UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file numbers: 1-11331
333-06693
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1698480
Delaware 43-1742520
---------------------------- -------------------------------
(States or other jurisdictions of (I.R.S. Employer Identification Nos.)
incorporation or organization)
One Liberty Plaza, Liberty, Missouri 64068
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (816) 792-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
At November 23, 1998, the registrants had units or shares outstanding as
follows:
Ferrellgas Partners, L.P. 14,703,298 Common Units
16,593,721 Subordinated Units
Ferrellgas Partners Finance
Corp. 1,000 Common Stock
<PAGE>
FERRELLGAS PARTNERS, L.P. and SUBSIDIARIES
FERRELLGAS PARTNERS FINANCE CORP.
<TABLE>
<CAPTION>
Table of Contents
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ferrellgas Partners, L.P. and Subsidiaries
<S> <C>
Consolidated Balance Sheets - October 31, 1998 and July 31, 1998 1
Consolidated Statements of Earnings -
Three months ended October 31, 1998 and 1997 2
Consolidated Statement of Partners' Capital -
Three months ended October 31, 1998 3
Consolidated Statements of Cash Flows -
Three months ended October 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
Ferrellgas Partners Finance Corp.
Balance Sheets - October 31, 1998 and July 31, 1998 7
Statements of Earnings - Three months ended October 31, 1998 and 1997 7
Statements of Cash Flows - Three months ended October 31, 1998 and 1997 8
Notes to Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
<TABLE>
<CAPTION>
October 31, July 31,
ASSETS 1998 1998
- --------------------------------------------------------------------- ------------ ------------
(unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 6,544 $ 16,961
Accounts and notes receivable 60,770 50,097
Inventories 50,615 34,727
Prepaid expenses and other current assets 15,936 8,706
------------ ------------
Total Current Assets 133,865 110,491
Property, plant and equipment, net 405,105 395,855
Intangible assets, net 113,382 105,655
Other assets, net 8,627 9,222
------------ ------------
Total Assets $660,979 $621,223
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 63,140 $ 48,017
Other current liabilities 39,884 41,767
Short-term borrowings 48,691 21,150
------------ ------------
Total Current Liabilities 151,715 110,934
Long-term debt 545,588 507,222
Other liabilities 12,465 12,640
Contingencies and commitments
Minority interest 1,154 1,510
Partners' Capital:
Common unitholders (14,703,298 and 14,699,678 units
outstanding at October 31, 1998 and July 31, 1998, respectively) 9,601 27,985
Subordinated unitholders (16,593,721 units outstanding
at both October 31, 1998 and July 31, 1998) (178) 19,908
General partner (59,366) (58,976)
------------ ------------
Total Partners' Capital (49,943) (11,083)
------------ ------------
Total Liabilities and Partners' Capital $660,979 $621,223
============ ============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per-unit data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
---------------------------------
October 31, 1998 October 31, 1997
----------------- ------------------
Revenues:
<S> <C> <C>
Gas liquids and related product sales $118,002 $143,051
Other 12,337 10,154
-------------- ---------------
Total revenues 130,339 153,205
Cost of product sold (exclusive of
depreciation, shown separately below) 58,712 86,616
-------------- ---------------
Gross profit 71,627 66,589
Operating expense 51,712 50,065
Depreciation and amortization expense 11,311 11,537
Employee stock ownership plan compensation charge 890 -
General and administrative expense 4,668 4,421
Vehicle lease and tank expense 2,968 2,312
-------------- ---------------
Operating income (loss) 78 (1,746)
Interest expense (11,618) (12,124)
Interest income 158 397
Gain on disposal of assets 86 66
-------------- ---------------
Loss before minority interest and
extraordinary item (11,296) (13,407)
Minority interest (75) (96)
-------------- ---------------
Loss before extraordinary item (11,221) (13,311)
Extraordinary loss on early extinguishment of debt,
net of minority interest of $130 (12,786) -
-------------- ---------------
Net loss (24,007) (13,311)
General partner's interest in net loss (240) (133)
-------------- ---------------
Limited partners' interest in net loss $(23,767) $(13,178)
============== ===============
Loss per limited partner unit:
Loss before extraordinary item $ (0.35) $ (0.42)
Extraordinary loss (0.41) -
-------------- ---------------
Net loss $ (0.76) $ (0.42)
============== ===============
Loss per limited partner unit-assuming dilution:
Loss before extraordinary item $ (0.35) $ (0.42)
Extraordinary loss (0.41) -
-------------- ---------------
Net loss $ (0.76) $ (0.42)
============== ===============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Number of units
---------------------------
Sub- Sub- Total
Common ordinated Common ordinated General partners'
unitholders unitholders unitholders unitholders partner capital
------------- ------------- ------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
July 31, 1998 14,699.7 16,593.7 $27,985 $19,908 $(58,976) ($11,083)
Common units issued in
connection with
acquisitions 3.6 - 70 0 1 71
Contribution from general
partner in connection with
ESOP compensation charge - - 61 813 7 881
Quarterly distributions - - (7,350) (8,297) (158) (15,805)
Net loss - - (11,165) (12,602) (240) (24,007)
------------- ------------- ------------- ------------- --------------- ---------------
October 31, 1998 14,703.3 16,593.7 $9,601 $ (178) $(59,366) $ (49,943)
============= ============= ============= ============= =============== ================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
------------------------
October 31, October 31,
1998 1997
-------------- ------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $(24,007) $(13,311)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization 11,311 11,537
Extraordinary loss, net of minority interest 12,786 -
Employee stock ownership plan compensation charge 890 -
Other 468 952
Changes in operating assets and liabilities
net of effects from business
acquisitions:
Accounts and notes receivable (10,951) (15,869)
Inventories (15,645) (422)
Prepaid expenses and other current assets (7,229) (6,614)
Accounts payable 15,123 23,726
Other current liabilities (2,679) (9,840)
Other liabilities (175) 157
----------- -----------
Net cash used in operating activities (20,108) (9,684)
----------- -----------
Cash Flows From Investing Activities:
Business acquisitions (17,844) (2,744)
Capital expenditures (7,124) (4,480)
Other 983 958
----------- -----------
Net cash used in investing activities (23,985) (6,266)
----------- -----------
Cash Flows From Financing Activities:
Net additions to short-term borrowings 27,541 22,760
Additions to long-term debt 385,110 3,853
Reductions of long-term debt (350,481) (234)
Cash paid for call premium and debt issuance costs (12,528) -
Distributions (15,805) (15,761)
Other (161) (120)
----------- -----------
Net cash provided by financing activities 33,676 10,498
----------- -----------
Decrease in cash and cash equivalents (10,417) (5,452)
Cash and cash equivalents - beginning of period 16,961 14,788
----------- -----------
Cash and cash equivalents - end of period $6,544 $9,336
=========== ===========
Cash paid for interest $11,847 $12,923
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(unaudited)
A. The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the interim periods
presented. All adjustments to the financial statements were of a normal,
recurring nature.
B. The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from these
estimates.
C. The propane industry is seasonal in nature with peak activity during the
winter months. Therefore, the results of operations for the periods ended
October 31, 1998 and October 31, 1997 are not necessarily indicative of the
results to be expected for a full year.
<TABLE>
<CAPTION>
D. Inventories consist of:
October 31, July 31,
(in thousands) 1998 1998
---------------- --------------
<S> <C> <C>
Liquefied propane gas and related products $41,898 $ 26,316
Appliances, parts and supplies 8,717 8,411
---------------- --------------
$50,615 $34,727
================ ==============
</TABLE>
In addition to inventories on hand, the Partnership enters into contracts
to buy product for supply purposes. Nearly all such contracts have terms
of less than one year and most call for payment based on market prices at
date of delivery. All fixed price contracts have terms of less than one
year. As of October 31, 1998, the Partnership had not committed to take
delivery of a material amount of gallons at a fixed price for its
estimated future retail propane sales.
<TABLE>
<CAPTION>
Property, plant and equipment, net consist of:
October 31, July 31,
(in thousands) 1998 1998
--------------- ---------------
<S> <C> <C>
Property, plant and equipment $635,940 $620,783
Less: accumulated depreciation 230,835 224,928
--------------- ---------------
$405,105 $395,855
=============== ===============
Intangible assets, net consist of:
October 31, July 31,
(in thousands) 1998 1998
--------------- ---------------
Intangible assets $240,665 $229,186
Less: accumulated amortization 127,283 123,531
--------------- ---------------
$113,382 $105,655
=============== ===============
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
E. Long-Term Debt
Long-term debt consists of:
October 31, July 31,
(in thousands) 1998 1998
---------------- ------------
Senior Notes
<S> <C> <C>
Fixed rate, 7.16%, due 2005-2013 $350,000
Fixed rate, 10%, due 2001 (1) - $200,000
Fixed rate, 9.375%, due 2006 160,000 160,000
Credit Agreement
Term loan, 8.5%, due 2001 - 50,000
Revolving credit loans, 6.1% and 8.5%, due 2001 20,959 85,850
Notes payable, 8.3% and 6.7% weighted average interest rates,
respectively, due 1998 to 2007 17,453 13,558
---------------- ------------
548,412 509,408
Less: current portion 2,824 2,186
---------------- ------------
$545,588 $507,222
================ ============
</TABLE>
(1) The OLP fixed rate Senior Notes, issued in June 1994, were redeemed
at the option of the OLP on August 5, 1998 with a 5% premium
payable concurrent with the issuance of $350,000,000 of new
unsecured OLP Senior Notes ("New Senior Notes").
On July 1, 1998, the OLP entered into an agreement for the issuance of $350
million of privately placed fixed rate senior notes ("New Senior Notes")
funded August 4, 1998 in five series with maturities ranging from year 2005
through 2013. The proceeds of the offering were used to redeem the OLP
fixed rate Senior Notes issued in June 1994, and to repay outstanding
indebtedness under the Credit Facility.
The OLP also entered into an agreement on July 2, 1998 with the lenders
under the existing Credit Facility for a New Credit Facility effective
August 4, 1998. The New Credit Facility provides for (i) a $40,000,000
unsecured working capital facility subject to an annual reduction in
borrowings to zero for thirty consecutive days, (ii) a $50,000,000
unsecured working capital and general corporate facility, including a
letter of credit facility, and (iii) a $55,000,000 unsecured general
corporate and acquisition facility. The New Credit Facility matures July 2,
2001.
F. The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
contingent claims that are likely to have a material adverse effect on the
results of operations or financial condition of the Partnership.
G. On September 14, 1998, the Partnership paid a cash distribution of $0.50
per Common and Subordinated Unit for the quarter ended July 31, 1998. On
November 19, 1998, the Partnership declared its first-quarter cash
distribution of $0.50 per Common and Subordinated Unit, payable December
15, 1998.
6
<PAGE>
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, July 31,
ASSETS 1998 1998
- -------------------------------------------------------------------- ------------------- -------------------
(unaudited)
<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 593 548
Accumulated deficit (593) (548)
------------------- -------------------
Total Stockholder's Equity $1,000 $1,000
=================== ===================
</TABLE>
STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
October 31, October 31,
1998 1997
------------------- -------------------
<S> <C> <C>
General and administrative expense $ 45 $ 0
------------------- -------------------
Net loss $(45) $ 0
=================== ===================
</TABLE>
See notes to financial statements.
7
<PAGE>
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly owned subsidiary of Ferrellgas
Partners, L.P.)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
October 31, October 31,
1998 1997
--------------------- -----------------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $(45) $ 0
--------------------- ------------------------
Cash used in operating activities (45) 0
--------------------- ------------------------
Cash Flows From Financing Activities:
Capital contribution 45 0
--------------------- -----------------------
Cash provided by financing activities 45 0
--------------------- -----------------------
Increase in cash - -
Cash - beginning of period 1,000 1,000
--------------------- -----------------------
Cash - end of period $1,000 $1,000
===================== =======================
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
(unaudited)
A. Ferrellgas Partners Finance Corp., a Delaware corporation, was
formed on March 28, 1996, and is a wholly-owned subsidiary of
Ferrellgas Partners, L.P.
B. The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the interim periods
presented. All adjustments to the financial statements were of a normal,
recurring nature.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the results of operations and liquidity
and capital resources of Ferrellgas Partners, L.P. (the "Partnership" or "MLP").
Except for the $160,000,000 of 9 3/8% Senior Secured Notes issued in April 1996
by the MLP and the related interest expense, Ferrellgas, L.P. (the "Operating
Partnership" or "OLP") accounts for nearly all of the consolidated assets,
liabilities, sales and earnings of the MLP. When the discussion refers to the
consolidated MLP, the term Partnership will be used.
Ferrellgas Partners Finance Corp. has nominal assets and does not conduct
any operations. Accordingly, a discussion of the results of operations and
liquidity and capital resources is not presented.
Forward-looking statements
Statements included in this report that are not historical facts, including
statements 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, i) Year 2000 compliance and j) other
factors that are discussed in the Partnership's filings with the Securities and
Exchange Commission.
Year 2000 Compliance
Many computer systems and applications in use throughout the world today
may not be able to appropriately interpret dates beginning in the year 2000
("Year 2000" issue). As a result, this problem could have adverse consequences
on the operations of companies and the integrity of information processing.
The Partnership began the process in 1997 of identifying and correcting its
computer systems and applications that were exposed to the Year 2000 issue. The
Partnership initially focused on the systems and applications that were
considered critical to its operations and services for supplying propane to its
customers and to its ability to account for those business services accurately.
These critical areas include the retail propane accounting and operations
system, financial accounting and reporting system, local area network and
electronic mail systems. The Partnership expects that these critical areas will
be Year 2000 compliant by December 31, 1999.
9
<PAGE>
The Partnership has also taken steps to identify other non-critical
applications that may have exposure to the Year 2000 issue. It has established a
test lab for the independent testing of these applications to ensure Year 2000
compatibility. To date, no material Year 2000 issues have been identified as a
result of this testing.
The Partnership conducts business with several hundred outside suppliers.
While no single supplier is considered material to the Partnership, a combined
number could constitute a material amount to the Partnership. The Partnership is
currently reviewing their largest suppliers to obtain appropriate assurances
that they are, or will be, Year 2000 compliant. If compliance by the
Partnership's suppliers is not achieved in a timely manner, it is unknown what
effect, if any, the Year 2000 issue could have on the Partnership's operations.
The Partnership has evaluated its Year 2000 issues and does not expect that
the total cost of related modifications and conversions will have a material
effect on its financial position, results of operations or cash flows. Such
costs are being expensed as incurred. To date, the Partnership has incurred
approximately $100,000 to identify and correct its Year 2000 issues. This
expense has been primarily related to its critical systems and applications. It
is estimated that the Partnership will incur an additional $300,000 to $500,000
during the current fiscal year to identify and correct its Year 2000 issues. The
Partnership does not anticipate significant purchases of computer software or
hardware as a result of its Year 2000 issue and does not believe that the
correction of its Year 2000 issues will delay or eliminate other scheduled
computer upgrades and replacements.
Results of Operations
The propane industry is seasonal in nature with peak activity during the
winter months. Due to the seasonality of the business, results of operations for
the three months ended October 31, 1998 and 1997, are not necessarily indicative
of the results to be expected for a full year. Other factors affecting the
results of operations include competitive conditions, demand for product,
variations in weather and fluctuations in propane prices. As the Partnership has
grown through acquisitions, fixed costs such as personnel costs, depreciation
and interest expense have increased. Over time, these fixed cost increases have
caused losses in the first and fourth quarters and net income in the second and
third quarters to be more pronounced.
Three Months Ended October 31, 1998 vs. October 31, 1997
Total Revenues. Total revenues decreased 14.9% to $130,339,000 as compared
to $153,205,000 in the first quarter of fiscal 1998, primarily due to decreased
sales price per gallon, decreased retail propane volumes and a decrease in
revenues from other operations (wholesale marketing, chemical feedstocks
marketing and net trading operations).
Sales price per gallon decreased due to the effect of the decrease in the
wholesale cost of propane as compared to the prior period. Retail volumes
decreased 6.4% to 144,682,000 gallons as compared to 154,495,000 gallons for the
prior period, primarily due to a delay in deliveries of retail gallons caused by
a lack of sustained cold weather, a reduction in demand for crop drying volumes
compared to the same quarter last year and crop damage in the southeast United
States. Revenues from other operations decreased by $7,911,000 primarily due to
decreased wholesale marketing volumes related to a weaker demand for
agricultural gallons and decreased sales price per gallon as compared to the
same quarter as last year .
Gross Profit. Gross profit increased 7.6% to $71,627,000 as compared to
$66,589,000 in the first quarter of fiscal 1998, primarily due to the effect of
increased retail margins related to favorable wholesale propane costs and
increased trading profits, partially offset by the effect of decreased retail
and wholesale marketing propane volumes.
Operating Expenses. Operating expenses increased 3.3% to $51,712,000 as
compared to $50,065,000 in the first quarter of fiscal 1998 primarily due to
merit salary increases and acquisition related increases in personnel costs,
plant and office expenses, and vehicle and other expenses.
Vehicle and Tank Lease Expense. Vehicle and tank lease expense increased by
$656,000 due to the utilization of operating lease financing to fund fleet
upgrades and replacements.
10
<PAGE>
Interest expense and extraordinary loss. Interest expense decreased 4.2% to
$11,618,000 as compared to $12,124,000 in the first quarter of fiscal 1998. This
decrease is primarily the result of a decrease in the overall average interest
rate paid by the Partnership on its borrowings resulting from the refinancing of
the Partnership's debt (see Financing Activities below), partially offset by the
effect of increased borrowings related to the financing of acquisitions.
The extraordinary charge is due primarily to the payment of a $10,000,000
call premium related to the refinancing of $200,000,000 of fixed rate debt on
August 5, 1998. The remaining costs relate to the write off of unamortized debt
issuance costs related to refinancing of the fixed rate debt and existing
revolving credit facility balances. (see Financing Activities below).
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, 1999, 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 $160,000,000 senior secured notes issued in April 1996 ("MLP
Senior Secured Notes").
The MLP Senior Secured Notes, the $350,000,000 OLP senior notes ("New
Senior Notes") and the amended and restated OLP credit facility ("New Credit
Facility") agreements contain several financial tests which restrict the
Partnership's ability to pay distributions, incur indebtedness and engage in
certain other business transactions (See Financing Activities below). These
tests, in general, are based on the ratio of the MLP's and OLP's consolidated
cash flow to fixed charges, primarily interest expense. Because the Partnership
is more highly leveraged at the MLP than at the OLP, the tests related to the
MLP Senior Secured Notes are more sensitive to fluctuations in consolidated cash
flows and fixed charges. The most sensitive of the MLP related tests restricts
the Partnership's ability to make certain Restricted Payments which includes,
but is not limited to, the payment of the Minimum Quarterly Distribution ("MQD")
to unitholders.
Although the MLP's financial performance during fiscal 1998 was adversely
impacted by the El Nino weather pattern and associated unseasonably warmer
temperatures, the Partnership believes it will continue to meet the MLP Senior
Secured Notes Restricted Payment test during fiscal 1999, in addition to meeting
the other financial tests in the MLP Senior Secured Notes, New Senior Notes and
New Credit Facility. However, if the Partnership were to encounter any
unexpected downturns in business operations, it could result in the Partnership
not meeting certain financial tests in future quarters, including but not
limited to, the MLP Senior Secured Notes Restricted Payment test. Depending on
the circumstances, the Partnership would pursue alternatives to permit the
continued payment of MQD to its Common Unitholders. No assurances can be given,
however, that such alternatives will be successful with respect to any given
quarter.
On August 1, 1999, the subordination period will end and the Subordinated
Units will convert to Common Units, provided that certain remaining financial
tests, which are related to making the MQD on all Common and Subordinated Units,
are satisfied for each of the three consecutive four quarter periods ending on
July 31, 1999. The Partnership met such financial tests for the four quarter
periods ended July 31, 1997 and July 31, 1998, respectively. There can be no
assurance that the Partnership will meet the remaining financial tests in the
subsequent four quarter period and that the Subordinated Units will convert to
Common Units on August 1, 1999.
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
11
<PAGE>
Common Units. Toward this purpose the MLP maintains a shelf registration
statement with the Securities and Exchange Commission for 1,800,322 Common Units
representing limited partner interests in the MLP. The Common Units may be
issued from time to time by the MLP in connection with the OLP's acquisition of
other businesses, properties or securities in business combination transactions.
Operating Activities. Cash used in operating activities was $20,108,000 for
the three months ended October 31, 1998, compared to cash used in operating
activities of $9,684,000 for the prior period. This increased use in cash is
primarily due to the timing of payments for purchases of inventory and a
decrease in wholesale cost of product and the related decrease in the retail
prices to customers and its affect on accounts receivable and accounts payable.
Investing Activities. During the three months ended October 31, 1998, the
Partnership made total acquisition capital expenditures of $22,190,000. This
amount was funded by $17,844,000 cash payments, $4,116,000 of noncompete notes,
$71,000 of common units issued and $159,000 of other costs and consideration.
During the three months ended October 31, 1998, the Partnership made growth
and maintenance capital expenditures of $7,124,000 consisting primarily of the
following: 1) relocating and upgrading district plant facilities, 2) additions
to Partnership-owned customer tanks and cylinders, 3) vehicle lease buyouts, and
4) upgrading computer equipment and software. Capital requirements for repair
and maintenance of property, plant and equipment are relatively low since
technological change is limited and the useful lives of propane tanks and
cylinders, the Partnership's principal physical assets, are generally long.
The Partnership meets its vehicle and transportation equipment fleet needs
by leasing light and medium duty trucks and tractors. The General Partner
believes vehicle leasing is a cost effective method for meeting the
Partnership's transportation equipment needs. The Partnership continues seeking
to expand its operations through strategic acquisitions of smaller retail
propane operations located throughout the United States. These acquisitions will
be funded through internal cash flow, external borrowings or the issuance of
additional Partnership interests. The Partnership does not have any material
commitments of funds for capital expenditures other than to support the current
level of operations. In fiscal 1999, the Partnership expects growth and
maintenance capital expenditures to increase slightly over fiscal 1998 levels.
Financing Activities. On August 4, 1998, the OLP issued $350,000,000 of new
privately placed unsecured senior notes ("New Senior Notes") and entered into a
$145,000,000 revolving credit facility ("New Credit Facility") with its existing
banks. The proceeds of the New Senior Notes, which include five series with
maturities ranging from year 2005 through 2013 at an average fixed interest rate
of 7.16%, were used to redeem $200,000,000 of OLP fixed rate Senior Notes
("Senior Notes") issued in July 1994, including a 5% call premium, and to repay
outstanding indebtedness under the existing OLP revolving credit facility
("Credit Facility"). As a result of these financings, the Partnership expects to
realize a decrease in interest expense during fiscal 1999.
On July 17, 1998, all of the outstanding common stock of Ferrell Companies,
Inc. ("Ferrell") was purchased by a newly established Employee Stock Ownership
Trust. As a result of this change in control in the ownership of Ferrell and
indirectly in the General Partner, the MLP, pursuant to the MLP Senior Secured
Note Indenture, was required to offer to purchase the outstanding notes at a
price of 101% of the principal amount thereof. The offer to purchase was made on
July 27, 1998 and expired August 26, 1998. Upon the expiration of the offer, the
MLP accepted for purchase $65,000 of the notes which were all of the notes
tendered pursuant to the offer. The MLP assigned its right to purchase the notes
to a third party.
During the three months ended October 31, 1998, the Partnership borrowed
$27,541,000 from its Credit Facility to fund working capital, business
acquisitions, and capital expenditure needs. At October 31, 1998, $69,650,000 of
borrowings were outstanding under the revolving portion of the Credit Facility.
Letters of credit outstanding, used primarily to secure obligations under
12
<PAGE>
certain insurance arrangements, totaled $22,915,000. At October 31, 1998, the
Operating Partnership had $52,435,000 available for general corporate,
acquisition and working capital purposes under the Credit Facility. On November
19, 1998, the Partnership declared a cash distribution of $0.50 per Common and
Subordinated Unit, payable December 15, 1998.
Adoption of New Accounting Standards. The Financial Accounting Standards
Board recently issued the following new accounting standards: SFAS No. 130
"Reporting Comprehensive Income", SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information", SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits" and SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities". SFAS Nos. 130, 131 and 132 are
required to be adopted by the Partnership for the fiscal year ended July 31,
1999. The adoption of SFAS Nos. 130 and 132 are not expected to have a material
effect on the Partnership's financial position or results of operations. The
Partnership is currently assessing the impact of SFAS No. 131 on disclosure
requirements for the next year. SFAS No. 133 is required to be adopted by the
Partnership for the fiscal year ended July 31, 2000. The Partnership is
currently assessing its impact on the Partnership's financial position and
results of operations.
Quantitative and Qualitative Disclosures About Market Risk
The market risk inherent in the Partnership's market risk sensitive
instruments and positions is the potential loss arising from adverse changes in
commodity prices. Additionally, the Partnership seeks to mitigate its interest
rate risk exposure on variable rate debt by entering into interest rate collar
agreements. As of October 31, 1998, the Partnership had only $25,000,000
notional amount of interest rate collar agreements effectively outstanding.
Thus, assuming a material change in the variable interest rate to the
Partnership, the interest rate risk related to the variable rate debt and the
associated interest rate collar agreements is not material to the financial
statements.
The Partnership's trading activities utilize certain types of energy
commodity forward contracts and swaps traded on the over-the-counter financial
markets and futures traded on the New York Mercantile Exchange ("NYMEX" or
"Exchange") to anticipate market movements, manage and hedge its exposure to the
volatility of floating commodity prices and to protect its inventory positions.
The Partnership's non-trading activities utilize certain over-the-counter energy
commodity options to limit overall price risk and to hedge its exposure to
inventory price movements.
Market risks associated with energy commodities are monitored daily for
compliance with the Partnership's trading policy. This policy includes specific
dollar exposure limits, limits on the term of various contracts and volume
limits for various energy commodities. The Partnership also utilizes loss limits
and daily review of open positions to manage exposures to changing market
prices.
Market and Credit Risk. NYMEX traded futures are guaranteed by the Exchange
and have nominal credit risk. The Partnership is exposed to credit risk
associated with forwards, futures, swaps and option transactions in the event of
nonperformance by counterparties. For each counterparty, the Partnership
analyzes the financial condition prior to entering into an agreement,
establishes credit limits and monitors the appropriateness of each limit. The
change in market value of Exchange-traded futures contracts requires daily cash
settlement in margin accounts with brokers. Forwards and most other
over-the-counter instruments are generally settled at the expiration of the
contract term.
Sensitivity Analysis. The Partnership has prepared a sensitivity analysis
to estimate the exposure to market risk of its energy commodity positions.
Forward contracts, futures, swaps and options were analyzed assuming a
hypothetical 10% change in forward prices for the delivery month for all energy
commodities. The potential loss in future earnings from these positions from a
10% adverse movement in market prices of the underlying energy commodities is
estimated at $1,900,000 as of October 31, 1998. Actual results may differ.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
On October 14, 1998, the Partnership issued 3,620 Common Units with a
fair market value of $71,265 to Ferrellgas Acquisition Company, LLC
("FAC") in exchange for assets of an acquired propane business. FAC
is a Kansas limited liability company of which Ferrellgas, Inc. the
Partnership's general partner, is the sole member. This issuance of
Common Units was exempt from registration under Section 4(2) of the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Agreement of Limited Partnership of Ferrellgas Partners,
L.P. (Incorporated by reference to
the same numbered Exhibit to the Partnership's Current
Report on Form 8-K filed August 15, 1994.)
3.2 Articles of Incorporation for Ferrellgas Partners Finance
Corp. (Incorporated by reference to the same numbered
Exhibit to the Partnership's Current Report on Form 8-K
filed August 15, 1994.)
3.3 Bylaws of Ferrellgas Partners Finance Corp. (Incorporated
by reference to the same numbered Exhibit to the
Partnership's Quarterly Report on Form 10-Q filed
June 13, 1997.)
27.1 Financial Data Schedule - Ferrellgas Partners, L.P. (filed
in electronic format only)
27.2 Financial Data Schedule - Ferrellgas Partners Finance Corp.
(filed in electronic format only)
(b) Reports on Form 8-K
The Partnership filed one Form 8-K during the quarter ended
October 31, 1998.
Form 8-K dated August 5, 1998 reporting that on August 4, 1998,
Ferrellgas L.P. issued $350 million of fixed rate Senior Notes in
five series with maturities ranging from 2005 through 2013 (the
Senior Notes) in a private placement to qualified institutional
investors. Proceeds of the offering were used to redeem Ferrellgas,
L.P.'s outstanding 10 % Series A Fixed Rate Senior Notes on August
5, 1998, and to repay outstanding indebtedness under Ferrellgas,
L.P.'s bank credit lines. Also on August 4, 1998, Ferrellgas L.P.'s
14
<PAGE>
Second Amended and Restated Credit Agreement was declared effective.
This agreement provides Ferrellgas L.P. with $145 million of bank
credit lines.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FERRELLGAS PARTNERS, L.P.
By Ferrellgas, Inc. (General Partner)
Date: December 15, 1998 By /s/ Kevin T. Kelly
-------------------------
Kevin T. Kelly
Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS PARTNERS FINANCE CORP.
Date: December 15, 1998 By /s/ Kevin T. Kelly
-------------------------
Kevin T. Kelly
Chief Financial Officer (Principal
Financial and Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY BALANCE SHEET ON OCTOBER 31, 1998
AND THE STATEMENT OF EARNINGS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS)
</LEGEND>
<CAPTION>
<CIK> 0000922358
<NAME> Ferrellgas Partners, L.P.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<EXCHANGE-RATE> 1
<CASH> 6,544
<SECURITIES> 0
<RECEIVABLES> 60,770
<ALLOWANCES> 0
<INVENTORY> 50,615
<CURRENT-ASSETS> 133,865
<PP&E> 635,940
<DEPRECIATION> 230,835
<TOTAL-ASSETS> 660,979
<CURRENT-LIABILITIES> 151,715
<BONDS> 545,588
<COMMON> 9,423
0
0
<OTHER-SE> (59,366)
<TOTAL-LIABILITY-AND-EQUITY> 660,979
<SALES> 118,002
<TOTAL-REVENUES> 130,339
<CGS> 58,712
<TOTAL-COSTS> 125,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,618
<INCOME-PRETAX> (11,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,221)
<DISCONTINUED> 0
<EXTRAORDINARY> (12,786)
<CHANGES> 0
<NET-INCOME> (24,007)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
<LEGEND>
(THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FERRELLGAS PARTNERS FINANCE, CORP. BALANCE SHEET ON OCTOBER 31, 1998
AND THE STATEMENT OF EARNINGS ENDING OCTOBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS)
</LEGEND>
<CIK> 001012493
<NAME> Ferrellgas Partners Finance, L.P.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<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> (45)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
