Table of
Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark
One)
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended October 31,
2010
|
or
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
For the transition period
from to
|
|
|
|
Commission file numbers: 001-11331,
333-06693, 000-50182 and 000-50183
|
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
Ferrellgas, L.P.
Ferrellgas Finance Corp.
(Exact name of registrants as specified in their
charters)
Delaware
|
|
43-1698480
|
Delaware
|
|
43-1742520
|
Delaware
|
|
43-1698481
|
Delaware
|
|
14-1866671
|
(States or other jurisdictions of
incorporation or organization)
|
|
(I.R.S. Employer
Identification Nos.)
|
|
|
|
7500 College Boulevard,
Suite 1000, Overland Park, Kansas
|
|
66210
(Zip Code)
|
(Address of principal executive office)
|
|
|
Registrants telephone number, including area
code:
(913) 661-1500
Indicate
by check mark whether the registrants (1) have filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject
to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate
by check mark whether the registrants have submitted electronically and posted
on their corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the
registrants were required to submit and post such files). Yes
þ
No
o
Indicate
by check mark whether the registrants are large accelerated filers, accelerated
filers, non-accelerated filers, or smaller reporting companies. See the
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Ferrellgas Partners, L.P.:
|
|
|
|
Large accelerated filer
þ
|
Accelerated
filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
o
|
|
|
(do not check if a smaller reporting
company)
|
|
Ferrellgas Partners Finance Corp, Ferrellgas, L.P.
and Ferrellgas Finance Corp.:
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
Non-accelerated filer
þ
|
Smaller reporting company
o
|
|
|
(do not check if a smaller reporting
company)
|
|
Indicate
by check mark whether the registrants are shell companies (as defined in
Rule 12b-2 of the Exchange Act).
Ferrellgas
Partners, L.P. and Ferrellgas, L.P. Yes
o
No
þ
Ferrellgas
Partners Finance Corp. and Ferrellgas Finance Corp. Yes
þ
No
o
At
November 30, 2010, the registrants had common units or shares of common
stock outstanding as follows:
Ferrellgas
Partners, L.P.
|
|
70,826,910
|
|
Common Units
|
Ferrellgas
Partners Finance Corp.
|
|
1,000
|
|
Common Stock
|
Ferrellgas,
L.P.
|
|
n/a
|
|
n/a
|
Ferrellgas
Finance Corp.
|
|
1,000
|
|
Common Stock
|
Documents Incorporated by Reference:
None
EACH
OF FERRELLGAS PARTNERS FINANCE CORP. AND FERRELLGAS FINANCE CORP. MEET THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION I (1)(A) AND (B) OF
FORM 10-K AND ARE THEREFORE, WITH RESPECT TO EACH SUCH REGISTRANT, FILING
THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.
Table
of Contents
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.
For the quarterly period ended October 31,
2010
FORM 10-Q QUARTERLY REPORT
Table of Conte
nts
|
|
Page
|
PART I -
FINANCIAL INFORMATION
|
|
|
|
ITEM 1.
|
FINANCIAL
STATEMENTS (unaudited)
|
|
|
|
|
|
Ferrellgas
Partners, L.P. and Subsidiaries
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets October 31, 2010 and July 31, 2010
|
1
|
|
|
|
|
Condensed
Consolidated Statements of Earnings Three months ended October 31,
2010 and 2009
|
2
|
|
|
|
|
Condensed
Consolidated Statements of Partners Capital Three months ended
October 31, 2010 and 2009
|
3
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows Three months ended October 31,
2010 and 2009
|
4
|
|
|
|
|
Notes to
Condensed Consolidated Financial Statements
|
5
|
|
|
|
|
Ferrellgas
Partners Finance Corp.
|
|
|
|
|
|
Condensed Balance
Sheets October 31, 2010 and July 31, 2010
|
16
|
|
|
|
|
Condensed
Statements of Earnings Three months ended October 31, 2010 and 2009
|
16
|
|
|
|
|
Condensed
Statements of Cash Flows Three months ended October 31, 2010 and 2009
|
17
|
|
|
|
|
Note to
Condensed Financial Statements
|
17
|
|
|
|
|
Ferrellgas,
L.P. and Subsidiaries
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets October 31, 2010 and July 31, 2010
|
18
|
|
|
|
|
Condensed
Consolidated Statements of Earnings Three months ended October 31,
2010 and 2009
|
19
|
|
|
|
|
Condensed
Consolidated Statement of Partners Capital Three months ended
October 31, 2010
|
20
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows Three months ended October 31,
2010 and 2009
|
21
|
|
|
|
|
Notes to
Condensed Consolidated Financial Statements
|
22
|
|
|
|
|
Ferrellgas Finance
Corp.
|
|
|
|
|
|
Condensed Balance
Sheets October 31, 2010 and July 31, 2010
|
32
|
|
|
|
|
Condensed
Statements of Earnings Three months ended October 31, 2010 and 2009
|
32
|
Table of Contents
PART I
- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(unaudited)
FERRELLGAS
PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands,
except unit data)
(unaudited)
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,633
|
|
$
|
11,401
|
|
Accounts and notes receivable, net (including
$122,092 and $0 of accounts receivable pledged as collateral at
October 31, 2010 and July 31, 2010, respectively)
|
|
167,607
|
|
89,234
|
|
Inventories
|
|
169,818
|
|
166,911
|
|
Prepaid expenses and other current assets
|
|
30,121
|
|
13,842
|
|
Total current assets
|
|
377,179
|
|
281,388
|
|
|
|
|
|
|
|
Property, plant and equipment (net of accumulated
depreciation of $552,995 and $546,891 at October 31, 2010 and
July 31, 2010, respectively)
|
|
648,986
|
|
652,768
|
|
Goodwill
|
|
248,939
|
|
248,939
|
|
Intangible assets (net of accumulated amortization
of $287,089 and $281,590 at October 31, 2010 and July 31, 2010,
respectively)
|
|
218,078
|
|
221,057
|
|
Other assets, net
|
|
37,724
|
|
38,199
|
|
Total assets
|
|
$
|
1,530,906
|
|
$
|
1,442,351
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS CAPITAL
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
71,358
|
|
$
|
48,658
|
|
Short-term borrowings
|
|
90,482
|
|
67,203
|
|
Collateralized note payable
|
|
66,000
|
|
|
|
Other current liabilities
|
|
126,483
|
|
108,054
|
|
Total current liabilities
|
|
354,323
|
|
223,915
|
|
|
|
|
|
|
|
Long-term debt
|
|
1,121,904
|
|
1,111,088
|
|
Other liabilities
|
|
21,421
|
|
21,446
|
|
Contingencies and commitments (Note I)
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital:
|
|
|
|
|
|
Common unitholders (69,611,843 and 69,521,818
units outstanding at October 31, 2010 and July 31, 2010,
respectively)
|
|
85,295
|
|
141,281
|
|
General partner unitholder (703,150 and 702,241 units
outstanding at October 31, 2010 and July 31, 2010, respectively)
|
|
(59,210
|
)
|
(58,644
|
)
|
Accumulated other comprehensive income (loss)
|
|
3,961
|
|
(415
|
)
|
Total Ferrellgas Partners, L.P.
partners capital
|
|
30,046
|
|
82,222
|
|
Noncontrolling interest
|
|
3,212
|
|
3,680
|
|
Total partners capital
|
|
33,258
|
|
85,902
|
|
Total liabilities and partners
capital
|
|
$
|
1,530,906
|
|
$
|
1,442,351
|
|
See notes to condensed consolidated financial
statements.
1
Table of
Contents
FERRELLGAS
PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
(in
thousands, except per unit data)
(unaudited)
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Propane and other gas liquids sales
|
|
$
|
368,623
|
|
$
|
327,666
|
|
Other
|
|
31,569
|
|
24,404
|
|
Total revenues
|
|
400,192
|
|
352,070
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
Cost of product sold - propane and other gas
liquids sales
|
|
256,486
|
|
200,920
|
|
Cost of product sold - other
|
|
12,858
|
|
6,180
|
|
Operating expense
|
|
95,396
|
|
96,890
|
|
Depreciation and amortization expense
|
|
20,375
|
|
20,527
|
|
General and administrative expense
|
|
11,264
|
|
13,778
|
|
Equipment lease expense
|
|
3,649
|
|
3,774
|
|
Employee stock ownership plan compensation charge
|
|
2,444
|
|
2,002
|
|
Loss (gain) on disposal of assets and other
|
|
(232
|
)
|
1,662
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
(2,048
|
)
|
6,337
|
|
|
|
|
|
|
|
Interest expense
|
|
(26,877
|
)
|
(22,695
|
)
|
Loss on extinguishment of debt
|
|
|
|
(17,308
|
)
|
Other income (expense), net
|
|
178
|
|
307
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
(28,747
|
)
|
(33,359
|
)
|
|
|
|
|
|
|
Income tax benefit
|
|
(482
|
)
|
(422
|
)
|
|
|
|
|
|
|
Net loss
|
|
(28,265
|
)
|
(32,937
|
)
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
(222
|
)
|
(272
|
)
|
|
|
|
|
|
|
Net loss attributable to Ferrellgas Partners, L.P.
|
|
(28,043
|
)
|
(32,665
|
)
|
|
|
|
|
|
|
Less: General partners interest in net loss
|
|
(280
|
)
|
(327
|
)
|
Common unitholders interest in
net loss
|
|
$
|
(27,763
|
)
|
$
|
(32,338
|
)
|
|
|
|
|
|
|
Basic and diluted net loss per
common unitholders interest
|
|
$
|
(0.40
|
)
|
$
|
(0.47
|
)
|
|
|
|
|
|
|
Cash distributions declared per
common unit
|
|
$
|
0.50
|
|
$
|
0.50
|
|
See notes to condensed consolidated financial
statements.
2
Table of
Contents
FERRELLGAS
PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
(in
thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Accumulated other
|
|
Total
|
|
|
|
|
|
|
|
Number of units
|
|
|
|
|
|
comprehensive income (loss)
|
|
Ferrellgas
|
|
|
|
|
|
|
|
|
|
General
|
|
|
|
General
|
|
|
|
Currency
|
|
|
|
Partners, L.P.
|
|
Non-
|
|
Total
|
|
|
|
Common
|
|
partner
|
|
Common
|
|
partner
|
|
Risk
|
|
translation
|
|
Pension
|
|
partners
|
|
controlling
|
|
partners
|
|
|
|
unitholders
|
|
unitholder
|
|
unitholders
|
|
unitholder
|
|
management
|
|
adjustments
|
|
liability
|
|
capital
|
|
interest
|
|
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2009
|
|
68,236.8
|
|
689.3
|
|
$
|
206,255
|
|
$
|
(57,988
|
)
|
$
|
(989
|
)
|
$
|
22
|
|
$
|
(227
|
)
|
$
|
147,073
|
|
$
|
4,272
|
|
$
|
151,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions in
connection with ESOP and stock-based compensation charges
|
|
|
|
|
|
4,658
|
|
47
|
|
|
|
|
|
|
|
4,705
|
|
48
|
|
4,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
|
|
|
(34,118
|
)
|
(345
|
)
|
|
|
|
|
|
|
(34,463
|
)
|
(352
|
)
|
(34,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued in
connection with acquisition
|
|
155.1
|
|
1.5
|
|
3,061
|
|
31
|
|
|
|
|
|
|
|
3,092
|
|
31
|
|
3,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued in
offering, net of issuance costs
|
|
1,058.4
|
|
10.7
|
|
19,982
|
|
202
|
|
|
|
|
|
|
|
20,184
|
|
204
|
|
20,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
(32,338
|
)
|
(327
|
)
|
|
|
|
|
|
|
(32,665
|
)
|
(272
|
)
|
(32,937
|
)
|
Other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings on risk
management derivatives
|
|
|
|
|
|
|
|
|
|
7,011
|
|
|
|
|
|
|
|
72
|
|
|
|
Reclassification of
derivatives to earnings
|
|
|
|
|
|
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
Foreign currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
6,943
|
|
|
|
7,014
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,722
|
)
|
(201
|
)
|
(25,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2009
|
|
69,450.3
|
|
701.5
|
|
$
|
167,500
|
|
$
|
(58,380
|
)
|
$
|
5,953
|
|
$
|
23
|
|
$
|
(227
|
)
|
$
|
114,869
|
|
$
|
4,002
|
|
$
|
118,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2010
|
|
69,521.8
|
|
702.2
|
|
$
|
141,281
|
|
$
|
(58,644
|
)
|
$
|
(166
|
)
|
$
|
24
|
|
$
|
(273
|
)
|
$
|
82,222
|
|
$
|
3,680
|
|
$
|
85,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions in
connection with ESOP and stock-based compensation charges
|
|
|
|
|
|
3,388
|
|
34
|
|
|
|
|
|
|
|
3,422
|
|
35
|
|
3,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
|
|
|
|
|
|
(34,774
|
)
|
(351
|
)
|
|
|
|
|
|
|
(35,125
|
)
|
(359
|
)
|
(35,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued in
connection with acquisition
|
|
63.5
|
|
0.6
|
|
1,625
|
|
16
|
|
|
|
|
|
|
|
1,641
|
|
17
|
|
1,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unit options issued
|
|
26.5
|
|
0.3
|
|
308
|
|
3
|
|
|
|
|
|
|
|
311
|
|
3
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
(27,763
|
)
|
(280
|
)
|
|
|
|
|
|
|
(28,043
|
)
|
(222
|
)
|
(28,265
|
)
|
Cumulative effect of
change in accounting principle
|
|
|
|
|
|
1,230
|
|
12
|
|
|
|
|
|
|
|
1,242
|
|
13
|
|
1,255
|
|
Other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings on risk
management derivatives
|
|
|
|
|
|
|
|
|
|
4,951
|
|
|
|
|
|
|
|
51
|
|
|
|
Reclassification of
derivatives to earnings
|
|
|
|
|
|
|
|
|
|
(577
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
Foreign currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
4,376
|
|
|
|
4,421
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,425
|
)
|
(164
|
)
|
(22,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2010
|
|
69,611.8
|
|
703.1
|
|
$
|
85,295
|
|
$
|
(59,210
|
)
|
$
|
4,208
|
|
$
|
26
|
|
$
|
(273
|
)
|
$
|
30,046
|
|
$
|
3,212
|
|
$
|
33,258
|
|
See notes to condensed
consolidated financial statements.
3
Table of
Contents
FERRELLGAS
PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(unaudited)
|
|
For the three months
|
|
|
|
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(28,265
|
)
|
$
|
(32,937
|
)
|
Reconciliation of net loss to net cash used in
operating activities:
|
|
|
|
|
|
Depreciation and amortization expense
|
|
20,375
|
|
20,527
|
|
Employee stock ownership plan compensation charge
|
|
2,444
|
|
2,002
|
|
Unit and stock-based compensation charge
|
|
1,013
|
|
2,751
|
|
Loss (gain) on disposal of assets
|
|
(232
|
)
|
876
|
|
Loss on transfer of accounts receivable related to
the accounts receivable securitization
|
|
|
|
1,760
|
|
Provision for doubtful accounts
|
|
1,978
|
|
1,909
|
|
Deferred tax expense
|
|
112
|
|
190
|
|
Other
|
|
2,719
|
|
604
|
|
Changes in operating assets and liabilities, net
of effects from business acquisitions:
|
|
|
|
|
|
Accounts and notes receivable, net of
securitization
|
|
(32,573
|
)
|
(23,612
|
)
|
Inventories
|
|
(2,907
|
)
|
(28,360
|
)
|
Prepaid expenses and other current assets
|
|
(13,660
|
)
|
(10,434
|
)
|
Accounts payable
|
|
22,779
|
|
30,236
|
|
Accrued interest expense
|
|
6,836
|
|
8,324
|
|
Other current liabilities
|
|
12,827
|
|
3,055
|
|
Other liabilities
|
|
10
|
|
126
|
|
Accounts receivable securitization:
|
|
|
|
|
|
Proceeds from new accounts receivable
securitizations
|
|
|
|
15,000
|
|
Proceeds from collections reinvested in revolving period
accounts receivable securitizations
|
|
|
|
226,525
|
|
Remittances of amounts collected as servicer of accounts
receivable securitizations
|
|
|
|
(230,525
|
)
|
Net cash used in operating activities
|
|
(6,544
|
)
|
(11,983
|
)
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
|
(1,770
|
)
|
(36,293
|
)
|
Capital expenditures
|
|
(11,565
|
)
|
(18,100
|
)
|
Proceeds from sale of assets
|
|
2,078
|
|
1,933
|
|
Other
|
|
|
|
(826
|
)
|
Net cash used in investing activities
|
|
(11,257
|
)
|
(53,286
|
)
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
Distributions
|
|
(35,125
|
)
|
(34,463
|
)
|
Proceeds from increase in long-term debt
|
|
10,020
|
|
590,480
|
|
Reductions in long-term debt
|
|
(934
|
)
|
(541,441
|
)
|
Net additions to short-term borrowings
|
|
23,279
|
|
40,896
|
|
Net additions to collateralized short-term
borrowings
|
|
19,000
|
|
|
|
Cash paid for financing costs
|
|
(164
|
)
|
(7,129
|
)
|
Noncontrolling interest activity
|
|
(359
|
)
|
(148
|
)
|
Proceeds from exercise of common unit options
|
|
308
|
|
|
|
Proceeds from equity offering, net of issuance
costs
|
|
|
|
19,982
|
|
Cash contribution from general partner in
connection with common unit issuances
|
|
6
|
|
202
|
|
Net cash provided by financing activities
|
|
16,031
|
|
68,379
|
|
|
|
|
|
|
|
Effect of exchange rate changes
on cash
|
|
2
|
|
1
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
(1,768
|
)
|
3,111
|
|
Cash and cash equivalents - beginning of period
|
|
11,401
|
|
7,066
|
|
Cash and cash equivalents - end
of period
|
|
$
|
9,633
|
|
$
|
10,177
|
|
See notes to condensed
consolidated financial statements.
4
Table
of Contents
FERRELLGAS PARTNERS, L.P.
AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2010
(Dollars in thousands,
except per unit data, unless otherwise designated)
(unaudited)
A.
Partnership
organization and formation
Ferrellgas
Partners, L.P. (Ferrellgas Partners) is a publicly traded limited
partnership, owning an approximate 99% limited partner interest in Ferrellgas,
L.P. (the operating partnership). Ferrellgas Partners and the operating
partnership are collectively referred to as Ferrellgas. Ferrellgas, Inc.
(the general partner), a wholly-owned subsidiary of Ferrell Companies, Inc.
(Ferrell Companies), has retained a 1% general partner interest in Ferrellgas
Partners and also holds an approximate 1% general partner interest in the
operating partnership, representing an effective 2% general partner interest in
Ferrellgas on a combined basis. As general partner, it performs all management
functions required by Ferrellgas. At October 31, 2010, Ferrell Companies
beneficially owned 20.3 million of Ferrellgas Partners outstanding common
units.
The condensed consolidated financial statements of Ferrellgas reflect
all adjustments that are, in the opinion of management, necessary for a fair
presentation of the interim periods presented. All adjustments to the condensed
consolidated financial statements were of a normal, recurring nature. The
information included in this Quarterly Report on Form 10-Q should be read
in conjunction with (i) the section entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations and (ii) the
consolidated financial statements and accompanying notes, each as set forth in Ferrellgas
Annual Report on Form 10-K for fiscal 2010.
B.
Summary of significant accounting
policies
(1) Nature of operations:
Ferrellgas Partners is a holding entity that conducts no operations and
has two subsidiaries, Ferrellgas Partners Finance Corp. and the operating
partnership. Ferrellgas Partners owns a 100% equity interest in Ferrellgas
Partners Finance Corp., whose only business activity is to act as the co-issuer
and co-obligor of any debt issued by Ferrellgas Partners. The operating partnership
is the only operating subsidiary of Ferrellgas Partners.
The operating partnership is engaged primarily in the distribution of
propane and related equipment and supplies in the United States. The propane
distribution market is seasonal because propane is used primarily for heating
in residential and commercial buildings. Therefore, the results of operations
for the three months ended October 31, 2010 and 2009 are not necessarily
indicative of the results to be expected for a full fiscal year. The operating
partnership serves approximately one million residential,
industrial/commercial, portable tank exchange, agricultural, wholesale and
other customers in all 50 states, the District of Columbia and Puerto Rico.
(2) Accounting estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from these
estimates. Significant estimates impacting the condensed consolidated financial
statements include accruals that have been established for contingent
liabilities, pending claims and legal actions arising in the normal course of
business, useful lives of property, plant and equipment assets, residual values
of tanks, capitalization of customer tank installation costs, amortization
methods of intangible assets, valuation methods used to value sales returns and
allowances, allowance for doubtful accounts, financial derivative contracts and
stock and unit-based compensation calculations.
5
Table of Contents
(3) Supplemental cash flow information:
Certain cash flow and significant non-cash activities are presented
below:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
CASH PAID FOR:
|
|
|
|
|
|
Interest
|
|
$
|
17,065
|
|
$
|
12,481
|
|
Income taxes
|
|
|
|
|
|
NON-CASH INVESTING ACTIVITIES:
|
|
|
|
|
|
Issuance of common units in connection with
acquisitions
|
|
1,625
|
|
3,061
|
|
Issuance of liabilities in connection with
acquisitions
|
|
538
|
|
5,494
|
|
Property, plant and equipment additions
|
|
474
|
|
619
|
|
|
|
|
|
|
|
|
|
See Note B Summary of significant accounting policies - (5) New
accounting standards Transfers of financial assets and variable interest
entities below for a discussion of the non-cash impact of the adoption of new
accounting standards during the current year period.
(4) Accounts receivable securitization:
Through its wholly-owned and consolidated subsidiary Ferrellgas
Receivables, LLC (Ferrellgas Receivables), the operating partnership has
agreements to securitize, on an ongoing basis, a portion of its trade accounts
receivable. See Note B Summary of significant accounting policies - (5) New
accounting standards Transfers of financial assets and variable interest
entities below regarding a new accounting standard for financial asset
transfers that was effective August 1, 2010.
(5) New accounting standards:
Transfers of financial assets and variable interest entities
In June 2009, the Financial Accounting Standards Board (FASB)
issued two amendments to existing GAAP, one of which eliminates the concept of
a qualifying special-purpose-entity (QSPEs). The second amends guidance
applicable to variable interest entities (VIEs). The provisions of these
amendments require Ferrellgas to evaluate all VIEs to determine whether they
must be consolidated.
As a result of the prospective adoption of these amendments on August 1,
2010, Ferrellgas Receivables is now accounted for as a consolidated subsidiary.
Upon adoption, Ferrellgas recognized $107.9 million of Accounts receivable
pledged as collateral, net, $0.6 million of Other assets, net and $47.0
million of Collateralized notes payable, derecognized $44.9 million of Notes
receivable from Ferrellgas Receivables and $15.3 million of Retained interest
in Ferrellgas Receivables and recorded a $1.3 million Cumulative effect of a
change in accounting principle.
Subsequent to adoption, expenses associated with these transactions are
now recorded in Interest expense and are no longer recorded in Loss on
transfer of accounts receivable related to the accounts receivable
securitization or Service income related to the accounts receivable
securitization in the condensed consolidated statements of earnings.
Additionally, borrowings and repayments associated with these transactions are
now recorded in Cash flows from financing activities and no longer recorded
in Cash flows from operating activities in the condensed consolidated
statements of cash flows. The adoption of these amendments did not have a
significant impact on Ferrellgas debt covenant agreements.
6
Table of Contents
C.
Supplemental financial statement
information
Inventories consist of the following:
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
Propane gas and related products
|
|
$
|
149,017
|
|
$
|
146,805
|
|
Appliances, parts and supplies
|
|
20,801
|
|
20,106
|
|
Inventories
|
|
$
|
169,818
|
|
$
|
166,911
|
|
In
addition to inventories on hand, Ferrellgas enters into contracts primarily to
buy propane for supply procurement purposes. Most of these contracts have terms
of less than one year and call for payment based on market prices at the date
of delivery. All supply procurement fixed price contracts have terms of fewer
than 24 months. As of October 31, 2010, Ferrellgas had committed, for
supply procurement purposes, to take delivery of approximately 106.5 million
net gallons of propane at fixed prices.
Other current liabilities consist of the following:
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
Accrued interest
|
|
$
|
27,248
|
|
$
|
20,412
|
|
Accrued payroll
|
|
10,171
|
|
20,464
|
|
Customer deposits and advances
|
|
36,003
|
|
23,280
|
|
Other
|
|
53,061
|
|
43,898
|
|
Other current liabilities
|
|
$
|
126,483
|
|
$
|
108,054
|
|
Loss
(gain) on disposal of assets and other consists of the following:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Loss (gain) on disposal of assets
|
|
$
|
(232
|
)
|
$
|
876
|
|
Loss on transfer of accounts receivable related to
the accounts receivable securitization
|
|
|
|
1,760
|
|
Service income related to the accounts receivable
securitization
|
|
|
|
(974
|
)
|
Loss (gain) on disposal of assets and other
|
|
$
|
(232
|
)
|
$
|
1,662
|
|
See Note B Summary of significant accounting policies - (5) New
accounting standards Transfers of financial assets and variable interest
entities for a discussion of changes in accounting for accounts receivable
securitization transactions.
Shipping
and handling expenses are classified in the following condensed consolidated
statements of earnings line items:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Operating expense
|
|
$
|
42,284
|
|
$
|
43,781
|
|
Depreciation and amortization expense
|
|
1,481
|
|
1,303
|
|
Equipment lease expense
|
|
3,361
|
|
3,863
|
|
|
|
$
|
47,126
|
|
$
|
48,947
|
|
7
Table of Contents
D.
Accounts and notes receivable, net
and accounts receivable securitization
Accounts and notes receivable, net consist of the following:
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
Accounts receivable pledged as collateral
|
|
$
|
122,092
|
|
$
|
|
|
Accounts receivable
|
|
51,243
|
|
33,725
|
|
Note receivable from Ferrellgas Receivables
|
|
|
|
44,927
|
|
Retained interest in Ferrellgas Receivables
|
|
|
|
15,323
|
|
Other
|
|
260
|
|
269
|
|
Less: Allowance for doubtful accounts
|
|
(5,988
|
)
|
(5,010
|
)
|
Accounts and notes receivable, net
|
|
$
|
167,607
|
|
$
|
89,234
|
|
See Note B Summary of significant accounting policies - (5) New
accounting standards - Transfers of financial assets and variable interest
entities - for a discussion of amendments to existing GAAP which required
Ferrellgas to begin consolidating its previously unconsolidated QSPE,
Ferrellgas Receivables, effective August 1, 2010. Upon consolidation,
Ferrellgas now recognizes accounts receivable that have been sold by the
operating partnership to Ferrellgas Receivables as Accounts receivable pledged
as collateral and eliminates the previously recognized Note receivable from
Ferrellgas Receivables and Retained interest in Ferrellgas Receivables.
The operating partnership, through Ferrellgas Receivables, securitizes
a portion of its trade accounts receivable through a commercial paper conduit
for proceeds of up to $145.0 million. At October 31, 2010, $122.1 million
of trade accounts receivable were pledged as collateral against $66.0 million
of collateralized notes payable due to the commercial paper conduit. These accounts
receivable pledged as collateral are bankruptcy remote from the operating
partnership. The operating partnership does not provide any guarantee or
similar support to the collectability of these accounts receivable pledged as
collateral.
The operating partnership structured Ferrellgas Receivables in order to
facilitate securitization transactions while complying with Ferrellgas various
debt covenants. If the covenants were compromised, funding from the facility
could be restricted or suspended, or its costs could increase. As of October 31,
2010, the operating partnership had received proceeds from trade accounts
receivables securitized of $66.0 million with the ability to receive proceeds
of an additional $6.0 million.
E.
Debt
Short-term borrowings
Ferrellgas classified a portion of its credit facility borrowings as
short-term because it was used to fund working capital needs that management
had intended to pay down within the 12 month period following each balance
sheet date. As of October 31, 2010 and July 31, 2010, $90.5 million
and $67.2 million, respectively, were classified as short-term borrowings. For
further discussion see the secured credit facility section below.
Long-term debt
Long-term debt consists of the following:
8
Table of Contents
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
Senior notes
|
|
|
|
|
|
Fixed rate, 6.75% due
2014, net of unamortized discount of $20,781 and $21,974 at October 31,
2010 and July 31, 2010, respectively
|
|
$
|
429,219
|
|
$
|
428,026
|
|
Fixed rate, 9.125%, due
2017, net of unamortized discount of $3,774 and $3,870 at October 31,
2010 and July 31, 2010, respectively
|
|
296,226
|
|
296,130
|
|
Fixed rate, 8.625%, due
2020
|
|
280,000
|
|
280,000
|
|
|
|
|
|
|
|
Secured credit facility
, variable
interest rate, expiring 2012 (net of $90.5 million and $67.2 million
classified as short-term borrowings at October 31, 2010 and
July 31, 2010, respectively)
|
|
109,818
|
|
99,797
|
|
|
|
|
|
|
|
Notes payable
, 9.4% and
9.5% weighted average interest rate at October 31, 2010 and
July 31, 2010, respectively, due 2011 to 2016, net of unamortized
discount of $2,863 and $2,876 at October 31, 2010 and July 31,
2010, respectively
|
|
9,282
|
|
9,475
|
|
|
|
1,124,545
|
|
1,113,428
|
|
Less: current portion,
included in other current liabilities on the condensed consolidated balance
sheets
|
|
2,641
|
|
2,340
|
|
Long-term debt
|
|
$
|
1,121,904
|
|
$
|
1,111,088
|
|
Senior notes
See Note K Subsequent events for discussion of a new long term debt
issuance.
Secured credit facility
Ferrellgas secured credit facility provides $400.0
million in revolving credit for loans and has a $200.0 million sublimit for
letters of credit. This credit facility matures in November 2012.
The credit facility contains various affirmative and
negative covenants and default provisions, as well as requirements with respect
to the maintenance of specified financial ratios and limitations on the making
of loans and investments.
As of October 31, 2010, Ferrellgas had total
borrowings outstanding under its credit facility of $200.3 million, of which
$109.8 million was classified as long-term debt. As of July 31, 2010,
Ferrellgas had total borrowings outstanding under its credit facility of $167.0
million, of which $99.8 million was classified as long-term debt.
Borrowings under the credit facility had a weighted
average interest rate of 4.31% at October 31, 2010. All borrowings under
the credit facility bear interest, at Ferrellgas option, at a rate equal to
either:
·
for Base Rate Loans or Swing Line Loans, the Base
Rate, which is defined as the higher of i) the federal funds rate plus
0.50%, ii) Bank of Americas prime rate; or iii) the Eurodollar Rate
plus 1%; plus a margin varying from 2.50% to 3.25% (as of October 31,
2010, the margin was 2.75%); or
·
for Eurodollar Rate Loans, the Eurodollar Rate,
which is defined as the LIBOR Rate plus a margin varying from 3.50% to 4.25%
(as of October 31, 2010, the margin was 3.75%).
As of October 31, 2010,
the federal funds rate and Bank of Americas prime rate were 0.20% and 3.25%,
respectively. As of October 31, 2010, the one-month and three-month
Eurodollar Rates were 0.33% and 0.40%, respectively.
9
Table of Contents
In addition, an annual
commitment fee is payable at a per annum rate of 0.50% times the actual daily
amount by which the facility exceeds
the sum of (i) the
outstanding amount of revolving credit loans and (ii) the outstanding
amount of letter of credit obligations.
The obligations under this
credit facility are secured by substantially all assets of the operating
partnership, the general partner and certain subsidiaries of the operating
partnership but specifically excluding (a) assets that are subject to the
operating partnerships accounts receivable securitization facility, (b) the
general partners equity interest in Ferrellgas Partners and (c) equity
interest in certain unrestricted subsidiaries. Such obligations are also
guaranteed by the general partner and certain subsidiaries of the operating
partnership.
Letters of credit
outstanding at October 31, 2010 totaled $49.9 million and were used
primarily to secure insurance arrangements and to a lesser extent, product
purchases. Letters of credit outstanding at July 31, 2010 totaled $47.1
million and were used primarily to secure insurance arrangements and to a
lesser extent, product purchases. At October 31, 2010, Ferrellgas had
available letter of credit remaining capacity of $149.8 million. At July 31,
2010, Ferrellgas had available letter of credit remaining capacity of $152.9
million.
The scheduled annual
principal payments on long-term debt are as follows:
For the year ended July 31,
|
|
Scheduled
annual principal
payments
|
|
2011
|
|
$
|
31,405
|
|
2012
|
|
2,394
|
|
2013
|
|
32,101
|
|
2014
|
|
1,747
|
|
2015
|
|
1,760
|
|
Thereafter
|
|
1,082,556
|
|
Total
|
|
$
|
1,151,963
|
|
See Note K Subsequent
events for discussion about the effect of equity and debt issuances and senior
note and credit facility repayments after October 31, 2010 on scheduled
annual principal payments.
F.
Partners
capital
Common unit issuance
During the three months
ended October 31, 2010, Ferrellgas issued $1.6 million of common units in
connection with the acquisition of propane distribution assets. The general
partner contributed $39 thousand to Ferrellgas to maintain its effective 2%
general partner interest in connection with all common unit issuances.
10
Table of Contents
Partnership distributions paid
Ferrellgas
Partners has paid the following distributions:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Public common unit holders
|
|
$
|
22,433
|
|
$
|
21,777
|
|
Ferrell Companies (1)
|
|
10,040
|
|
10,040
|
|
FCI Trading Corp. (2)
|
|
98
|
|
98
|
|
Ferrell Propane, Inc.
(3)
|
|
26
|
|
26
|
|
James E. Ferrell (4)
|
|
2,177
|
|
2,177
|
|
General partner
|
|
351
|
|
345
|
|
|
|
$
|
35,125
|
|
$
|
34,463
|
|
(1)
|
Ferrell Companies is the owner of the general partner and a 29%
beneficial owner of Ferrellgas common units and thus a related party.
|
(2)
|
FCI Trading Corp. (FCI Trading) is an affiliate of the general
partner and thus a related party.
|
(3)
|
Ferrell Propane, Inc. (Ferrell Propane) is controlled by the
general partner and thus a related party.
|
(4)
|
James E. Ferrell is the Executive Chairman and Chairman of the Board
of Directors of the general partner and thus a related party.
|
On
November 19, 2010, Ferrellgas Partners declared a cash distribution of
$0.50 per common unit for the three months ended October 31, 2010, which
is expected to be paid on December 15, 2010.
Included
in this cash distribution are the following amounts expected to be paid to
related parties:
Ferrell Companies
|
|
$
|
10,040
|
|
FCI Trading Corp.
|
|
98
|
|
Ferrell Propane, Inc.
|
|
26
|
|
James E. Ferrell
|
|
2,177
|
|
General partner
|
|
358
|
|
See additional discussions about transactions with
related parties in Note H Transactions with related parties.
Other comprehensive income (OCI)
See Note G Derivatives
for details regarding changes in fair value
on risk management financial derivatives recorded within OCI for the three
months ended October 31, 2010.
General partners commitment to maintain its capital account
Ferrellgas Partners partnership agreement allows
the general partner to have an option to maintain its effective 2% general
partner interest concurrent with the issuance of other additional equity.
The
general partner made noncash
contributions totaling $69 thousand to
Ferrellgas to maintain its effective 2% general partner interest in connection
with employee stock ownership and stock-based compensation charges.
G.
Derivatives
Commodity Price Risk
Management
Ferrellgas risk management
activities primarily attempt to mitigate price risks related to the purchase,
storage, transport and sale of propane generally in the contract and spot
markets from major domestic energy companies on a short-term basis. Ferrellgas
attempts to mitigate these price risks
11
Table of
Contents
through the use of financial
derivative instruments and forward propane purchase and sales contracts.
Ferrellgas risk management
strategy involves taking positions in the forward or financial markets that are
equal and opposite to Ferrellgas positions in the physical products market in
order to minimize the risk of financial loss from an adverse price change. This
risk management strategy is successful when Ferrellgas gains or losses in the
physical product markets are offset by its losses or gains in the forward or
financial markets. These financial derivatives are designated as cash flow
hedges.
Ferrellgas risk management
activities include the use of financial derivative instruments including, but
not limited to, price swaps, options, futures and basis swaps to seek
protection from adverse price movements and to minimize potential losses.
Ferrellgas enters into these financial derivative instruments directly with
third parties in the over-the-counter market and with brokers who are clearing
members with the New York Mercantile Exchange. Ferrellgas also enters into
forward propane purchase and sales contracts with counterparties. These forward
contracts qualify for the normal purchase normal sales exception within GAAP
guidance and are therefore not recorded by Ferrellgas prior to settlement on
its financial statements.
Cash Flow Hedging Activity
Ferrellgas uses financial
derivative instruments for risk management purposes to hedge a portion of its
exposure to market fluctuations in propane prices. These financial derivative
instruments are designated as cash flow hedging instruments, thus the effective
portions of changes in the fair value of the financial derivatives are recorded
in OCI prior to settlement and are subsequently recognized in the condensed
consolidated statements of earnings in Cost of product sold propane and
other gas liquids sales when the forward or forecasted propane sales
transaction impacts earnings. The effectiveness of cash flow hedges is
evaluated at inception and on an on-going basis. Changes in the fair value of
cash flow hedges due to hedge ineffectiveness, if any, are recognized in Cost
of product sold propane and other gas liquids sales. During the three months
ended October 31, 2010 and 2009, Ferrellgas did not recognize any gain or
loss in earnings related to hedge ineffectiveness and did not exclude any
component of the financial derivative contract gain or loss from the assessment
of hedge effectiveness related to these cash flow hedges.
The fair value of the financial derivative
instruments below are included within Prepaid expenses and other current
assets and Other current liabilities on the condensed consolidated balance
sheets:
|
|
October 31,
2010
|
|
July 31,
2010
|
|
Derivatives Price risk
management assets
|
|
$
|
4,772
|
|
$
|
1,882
|
|
Derivatives Price risk
management liabilities
|
|
510
|
|
2,039
|
|
|
|
|
|
|
|
|
|
Ferrellgas had the following cash flow hedge
activity included in OCI in the condensed consolidated statements of partners
capital:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Fair value gain adjustment
classified as OCI with offset in Price risk management assets and Price risk
management liabilities
|
|
$
|
5,002
|
|
$
|
7,083
|
|
|
|
|
|
|
|
Reclassification of net
gains originally recorded within OCI to Cost of product sold propane and
other gas liquids
|
|
583
|
|
70
|
|
|
|
|
|
|
|
|
|
Ferrellgas expects to
reclassify net gains of approximately $3.8 million to earnings during the next
12 months. These net gains are expected to be offset by margins on propane
sales commitments Ferrellgas has with its customers that qualify for the normal
purchase normal sales exception.
12
Table of Contents
During the three months ended October 31, 2010
and 2009, Ferrellgas had no reclassifications to earnings resulting from
discontinuance of any cash flow hedges arising from the probability of the
original forecasted transactions not occurring within the originally specified
period of time defined within the hedging relationship.
As of October 31, 2010, Ferrellgas had
financial derivative contracts covering 1.1 million barrels of propane that
were entered into as cash flow hedges of forward and forecasted purchases of
propane.
During the three months ended October 31, 2010
and 2009, four counterparties represented 95% and 76%, respectively, of net
settled cash flow hedging positions reported in Cost of product sold propane
and other gas liquids sales. During the three months ended October 31,
2010 and 2009, Ferrellgas neither held nor entered into financial derivative
contracts that contained credit risk related contingency features.
In accordance with GAAP, Ferrellgas determines the
fair value of its assets and liabilities subject to fair value measurement by
using the highest possible Level as defined within the GAAP hierarchy. The
three levels defined by the GAAP hierarchy are as follows:
·
Level 1 Quoted prices available in active
markets for identical assets or liabilities.
·
Level 2 Pricing inputs not quoted in active
markets but either directly or indirectly observable.
·
Level 3 Significant inputs to pricing that
have little or no transparency with inputs requiring significant management
judgment or estimation.
Ferrellgas considers over-the-counter derivative
instruments entered into directly with third parties as Level 2 valuation since
the values of these derivatives are quoted by third party brokers and are on an
exchange for similar transactions. The market prices used to value Ferrellgas
derivatives have been determined using independent third party prices, readily
available market information, broker quotes, and appropriate valuation
techniques.
At October 31, 2010 and July 31, 2010, all
derivative assets and liabilities qualified for classification as Level 2 -
other observable inputs as defined by the GAAP hierarchy. All financial
derivatives assets and liabilities were non-trading positions.
H.
Transactions
with related parties
General partner
Ferrellgas has no employees and is managed and
controlled by its general partner. Pursuant to Ferrellgas partnership
agreements, the general partner is entitled to reimbursement for all direct and
indirect expenses incurred or payments it makes on behalf of Ferrellgas and all
other necessary or appropriate expenses allocable to Ferrellgas or otherwise
reasonably incurred by its general partner in connection with operating Ferrellgas
business. These costs primarily include compensation and benefits paid to
employees of the general partner who perform services on Ferrellgas behalf and
are reported in the condensed consolidated statements of earnings as follows:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Operating expense
|
|
$
|
50,011
|
|
$
|
53,311
|
|
General and administrative
expense
|
|
6,463
|
|
6,455
|
|
|
|
|
|
|
|
|
|
See additional discussions about transactions with
the general partner and related parties in Note F Partners capital.
13
Table of
Contents
Board of Directors
Elizabeth Solberg, a member of the general partners
Board of Directors, serves as the General Manager of Fleishman-Hillard Inc.
During the three months ended October 31, 2010 and 2009, Ferrellgas paid
Fleishman-Hillard Inc. $33 thousand and $42 thousand, respectively, for
marketing and communications services.
I.
Contingencies
Ferrellgas operations are subject to all operating
hazards and risks normally incidental to handling, storing, transporting and
otherwise providing for use by consumers of combustible liquids such as
propane. As a result, at any given time, Ferrellgas is threatened with or named
as a defendant in various lawsuits arising in the ordinary course of business.
Other than as discussed below,
Ferrellgas is not a party to any legal proceedings other than various
claims and lawsuits arising in the ordinary course of business. It is not
possible to determine the ultimate disposition of these matters; however,
management is of the opinion that there are no known claims or contingent
claims that are reasonably expected to have a material adverse effect on the
financial condition, results of operations and cash flows of Ferrellgas.
Ferrellgas has been named as a defendant in lawsuits
filed in multiple federal and state courts that seek to certify nationwide or
statewide classes related to its Blue Rhino branded propane tank exchange
activities. The plaintiffs in each case generally allege that Ferrellgas failed
to inform consumers of the amount of propane contained in propane tanks they
purchased and that Ferrellgas violated anti-trust laws by allegedly conspiring
with a competitor. The federal cases have been coordinated for
multidistrict treatment in the United States District Court for the Western
District of Missouri. Based on Ferrellgas business and consumer notification
practices in its Blue Rhino tank exchange operations, Ferrellgas believes that
all of these claims are without merit and intends to defend the claims
vigorously.
Ferrellgas has also been named as a defendant in a
class action lawsuit filed in the United States District Court in Kansas. The
complaint alleges that Ferrellgas violates consumer protection laws in the
manner Ferrellgas sets prices and fees for its customers. Based on Ferrellgas
business practices, Ferrellgas believes that the claims are without merit and
intends to defend the claims vigorously.
J.
Net
loss per common unitholders interest
Below is a calculation of
the basic and diluted net loss per common unitholders interest in the
condensed consolidated statements of earnings for the periods indicated. In accordance with guidance issued by the
FASB regarding participating securities and the two-class method, Ferrellgas
calculates net earnings per common unitholders interest for each period
presented according to distributions declared and participation rights in
undistributed earnings, as if all of the earnings for the period had been
distributed. In periods with undistributed earnings above certain levels, the
calculation according to the two-class method results in an increased
allocation of undistributed earnings to the general partner and a dilution of
the earnings to the limited partners. Due to the seasonality of the propane
business, the dilution effect of the guidance on the two-class method typically
impacts only the three months ending January 31. There was not a dilutive
effect resulting from this guidance on basic and diluted net loss per common
unitholders interest for the three months ended October 31, 2010 and
2009.
In periods with
year-to-date net losses, the allocation of the net losses to the limited
partners and the general partner will be determined based on the same
allocation basis specified in the Ferrellgas Partners partnership agreement
that would apply to periods in which there were no undistributed earnings.
Ferrellgas typically incurs net losses in the three month period ended October 31.
14
Table of
Contents
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Common unitholders interest
in net loss
|
|
$
|
(27,763
|
)
|
$
|
(32,338
|
)
|
|
|
|
|
|
|
Weighted average common
units outstanding
(in thousands)
|
|
69,559.6
|
|
68,507.9
|
|
|
|
|
|
|
|
Dilutive
securities
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common units outstanding plus dilutive securities
|
|
69,559.6
|
|
68,507.9
|
|
|
|
|
|
|
|
Basic and diluted net loss
per common unitholders interest
|
|
$
|
(0.40
|
)
|
$
|
(0.47
|
)
|
K.
Subsequent
events
Ferrellgas has evaluated
events and transactions occurring after the balance sheet date through the date
Ferrellgas condensed consolidated financial statements were issued, and
concluded that, other than the events discussed below, there were no events or
transactions occurring during this period that required recognition or
disclosure in its financial statements.
During November 2010,
the operating partnership issued $500.0 million in aggregate principal amount
of new 6.50% senior notes due 2021 at an offering price equal to par. The
operating partnership received $491.3 million of net proceeds after deducting
initial purchase discounts and estimated expenses of the offering. The
operating partnership applied the net proceeds to a cash tender offer to
purchase any and all of its $450.0 million 6.75% fixed rate senior notes due May 1,
2014 and to redeem any such notes that remain outstanding after November 30,
2010. As of November 30, 2010, the operating partnership had purchased
$368.6 million of the senior notes pursuant to the cash tender offer. The
operating partnership used the remaining proceeds to reduce outstanding
indebtedness under the credit facility by $111.9 million and to pay the related
make whole and interest payments of $10.8 million. The operating partnership
then issued an irrevocable notice to redeem prior to the end of December 2010
the remaining $81.4 million outstanding principal amount of the 6.75% senior
notes due 2014 and their related make-whole payments.
During November 2010,
Ferrellgas entered into an agreement with an institutional investor relating to
a non-brokered registered direct offering of 1.2 million common units. Net proceeds of approximately $30.0 million
were used to reduce outstanding indebtedness under the credit facility.
15
Table of
Contents
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED BALANCE SHEETS
(in dollars)
(unaudited)
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
969
|
|
$
|
969
|
|
Total assets
|
|
$
|
969
|
|
$
|
969
|
|
|
|
|
|
|
|
STOCKHOLDERS 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
|
|
6,221
|
|
6,131
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
(6,252
|
)
|
(6,162
|
)
|
Total stockholders equity
|
|
$
|
969
|
|
$
|
969
|
|
CONDENSED STATEMENTS OF
EARNINGS
(in dollars)
(unaudited)
|
|
For the three months ended
October 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
General and administrative expense
|
|
$
|
90
|
|
$
|
197
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(90
|
)
|
$
|
(197
|
)
|
See note to condensed financial statements.
16
Table of
Contents
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED STATEMENTS OF CASH
FLOWS
(in dollars)
(unaudited)
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(90
|
)
|
$
|
(197
|
)
|
Cash used in operating activities
|
|
(90
|
)
|
(197
|
)
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
Capital contribution
|
|
90
|
|
197
|
|
Cash provided by financing activities
|
|
90
|
|
197
|
|
|
|
|
|
|
|
Change in cash
|
|
|
|
|
|
Cash beginning of period
|
|
969
|
|
1,000
|
|
Cash end of period
|
|
$
|
969
|
|
$
|
1,000
|
|
See note to condensed financial statements.
NOTE TO CONDENSED FINANCIAL
STATEMENTS
October 31, 2010
(unaudited)
A
.
Formation
Ferrellgas Partners Finance Corp. (the Finance Corp.), a Delaware
corporation, was formed on March 28, 1996, and is a wholly-owned
subsidiary of Ferrellgas Partners, L.P (the Partnership).
The condensed financial statements reflect all adjustments that are, in
the opinion of management, necessary for a fair statement of the interim
periods presented. All adjustments to the condensed financial statements were
of a normal, recurring nature.
The
Finance Corp. has nominal assets, does not conduct any operations, has no
employees and serves as co-issuer and co-obligor for debt securities of the
Partnership.
17
Table of
Contents
FERRELLGAS,
L.P. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands)
(unaudited)
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,505
|
|
$
|
11,389
|
|
Accounts and notes receivable, net (including
$122,092 and $0 of accounts receivable pledged as collateral at
October 31, 2010 and July 31, 2010, respectively)
|
|
167,607
|
|
89,234
|
|
Inventories
|
|
169,818
|
|
166,911
|
|
Prepaid expenses and other current assets
|
|
30,126
|
|
13,832
|
|
Total current assets
|
|
377,056
|
|
281,366
|
|
|
|
|
|
|
|
Property, plant and equipment (net of accumulated
depreciation of $552,995 and $546,891 at October 31, 2010 and
July 31, 2010, respectively)
|
|
648,986
|
|
652,768
|
|
Goodwill
|
|
248,939
|
|
248,939
|
|
Intangible assets (net of accumulated amortization
of $287,089 and $281,590 at October 31, 2010 and July 31, 2010,
respectively)
|
|
218,078
|
|
221,057
|
|
Other assets, net
|
|
31,660
|
|
32,047
|
|
Total assets
|
|
$
|
1,524,719
|
|
$
|
1,436,177
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
71,358
|
|
$
|
48,658
|
|
Short-term borrowings
|
|
90,482
|
|
67,203
|
|
Collateralized note payable
|
|
66,000
|
|
|
|
Other current liabilities
|
|
117,212
|
|
104,735
|
|
Total current liabilities
|
|
345,052
|
|
220,596
|
|
|
|
|
|
|
|
Long-term debt
|
|
841,904
|
|
831,088
|
|
Other liabilities
|
|
21,421
|
|
21,446
|
|
Contingencies and commitments (Note I)
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital
|
|
|
|
|
|
Limited partner
|
|
309,169
|
|
359,782
|
|
General partner
|
|
3,158
|
|
3,671
|
|
Accumulated other comprehensive income (loss)
|
|
4,015
|
|
(406
|
)
|
Total partners capital
|
|
316,342
|
|
363,047
|
|
Total liabilities and partners
capital
|
|
$
|
1,524,719
|
|
$
|
1,436,177
|
|
See notes to condensed consolidated financial
statements.
18
Table of Contents
FERRELLGAS,
L.P. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
(in
thousands)
(unaudited)
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Propane and other gas
liquids sales
|
|
$
|
368,623
|
|
$
|
327,666
|
|
Other
|
|
31,569
|
|
24,404
|
|
Total
revenues
|
|
400,192
|
|
352,070
|
|
|
|
|
|
|
|
Costs and
expenses:
|
|
|
|
|
|
Cost of product sold -
propane and other gas liquids sales
|
|
256,486
|
|
200,920
|
|
Cost of product sold -
other
|
|
12,858
|
|
6,180
|
|
Operating expense
|
|
95,327
|
|
96,766
|
|
Depreciation and
amortization expense
|
|
20,375
|
|
20,527
|
|
General and administrative
expense
|
|
11,264
|
|
13,778
|
|
Equipment lease expense
|
|
3,649
|
|
3,774
|
|
Employee stock ownership
plan compensation charge
|
|
2,444
|
|
2,002
|
|
Loss (gain) on disposal of
assets and other
|
|
(232
|
)
|
1,662
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
(1,979
|
)
|
6,461
|
|
|
|
|
|
|
|
Interest expense
|
|
(20,680
|
)
|
(16,769
|
)
|
Loss on extinguishment of
debt
|
|
|
|
(17,308
|
)
|
Other income (expense),
net
|
|
178
|
|
307
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
(22,481
|
)
|
(27,309
|
)
|
|
|
|
|
|
|
Income tax benefit
|
|
(482
|
)
|
(422
|
)
|
|
|
|
|
|
|
Net loss
|
|
$
|
(21,999
|
)
|
$
|
(26,887
|
)
|
See notes to condensed
consolidated financial statements.
19
Table of
Contents
FERRELLGAS,
L.P. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
(in
thousands)
(unaudited)
|
|
|
|
|
|
Accumulated other
|
|
|
|
|
|
|
|
|
|
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
Total
|
|
|
|
Limited
|
|
General
|
|
Risk
|
|
translation
|
|
Pension
|
|
partners
|
|
|
|
partner
|
|
partner
|
|
management
|
|
adjustments
|
|
liability
|
|
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31,
2010
|
|
$
|
359,782
|
|
$
|
3,671
|
|
$
|
(157
|
)
|
$
|
24
|
|
$
|
(273
|
)
|
$
|
363,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions in
connection with ESOP and stock-based compensation charges
|
|
3,422
|
|
35
|
|
|
|
|
|
|
|
3,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions in
connection with acquisitions and other
|
|
1,625
|
|
20
|
|
|
|
|
|
|
|
1,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly distribution
|
|
(35,125
|
)
|
(359
|
)
|
|
|
|
|
|
|
(35,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(21,777
|
)
|
(222
|
)
|
|
|
|
|
|
|
(21,999
|
)
|
Cumulative effect of
change in accounting principle
|
|
1,242
|
|
13
|
|
|
|
|
|
|
|
1,255
|
|
Other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings on risk
management derivatives
|
|
|
|
|
|
5,002
|
|
|
|
|
|
|
|
Reclassification of
derivatives to earnings
|
|
|
|
|
|
(583
|
)
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
|
|
|
|
|
|
|
2
|
|
|
|
4,421
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(16,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
31, 2010
|
|
$
|
309,169
|
|
$
|
3,158
|
|
$
|
4,262
|
|
$
|
26
|
|
$
|
(273
|
)
|
$
|
316,342
|
|
See notes to condensed
consolidated financial statements.
20
Table of Contents
FERRELLGAS,
L.P. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(unaudited)
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(21,999
|
)
|
$
|
(26,887
|
)
|
Reconciliation of net loss
to net cash used in operating activities:
|
|
|
|
|
|
Depreciation and
amortization expense
|
|
20,375
|
|
20,527
|
|
Employee stock ownership
plan compensation charge
|
|
2,444
|
|
2,002
|
|
Unit and stock-based
compensation charge
|
|
1,013
|
|
2,751
|
|
Loss (gain) on disposal of
assets
|
|
(232
|
)
|
876
|
|
Loss on transfer of
accounts receivable related to the accounts receivable securitization
|
|
|
|
1,760
|
|
Provision for doubtful
accounts
|
|
1,978
|
|
1,909
|
|
Deferred tax expense
|
|
112
|
|
190
|
|
Other
|
|
2,568
|
|
540
|
|
Changes in operating
assets and liabilities, net of effects from business acquisitions:
|
|
|
|
|
|
Accounts and notes
receivable, net of securitization
|
|
(32,573
|
)
|
(23,612
|
)
|
Inventories
|
|
(2,907
|
)
|
(28,360
|
)
|
Prepaid expenses and other
current assets
|
|
(13,675
|
)
|
(10,433
|
)
|
Accounts payable
|
|
22,779
|
|
30,236
|
|
Accrued interest expense
|
|
799
|
|
2,461
|
|
Other current liabilities
|
|
12,824
|
|
2,992
|
|
Other liabilities
|
|
10
|
|
126
|
|
Accounts receivable
securitization:
|
|
|
|
|
|
Proceeds from new accounts
receivable securitizations
|
|
|
|
15,000
|
|
Proceeds from collections
reinvested in revolving period accounts receivable securitizations
|
|
|
|
226,525
|
|
Remittances of amounts
collected as servicer of accounts receivable securitizations
|
|
|
|
(230,525
|
)
|
Net cash used in operating
activities
|
|
(6,484
|
)
|
(11,922
|
)
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
Business acquisitions, net
of cash acquired
|
|
(1,786
|
)
|
(36,324
|
)
|
Capital expenditures
|
|
(11,565
|
)
|
(18,100
|
)
|
Proceeds from sale of
assets
|
|
2,078
|
|
1,933
|
|
Other
|
|
|
|
(826
|
)
|
Net cash used in investing
activities
|
|
(11,273
|
)
|
(53,317
|
)
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
Distributions
|
|
(35,484
|
)
|
(34,815
|
)
|
Contributions from
partners
|
|
3
|
|
20,204
|
|
Proceeds from increase in
long-term debt
|
|
10,020
|
|
590,480
|
|
Reductions in long-term
debt
|
|
(934
|
)
|
(541,441
|
)
|
Net additions to
short-term borrowings
|
|
23,279
|
|
40,896
|
|
Net additions to
collateralized short-term borrowings
|
|
19,000
|
|
|
|
Cash paid for financing
costs
|
|
(13
|
)
|
(7,129
|
)
|
Net cash provided by
financing activities
|
|
15,871
|
|
68,195
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash
|
|
2
|
|
1
|
|
|
|
|
|
|
|
Increase (decrease) in
cash and cash equivalents
|
|
(1,884
|
)
|
2,957
|
|
Cash and cash equivalents
- beginning of period
|
|
11,389
|
|
7,050
|
|
Cash and
cash equivalents - end of period
|
|
$
|
9,505
|
|
$
|
10,007
|
|
See notes to condensed
consolidated financial statements.
21
Table of
Contents
FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2010
(Dollars in thousands, unless
otherwise designated)
(unaudited)
A.
Partnership
organization and formation
Ferrellgas, L.P. is a limited partnership that owns
and operates propane distribution and related assets. Ferrellgas Partners, L.P.
(Ferrellgas Partners), a publicly traded limited partnership, owns an approximate
99% limited partner interest in, and consolidates, Ferrellgas, L.P. Ferrellgas, Inc.
(the general partner), a wholly-owned subsidiary of Ferrell Companies, Inc.
(Ferrell Companies), holds an approximate 1% general partner interest in
Ferrellgas, L.P. and performs all management functions required by Ferrellgas,
L.P.
Ferrellgas, L.P. owns a 100% equity interest in
Ferrellgas Finance Corp., whose only business activity is to act as the
co-issuer and co-obligor of any debt issued by Ferrellgas, L.P.
The condensed consolidated financial statements of
Ferrellgas, L.P. and subsidiaries reflect all adjustments that are, in the
opinion of management, necessary for a fair presentation of the interim periods
presented. All adjustments to the condensed consolidated financial statements
were of a normal, recurring nature. The information included in this Quarterly
Report on Form 10-Q should be read in conjunction with (i) the
section entitled Managements Discussion and Analysis of Financial Condition and
Results of Operations and (ii) the consolidated financial statements and
accompanying notes, each as set forth in Ferrellgas, L.P.s Annual Report on Form 10-K
for fiscal 2010.
B.
Summary
of significant accounting policies
(1) Nature of operations:
Ferrellgas, L.P. is engaged primarily in the
distribution of propane and related equipment and supplies in the United
States. The propane distribution market is seasonal because propane is used
primarily for heating in residential and commercial buildings. Therefore, the
results of operations for the three months ended October 31, 2010 and 2009
are not necessarily indicative of the results to be expected for a full fiscal
year. Ferrellgas, L.P. serves approximately one million residential,
industrial/commercial, portable tank exchange, agricultural, wholesale and
other customers in all 50 states, the District of Columbia and Puerto Rico.
(2) Accounting estimates:
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from these estimates. Significant estimates
impacting the condensed consolidated financial statements include accruals that
have been established for contingent liabilities, pending claims and legal
actions arising in the normal course of business, useful lives of property,
plant and equipment assets, residual values of tanks, capitalization of
customer tank installation costs, amortization methods of intangible assets,
valuation methods used to value sales returns and allowances, allowance for
doubtful accounts, financial derivative contracts and stock and unit-based
compensation calculations.
(3) Supplemental cash flow information:
Certain cash flow and significant non-cash
activities are presented below:
22
Table of
Contents
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
CASH PAID FOR:
|
|
|
|
|
|
Interest
|
|
$
|
17,065
|
|
$
|
12,481
|
|
Income taxes
|
|
|
|
|
|
NON-CASH INVESTING
ACTIVITIES:
|
|
|
|
|
|
Assets contributed from
Ferrellgas Partners in connection with acquisitions
|
|
1,625
|
|
3,061
|
|
Issuance of liabilities in
connection with acquisitions
|
|
538
|
|
5,494
|
|
Property, plant and
equipment additions
|
|
474
|
|
619
|
|
|
|
|
|
|
|
|
|
See Note B Summary of significant accounting
policies - (5) New accounting standards Transfers of financial assets
and variable interest entities below for a discussion of the non-cash impact
of the adoption of new accounting standards during the current year period.
(4) Accounts receivable securitization:
Through its wholly-owned and consolidated subsidiary
Ferrellgas Receivables, LLC (Ferrellgas Receivables), Ferrellgas, L.P. has
agreements to securitize, on an ongoing basis, a portion of its trade accounts
receivable. See Note B Summary of significant accounting policies - (5) New
accounting standards Transfers of financial assets and variable interest
entities below regarding a new accounting standard for financial asset
transfers that was effective August 1, 2010.
(5) New accounting
standards:
Transfers of financial assets and variable interest entities
In June 2009, the Financial Accounting
Standards Board (FASB) issued two amendments to existing GAAP, one of which
eliminates the concept of a qualifying special-purpose-entity (QSPEs). The
second amends guidance applicable to variable interest entities (VIEs). The
provisions of these amendments require Ferrellgas, L.P. to evaluate all VIEs
to determine whether they must be consolidated.
As a result of the prospective adoption of these
amendments on August 1, 2010, Ferrellgas Receivables is now accounted for
as a consolidated subsidiary. Upon adoption, Ferrellgas, L.P. recognized $107.9
million of Accounts receivable pledged as collateral, net, $0.6 million of Other
assets, net and $47.0 million of Collateralized notes payable, derecognized
$44.9 million of Notes receivable from Ferrellgas Receivables and $15.3
million of Retained interest in Ferrellgas Receivables and recorded a $1.3
million Cumulative effect of a change in accounting principle.
Subsequent to adoption, expenses associated with
these transactions are now recorded in Interest expense and are no longer
recorded in Loss on transfer of accounts receivable related to the accounts
receivable securitization or Service income related to the accounts
receivable securitization in the condensed consolidated statements of
earnings. Additionally, borrowings and repayments associated with these
transactions are now recorded in Cash flows from financing activities and no
longer recorded in Cash flows from operating activities in the condensed
consolidated statements of cash flows. The adoption of these amendments did not
have a significant impact on Ferrellgas, L.P.s debt covenant agreements.
C.
Supplemental
financial statement information
Inventories consist of the following:
23
Table of
Contents
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
Propane gas and related
products
|
|
$
|
149,017
|
|
$
|
146,805
|
|
Appliances, parts and
supplies
|
|
20,801
|
|
20,106
|
|
Inventories
|
|
$
|
169,818
|
|
$
|
166,911
|
|
In addition to inventories on hand, Ferrellgas, L.P.
enters into contracts primarily to buy propane for supply procurement purposes.
Most of these contracts have terms of less than one year and call for payment
based on market prices at the date of delivery. All supply procurement fixed
price contracts have terms of fewer than 24 months. As of October 31,
2010, Ferrellgas, L.P. had committed, for supply procurement purposes, to take
delivery of approximately 106.5 million net gallons of propane at fixed prices.
Other current liabilities consist of the following:
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
Accrued interest
|
|
$
|
18,123
|
|
$
|
17,324
|
|
Accrued payroll
|
|
10,171
|
|
20,464
|
|
Customer deposits and
advances
|
|
36,003
|
|
23,280
|
|
Other
|
|
52,915
|
|
43,667
|
|
Other current liabilities
|
|
$
|
117,212
|
|
$
|
104,735
|
|
Loss (gain) on disposal of assets and other consists
of the following:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Loss (gain) on disposal of
assets
|
|
$
|
(232
|
)
|
$
|
876
|
|
Loss on transfer of accounts
receivable related to the accounts receivable securitization
|
|
|
|
1,760
|
|
Service income related to
the accounts receivable securitization
|
|
|
|
(974
|
)
|
Loss (gain) on disposal of
assets and other
|
|
$
|
(232
|
)
|
$
|
1,662
|
|
See Note B Summary of significant accounting
policies - (5) New accounting standards Transfers of financial assets
and variable interest entities for a discussion of changes in accounting for
accounts receivable securitization transactions.
Shipping and handling expenses are classified in the
following condensed consolidated statements of earnings line items:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Operating expense
|
|
$
|
42,284
|
|
$
|
43,781
|
|
Depreciation and
amortization expense
|
|
1,481
|
|
1,303
|
|
Equipment lease expense
|
|
3,361
|
|
3,863
|
|
|
|
$
|
47,126
|
|
$
|
48,947
|
|
24
Table of Contents
D.
Accounts and notes receivable, net and
accounts receivable securitization
Accounts and notes receivable, net consist of the
following:
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
Accounts receivable
pledged as collateral
|
|
$
|
122,092
|
|
$
|
|
|
Accounts receivable
|
|
51,243
|
|
33,725
|
|
Note receivable from
Ferrellgas Receivables
|
|
|
|
44,927
|
|
Retained interest in
Ferrellgas Receivables
|
|
|
|
15,323
|
|
Other
|
|
260
|
|
269
|
|
Less: Allowance for
doubtful accounts
|
|
(5,988
|
)
|
(5,010
|
)
|
Accounts and notes
receivable, net
|
|
$
|
167,607
|
|
$
|
89,234
|
|
See Note B Summary of significant accounting
policies - (5) New accounting standards - Transfers of financial assets
and variable interest entities - for a discussion of amendments to existing
GAAP which required Ferrellgas, L.P. to begin consolidating its previously
unconsolidated QSPE, Ferrellgas Receivables, effective August 1, 2010.
Upon consolidation, Ferrellgas, L.P. now recognizes accounts receivable that
have been sold to Ferrellgas Receivables as Accounts receivable pledged as
collateral and eliminates the previously recognized Note receivable from
Ferrellgas Receivables and Retained interest in Ferrellgas Receivables.
Ferrellgas, L.P., through Ferrellgas Receivables,
securitizes a portion of its trade accounts receivable through a commercial
paper conduit for proceeds of up to $145.0 million. At October 31, 2010,
$122.1 million of trade accounts receivable were pledged as collateral against
$66.0 million of collateralized notes payable due to the commercial paper
conduit. These accounts receivable pledged as collateral are bankruptcy remote
from Ferrellgas, L.P. Ferrellgas, L.P. does not provide any guarantee or
similar support to the collectability of these accounts receivable pledged as
collateral.
Ferrellgas, L.P. structured Ferrellgas Receivables
in order to facilitate securitization transactions while complying with
Ferrellgas, L.P.s various debt covenants. If the covenants were compromised,
funding from the facility could be restricted or suspended, or its costs could
increase. As of October 31, 2010, Ferrellgas, L.P. had received proceeds
from trade accounts receivables securitized of $66.0 million with the ability
to receive proceeds of an additional $6.0 million.
E.
Debt
Short-term borrowings
Ferrellgas, L.P. classified a portion of its credit
facility borrowings as short-term because it was used to fund working capital
needs that management had intended to pay down within the 12 month period
following each balance sheet date. As of October 31, 2010 and July 31,
2010, $90.5 million and $67.2 million, respectively, were classified as short-term
borrowings. For further discussion see the secured credit facility section
below.
25
Table of Contents
Long-term debt
Long-term debt consists of the following:
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
Senior notes
|
|
|
|
|
|
Fixed rate, 6.75% due
2014, net of unamortized discount of $20,781 and $21,974 at October 31,
2010 and July 31, 2010, respectively
|
|
$
|
429,219
|
|
$
|
428,026
|
|
Fixed rate, 9.125%, due
2017, net of unamortized discount of $3,774 and $3,870 at October 31,
2010 and July 31, 2010, respectively
|
|
296,226
|
|
296,130
|
|
|
|
|
|
|
|
Secured credit facility
, variable
interest rate, expiring 2012 (net of $90.5 million and $67.2 million
classified as short-term borrowings at October 31, 2010 and
July 31, 2010, respectively)
|
|
109,818
|
|
99,797
|
|
|
|
|
|
|
|
Notes payable
, 9.4% and
9.5% weighted average interest rate at October 31, 2010 and
July 31, 2010, respectively, due 2011 to 2016, net of unamortized
discount of $2,863 and $2,876 at October 31, 2010 and July 31,
2010, respectively
|
|
9,282
|
|
9,475
|
|
|
|
844,545
|
|
833,428
|
|
Less: current portion,
included in other current liabilities on the condensed consolidated balance
sheets
|
|
2,641
|
|
2,340
|
|
Long-term debt
|
|
$
|
841,904
|
|
$
|
831,088
|
|
Senior notes
See Note J Subsequent
events for discussion of a new long term debt issuance.
Secured credit facility
Ferrellgas, L.P.s secured credit facility provides
$400.0 million in revolving credit for loans and has a $200.0 million sublimit
for letters of credit. This credit facility matures in November 2012.
The credit facility contains various affirmative and
negative covenants and default provisions, as well as requirements with respect
to the maintenance of specified financial ratios and limitations on the making
of loans and investments.
As of October 31, 2010, Ferrellgas, L.P. had
total borrowings outstanding under its credit facility of $200.3 million, of
which $109.8 million was classified as long-term debt. As of July 31,
2010, Ferrellgas, L.P. had total borrowings outstanding under its credit
facility of $167.0 million, of which $99.8 million was classified as long-term
debt.
Borrowings under the credit facility had a weighted
average interest rate of 4.31% at October 31, 2010. All borrowings under
the credit facility bear interest, at Ferrellgas, L.P.s option, at a rate
equal to either:
·
for Base Rate Loans or Swing Line Loans, the Base
Rate, which is defined as the higher of i) the federal funds rate plus
0.50%, ii) Bank of Americas prime rate; or iii) the Eurodollar Rate
plus 1%; plus a margin varying from 2.50% to 3.25% (as of October 31,
2010, the margin was 2.75%); or
·
for Eurodollar Rate Loans, the Eurodollar Rate,
which is defined as the LIBOR Rate plus a margin varying from 3.50% to 4.25%
(as of October 31, 2010, the margin was 3.75%).
26
Table of Contents
As
of October 31, 2010, the federal funds rate and Bank of Americas prime
rate were 0.20% and 3.25%, respectively. As of October 31, 2010, the
one-month and three-month Eurodollar Rates were 0.33% and 0.40%, respectively.
In
addition, an annual commitment fee is payable at a per annum rate of 0.50%
times the actual daily amount by which the facility exceeds the sum of (i) the
outstanding amount of revolving credit loans and (ii) the outstanding
amount of letter of credit obligations.
The
obligations under this credit facility are secured by substantially all assets
of Ferrellgas, L.P., the general partner and certain subsidiaries of
Ferrellgas, L.P. but specifically excluding (a) assets that are subject to
Ferrellgas, L.P.s accounts receivable securitization facility, (b) the
general partners equity interest in Ferrellgas Partners and (c) equity
interest in certain unrestricted subsidiaries. Such obligations are also
guaranteed by the general partner and certain subsidiaries of Ferrellgas, L.P.
Letters
of credit outstanding at October 31, 2010 totaled $49.9 million and were
used primarily to secure insurance arrangements and to a lesser extent, product
purchases. Letters of credit outstanding at July 31, 2010 totaled $47.1
million and were used primarily to secure insurance arrangements and to a
lesser extent, product purchases. At October 31, 2010, Ferrellgas, L.P.
had available letter of credit remaining capacity of $149.8 million. At July 31,
2010, Ferrellgas, L.P. had available letter of credit remaining capacity of
$152.9 million.
The
scheduled annual principal payments on long-term debt are as follows:
For the year ended July 31,
|
|
Scheduled
annual principal
payments
|
|
2011
|
|
$
|
31,405
|
|
2012
|
|
2,394
|
|
2013
|
|
32,101
|
|
2014
|
|
1,747
|
|
2015
|
|
1,760
|
|
Thereafter
|
|
802,556
|
|
Total
|
|
$
|
871,963
|
|
See
Note J Subsequent events for discussion about the effect of equity and debt
issuances and senior note and credit facility repayments after October 31,
2010 on scheduled annual principal payments.
F.
Partners
capital
Partnership contributions
During
October 2010, Ferrellgas, L.P. received asset contributions of $1.6
million in connection with the acquisition of propane distribution assets. The
general partner contributed $20 thousand to Ferrellgas, L.P. to maintain its
1.0101% general partner interest in connection with all common unit issuances.
Partnership distributions paid
Ferrellgas,
L.P. has paid the following distributions:
27
Table of
Contents
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Ferrellgas Partners
|
|
$
|
35,125
|
|
$
|
34,463
|
|
General partner
|
|
359
|
|
352
|
|
|
|
$
|
35,484
|
|
$
|
34,815
|
|
On
November 19, 2010, Ferrellgas, L.P. declared distributions for the three
months ended October 31, 2010 to Ferrellgas Partners and the general
partner of $47.8 million and $0.5 million, respectively, which is expected to
be paid on December 15, 2010.
See
additional discussions about transactions with related parties in Note H
Transactions with related parties.
Other comprehensive income (OCI)
See Note G Derivatives
for details regarding changes in fair value
on risk management financial derivatives recorded within OCI for the three
months ended October 31, 2010.
General partners commitment to maintain its capital
account
Ferrellgas, L.P.s partnership agreement allows the
general partner to have an option to maintain its 1.0101% general partner
interest concurrent with the issuance of other additional equity.
The general partner made noncash
contributions
totaling $35 thousand to Ferrellgas, L.P. to maintain its 1.0101% general
partner interest in connection with employee stock ownership and stock-based
compensation charges.
G. Derivatives
Commodity Price Risk Management
Ferrellgas,
L.P.s risk management activities primarily attempt to mitigate price risks
related to the purchase, storage, transport and sale of propane generally in
the contract and spot markets from major domestic energy companies on a
short-term basis. Ferrellgas, L.P. attempts to mitigate these price risks
through the use of financial derivative instruments and forward propane
purchase and sales contracts.
Ferrellgas,
L.P.s risk management strategy involves taking positions in the forward or
financial markets that are equal and opposite to Ferrellgas, L.P.s positions
in the physical products market in order to minimize the risk of financial loss
from an adverse price change. This risk management strategy is successful when
Ferrellgas, L.P.s gains or losses in the physical product markets are offset
by its losses or gains in the forward or financial markets. These financial
derivatives are designated as cash flow hedges.
Ferrellgas,
L.P.s risk management activities include the use of financial derivative
instruments including, but not limited to, price swaps, options, futures and
basis swaps to seek protection from adverse price movements and to minimize
potential losses. Ferrellgas, L.P. enters into these financial derivative
instruments directly with third parties in the over-the-counter market and with
brokers who are clearing members with the New York Mercantile Exchange.
Ferrellgas, L.P. also enters into forward propane purchase and sales contracts
with counterparties. These forward contracts qualify for the normal purchase
normal sales exception within GAAP guidance and are therefore not recorded by
Ferrellgas, L.P. prior to settlement on its financial statements.
28
Table of
Contents
Cash Flow Hedging Activity
Ferrellgas,
L.P. uses financial derivative instruments for risk management purposes to
hedge a portion of its exposure to market fluctuations in propane prices. These
financial derivative instruments are designated as cash flow hedging
instruments, thus the effective portions of changes in the fair value of the
financial derivatives are recorded in OCI prior to settlement and are
subsequently recognized in the condensed consolidated statements of earnings in
Cost of product sold propane and other gas liquids sales when the forward
or forecasted propane sales transaction impacts earnings. The effectiveness of
cash flow hedges is evaluated at inception and on an on-going basis. Changes in
the fair value of cash flow hedges due to hedge ineffectiveness, if any, are
recognized in Cost of product sold propane and other gas liquids sales.
During the three months ended October 31, 2010 and 2009, Ferrellgas, L.P.
did not recognize any gain or loss in earnings related to hedge ineffectiveness
and did not exclude any component of the financial derivative contract gain or
loss from the assessment of hedge effectiveness related to these cash flow
hedges.
The
fair value of the financial derivative instruments below are included within Prepaid
expenses and other current assets and Other current liabilities on the
condensed consolidated balance sheets:
|
|
October 31,
2010
|
|
July 31,
2010
|
|
Derivatives Price risk management assets
|
|
$
|
4,772
|
|
$
|
1,882
|
|
Derivatives Price risk management liabilities
|
|
510
|
|
2,039
|
|
|
|
|
|
|
|
|
|
Ferrellgas,
L.P. had the following cash flow hedge activity included in OCI in the
condensed consolidated statement of partners capital:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Fair value gain adjustment classified as OCI with
offset in Price risk management assets and Price risk management liabilities
|
|
$
|
5,002
|
|
$
|
7,083
|
|
Reclassification of net gains originally recorded
within OCI to Cost of product sold propane and other gas liquids
|
|
583
|
|
70
|
|
|
|
|
|
|
|
|
|
Ferrellgas,
L.P. expects to reclassify net gains of approximately $3.8 million to earnings
during the next 12 months. These net gains are expected to be offset by margins
on propane sales commitments Ferrellgas, L.P. has with its customers that
qualify for the normal purchase normal sales exception.
During
the three months ended October 31, 2010 and 2009, Ferrellgas, L.P. had no
reclassifications to earnings resulting from discontinuance of any cash flow
hedges arising from the probability of the original forecasted transactions not
occurring within the originally specified period of time defined within the
hedging relationship.
As
of October 31, 2010, Ferrellgas, L.P. had financial derivative contracts
covering 1.1 million barrels of propane that were entered into as cash flow
hedges of forward and forecasted purchases of propane.
During
the three months ended October 31, 2010 and 2009, four counterparties
represented 95% and 76%, respectively, of net settled cash flow hedging
positions reported in Cost of product sold propane and other gas liquids
sales. During the three months ended October 31, 2010 and 2009,
Ferrellgas, L.P. neither held nor entered into financial derivative contracts
that contained credit risk related contingency features.
In
accordance with GAAP, Ferrellgas, L.P. determines the fair value of its assets
and liabilities subject to fair value measurement by using the highest possible
Level as defined within the GAAP hierarchy.
29
Table of
Contents
The
three levels defined by the GAAP hierarchy are as follows:
·
Level 1
Quoted prices available in active markets for identical assets or liabilities.
·
Level 2
Pricing inputs not quoted in active markets but either directly or indirectly
observable.
·
Level 3
Significant inputs to pricing that have little or no transparency with inputs
requiring significant management judgment or estimation.
Ferrellgas,
L.P. considers over-the-counter derivative instruments entered into directly
with third parties as Level 2 valuation since the values of these derivatives
are quoted by third party brokers and are on an exchange for similar
transactions. The market prices used to value Ferrellgas, L.P.s derivatives
have been determined using independent third party prices, readily available
market information, broker quotes, and appropriate valuation techniques.
At
October 31, 2010 and July 31, 2010, all derivative assets and
liabilities qualified for classification as Level 2 - other observable inputs
as defined by the GAAP hierarchy. All financial derivatives assets and liabilities
were non-trading positions.
H. Transactions
with related parties
General
partner
Ferrellgas,
L.P. has no employees and is managed and controlled by its general partner.
Pursuant to Ferrellgas, L.P.s partnership agreement, the general partner is
entitled to reimbursement for all direct and indirect expenses incurred or
payments it makes on behalf of Ferrellgas, L.P., and all other necessary or
appropriate expenses allocable to Ferrellgas, L.P. or otherwise reasonably
incurred by its general partner in connection with operating Ferrellgas, L.P.s
business. These costs primarily include compensation and benefits paid to
employees of the general partner who perform services on Ferrellgas, L.P.s
behalf and are reported in the condensed consolidated statements of earnings as
follows:
|
|
For the three months
ended October 31,
|
|
|
|
2010
|
|
2009
|
|
Operating expense
|
|
$
|
50,011
|
|
$
|
53,311
|
|
General and administrative expense
|
|
6,463
|
|
6,455
|
|
|
|
|
|
|
|
|
|
See
additional discussions about transactions with the general partner and related
parties in Note F Partners capital.
Board
of Directors
Elizabeth
Solberg, a member of the general partners Board of Directors, serves as the
General Manager of FleishmanHillard Inc. During the three months ended October 31,
2010 and 2009, Ferrellgas, L.P. paid Fleishman-Hillard Inc. $33 thousand and
$42 thousand, respectively for marketing and communications services.
I.
Contingencies
Ferrellgas,
L.P.s operations are subject to all operating hazards and risks normally
incidental to handling, storing, transporting and otherwise providing for use
by consumers of combustible liquids such as propane. As a result, at any given
time, Ferrellgas, L.P. is threatened with or named as a defendant in various
lawsuits arising in the ordinary course of business. Other than as discussed
below, Ferrellgas, L.P. is not a party
to any legal proceedings other than various claims and lawsuits arising in the
ordinary course of business. It is not possible to determine the ultimate
disposition of these matters; however, management is of the opinion that there
are no known claims or contingent
30
Table of Contents
claims
that are reasonably expected to have a material adverse effect on the financial
condition, results of operations and cash flows of Ferrellgas, L.P.
Ferrellgas,
L.P. has been named as a defendant in lawsuits filed in multiple federal and
state courts that seek to certify nationwide or statewide classes related to
its Blue Rhino branded propane tank exchange activities. The plaintiffs in each
case generally allege that Ferrellgas, L.P. failed to inform consumers of the
amount of propane contained in propane tanks they purchased and that
Ferrellgas, L.P. violated anti-trust laws by allegedly conspiring with a
competitor. The federal cases have been coordinated for multidistrict
treatment in the United States District Court for the Western District of
Missouri. Based on Ferrellgas, L.P.s business and consumer notification
practices in its Blue Rhino tank exchange operations, Ferrellgas, L.P. believes
that all of these claims are without merit and intends to defend the claims
vigorously.
Ferrellgas,
L.P. has also been named as a defendant in a class action lawsuit filed in the
United States District Court in Kansas. The complaint alleges that Ferrellgas,
L.P. violates consumer protection laws in the manner Ferrellgas, L.P. sets
prices and fees for its customers. Based on Ferrellgas, L.P.s business
practices, Ferrellgas, L.P. believes that the claims are without merit and
intends to defend the claims vigorously.
J.
Subsequent
events
Ferrellgas,
L.P. has evaluated events and transactions occurring after the balance sheet
date through the date Ferrellgas, L.P.s condensed consolidated financial
statements were issued, and concluded that, other than the events discussed
below, there were no events or transactions occurring during this period that
required recognition or disclosure in its financial statements.
During
November 2010, Ferrellgas, L.P. issued $500.0 million in aggregate
principal amount of new 6.50% senior notes due 2021 at an offering price equal
to par. Ferrellgas, L.P. received $491.3 million of net proceeds after
deducting initial purchase discounts and estimated expenses of the offering.
Ferrellgas, L.P. applied the net proceeds to a cash tender offer to purchase
any and all of its $450.0 million 6.75% fixed rate senior notes due May 1,
2014 and to redeem any such notes that remain outstanding after November 30,
2010. As of November 30, 2010, Ferrellgas, L.P. had purchased $368.6
million of the senior notes pursuant to the cash tender offer. Ferrellgas, L.P.
used the remaining proceeds to reduce outstanding indebtedness under the credit
facility by $111.9 million and to pay the related make whole and interest
payments of $10.8 million. Ferrellgas, L.P. then issued an irrevocable notice
to redeem prior to the end of December 2010 the remaining $81.4 million outstanding
principal amount of the 6.75% senior notes due 2014 and their related
make-whole payments.
During
November 2010, Ferrellgas, L.P. entered into an agreement with an
institutional investor relating to a non-brokered registered direct offering of
1.2 million common units. Net proceeds
of approximately $30.0 million were used to reduce outstanding
indebtedness under the credit facility.
31
Table of Contents
FERRELLGAS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas, L.P.)
CONDENSED BALANCE SHEETS
(in dollars)
(unaudited)
|
|
October 31,
|
|
July 31,
|
|
|
|
2010
|
|
2010
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,100
|
|
$
|
1,100
|
|
Total assets
|
|
$
|
1,100
|
|
$
|
1,100
|
|
|
|
|
|
|
|
STOCKHOLDERS 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
|
|
30,269
|
|
27,219
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
(30,169
|
)
|
(27,119
|
)
|
Total stockholders equity
|
|
$
|
1,100
|
|
$
|
1,100
|
|
CONDENSED STATEMENTS OF
EARNINGS
(in dollars)
(unaudited)
|
|
For the three months ended
October 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
General and administrative expense
|
|
$
|
3,050
|
|
$
|
3,152
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,050
|
)
|
$
|
(3,152
|
)
|
See notes to condensed financial statements.
32
Table of
Contents
FERRELLGAS FINANCE CORP.
(A wholly-owned subsidiary of
Ferrellgas, L.P.)
CONDENSED STATEMENTS OF
CASH FLOWS
(in dollars)
(unaudited)
|
|
For the three months ended
October 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(3,050
|
)
|
$
|
(3,152
|
)
|
Cash used in operating activities
|
|
(3,050
|
)
|
(3,152
|
)
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
Capital contribution
|
|
3,050
|
|
3,152
|
|
Cash provided by financing activities
|
|
3,050
|
|
3,152
|
|
|
|
|
|
|
|
Change in cash
|
|
|
|
|
|
Cash beginning of period
|
|
1,100
|
|
1,100
|
|
Cash end of period
|
|
$
|
1,100
|
|
$
|
1,100
|
|
See notes to condensed financial statements.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
October 31, 2010
(unaudited)
A
.
Formation
Ferrellgas
Finance Corp. (the Finance Corp.), a Delaware corporation, was formed on January 16,
2003 and is a wholly-owned subsidiary of Ferrellgas, L.P (the Partnership).
The
condensed financial statements reflect all adjustments that are, in the opinion
of management, necessary for a fair statement of the interim periods presented.
All adjustments to the condensed financial statements were of a normal,
recurring nature.
The
Finance Corp. has nominal assets, does not conduct any operations, has no
employees and serves as co-issuer and co-obligor for debt securities of the
Partnership.
B
.
Subsequent events
During
November 2010, the Partnership issued $500.0 million in aggregate
principal amount of new 6.50% senior notes due 2021 at an offering price equal
to par. The Partnership received $491.3 million of net proceeds after deducting
initial purchase discounts and estimated expenses of the offering. The
Partnership applied the net proceeds to a cash tender offer to purchase any and
all of its $450.0 million 6.75% fixed rate senior notes due May 1, 2014
and to redeem any such notes that remain outstanding after November 30,
2010. As of November 30, 2010, the Partnership had purchased $368.6
million of the senior notes pursuant to the cash tender offer. The Partnership
used
33
Table of Contents
the
remaining proceeds to reduce outstanding indebtedness under the credit facility
by $111.9 million and to pay the related make whole and interest payments of
$10.8 million. The Partnership then issued an irrevocable notice to redeem
prior to the end of December 2010 the remaining $81.4 million outstanding
principal amount of the 6.75% senior notes due 2014 and their related
make-whole payments.
34
Table of
Contents
ITEM 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our
managements discussion and analysis of financial condition and results of
operations relates to Ferrellgas Partners, L.P. and Ferrellgas, L.P.
Ferrellgas
Partners Finance Corp. and Ferrellgas Finance Corp. have nominal assets, do not
conduct any operations and have no employees other than officers. Ferrellgas
Partners Finance Corp. serves as co-issuer and co-obligor for debt securities
of Ferrellgas Partners, L.P. and Ferrellgas Finance Corp. serves as co-issuer
and co-obligor for debt securities of Ferrellgas, L.P. Accordingly, and due to
the reduced disclosure format, a discussion of the results of operations,
liquidity and capital resources of Ferrellgas Partners Finance Corp. and
Ferrellgas Finance Corp. is not presented in this section.
In
this Quarterly Report on Form 10-Q, unless the context indicates otherwise:
·
us, we, our,
ours, or consolidated are references exclusively to Ferrellgas Partners,
L.P. together with its consolidated subsidiaries, including Ferrellgas Partners
Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp., except when used
in connection with common units, in which case these terms refer to
Ferrellgas Partners, L.P. without its consolidated subsidiaries;
·
Ferrellgas
Partners refers to Ferrellgas Partners, L.P. itself, without its consolidated
subsidiaries;
·
the operating
partnership refers to Ferrellgas, L.P., together with its consolidated
subsidiaries, including Ferrellgas Finance Corp.;
·
our general
partner refers to Ferrellgas, Inc.;
·
Ferrell
Companies refers to Ferrell Companies, Inc., the sole shareholder of our
general partner;
·
unitholders
refers to holders of common units of Ferrellgas Partners;
·
customers
refers to customers other than our wholesale customers or our other bulk
propane distributors or marketers;
·
retail sales
refers to Propane and other gas liquid sales: Retail Sales to End Users or
the volume of propane sold primarily to our residential, industrial/commercial
and agricultural customers;
·
wholesale
sales refers to Propane and other gas liquid sales: Wholesale Sales to
Resellers or the volume of propane sold primarily to our portable tank exchange
customers and bulk propane sold to wholesale customers;
·
other gas
sales refers to Propane and other gas liquid sales: Other Gas Sales or the
volume of bulk propane sold to other third party propane distributors or
marketers and the volume of refined fuel sold;
·
propane sales
volume refers to the volume of propane sold to our retail sales and wholesale
sales customers; and
·
Notes refers
to the notes of the condensed consolidated financial statements of Ferrellgas
Partners or the operating partnership, as applicable.
Ferrellgas
Partners is a holding entity that conducts no operations and has two direct
subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership.
Ferrellgas Partners only significant assets are its approximate 99% limited
partnership interest in the operating partnership and its 100% equity interest
in Ferrellgas Partners Finance Corp. The common units of Ferrellgas Partners
are listed on the New York Stock Exchange and our activities are primarily
conducted through the operating
35
Table of Contents
partnership.
The
operating partnership was formed on April 22, 1994, and accounts for
substantially all of our consolidated assets, sales and operating earnings,
except for interest expense related to the senior notes co-issued by Ferrellgas
Partners and Ferrellgas Partners Finance Corp.
Our
general partner performs all management functions for us and our subsidiaries
and holds a 1% general partner interest in Ferrellgas Partners and an
approximate 1% general partner interest in the operating partnership. The
parent company of our general partner, Ferrell Companies, beneficially owns
approximately 29% of our outstanding common units. Ferrell Companies is owned
100% by an employee stock ownership trust.
We
file annual, quarterly, and other reports and information with the SEC. You may
read and download our SEC filings over the Internet from several commercial
document retrieval services as well as at the SECs website at www.sec.gov. You
may also read and copy our SEC filings at the SECs Public Reference Room located
at 100 F Street, NE, Washington, DC 20549. Please call the SEC at
1-800-SEC-0330 for further information concerning the Public Reference Room and
any applicable copy charges. Because our common units are traded on the New
York Stock Exchange, under the ticker symbol of FGP, we also provide our SEC
filings and particular other information to the New York Stock Exchange. You
may obtain copies of these filings and such other information at the offices of
the New York Stock Exchange located at 11 Wall Street, New York, New York
10005. In addition, our SEC filings are available on our website at
www.ferrellgas.com at no cost as soon as reasonably practicable after our
electronic filing or furnishing thereof with the SEC. Please note that any Internet
addresses provided in this Quarterly Report on Form 10-Q are for
informational purposes only and are not intended to be
hyperlinks. Accordingly, no information found and/or provided at such
Internet addresses is intended or deemed to be incorporated by reference
herein.
The
following is a discussion of our historical financial condition and results of
operations and should be read in conjunction with our historical condensed
consolidated financial statements and accompanying Notes thereto included elsewhere
in this Quarterly Report on Form 10-Q.
The
discussions set forth in the Results of Operations and Liquidity and Capital
Resources sections generally refer to Ferrellgas Partners and its consolidated
subsidiaries. However, in these discussions there exist two material
differences between Ferrellgas Partners and the operating partnership. Those
material differences are:
·
because
Ferrellgas Partners has outstanding $280.0 million in aggregate principal
amount of 8.625% senior notes due fiscal 2020, the two partnerships incur
different amounts of interest expense on their outstanding indebtedness; see
the statements of earnings in their respective condensed consolidated financial
statements and Note E Debt in the respective notes to their condensed
consolidated financial statements; and
·
Ferrellgas
Partners issued common units during both fiscal 2010 and fiscal 2011.
Overview
We
are a leading distributor of propane and related equipment and supplies to
customers primarily in the United States and conduct our business as a single
reportable operating segment. We believe that we are the second largest retail
marketer of propane in the United States as measured by the volume of our
retail sales in fiscal 2010, and the largest national provider of propane by
portable tank exchange.
We
serve approximately one million residential, industrial/commercial, portable
tank exchange, agricultural, wholesale and other customers in all 50 states,
the District of Columbia and Puerto Rico. Our operations primarily include the
distribution and sale of propane and related equipment and supplies with
concentrations in the Midwest, Southeast, Southwest and Northwest regions of
the United States. Our propane distribution business consists principally of
transporting propane purchased from third parties to
36
Table of Contents
propane
distribution locations and then to tanks on customers premises or to portable
propane tanks delivered to nationwide and local retailers. Our portable tank
exchange operations, nationally branded under the name Blue Rhino, are
conducted through a network of independent and partnership-owned distribution
outlets. Our market areas for our residential and agricultural customers are
generally rural, but also include urban areas for industrial applications. Our
market area for our industrial/commercial and portable tank exchange customers
is generally urban.
In
the residential and industrial/commercial markets, propane is primarily used
for space heating, water heating, cooking and other propane fueled appliances.
In the portable tank exchange market, propane is used primarily for outdoor
cooking using gas grills. In the agricultural market, propane is primarily used
for crop drying, space heating, irrigation and weed control. In addition,
propane is used for a variety of industrial applications, including as an
engine fuel which is burned in internal combustion engines that power vehicles
and forklifts, and as a heating or energy source in manufacturing and drying
processes.
The
market for propane is seasonal because of increased demand during the months of
November through March (the winter heating season) primarily for
the purpose of providing heating in residential and commercial buildings.
Consequently, sales and operating profits are concentrated in our second and
third fiscal quarters, which are during the winter heating season. However, our
propane by portable tank exchanges sales volume provides us increased operating
profits during our first and fourth fiscal quarters due to its counter-seasonal
business activities. These sales also provide us the ability to better utilize
our seasonal resources at our propane distribution locations. Other factors
affecting our results of operations include competitive conditions, volatility
in energy commodity prices, demand for propane, timing of acquisitions and
general economic conditions in the United States.
We
use information on temperatures to understand how our results of operations are
affected by temperatures that are warmer or colder than normal. We use the
definition of normal temperatures based on information published by the
National Oceanic and Atmospheric Administration (NOAA). Based on this
information we calculate a ratio of actual heating degree days to normal
heating degree days. Heating degree days are a general indicator of weather
impacting propane usage.
Weather
conditions have a significant impact on demand for propane for heating purposes
during the winter heating season. Accordingly, the volume of propane used by
our customers for this purpose is directly affected by the severity of the
winter weather in the regions we serve and can vary substantially from year to
year. In any given region, sustained warmer-than-normal temperatures will tend
to result in reduced propane usage, while sustained colder-than-normal
temperatures will tend to result in greater usage. Although there is a direct
correlation between weather and customer usage, there is a natural time lag
between the onset of cold weather and increased sales to customers. If the
United States were to experience a cooling trend we could expect nationwide
demand for propane to increase which could lead to greater sales, income and
liquidity availability. Conversely, if the United States were to experience a
warming trend we could expect nationwide demand for propane to decrease which
could lead to a reduction in our sales, income and liquidity availability.
Our
gross margin from the retail distribution of propane is primarily based on the
cents-per-gallon difference between the sale price we charge our customers and
our costs to purchase and deliver propane to our propane distribution
locations. Our residential customers and portable tank exchange customers
typically provide us a greater cents-per-gallon margin than our industrial/commercial,
agricultural, wholesale and other customers. We track Propane sales volumes, Revenues
Propane and other gas liquids sales and Gross margin Propane and other
gas liquids sales by customer; however, we are not able to specifically
allocate operating and other costs in a manner that would determine their
specific profitability with a high degree of accuracy. The wholesale propane
price per gallon is subject to various market conditions, including inflation,
and may fluctuate based on changes in demand, supply and other energy commodity
prices, primarily crude oil and natural gas, as propane prices tend to
correlate with the fluctuations of these underlying commodities.
We
employ risk management activities that attempt to mitigate price risks related
to the purchase,
37
Table of Contents
storage,
transport and sale of propane. We enter into propane sales commitments with a
portion of our customers that provide for a contracted price agreement for a
specified period of time. These commitments can expose us to product price risk
if not immediately hedged with an offsetting propane purchase commitment.
Our
open financial derivative purchase commitments are designated as hedges
primarily for fiscal 2011 sales commitments and, as of October 31, 2010,
have experienced net mark to market gains of approximately $4.3 million.
Because these financial derivative purchase commitments qualify for hedge
accounting treatment, the resulting asset, liability and related mark to market
gains or losses are recorded on the condensed consolidated balance sheets as Prepaid
expenses and other current assets, Other current liabilities and Accumulated
other comprehensive income (loss), respectively, until settled. Upon
settlement, realized gains or losses on these contracts will be reclassified to
Cost of product sold-propane and other gas liquid sales in the condensed
consolidated statements of earnings. These financial derivative purchase
commitment net gains are expected to be offset by reduced margins on propane
sales commitments that qualify for the normal purchase normal sale exception.
At October 31, 2010 we estimate 89% of currently open financial derivative
purchase commitments, the related propane sales commitments, and the resulting
gross margin will be realized into earnings during the next twelve months.
Our
business strategy is to:
·
expand our operations
through disciplined acquisitions and internal growth;
·
capitalize on our national
presence and economies of scale;
·
maximize operating
efficiencies through utilization of our technology platform; and
·
align employee interests with
our investors through significant employee ownership.
Forward-looking Statements
Statements
included in this report include forward-looking statements. These
forward-looking statements are identified as any statement that does not relate
strictly to historical or current facts. These statements often use words such
as anticipate, believe, intend, plan, projection, forecast, strategy,
position, continue, estimate, expect, may, will, or the negative of
those terms or other variations of them or comparable terminology. These
statements often discuss plans, strategies, events or developments that we
expect or anticipate will or may occur in the future and are based upon the
beliefs and assumptions of our management and on the information currently
available to them. In particular, statements, express or implied, concerning
our future operating results or our ability to generate sales, income or cash
flow are forward-looking statements.
Forward-looking
statements are not guarantees of performance. You should not put undue reliance
on any forward-looking statements. All forward-looking statements are subject
to risks, uncertainties and assumptions that could cause our actual results to
differ materially from those expressed in or implied by these forward-looking
statements. Many of the factors that will affect our future results are beyond
our ability to control or predict.
Some
of our forward-looking statements include the following:
·
whether the
operating partnership will have sufficient funds to meet its obligations,
including its obligations under its debt securities, and to enable it to
distribute to Ferrellgas Partners sufficient funds to permit Ferrellgas
Partners to meet its obligations with respect to its existing debt and equity
securities; and
·
whether
Ferrellgas Partners and the operating partnership will continue to meet all of
the quarterly financial tests required by the agreements governing their
indebtedness.
When
considering any forward-looking statement, you should also keep in mind the
risk factors set forth in the section in our Annual Report on Form 10-K
for our fiscal 2010 entitled, Item 1A. Risk Factors.
38
Table of Contents
Any
of these risks could impair our business, financial condition or results of
operations. Any such impairment may affect our ability to make distributions to
our unitholders or pay interest on the principal of any of our debt securities.
In addition, the trading price, if any, of our securities could decline as a
result of any such impairment.
Except
for our ongoing obligations to disclose material information as required by
federal securities laws, we undertake no obligation to update any
forward-looking statements or risk factors after the date of this Quarterly
Report on Form 10-Q.
In
addition, the classification of Ferrellgas Partners and the operating partnership
as partnerships for federal income tax purposes means that we do not generally
pay federal income taxes. We do, however, pay taxes on the income of our
subsidiaries that are corporations. We rely on a legal opinion from our
counsel, and not a ruling from the Internal Revenue Service, as to our proper
classification for federal income tax purposes. See the section in our Annual
Report on Form 10-K for our fiscal 2010 entitled, Item 1A. Risk Factors
Tax Risks. The IRS could treat us as a corporation for tax purposes or changes
in federal or state laws could subject us to entity-level taxation, which would
substantially reduce the cash available for distribution to our unitholders.
Results
of Operations
Three months ended October 31, 2010 compared to October 31,
2009
(amounts in thousands)
Three months ended October 31,
|
|
2010
|
|
2009
|
|
Favorable
(Unfavorable)
Variance
|
|
Propane sales volumes (gallons):
|
|
|
|
|
|
|
|
|
|
Retail Sales to End Users
|
|
120,561
|
|
132,474
|
|
(11,913
|
)
|
(9
|
)%
|
Wholesale Sales to Resellers
|
|
47,776
|
|
47,074
|
|
702
|
|
1
|
%
|
|
|
168,337
|
|
179,548
|
|
(11,211
|
)
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
Revenues -
|
|
|
|
|
|
|
|
|
|
Propane and other gas liquids sales:
|
|
|
|
|
|
|
|
|
|
Retail Sales to End Users
|
|
$
|
221,626
|
|
$
|
205,427
|
|
$
|
16,199
|
|
8
|
%
|
Wholesale Sales to Resellers
|
|
103,222
|
|
94,003
|
|
9,219
|
|
10
|
%
|
Other Gas Sales
|
|
43,775
|
|
28,236
|
|
15,539
|
|
55
|
%
|
|
|
$
|
368,623
|
|
$
|
327,666
|
|
$
|
40,957
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
Propane and other gas liquids sales: (a)
|
|
|
|
|
|
|
|
|
|
Retail Sales to End Users
|
|
$
|
74,714
|
|
$
|
84,948
|
|
$
|
(10,234
|
)
|
(12
|
)%
|
Wholesale Sales to Resellers
|
|
37,168
|
|
41,404
|
|
(4,236
|
)
|
(10
|
)%
|
Other Gas Sales
|
|
255
|
|
394
|
|
(139
|
)
|
(35
|
)%
|
|
|
$
|
112,137
|
|
$
|
126,746
|
|
$
|
(14,609
|
)
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
Gross margin Other
|
|
$
|
18,711
|
|
$
|
18,224
|
|
487
|
|
3
|
%
|
Adjusted EBITDA (b)
|
|
21,552
|
|
33,279
|
|
(11,727
|
)
|
(35
|
)%
|
Operating income (loss)
|
|
(2,048
|
)
|
6,337
|
|
(8,385
|
)
|
(132
|
)%
|
Interest expense
|
|
(26,877
|
)
|
(22,695
|
)
|
(4,182
|
)
|
(18
|
)%
|
Interest expense - operating partnership
|
|
(20,680
|
)
|
(16,769
|
)
|
(3,911
|
)
|
(23
|
)%
|
Loss on extinguishment of debt
|
|
|
|
(17,308
|
)
|
17,308
|
|
100
|
%
|
(a)
Gross margin from propane and other gas liquids
sales represents Propane and other gas liquids sales less Cost of product
sold propane and other gas liquids sales.
(b)
Adjusted EBITDA is calculated as loss before income
tax benefit, interest expense, depreciation and amortization expense, loss on
extinguishment of debt, employee stock ownership plan compensation
39
Table of Contents
charge,
unit and stock-based compensation charge, loss (gain) on disposal of assets and
other, other income (expense) net and net loss attributable to noncontrolling
interest. Management believes the presentation of this measure is relevant and
useful because it allows investors to view the partnerships performance in a
manner similar to the method management uses, adjusted for items management
believes makes it easier to compare its results with other companies that have
different financing and capital structures. This method of calculating Adjusted
EBITDA may not be consistent with that of other companies and should be viewed
in conjunction with measurements that are computed in accordance with GAAP.
The
following table summarizes EBITDA and Adjusted EBITDA for the three months
ended October 31, 2010 and 2009, respectively:
(amounts in thousands)
|
|
2010
|
|
2009
|
|
Net loss attributable to Ferrellgas Partners, L.P.
|
|
$
|
(28,043
|
)
|
$
|
(32,665
|
)
|
Income tax benefit
|
|
(482
|
)
|
(422
|
)
|
Interest expense
|
|
26,877
|
|
22,695
|
|
Depreciation and amortization expense
|
|
20,375
|
|
20,527
|
|
EBITDA
|
|
18,727
|
|
10,135
|
|
Loss on extinguishment of debt
|
|
|
|
17,308
|
|
Employee stock ownership plan compensation charge
|
|
2,444
|
|
2,002
|
|
Unit and stock-based compensation charge
|
|
1,013
|
|
2,751
|
|
Loss (gain) on disposal of assets and other
|
|
(232
|
)
|
1,662
|
|
Other income (expense), net
|
|
(178
|
)
|
(307
|
)
|
Net loss attributable to noncontrolling interest
|
|
(222
|
)
|
(272
|
)
|
Adjusted EBITDA
|
|
$
|
21,552
|
|
$
|
33,279
|
|
Propane
sales volumes during the three months ended October 31, 2010 decreased
11.2 million gallons from that of the prior year period due primarily to 11.9
million of decreased gallon sales to our retail customers.
Retail
sales volumes decreased primarily due to the impact of weather in the more
highly concentrated geographic areas we serve that was approximately 27% warmer
than that of the prior year period.
The
wholesale market price at one of the major supply points, Mt. Belvieu, Texas,
during the three months ended October 31, 2010, averaged 20% more than the
prior year period. The wholesale market price averaged $1.14 and $0.95 per
gallon during the three months ended October 31, 2010 and 2009,
respectively.
Revenues
- Propane and other gas liquids sales
Retail
sales increased $16.2 million compared to the prior year period. This increase
resulted primarily from a $34.7 million increase in sales price per gallon
which was driven by the increase in the wholesale market price of propane as
discussed above, partially offset by a $21.7 million decrease due primarily to
lower propane sales volumes, as discussed above.
Wholesale
sales increased $9.2 million compared to the prior year period. This increase
resulted primarily from a $7.8 million increase in sales price per gallon which
was driven by the increase in the wholesale market price of propane as
discussed above.
Other
gas sales increased $15.5 million compared to the prior year period. This
increase resulted primarily from an $11.3 million increase due to higher
propane sales volumes and a $6.1 million increase in sales price per gallon.
40
Table of
Contents
Gross margin - Propane and other gas liquids sales
Retail sales gross margin decreased $10.2 million compared to the prior
year period. This decrease resulted from an $8.6 million decrease in propane
sales volumes as discussed above and a $2.6 million decrease in gross margin
per gallon.
Wholesale sales gross margin decreased $4.2 million compared to the
prior year period. This decrease resulted primarily from a $4.9 million
decrease in gross margin per gallon.
Adjusted EBITDA
Adjusted EBITDA decreased $11.7 million compared to the prior year
period primarily due to a $14.6 million decrease in gross margin from Gross
margin: Propane and other gas liquids sales as discussed above, which was
somewhat offset by a $1.4 million decrease in General and administrative
expense and a $0.9 million decrease in Operating expense. General and
administrative expense decreased primarily due to a decrease of $1.5 million of
performance based incentive expense. Operating expense decreased primarily due
to a $1.9 million decrease in performance based incentive expense, partially
offset by $0.9 million of increased fuel costs.
Operating income (loss)
Operating income (loss) decreased $8.4 million compared to the prior
year period primarily due to the $11.7 million decrease in Adjusted EBITDA as
discussed above, partially offset by a $1.9 million decrease in Loss (gain)
on disposal of assets and other and a decrease of $1.7 million in non-cash
stock option issuance expense allocated from Ferrell Companies.
Loss (gain) on disposal of assets and other decreased $1.1 million
due to the timing of asset disposals and write-offs and $0.8 million due to a
change in accounting principle which requires us, on a prospective basis, to no
longer disclose accounts receivable securitization facility income and expense
as Loss on transfer of accounts receivable related to the accounts receivable
securitization or Service income related to the accounts receivable
securitization.
Interest expense - consolidated
Interest expense increased $4.2 million primarily due to a $1.5 million
increase due to the issuance of new senior debt at higher interest rates than
the senior debt it retired, a $1.1 million increase due to the amortization of
new debt issuance costs, and a $0.6 million increase due to a change in
accounting principle which requires us to, on a prospective basis, disclose
fees associated with our accounts receivable securitization facility as
interest expense.
Interest expense - operating partnership
Interest expense increased $3.9 million primarily due to a $1.9 million
increase due to the issuance of new senior debt at higher interest rates than
the senior debt it retired, a $1.0 million increase due to the amortization of
new debt issuance costs, and a $0.6 million increase due to a change in
accounting principle which requires us to, on a prospective basis, disclose
fees associated with our accounts receivable securitization facility as
interest expense.
Loss on extinguishment of debt
During October 2009, we prepaid the outstanding principal amount
on our $82.0 million 7.24% series D notes due August 1, 2010 and our $70.0
million 7.42% series E notes due August 1, 2013, incurring a Loss on
extinguishment of debt of $17.3 million.
41
Table of Contents
Liquidity and Capital Resources
General
Our
liquidity and capital resources enable us to fund our working capital
requirements, letter of credit requirements, debt service payments, acquisition
and capital expenditures and distributions to our unitholders. Our liquidity
may be affected by an inability to access the capital markets or by unforeseen
demands on cash, or other events beyond our control, such as the general market
disruption experienced during fiscal 2009. We believe a return of the general
market disruption discussed above could limit our future access to capital
markets or to access those markets at rates acceptable to us. Conversely, if
general market conditions were to continue improving, we would expect our
access to capital markets and rates associated with those markets to continue
toward normal as well.
During
November 2010, we issued $500.0 million in aggregate principal amount of
new 6.50% senior notes due 2021 at an offering price equal to par. We received
$491.3 million of net proceeds after deducting initial purchase discounts and
estimated expenses of the offering. We applied the net proceeds to a cash
tender offer to purchase any and all of our $450.0 million 6.75% fixed rate
senior notes due May 1, 2014 and to redeem any such notes that remain
outstanding after November 30, 2010. As of November 30, 2010, we had
purchased $368.6 million of the senior notes pursuant to the cash tender offer.
We used the remaining proceeds to reduce outstanding indebtedness under the
credit facility by $111.9 million and to pay the related make whole and interest
payments of $10.8 million. We then issued an irrevocable notice to redeem prior
to the end of December 2010 the remaining $81.4 million outstanding
principal amount of the 6.75% senior notes due 2014 and their related
make-whole payments. Additionally, we issued $30.0 million of common units for
which the proceeds were used to reduce outstanding indebtedness under the credit
facility. With these financings and the application of the proceeds, we will
have addressed all of our significant outstanding public debt maturities
through 2017 and increased our liquidity to finance ongoing business
strategies. Furthermore, our only interest rate sensitive financing will be
borrowings on our $400.0 million revolving credit facility and our accounts
receivable securitization facility scheduled to expire in 2012 and 2013,
respectively.
Currently, we believe we will continue to have sufficient access to
capital markets at yields acceptable to us to support our expected growth
expenditures and refinancing of debt maturities. Our disciplined approach to
fund necessary capital spending and other partnership needs, combined with
sufficient trade credit to operate our business efficiently and available
credit under our secured credit facility and our accounts receivable
securitization facility should provide us the means to meet our anticipated
liquidity and capital resource requirements.
During periods of high volatility our risk management activities may
expose us to the risk of counterparty margin calls in amounts greater than we
have the capacity to fund. Likewise our counterparties may not be able to
fulfill their margin calls from us or may default on the settlement of
positions with us.
Our working capital requirements are subject to, among other things,
the price of propane, delays in the collection of receivables, volatility in
energy commodity prices, liquidity imposed by insurance providers, downgrades
in our credit ratings, decreased trade credit, significant acquisitions, the
weather and other changes in the demand for propane. Relatively colder weather
or higher propane prices during the winter heating season are factors that
could significantly increase our working capital requirements.
Our ability to satisfy our
obligations is dependent upon our future performance, which will be subject to
prevailing economic, financial, business and weather conditions and other
factors, many of which are beyond our control. Due to the seasonality of the
retail propane distribution business, a significant portion of our cash flow
from operations is generated during the winter heating season. Our net cash
provided by operating activities primarily reflects earnings from our business
activities adjusted for depreciation and amortization and changes in our
working capital accounts. Historically, we generate significantly lower net
cash from operating activities in our first and fourth fiscal quarters as
compared to the second and third fiscal quarters due to the seasonality of our
business. Subject to meeting the financial tests discussed below, our general
partner believes that the operating partnership will have sufficient funds
available to meet its obligations, and to distribute to Ferrellgas Partners
sufficient funds to permit Ferrellgas Partners
42
Table of Contents
to meet its obligations in the remainder of fiscal 2011.
Subject to the risk factors identified in Item 1A. Risk Factors of
our Annual Report on Form 10-K, our general partner believes the operating
partnership will have sufficient funds in the remainder of fiscal 2011
available to distribute to Ferrellgas Partners sufficient cash to pay the
minimum quarterly distribution on all of its common units. A quarterly
distribution of $0.50 is expected to be paid on December 15, 2010, to all
common units that were outstanding on December 8, 2010. This represents
the sixty-fifth consecutive minimum quarterly distribution paid to our common
unitholders dating back to October 1994.
Our secured credit facility, public debt, private debt and accounts
receivable securitization facility contain several financial tests and
covenants restricting our ability to pay distributions, incur debt and engage
in certain other business transactions. In general, these tests are based on
our debt-to-cash flow ratio and cash flow-to-interest expense ratio.
Our general partner currently believes that the most
restrictive of these tests are debt incurrence limitations under the terms of
our credit and accounts receivable securitization facilities and limitations on
the payment of distributions within our 8.625% senior notes due 2020. The
credit and accounts receivable securitization facilities generally limit the
operating partnerships ability to incur debt if it exceeds prescribed ratios
of either debt to cash flow or cash flow to interest expense. Our 8.625% senior
notes restrict payments if a minimum ratio of cash flow to interest expense is
not met, assuming certain exceptions to this ratio limit have previously been
exhausted. This restriction places limitations on our ability to make
restricted payments such as the payment of cash distributions to our
unitholders. The cash flow used to determine these financial tests generally is
based upon our most recent cash flow performance giving pro forma effect for
acquisitions and divestitures made during the test period. Our secured credit
facility, public debt, private debt and accounts receivable securitization
facility do not contain early repayment provisions related to a potential
decline in our credit rating.
As of October 31, 2010, we met all of our required quarterly
financial tests and covenants. Based upon current estimates of our cash flow,
our general partner believes that we will be able to continue to meet all of
our required quarterly financial tests and covenants during the remainder of
fiscal 2011. However, we may not meet the applicable financial tests in future
quarters if we were to experience:
·
significantly warmer than
normal winter temperatures;
·
a continued volatile energy
commodity cost environment;
·
an unexpected downturn in
business operations;
·
a change in customer
purchasing patterns due to economic factors in the United States; or
·
a material downturn in the
credit and/or equity markets.
Failure to meet applicable financial tests could have a materially
adverse effect on our operating capacity and cash flows and could restrict our
ability to incur debt or to make cash distributions to our unitholders, even if
sufficient funds were available. Depending on the circumstances, we may
consider alternatives to permit the incurrence of debt or the continued payment
of the quarterly cash distribution to our unitholders. No assurances can be
given, however, that such alternatives can or will be implemented with respect
to any given quarter.
We expect our future capital expenditures and working capital needs to
be provided by a combination of cash generated from future operations, existing
cash balances, the secured credit facility or the accounts receivable
securitization facility. See additional information about the accounts
receivable securitization facility in Financing Activities Accounts receivable
securitization. In order to reduce existing indebtedness, fund future
acquisitions and expansive capital projects, we may obtain funds from our
facilities, we may issue additional debt to the extent permitted under existing
financing arrangements or we may issue additional equity securities, including,
among others, common units.
Toward this purpose, the following registration statements were
effective upon filing or declared effective by the SEC:
43
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·
a shelf registration
statement for the periodic sale of up to $750.0 million in common units, debt
securities and/or other securities; Ferrellgas Partners Finance Corp. may, at
our election, be the co-issuer and co-obligor on any debt securities issued by
Ferrellgas Partners under this shelf registration statement; as of November 30,
2010, we had $420.0 million available under this shelf registration statement;
and
·
an acquisition shelf
registration statement for the periodic sale of up to $250.0 million in common
units to fund acquisitions; as of November 30, 2010, we had $229.9 million
available under this shelf agreement.
Operating Activities
Net cash used in operating activities was $6.5 million for the three
months ended October 31, 2010, compared to net cash used in operating
activities of $12.0 million for the prior year period. This decrease in cash
used in operating activities was primarily due to a $14.1 million decrease in
working capital requirements and a $2.5 million increase in cash flow from
operations which were partially offset by an $11.0 million decrease in net
funding from our accounts receivable securitization facility.
The decrease in working capital requirements was primarily due to $33.9
million from the timing of inventory purchases and exchanges. These decreases
in working capital requirements were somewhat offset by $9.0 million due to the
impact of weather on sales volumes as well as the timing of billings and
collections on accounts receivable, $7.5 million due to the timing of accounts
payable disbursements and $5.2 million due to the timing of deposits made
toward the purchase of propane appliances.
The increase in cash flow from operations is primarily due to $17.3 of
loss on extinguishment of debt paid in the prior year period that was not
repeated in the current year period, which was somewhat offset by a $14.6
million decrease in gross margin from propane and other gas liquids sales
primarily due to decreased sales volumes.
The $11.0 million decrease in net funding from our accounts receivable
securitization facility is due to a change in accounting principle which
requires us to, on a prospective basis, disclose cash flows related to the
accounts receivable securitization facility as net additions to collateralized
short-term borrowings in the Cash flows from financing activities section of
the condensed consolidated statements of cash flows.
The operating partnership
Net cash used in operating activities was $6.5 million for the three
months ended October 31, 2010, compared to net cash used in operating
activities of $11.9 million for the prior year period. This decrease in cash
used in operating activities was primarily due to a $14.0 million decrease in
working capital requirements and a $2.6 million increase in cash flow from
operations which were partially offset by an $11.0 million decrease in net
funding from our accounts receivable securitization facility.
The decrease in working capital requirements was primarily due to $33.9
million from the timing of inventory purchases and exchanges. These decreases
in working capital requirements were somewhat offset by $9.0 million due to the
impact of weather on sales volumes as well as the timing of billings and
collections on accounts receivable, $7.5 million due to the timing of accounts
payable disbursements and $5.2 million due to the timing of deposits made
toward the purchase of propane appliances.
The increase in cash flow from operations is primarily due to $17.3 of
loss on extinguishment of debt paid in the prior year period that were not
repeated in the current year period, which was somewhat offset by a $14.6
million decrease in gross margin from propane and other gas liquids sales
primarily due to decreased sales volumes.
The $11.0 million decrease in net funding from our accounts receivable
securitization facility is due to a change in accounting principle which
requires us to, on a prospective basis, disclose cash flows related to the
accounts receivable securitization facility as net additions to collateralized
short-term borrowings in
44
Table of Contents
the
Cash flows from financing activities section of the condensed consolidated
statements of cash flows.
Investing Activities
Net cash used in investing activities was $11.3 million for the three
months ended October 31, 2010, compared to net cash used in investing
activities of $53.3 million for the prior year period. This decrease in net
cash used in investing activities is primarily due to a $34.5 million decrease
in capital expenditures related to the acquisition of propane distribution
assets and a $6.5 million decrease in growth and maintenance capital
expenditures.
Financing Activities
Net cash provided by financing activities was $16.0 million for the
three months ended October 31, 2010, compared to net cash provided by
financing activities of $68.4 million for the prior year period. The decrease
in net cash provided by financing activities was primarily due to a $40.0
million net decrease in long-term borrowings, a $20.0 million decrease in
proceeds from equity offerings and a $17.6 million decrease in short term
borrowings to fund working capital requirements. These cash decreases were
somewhat offset by a $19.0 million increase in net additions to collateralized
short-term borrowings due to a change in accounting principle which requires us
to, on a prospective basis, no longer disclose cash flows related to the accounts
receivable securitization facility as Accounts receivable securitization in
the Cash flows from operating activities section of the condensed
consolidated statements of cash flows and a $7.0 million decrease in cash used
to fund transaction costs.
Distributions
Ferrellgas Partners paid a $0.50 per unit quarterly distribution on all
common units, as well as the related general partner distributions, totaling
$35.1 million during the three months ended October 31, 2010 in connection
with the distributions declared for the three months ended July 31, 2010.
The quarterly distribution on all common units and the related general partner
distributions for the three months ended October 31, 2010 of $35.8 million
is expected to be paid on December 15, 2010 to holders of record on December 8,
2010.
Secured credit facility
Our
secured credit facility provides $400.0 million in revolving credit for loans
and has a $200.0 million sublimit for letters of credit. This credit facility
matures in November 2012.
The credit facility contains various affirmative and negative covenants
and default provisions, as well as requirements with respect to the maintenance
of specified financial ratios and limitations on the making of loans and
investments.
As of October 31, 2010, we had total borrowings outstanding under
this credit facility of $200.3 million, of which $109.8 million was classified
as long-term debt.
Borrowings under the credit facility had a weighted average interest
rate of 4.31% at October 31, 2010. All borrowings under the credit
facility bear interest, at our option, at a rate equal to either:
·
for Base Rate
Loans or Swing Line Loans, the Base Rate, which is defined as the higher of
i) the federal funds rate plus 0.50%, ii) Bank of Americas prime rate;
or iii) the Eurodollar Rate plus 1%; plus a margin varying from 2.50% to
3.25% (as of October 31, 2010, the margin was 2.75%); or
·
for Eurodollar
Rate Loans, the Eurodollar Rate, which is defined as the LIBOR Rate plus a
margin varying from 3.50% to 4.25% (as of October 31, 2010, the margin was
3.75%).
As of October 31, 2010, the federal funds rate and Bank of Americas
prime rate were 0.20% and 3.25%, respectively. As of October 31, 2010, the
one-month and three-month Eurodollar Rates were
45
Table of Contents
0.33% and 0.40%, respectively.
An annual commitment fee is payable at a per annum rate of 0.50% times
the actual daily amount by which the facility exceeds the sum of (i) the
outstanding amount of revolving credit loans and (ii) the outstanding
amount of letter of credit obligations.
The obligations under this credit facility are secured by substantially
all assets of the operating partnership, the general partner and certain
subsidiaries of the operating partnership but specifically excluding (a) assets
that are subject to the operating partnerships accounts receivable
securitization facility, (b) the general partners equity interest in
Ferrellgas Partners and (c) equity interest in certain unrestricted
subsidiaries. Such obligations are also guaranteed by the general partner and
certain subsidiaries of the operating partnership.
Letters of credit outstanding at October 31, 2010 totaled $49.9
million and were used primarily to secure insurance arrangements and to a
lesser extent, product purchases. At October 31, 2010, we had available
letter of credit remaining capacity of $149.8 million.
All standby letter of credit commitments under our credit facility bear
a per annum rate varying from 3.5% to 4.25% (as of October 31, 2010, the
rate was 3.75%) times the daily maximum amount available to be drawn under such
letter of credit. Letter of credit fees are computed on a quarterly basis in
arrears.
Accounts receivable securitization
In June 2009, the Financial Accounting Standards Board (FASB)
issued two amendments to existing GAAP, one of which eliminates the concept of
a qualifying special-purpose-entity (QSPEs). The second amends guidance
applicable to variable interest entities (VIEs). The provisions of these
amendments require us to evaluate all VIEs to determine whether they must be
consolidated.
As a result of the prospective adoption of these amendments on August 1,
2010, Ferrellgas Receivables is now accounted for as a consolidated subsidiary.
Upon adoption, we recognized $107.9 million of Accounts receivable pledged as
collateral, net, $0.6 million of Other assets, net and $47.0 million of Collateralized
notes payable, derecognized $44.9 million of Notes receivable from Ferrellgas
Receivables and $15.3 million of Retained interest in Ferrellgas Receivables
and recorded a $1.3 million Cumulative effect of a change in accounting
principle.
Subsequent to adoption, expenses associated with these transactions are
now recorded in Interest expense and are no longer recorded in Loss on
transfer of accounts receivable related to the accounts receivable
securitization or Service income related to the accounts receivable
securitization in the condensed consolidated statements of earnings.
Additionally, borrowings and repayments associated with these transactions are
now recorded in Cash flows from financing activities and no longer recorded
in Cash flows from operating activities in the condensed consolidated
statements of cash flows. The adoption of these amendments did not have a
significant impact on our debt covenant agreements.
Cash flows from our accounts receivable securitization facility
increased $8.0 million. We received net funding of $19.0 million from this
facility during the three months ended October 31, 2010 as compared to
receiving net funding of $11.0 million from this facility in the prior year
period.
Our strategy is to maximize liquidity by utilizing the accounts
receivable securitization facility along with borrowings under the secured
credit facility. See additional discussion about the secured credit facility in
Financing Activities Secured credit facility. Our utilization of the
accounts receivable securitization facility is limited by the amount of
accounts receivable that we are permitted to securitize according to the
facility agreement. This agreement allows for the proceeds of up to $145.0
million from the securitization of accounts receivable, depending on the
available undivided interests in our accounts receivable from certain
customers. At October 31, 2010, we had received cash proceeds of $66.0
million related to the securitization of our trade accounts receivable with
46
Table of Contents
the
ability to receive cash proceeds, at our option, of an additional $6.0 million.
As our trade accounts receivable increase during the winter heating season, the
securitization facility permits us to receive greater proceeds as eligible
trade accounts receivable increases, thereby providing additional cash for
working capital needs.
Common unit issuances
Ferrellgas issued $1.6 million of common units in connection with the
acquisition of propane distribution assets.
During November 2010, we entered into an agreement with an
institutional investor relating to a non-brokered registered direct offering of
1.2 million common units. Net proceeds
of approximately $30.0 million were used to reduce outstanding
indebtedness under the credit facility.
Debt
issuances and repayments
During November 2010, we issued $500.0 million in aggregate
principal amount of new 6.50% senior notes due 2021 at an offering price equal
to par. We received $491.3 million of net proceeds after deducting initial
purchase discounts and estimated expenses of the offering. We applied the net
proceeds to a cash tender offer to purchase any and all of our $450.0 million
6.75% fixed rate senior notes due May 1, 2014 and to redeem any such notes
that remain outstanding after November 30, 2010. As of November 30,
2010, we had purchased $368.6 million of the senior notes pursuant to the cash
tender offer. We used the remaining proceeds to reduce outstanding indebtedness
under the credit facility by $111.9 million and to pay the related make whole
and interest payments of $10.8 million. We then issued an irrevocable notice to
redeem prior to the end of December 2010 the remaining $81.4 million
outstanding principal amount of the 6.75% senior notes due 2014 and their
related make-whole payments.
We believe that the liquidity available from our credit facility and
the accounts receivable securitization facility will be sufficient to meet our
capital expenditure, working capital and letter of credit requirements for
fiscal 2011. See Accounts Receivable Securitization for discussion about our
accounts receivable securitization facility. However, if we were to experience
an unexpected significant increase in these requirements, our needs could
exceed our immediately available resources. Events that could cause increases
in these requirements include, but are not limited to the following:
·
a significant increase in
the wholesale cost of propane;
·
a significant delay in the
collections of accounts receivable;
·
increased volatility in
energy commodity prices related to risk management activities;
·
increased liquidity
requirements imposed by insurance providers;
·
a significant downgrade in
our credit rating leading to
decreased trade credit; or
·
a significant acquisition.
If one or more of these or other events caused a significant use of
available funding, we may consider alternatives to provide increased liquidity
and capital funding. No assurances can be given, however, that such
alternatives would be available, or, if available, could be implemented. See
discussion of related risk factors in Item 1A. Risk Factors in our Annual
Report on Form 10-K.
The
operating partnership
The financing activities discussed above also apply to the operating
partnership except for cash flows related to distributions and contributions
received, as discussed below.
47
Table of Contents
Distributions
The operating partnership paid cash distributions of $35.5 million
during the three months ended October 31, 2010. The operating partnership
expects to pay cash distributions of $48.3 million on December 15, 2010.
Contributions received by the operating partnership
During
October 2010, the operating partnership received asset contributions of
$1.6 million in connection with the acquisition of propane distribution assets.
Disclosures about Effects of Transactions with Related Parties
We have no employees and are managed and controlled by our general
partner. Pursuant to our partnership agreement, our general partner is entitled
to reimbursement for all direct and indirect expenses incurred or payments it
makes on our behalf, and all other necessary or appropriate expenses allocable
to us or otherwise reasonably incurred by our general partner in connection
with operating our business. These reimbursable costs, which totaled $56.5
million for the three months ended October 31, 2010, include operating
expenses such as compensation and benefits paid to employees of our general
partner who perform services on our behalf, as well as related general and
administrative expenses.
Related party common unitholder information consisted of the following:
|
|
Common unit
ownership at
October 31, 2010
|
|
Distributions paid during
the three months ended
October 31, 2010
|
|
Ferrell Companies (1)
|
|
20,080,776
|
|
$
|
10,040
|
|
FCI Trading Corp. (2)
|
|
195,686
|
|
98
|
|
Ferrell Propane, Inc. (3)
|
|
51,204
|
|
26
|
|
James E. Ferrell (4)
|
|
4,353,475
|
|
2,177
|
|
|
|
|
|
|
|
|
(1)
Ferrell Companies is the
sole shareholder of our general partner.
(2)
FCI Trading Corp. is an
affiliate of the general partner and is wholly-owned by Ferrell Companies.
(3)
Ferrell Propane, Inc.
is wholly-owned by our general partner.
(4)
James E. Ferrell is the
Executive Chairman and Chairman of the Board of Directors of our general
partner.
During the three months ended October 31, 2010, Ferrellgas
Partners and the operating partnership together paid the general partner
distributions of $0.7 million.
On December 15, 2010, Ferrellgas Partners expects to pay
distributions to Ferrell Companies, FCI Trading Corp., Ferrell Propane, Inc.,
James E. Ferrell (indirectly), and the general partner of $10.0 million, $0.1
million, $26 thousand, $2.2 million and $0.4 million, respectively.
During the three months ended October 31, 2010, we paid
Fleishman-Hillard Inc. $33 thousand for marketing and communications services.
Elizabeth Solberg, a member of our general partners Board of Directors, serves
as the General Manager of Fleishman-Hillard Inc.
Contractual Obligations
In the performance of our operations, we are bound by certain
contractual obligations.
The following table summarizes our contractual obligations at October 31,
2010, adjusted for the November 2010 effect of the following: a $30.0
million common unit offering with the proceeds used to reduce outstanding
indebtedness under our credit facility; an issuance of $500.0 million in
aggregate principal amount of new 6.50% senior notes due 2021 at an offering
price equal to par; and an early redemption notice to the holders of our $450.0
million 6.75% fixed rate senior notes due May 1, 2014.
48
Table of Contents
|
|
Payment or settlement due by fiscal year
|
|
(in thousands)
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Thereafter
|
|
Total
|
|
Long-term debt, including current portion (1)
|
|
$
|
31,405
|
|
$
|
2,394
|
|
$
|
32,101
|
|
$
|
1,747
|
|
$
|
1,760
|
|
$
|
1,082,556
|
|
$
|
1,151,963
|
|
Fixed rate interest obligations (2)
|
|
70,198
|
|
85,255
|
|
85,176
|
|
85,140
|
|
85,121
|
|
366,799
|
|
777,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
We
have long and short-term payment obligations under agreements such as our
senior notes and our credit facility. Amounts shown in the table represent
our scheduled future maturities of long-term debt (including current maturities
thereof) for the periods indicated. For additional information regarding our
debt obligations, please see Liquidity and Capital Resources Financing
Activities.
|
|
|
|
(2)
|
|
Fixed
rate interest obligations represent the amount of interest due on fixed rate
long-term debt. These amounts do not include interest on our credit facility,
a variable rate debt obligation. As of October 31, 2010, variable rate
interest on our outstanding balance of variable rate debt of $200.3 million
would be $8.6 million on an annual basis. Actual variable rate interest
amounts will differ due to changes in interest rates and actual seasonal
borrowings under our credit facility.
|
The operating partnership
The contractual obligation table above also applies to the operating partnership,
except for long-term debt, including current portion and fixed rate interest
obligations, which are summarized in the table below:
|
|
Payment or settlement due by fiscal year
|
|
(in thousands)
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Thereafter
|
|
Total
|
|
Long-term debt, including current portion (1)
|
|
$
|
31,405
|
|
$
|
2,394
|
|
$
|
32,101
|
|
$
|
1,747
|
|
$
|
1,760
|
|
$
|
802,556
|
|
$
|
871,963
|
|
Fixed rate interest obligations (2)
|
|
46,048
|
|
61,105
|
|
61,026
|
|
60,990
|
|
60,971
|
|
250,074
|
|
540,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The
operating partnership has long and short-term payment obligations under
agreements such as the operating partnerships senior notes and credit
facility. Amounts shown in the table represent the operating partnerships
scheduled future maturities of long-term debt (including current maturities
thereof) for the periods indicated. For additional information regarding the
operating partnerships debt obligations, please see Liquidity and Capital
Resources Financing Activities.
|
|
|
|
(2)
|
|
Fixed
rate interest obligations represent the amount of interest due on fixed rate
long-term debt. These amounts do not include interest on our credit facility,
a variable rate debt obligation. As of October 31, 2010, variable rate
interest on our outstanding balance of variable rate debt of $200.3 million
would be $8.6 million on an annual basis. Actual variable rate interest
amounts will differ due to changes in interest rates and actual seasonal
borrowings under our credit facility.
|
ITEM 3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We did not enter into any risk management trading activities during the
three months ended October 31, 2010. Our remaining market risk sensitive
instruments and positions have been determined to be other than trading.
49
Table of Contents
Commodity Price Risk
Management
Our risk management activities primarily attempt to mitigate price
risks related to the purchase, storage, transport and sale of propane generally
in the contract and spot markets from major domestic energy companies on a
short-term basis. We attempt to mitigate these price risks through the use of
financial derivative instruments and forward propane purchase and sales
contracts.
Our risk management strategy involves taking positions in the forward
or financial markets that are equal and opposite to our positions in the
physical products market in order to minimize the risk of financial loss from
an adverse price change. This risk management strategy is successful when our
gains or losses in the physical product markets are offset by our losses or
gains in the forward or financial markets. These financial derivatives are
designated as cash flow hedges.
Our risk management activities include the use of financial derivative
instruments including, but not limited to, price swaps, options, futures and
basis swaps to seek protection from adverse price movements and to minimize
potential losses. We enter into these financial derivative instruments directly
with third parties in the over-the-counter market and with brokers who are
clearing members with the New York Mercantile Exchange. We also enter into
forward propane purchase and sales contracts with counterparties. These forward
contracts qualify for the normal purchase normal sales exception within GAAP
guidance and are therefore not recorded prior to settlement on our financial
statements.
Market risks associated with energy commodities are monitored daily by
senior management for compliance with our commodity risk management policy.
This policy includes an aggregate dollar loss limit and limits on the term of
various contracts. We also utilize volume limits for various energy commodities
and review our positions daily where we remain exposed to market risk, so as to
manage exposures to changing market prices.
We have prepared a
sensitivity analysis to estimate the exposure to market risk of our energy
commodity positions. Forward contracts, futures, swaps and options outstanding
as of October 31, 2010 and July 31, 2010, that were used in our risk
management activities were analyzed assuming a hypothetical 10% adverse change
in prices for the delivery month for all energy commodities. The potential loss
in future earnings from these positions due to a 10% adverse movement in market
prices of the underlying energy commodities was estimated at $12.7 million and
$7.8 million as of October 31, 2010 and July 31, 2010, respectively.
The preceding hypothetical analysis is limited because changes in prices may or
may not equal 10%, thus actual results may differ.
Our sensitivity analysis
includes designated hedging and the anticipated transactions associated with
these hedging transactions. These hedging transactions are anticipated to be
100% effective; therefore, there is no effect on our sensitivity analysis from
these hedging transactions. To the extent option contracts are used as hedging
instruments for anticipated transactions we have included the offsetting effect
of the anticipated transactions, only to the extent the option contracts are in
the money, or would become in the money as a result of the 10% hypothetical
movement in prices. All other anticipated transactions for risk management
activities have been excluded from our sensitivity analysis.
Credit Risk
We maintain credit policies
with regard to our counterparties for propane procurement that we believe
significantly minimize overall credit risk. These policies include an
evaluation of counterparties financial condition (including credit ratings),
and entering into agreements with counterparties that govern credit guidelines.
These counterparties consist
of major energy companies who are suppliers, wholesalers, retailers, end users
and financial institutions. The overall impact due to certain changes in
economic, regulatory and other events may impact our overall exposure to credit
risk, either positively or negatively in that
50
Table of Contents
counterparties may be similarly
impacted. Based on our policies, exposures, credit and other reserves,
management does not anticipate a material adverse effect on financial position
or results of operations as a result of counterparty performance.
Interest Rate Risk
At October 31, 2010 and July 31, 2010, we had $200.3 million
and $167.0 million, respectively, in variable rate credit facility borrowings.
Thus, assuming a one percent increase in our variable interest rate, our
interest rate risk related to the borrowings on our variable rate credit
facility would result in a loss in future earnings of $2.0 million for the
twelve months ending October 31, 2011. The preceding hypothetical analysis
is limited because changes in interest rates may or may not equal one percent,
thus actual results may differ.
ITEM 4.
CONTROLS
AND PROCEDURES.
An
evaluation was performed by the management of Ferrellgas Partners, L.P., Ferrellgas
Partners Finance Corp., Ferrellgas, L.P., and Ferrellgas Finance Corp., with
the participation of the principal executive officer and principal financial
officer of our general partner, of the effectiveness of our disclosure controls
and procedures. Based on that evaluation, our management, including our
principal executive officer and principal financial officer, concluded that our
disclosure controls and procedures, as defined in Rules 13a-15(e) or
15d-15(e) under the Exchange Act, were effective.
The
management of Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp.,
Ferrellgas, L.P., and Ferrellgas Finance Corp. does not expect that our
disclosure controls and procedures will prevent all errors and all fraud. The
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Based on the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the above mentioned Partnerships and
Corporations have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple errors or mistakes. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the controls. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events. Therefore, a control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Our disclosure controls and
procedures are designed to provide such reasonable assurances of achieving our
desired control objectives, and the principal executive officer and principal
financial officer of our general partner have concluded, as of October 31,
2010, that our disclosure controls and procedures are effective in achieving
that level of reasonable assurance.
During
the most recent fiscal quarter ended October 31, 2010, there have been no
changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or
Rule 15d-15(f) of the Exchange Act) that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
PART II
- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Our operations are subject to all operating hazards and risks normally
incidental to handling, storing, transporting and otherwise providing for use
by consumers of combustible liquids such as propane. As a result, at any given
time, we are threatened with or named as a defendant in various lawsuits
arising in the ordinary course of business. Other than as discussed below, we
are not a party to any legal proceedings other than various claims and lawsuits
arising in the ordinary course of business. It is not possible to determine the
ultimate disposition of these matters; however, management is of the opinion
that there are
51
Table of Contents
no known claims or contingent claims that are reasonably expected to
have a material adverse effect on our financial condition, results of
operations and cash flows.
We have been named as a defendant in lawsuits filed in multiple federal
and state courts that seek to certify nationwide or statewide classes related
to our Blue Rhino branded propane tank exchange activities. The plaintiffs in
each case generally allege that we failed to inform consumers of the amount of
propane contained in propane tanks they purchased and that we violated
anti-trust laws by allegedly conspiring with a competitor. The federal cases
have been coordinated for multidistrict treatment in the United
States District Court for the Western District of Missouri. Based on our business
and consumer notification practices in our Blue Rhino tank exchange operations,
we believe that all of these claims are without merit and intend to defend the
claims vigorously.
We
have also been named as a defendant in a class action lawsuit filed in the United
States District Court in Kansas. The complaint alleges that we violate consumer
protection laws in the manner we set prices and fees for our customers. Based
on our business practices, we believe that the claims are without merit and
intend to defend the claims vigorously.
ITEM 1A. RISK FACTORS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. (REMOVED AND RESERVED).
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
The exhibits listed below are furnished as part of this Quarterly
Report on Form 10-Q. Exhibits required by Item 601 of Regulation S-K of
the Securities Act, which are not listed, are not applicable.
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Exhibit
Number
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Description
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3.1
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Fourth
Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners,
L.P. dated as of February 18, 2003. Incorporated by reference to
Exhibit 3.1 to our registration statement on Form S-3 filed
March 6, 2009.
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3.2
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First
Amendment to Fourth Amended and Restated Agreement of Limited Partnership of
Ferrellgas Partners, L.P. dated as of March 8, 2005. Incorporated by
reference to Exhibit 3.2 to our registration statement on Form S-3
filed March 6, 2009.
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3.3
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Second
Amendment to Fourth Amended and Restated Agreement of Limited Partnership of
Ferrellgas Partners, L.P. dated as of June 29, 2005. Incorporated by
reference to Exhibit 3.3 to our registration statement on Form S-3
filed March 6, 2009.
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3.4
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Third
Amendment to Fourth Amended and Restated Agreement of Limited Partnership of
Ferrellgas Partners, L.P. dated as of October 11, 2006. Incorporated by
reference to Exhibit 3.4 to our registration statement on Form S-3
filed March 6, 2009.
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3.5
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Certificate
of Incorporation of Ferrellgas Partners Finance Corp. filed with the Delaware
Division of Corporations on March 28, 1996. Incorporated by reference to
Exhibit 3.6 to our registration statement on Form S-3 filed
March 6, 2009.
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3.6
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Bylaws
of Ferrellgas Partners Finance Corp. Incorporated by reference to
Exhibit 3.7 to our registration statement on Form S-3 filed
March 6, 2009.
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3.7
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Third
Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P.
dated as of April 7, 2004. Incorporated by reference to Exhibit 3.5
to our registration statement on Form S-3 filed March 6, 2009.
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3.8
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Certificate
of Incorporation of Ferrellgas Finance Corp. filed with the Delaware Division
of Corporations on January 16, 2003. Incorporated by reference to
Exhibit 3.8 to our registration statement on Form S-3 filed
March 6, 2009.
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3.9
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Bylaws
of Ferrellgas Finance Corp. adopted as of January 16, 2003. Incorporated
by reference to Exhibit 3.9 to our registration statement on
Form S-3 filed March 6, 2009.
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4.1
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Specimen
Certificate evidencing Common Units representing Limited Partner Interests.
Incorporated by reference to Exhibit A of Exhibit 3.1 to our
registration statement on Form S-3 filed March 6, 2009.
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4.2
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Indenture
dated as of April 20, 2004, with form of Note attached, among Ferrellgas
Escrow LLC, Ferrellgas Finance Escrow Corporation and U.S. Bank National
Association, as trustee, relating to $250 million aggregate amount of the
Registrants 6 ¾% Senior Notes due 2014. Incorporated by reference to
Exhibit 4.3 to our Quarterly Report on Form 10-Q filed
March 10, 2009.
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4.3
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Indenture
dated as of August 4, 2008, with form of Note attached, among
Ferrellgas, L.P., Ferrellgas Finance Corp. and U.S. Bank National
Association, as trustee, relating to $200 million aggregate amount of the
Registrants 6 ¾% Senior Notes due 2014. Incorporated by reference to
Exhibit 4.1 to our Current Report on Form 8-K filed August 5,
2008.
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4.4
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Indenture
dated as of September 14, 2009, with form of Note attached, among
Ferrellgas, L.P., Ferrellgas Finance Corp. and U.S. Bank National
Association, as trustee, relating to $300 million aggregate amount of the
Registrants 9 1/8% Senior Notes due 2017. Incorporated by reference to
Exhibit 4.1 to our Current Report on Form 8-K filed
September 14, 2009.
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4.5
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Indenture
dated as of April 13, 2010, among Ferrellgas Partners, L.P., Ferrellgas
Partners Finance Corp. and U.S. Bank National Association, as trustee,
relating to $280 million aggregate amount of the Registrants 8 5/8% Senior
Notes due 2020. Incorporated by reference to Exhibit 4.1 to our Current
Report on Form 8-K filed April 13, 2010.
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4.6
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First
Supplemental Indenture dated as of April 13, 2010, with form of Note
attached, among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp.
and U.S. Bank National Association, as trustee, relating to $280 million
aggregate amount of the Registrants 8 5/8% Senior Notes due 2020.
Incorporated by reference to Exhibit 4.2 to our Current Report on
Form 8-K filed April 13, 2010.
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4.7
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Indenture
dated as of November 24, 2010, among Ferrellgas, L.P., Ferrellgas
Finance Corp. and U.S. Bank National Association, as trustee, relating to
$500 million aggregate amount of the Registrants 6 1/2% Senior Notes due
2021. Incorporated by reference to Exhibit 4.1 to our Current Report on
Form 8-K filed November 30, 2010.
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4.8
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Registration
Rights Agreement dated as of November 24, 2010, by and among Ferrellgas,
L.P., Ferrellgas Finance Corp. and the initial purchasers named therein.
Incorporated by reference to Exhibit 4.2 to our Current Report on
Form 8-K filed November 30, 2010.
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4.9
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Registration
Rights Agreement dated as of September 14, 2009, by and among
Ferrellgas, L.P., Ferrellgas Finance Corp. and the initial purchasers named
therein. Incorporated by reference to Exhibit 4.2 to our Current Report
on Form 8-K filed September 14, 2009.
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4.10
|
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Registration
Rights Agreement dated as of August 4, 2008, by and among Ferrellgas,
L.P., Ferrellgas Finance Corp. and the initial purchasers named therein.
Incorporated by reference to Exhibit 4.2 to our Current Report on
Form 8-K filed August 5, 2008.
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4.11
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Registration
Rights Agreement dated as of December 17, 1999, by and between
Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc.
Incorporated by reference to Exhibit 4.8 to our Quarterly Report on
Form 10-Q filed March 10, 2009.
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4.12
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First
Amendment to Registration Rights Agreement dated as of March 14, 2000,
by and between Ferrellgas Partners, L.P. and Williams Natural Gas
Liquids, Inc. Incorporated by reference to Exhibit 4.9 to our
Quarterly Report on Form 10-Q filed March 10, 2009.
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Table of Contents
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4.13
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Second
Amendment to Registration Rights Agreement dated as of April 6, 2001, by
and between Ferrellgas Partners, L.P. and The Williams Companies, Inc.
Incorporated by reference to Exhibit 4.10 to our Quarterly Report on
Form 10-Q filed March 10, 2009.
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4.14
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Third
Amendment to Registration Rights Agreement dated as of June 29, 2005, by
and between Ferrellgas Partners, L.P. and JEF Capital Management, Inc.
Incorporated by reference to Exhibit 4.13 to our Quarterly Report on
Form 10-Q filed June 9, 2010.
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10.1
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Credit
Agreement dated as of November 2, 2009, among Ferrellgas, L.P. as the
borrower, Ferrellgas, Inc. as the general partner of the borrower, Bank
of America, N.A. as administrative agent, swing line lender and L/C issuer,
and the lenders party hereto. Incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K filed November 4, 2009.
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10.2
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Receivable
Sale Agreement dated as of April 6, 2010, between Ferrellgas, L.P., as
originator, and Ferrellgas Receivables, LLC, as buyer. Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed
April 7, 2010.
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10.3
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Receivables
Purchase Agreement dated as of April 6, 2010, among Ferrellgas
Receivables, LLC, as seller, Ferrellgas, L.P., as servicer, the purchasers
from time to time party hereto, Fifth Third Bank and BNP Paribas, as
co-agents, and Wells Fargo Bank, N.A., as administrative agent. Incorporated
by reference to Exhibit 10.2 to our Current Report on Form 8-K
filed April 7, 2010.
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#
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10.4
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Ferrell
Companies, Inc. Supplemental Savings Plan, as amended and restated
effective January 1, 2010. Incorporated by reference to
Exhibit 10.14 to our Quarterly Report on Form 10-Q filed
March 10, 2010.
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#
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10.5
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Second
Amended and Restated Ferrellgas Unit Option Plan, effective April 19,
2001. Incorporated by reference to Exhibit 10.5 to our Annual Report on
Form 10-K filed September 28, 2010.
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#
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10.6
|
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Ferrell
Companies, Inc. 1998 Incentive Compensation Plan, as amended and
restated effective October 11, 2004. Incorporated by reference to
Exhibit 10.22 to our Annual Report on Form 10-K filed September 28,
2009.
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#
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10.7
|
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Amendment
to Ferrell Companies, Inc. 1998 Incentive Compensation Plan, dated as of
March 7, 2010. Incorporated by reference to Exhibit 10.7 to our
Quarterly Report on Form 10-Q filed June 9, 2010.
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#
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10.8
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Employment,
Confidentiality, and Noncompete Agreement dated as of July 17, 1998 by
and among Ferrell Companies, Inc. as the company, Ferrellgas, Inc.
as the company, James E. Ferrell as the executive and LaSalle National Bank
as trustee of the Ferrell Companies, Inc. Employee Stock Ownership
Trust. Incorporated by reference to Exhibit 10.19 to our Quarterly
Report on Form 10-Q filed March 10, 2009.
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#
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10.9
|
|
Amended
and Restated Change In Control Agreement dated as of March 5, 2008 by
and between Ferrellgas, Inc. as the company and Patrick J. Walsh as the
executive. Incorporated by reference to exhibit 10.25 to our Quarterly Report
on Form 10-Q filed March 7, 2008.
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Table of Contents
#
|
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10.10
|
|
Change
In Control Agreement dated as of March 5, 2008 by and between
Ferrellgas, Inc. as the company and Richard V. Mayberry as the
executive. Incorporated by reference to exhibit 10.28 to our Quarterly Report
on Form 10-Q filed March 7, 2008.
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#
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10.11
|
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Change
In Control Agreement dated as of October 9, 2006 by and between
Ferrellgas, Inc. as the company and James E. Ferrell as the executive.
Incorporated by reference to Exhibit 10.30 to our Annual Report on
Form 10-K filed October 12, 2006.
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#
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10.12
|
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Employment
Agreement dated as of August 10, 2009 by and between
Ferrellgas, Inc. as the company and Stephen L. Wambold as the executive.
Incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed August 10, 2009.
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#
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10.13
|
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Employment
Agreement dated as of August 10, 2009 by and between
Ferrellgas, Inc. as the company and James R. VanWinkle as the executive.
Incorporated by reference to Exhibit 10.2 to our Current Report on
Form 8-K filed August 10, 2009.
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#
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10.14
|
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Employment
Agreement dated as of August 10, 2009 by and between
Ferrellgas, Inc. as the company and Jennifer Boren as the executive.
Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K
filed August 10, 2009.
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#
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10.15
|
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Employment
Agreement dated as of August 10, 2009 by and between
Ferrellgas, Inc. as the company and Tod Brown as the executive.
Incorporated by reference to Exhibit 10.4 to our Current Report on
Form 8-K filed August 10, 2009.
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#
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10.16
|
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Employment
Agreement dated as of August 10, 2009 by and between
Ferrellgas, Inc. as the company and George L. Koloroutis as the
executive. Incorporated by reference to Exhibit 10.6 to our Current
Report on Form 8-K filed August 10, 2009.
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*
|
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31.1
|
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Certification of Ferrellgas Partners, L.P.
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Exchange Act.
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*
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31.2
|
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Certification of Ferrellgas Partners Finance Corp.
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Exchange Act.
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*
|
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31.3
|
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Certification of Ferrellgas, L.P. pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
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*
|
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31.4
|
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Certification of Ferrellgas Finance Corp. pursuant
to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
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*
|
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32.1
|
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Certification of Ferrellgas Partners, L.P.
pursuant to 18 U.S.C. Section 1350.
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*
|
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32.2
|
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Certification of Ferrellgas Partners Finance Corp.
pursuant to 18 U.S.C. Section 1350.
|
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*
|
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32.3
|
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Certification of Ferrellgas, L.P. pursuant to 18
U.S.C. Section 1350.
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*
|
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32.4
|
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Certification of Ferrellgas Finance Corp. pursuant
to 18 U.S.C. Section 1350.
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56
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*
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101
|
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The following materials from Ferrellgas Partners,
L.P.s, and Ferrellgas, L.P.s Quarterly Report on Form 10-Q for the
quarterly period ended October 31, 2010, formatted in XBRL (Extensible
Business Reporting Language): (i) the Condensed Consolidated Balance
Sheets; (ii) the Condensed Consolidated Statements of Earnings;
(iii) the Condensed Consolidated Statements of Partners Capital;
(iv) the Condensed Consolidated Statements of Cash Flows; and
(v) Notes to Condensed Consolidated Financial Statements, tagged as
blocks of text. The following materials from Ferrellgas Partners Finance
Corp.s, and Ferrellgas, Finance Corp.s Quarterly Report on Form 10-Q
for the quarterly period ended October 31, 2010, formatted in XBRL (Extensible
Business Reporting Language): (i) the Condensed Balance Sheets;
(ii) the Condensed Statements of Earnings; (iii) the Condensed
Statements of Cash Flows; and (iv) Notes to Condensed Financial
Statements, tagged as blocks of text. This Exhibit 101 is deemed not
filed for purposes of Section 11 or 12 of the Securities Exchange Act of
1933 and Section 18 of the Securities Exchange Act of 1934, and
otherwise is not subject to liability under these sections.
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*
|
Filed
herewith
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#
|
Management
contracts or compensatory plans.
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57
Table of Contents
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.
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FERRELLGAS
PARTNERS, L.P.
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By
Ferrellgas, Inc. (General Partner)
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Date: December 10, 2010
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By
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/s/
J. Ryan VanWinkle
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J.
Ryan VanWinkle
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Senior
Vice President and Chief Financial Officer;
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Treasurer
(Principal Financial and Accounting Officer)
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FERRELLGAS
PARTNERS FINANCE CORP.
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Date: December 10, 2010
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By
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/s/
J. Ryan VanWinkle
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J.
Ryan VanWinkle
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Chief
Financial Officer and Sole Director
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FERRELLGAS,
L.P.
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By
Ferrellgas, Inc. (General Partner)
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Date: December 10, 2010
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By
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/s/
J. Ryan VanWinkle
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J.
Ryan VanWinkle
|
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Senior
Vice President and Chief Financial Officer;
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Treasurer
(Principal Financial and Accounting Officer)
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FERRELLGAS
FINANCE CORP.
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Date: December 10, 2010
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By
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/s/
J. Ryan VanWinkle
|
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J.
Ryan VanWinkle
|
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Chief
Financial Officer and Sole Director
|
58
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