a valuation allowance has been provided on the full amount of the
deferred tax asset. Accordingly, there is no net deferred tax benefit
for the year ended July 31, 1997 or the period ended July 31, 1996 and
there is no net deferred tax asset as of July 31, 1997 or July 31, 1996.
F-22
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
Ferrellgas Partners, L.P. and Subsidiaries
- -------------------------------------------
Independent Auditors' Report on Schedules....................................S-2
Schedule I Parent Company Only Balance Sheets as of July 31, 1997 and
1996, and Statements of Earnings and Cash Flows for the Years
ended July 31, 1997, 1996, and 1995........................S-3
Schedule II Valuation and Qualifying Accounts for the Years ended
July 31, 1997, 1996 and 1995...............................S-6
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the consolidated financial statements of Ferrellgas Partners,
L.P. (formerly Ferrellgas, Inc.), and subsidiaries as of July 31, 1997, and
1996, and for the years ended July 31, 1997, 1996, and 1995, and have issued our
report thereon dated September 24, 1997. Our audit also included the financial
statement schedules listed at Item 14(a)2. These financial statement schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion based on our audit. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information therein set forth.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 24, 1997
S-2
<PAGE>
FERRELLGAS PARTNERS, L.P.
PARENT ONLY
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS July 31, 1997 July 31, 1996
- ---------------------------------------------------- ------------------- --------------------
<S> <C> <C>
Cash and cash equivalents $ 1 $ 1
Investment in Ferrellgas, L.P. 203,360 244,771
Other assets, net 3,298 4,693
------------------- --------------------
Total Assets $206,659 $249,465
=================== ====================
LIABILITIES AND PARTNERS' CAPITAL
- ----------------------------------------------------
Other current liabilities $ 1,876 $ 4,856
Long term debt 160,000 160,000
Partners' Capital
Common unitholders 52,863 71,323
Subordinated unitholders 50,337 71,302
General partner (58,417) (58,016)
------------------- --------------------
Total Partners' Capital 44,783 84,609
------------------- --------------------
Total Liabilities and Partners' Capital $206,659 $249,465
=================== ====================
</TABLE>
S-3
<PAGE>
FERRELLGAS PARTNERS, L.P.
PARENT ONLY
STATEMENTS OF EARNINGS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended
-----------------------------------------------------------
July 31, 1997 July 31, 1996 July 31, 1995
------------------ ------------------- -------------------
<S> <C> <C> <C>
Equity in earnings of Ferrellgas, L.P. $38,673 $27,508 $23,821
Operating expense 27 0 1
Interest expense 15,428 4,161
------------------ ------------------- -------------------
Net earnings $23,218 $23,347 $23,820
================== =================== ===================
</TABLE>
S-4
<PAGE>
FERRELLGAS PARTNERS, L.P.
PARENT ONLY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended
------------------------------------------------------------
July 31, 1997 July 31, 1996 July 31, 1995
---------------- ----------------- ----------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net earnings $23,218 $23,347 $23,820
Reconciliation of net earnings to
net cash from operating activities:
Amortization of capitalized financing costs 511 161
Equity in (earnings) loss of Ferrellgas, L.P. (39,068) (27,508) (23,821)
Other current assets 879 (4,854)
Distributions received from Ferrellgas, L.P. 80,085 62,863 51,654
Increase in other current liabilities (2,980) 4,855 1
---------------- ----------------- ----------------
Net cash provided by operating activities 62,645 58,864 51,654
---------------- ----------------- ----------------
Cash Flows From Investing Activities:
Investment in Ferrellgas, L.P. - - -
---------------- ----------------- ----------------
Net cash used by investing activities - - -
---------------- ----------------- ----------------
Cash Flows From Financing Activities:
Distributions to partners (63,044) (62,863) (51,654)
Additions to long-term debt 160,000
Contribution to subsidiary (156,000)
Net advance from affiliate 399
Net issuance of Common Units - - -
---------------- ----------------- ----------------
Net cash provided (used) by financing activities (62,645) (58,863) (51,654)
---------------- ----------------- ----------------
Increase in cash and cash equivalents 0 1 -
Cash and cash equivalents - beginning of period 1 - -
---------------- ----------------- ----------------
Cash and cash equivalents - end of period $1 $1 $ -
================ ================= ================
</TABLE>
S-5
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance
beginning cost/ Other (amounts at end
Description of period expenses Additions (A) charged-off) of period
- ------------------------------------------- -------------- --------------- ---------------- ---------------- ---------------
Year ended July 31, 1997
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,169 $ 2,604 $ 0 $2,539 $ 1,234
Accumulated amortization:
Intangible assets $ 95,801 $13,410 $ 0 $ 0 $109,211
Other assets $ 4,647 $ 2,106 $ 0 $ 0 $ 6,753
Year ended July 31, 1996
Allowance for doubtful accounts $ 874 $ 1,151 $ 702 $1,558 $ 1,169
Accumulated amortization:
Intangible assets $ 81,995 $11,620 $2,946 $ 760 $ 95,801
Other assets $ 3,337 $ 1,742 $ 975 $1,407 $ 4,647
Year ended July 31, 1995
Allowance for doubtful accounts $ 798 $ 1,191 $ 400 $1,515 $ 874
Accumulated amortization:
Intangible assets $ 68,489 $ 9,997 $ 3,509 $ 0 $ 81,995
Other assets $ 1,860 $ 368 $ 1,109 $ 0 $ 3,337
</TABLE>
(A) On April 30, 1996, the General Partner purchased all of the capital
stock of Skelgas, Inc. On May 1, 1996 the General Partner contributed
the assets and substantially all of the liabilities associated with
Skelgas, Inc. to the Operating Partnership.The amounts reflected as
"Other Additions" represent valuation and qualifying accounts
assumedby the Operating Partnership in connection with the
contribution by the General Partner.
On November 1, 1994, the General Partner purchased all of the capital
stock of Vision Energy Resources, Inc. Immediately following the close
of the purchase, the General Partner contributed the assets and
substantially all of the liabilities associated with Vision Energy
Resources, Inc. to the Operating Partnership. The amounts reflected as
"Other Additions" represent valuation and qualifying accounts assumed
by the Operating Partnership in connection with the contribution by
the General Partner.
S-6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
( THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES BALANCE SHEET ON JULY 31, 1997, AND
THE STATEMENT OF EARNINGS ENDING JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATMENTS)
</LEGEND>
<CAPTION>
<CIK> 0000922358
<NAME> FERRELLGAS PARTNERS, L.P.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1
<CASH> 14,788
<SECURITIES> 0
<RECEIVABLES> 63,069
<ALLOWANCES> 1,234
<INVENTORY> 43,112
<CURRENT-ASSETS> 128,641
<PP&E> 614,974
<DEPRECIATION> 209,238
<TOTAL-ASSETS> 657,076
<CURRENT-LIABILITIES> 110,530
<BONDS> 487,334
<COMMON> 103,200
0
0
<OTHER-SE> (58,417)
<TOTAL-LIABILITY-AND-EQUITY> 657,076
<SALES> 759,941
<TOTAL-REVENUES> 804,298
<CGS> 470,128
<TOTAL-COSTS> 719,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,769
<INCOME-PRETAX> 23,218
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,218
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
<FN>
1. The Ferrellgas Partners L.P. ("MLP"), both the Common and Subordinated
units are considered to possess the characteristics of Common Stock. Note that
both are included in the determination of the EPS providing support for such a
classificaiton.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FERRELLGAS PARTNERS FINANCE CORP. BALANCE SHEET ON JULY 31, 1997, AND
THE STATEMENT OF EARNINGS ENDING JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATMENTS)
</LEGEND>
<CAPTION>
<CIK> 0001012493
<NAME> FERRELLGAS PARTNERS FINANCE CORP.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 1,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (285)
<INCOME-TAX> 0
<INCOME-CONTINUING> (285)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (285)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
1. For the Ferrellgas Partners Finance Corp. has no income statement items in
this schedule other than totals as their only costs are G&A, and such costs are
not required in the Financial Data Schedule.
</FN>
</TABLE>
