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