UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Earliest Event Reported: December 7, 1999
Date of Report: December 7, 1999
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 1-111331 43-1698480
Delaware 333-06693 43-1742520
----------------------- ----------------- ----------------------------
(States or other Commission file (I.R.S. Employer Identification
jurisdictions of numbers Nos.)
incorporation or
organization)
One Liberty Plaza, Liberty, Missouri 64068
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (816) 792-1600
ITEM 5. OTHER EVENTS
Ferrellgas, Inc., the General Partner of Ferrellgas Partners, L.P.,
balance sheet as of July 31, 1999, has been audited by an independent auditor.
See exhibit 99.1 for the audited financial statement.
This audited balance sheet and independent auditor's opinion will be
incorporated by reference to the Ferrellgas Partners, L.P. Registration
Statement No. 333-71111, Amendment No. 1 to Form S-3 and to the Ferrellgas
Partner, L.P. Registration Statement No. 33-55185, Post-Effective Amendment No 1
to Form S-4. See exhibit 23.1 for independent auditor's consent.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
The Exhibits listed in the Index to Exhibits are filed as part of this
Current Report on Form 8-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FERRELLGAS PARTNERS, L.P.
By Ferrellgas, Inc. (General Partner)
Date: December 7, 1999 By /s/ Kevin T. Kelly
-------------------------------------------
Kevin T. Kelly
Chief Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS PARTNERS FINANCE CORP.
Date: December 7, 1999 By /s/ Kevin T. Kelly
-------------------------------------------
Kevin T. Kelly
Chief Financial Officer (Principal
Financial and Accounting Officer)
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
23.1 Consent of Deloitte & Touche LLP, Independent Auditors.
99.1 Consolidated balance sheet of Ferrellgas, Inc. as of July 31,
1999, together with the report of Deloitte & Touche LLP with
respect thereto.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to
Registration Statement No. 333-71111 of Ferrellgas Partners, L.P. and Ferrellgas
Partners Finance Corp. on Form S-3 of our reports dated September 14, 1999,
appearing in the Annual Report on Form 10-K of Ferrellgas Partners, L.P. for the
year ended July 31, 1999.
We consent to the incorporation by reference in Amendment No. 1 to the
Registration Statement No. 333-71111 of Ferrellgas Partners, L.P. and Ferrellgas
Partners Finance Corp. on Form S-3 of our report relating to Ferrellgas, Inc.
and Subsidiaries dated October 4, 1999, appearing in this Form 8-K.
We consent to the incorporation by reference in Post-Effective Amendment
No. 1 to Registration Statement No. 33-55185 of Ferrellgas Partners, L.P. and
Ferrellgas Partners Finance Corp. on Form S-4 of our report relating to
Ferrellgas, Inc. and Subsidiaries dated October 4, 1999, appearing in this Form
8-K.
Kansas City, Missouri
December 6, 1999
Exhibit 99.1
Ferrellgas, Inc. and Subsidiaries
Consolidated Balance Sheet as of July 31, 1999, and Independent
Auditors' Report
INDEX TO BALANCE SHEET
Page
Independent Auditors' Report.........................................3
Consolidated Balance Sheet - July 31, 1999...........................4
Notes to Consolidated Balance Sheet..................................5
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas, Inc. and Subsidiaries
Liberty, Missouri
We have audited the accompanying consolidated balance sheet of Ferrellgas, Inc.
and subsidiaries (the "Company") as of July 31, 1999. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated balance sheet presents fairly, in all material
respects, the financial position of the Company as of July 31, 1999, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
October 4, 1999
-3-
FERRELLGAS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of Ferrell Companies, Inc.)
CONSOLIDATED BALANCE SHEET
JULY 31, 1999
(in thousands, except share data)
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 35,713
Accounts and notes receivable (net of
allowance for doubtful accounts of $1,296) 58,380
Inventories 24,645
Prepaid expenses and other current assets 6,780
--------------
Total Current Assets 125,518
Property, plant and equipment, net 477,494
Intangible assets, net 369,101
Other assets, net 8,473
--------------
Total Assets $980,586
==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 60,754
Other current liabilities 48,443
Short-term borrowings 20,486
--------------
Total Current Liabilities 129,683
Long-term debt 583,840
Deferred income taxes 2,150
Other liabilities 12,144
Contingencies and commitments (Note F) -
Minority interest -
Parent investment in subsidiary 269,069
Stockholder's Equity:
Common stock, one dollar par value;
10,000 shares authorized; 990 shares issued 1
Additional paid-in-capital 13,288
Note receivable from parent (148,286)
Retained earnings 119,502
Accumulated other comprehensive income (805)
--------------
Total Stockholder's Equity (16,300)
--------------
Total Liabilities and Stockholder's Equity $980,586
==============
See notes to consolidated balance sheet.
-4-
FERRELLGAS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of Ferrell Companies, Inc.)
NOTES TO CONSOLIDATED BALANCE SHEET
A. Basis of Presentation
The accompanying consolidated balance sheet and related notes present the
consolidated financial position of Ferrellgas, Inc.
(the "Company"), its subsidiaries and its partnership interest in
Ferrellgas Partners, L.P and subsidiaries. The Company is a
wholly-owned subsidiary of Ferrell Companies, Inc. ("Ferrell" or "Parent").
On July 5, 1994, Ferrellgas Partners, L.P. (the "Partnership" or "MLP")
completed an initial public offering of 13,100,000 Common Units
representing limited partner interests (the "Common Units") at $21 per
Common Unit. As of the date of the offering, the 13,100,000 Common Units
represented a 41.8% limited partner interest in the Partnership. Ferrellgas
Partners, L.P. was formed April 19, 1994, owning a 99% limited partner
interest in Ferrellgas, L.P. (the "Operating Partnership" or "OLP").
Ferrellgas Partners, L.P. was formed to acquire and hold a limited partner
interest in the Operating Partnership. The Operating Partnership was formed
to own and operate the propane business and substantially all of the assets
of the Company. Both are Delaware limited partnerships, and are
collectively known as the Partnership.
Concurrent with the closing of the offering, the Company contributed all of
its propane business and assets to the Partnership in exchange for
1,000,000 Common Units, 16,593,721 Subordinated Units and Incentive
Distribution Rights representing a 56.2% limited partner interest in the
Partnership as well as a 2% general partner interest in the Partnership and
the Operating Partnership on a combined basis. Effective August 1, 1999,
the Subordinated Units converted to Common Units because certain financial
tests, among others, were satisfied by the Partnership for each of the
three consecutive four quarter periods ending on July 31, 1999.
In July 1998, the Company transferred its entire limited partnership
ownership of the MLP to Ferrell. Also during July 1998, 100% of the
outstanding common stock of Ferrell was purchased from Mr. James E. Ferrell
and his family by a newly established leveraged employee stock ownership
trust (the "ESOT") established pursuant to the Ferrell Companies, Inc.
Employee Stock Ownership Plan (the "ESOP"). The purpose of the ESOP is to
provide employees of the Company an opportunity for ownership in Ferrell
and indirectly in the Partnership. As contributions are made by Ferrell to
the ESOP in the future, shares of Ferrell are allocated to employees' ESOP
accounts. As a result of these transactions, the Parent no longer intends
to repay its intercompany note with the Company. The Note Receivable from
Parent is therefore reported in Stockholder's Equity as of July 31, 1999.
As a result of the 100% change in ownership of Ferrell, effective July 17,
1998, the Company established a new basis in the net assets of the Company
based on the purchase price paid by the ESOT for the common stock of its
parent, Ferrell. The new basis in the equity of the Company was established
at $10,000,000 which resulted in an increase in the basis of property,
plant and equipment of $73,692,000 and goodwill of $198,620,000.
Amortization on the goodwill related to the purchase price allocation is
calculated using the straight-line method based on an estimated useful life
of forty years.
-5-
B. Summary of Significant Accounting Policies
(1) Nature of operations: The Company's operations are limited to those
activities associated with the Partnership. The Partnership is engaged
primarily in the sale, distribution, marketing and trading of propane and
other natural gas liquids throughout the United States. The retail market is
seasonal because propane is used primarily for heating in residential and
commercial buildings. The Partnership serves more than 800,000 residential,
industrial/commercial and agricultural customers.
(2) Accounting estimates: The preparation of financial statements in
conformity with generally accepted accounting principles ("GAAP") requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the balance sheet. Actual results could differ
from these estimates. Significant estimates impacting the balance sheet
include reserves that have been established for product liability and other
claims.
(3) Principles of consolidation: The consolidated balance sheet includes the
accounts of the Company, its subsidiaries and the Partnership. The minority
interest is comprised of a 43% limited partner interest, that is owned
publicly. The 57% limited partner interest owned by Ferrell is reflected as
"Parent investment in subsidiary" in the accompanying financial statements.
All material intercompany profits, transactions and balances have been
eliminated.
(4) Cash and cash equivalents: The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to
be cash equivalents.
(5) Inventories: Inventories are stated at the lower of cost or market
using average cost and actual cost methods.
(6) Property, plant and equipment and intangible assets: Property, plant and
equipment is stated at cost less accumulated depreciation. Expenditures for
maintenance and routine repairs are expensed as incurred. Depreciation is
calculated using the straight-line method based on the estimated useful
lives of the assets ranging from two to thirty years. Intangible assets,
consisting primarily of customer location values, goodwill, and non-compete
notes, are stated at cost, net of amortization calculated using the
straight-line method over periods ranging from 5 to 40 years. Accumulated
amortization of intangible assets totaled $145,937,000 as of July 31, 1999.
The Company, using its best estimates based on reasonable and supportable
assumptions and projections, reviews for impairment of long-lived assets and
certain identifiable intangibles to be held and used whenever events or
changes in circumstances indicate that the carrying amount of its assets
might not be recoverable and has concluded no financial statement adjustment
is required.
(7) Accounting for derivative commodity contracts: The Partnership enters
into commodity forward and futures purchase/sale agreements and commodity
options involving propane and related products which are used for trading
and risk management purposes in connection with its trading activities. To
the extent such contracts are entered into at fixed prices and thereby
subject the Partnership to market risk, the contracts are accounted for
using the fair value method. Under the fair value method, derivatives are
carried on the balance sheet at fair value with changes in that value
recognized in earnings.
-6-
(8) Income taxes: For the tax years ending prior to July 31, 1999, the Company
filed consolidated Federal income tax returns with its parent and
affiliates. Income taxes are computed as though each company filed its own
income tax return in accordance with the Company's tax sharing agreement.
Deferred income taxes are provided as a result of temporary differences
between financial and tax reporting as described in Note E, using the
asset/liability method. See Note E for the accounting treatment for deferred
income taxes subsequent to the Subchapter S Corporation election that was
made by Ferrell for the tax year ended July 31, 1999.
(9) Unit and stock-based compensation: The Company accounts for its Unit
Option Plan and the Ferrell Companies Incentive Compensation Plan under the
provisions of Accounting Principles Board ("APB") No. 25, "Accounting for
Stock Issued to Employees".
(10) Segment information: In fiscal 1999, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 establishes standards for reporting information
about operating segments as well as related disclosures about products and
services, geographic areas, and major customers. In determining the
Company's reportable segments under the provisions of SFAS No. 131, the
Company examined the way it organizes its business internally for making
operating decisions and assessing business performance. Based on this
examination, the Company has determined that it has a single reportable
operating segment which engages in the distribution of propane and related
equipment and supplies. No single customer represents 10% or more of
consolidated revenues. In addition, nearly all of the Company's revenues are
derived from sources within the U.S. and all of its long-lived assets are
located in the U.S.
(11) Adoption of new accounting standards: In fiscal 1999, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). The
Company implemented SFAS No. 130 by introducing a new balance sheet item
"accumulated other comprehensive income" to reflect the cumulative activity
for other comprehensive income. The Financial Standards Accounting Board
recently issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133", is required to be
adopted by the Company beginning in the first quarter of fiscal 2001. The
Company is currently assessing its impact on the Company's financial
position.
C. Supplemental Balance Sheet Information
Inventories consist of:
(in thousands)
Liquefied propane gas and related products $15,480
Appliances, parts and supplies 9,165
--------------
$24,645
==============
In addition to inventories on hand, the Partnership enters into contracts
to buy product for supply purposes. Nearly all such contracts have terms
of less than one year and most call for payment based on market prices at
the date of delivery. All fixed price contracts have terms of less than
one year. As of July 31, 1999, in addition to the inventory on hand, the
Partnership had committed to purchase approximately 59,280,000 gallons at
a fixed price for its estimated future retail propane sales.
-7-
Property, plant and equipment consist of:
(in thousands)
Land and improvements $32,776
Buildings and improvements 43,577
Vehicles 50,897
Furniture and fixtures 28,626
Bulk equipment and district facilities 71,693
Tanks and customer equipment 496,378
Other 4,369
-------------
728,316
Less: accumulated depreciation 250,822
-------------
$477,494
=============
Other current liabilities consist of:
(in thousands)
Accrued insurance $4,300
Accrued interest 15,065
Accrued payroll 11,821
Other 17,257
--------------
$48,443
==============
D. Long-Term Debt
Long-term debt consists of:
(in thousands)
Senior Notes
Fixed rate, 7.16% due 2005-2013 (1) $350,000
Fixed rate, 9.375%, due 2006 (2) 160,000
Credit Agreement
Revolving credit loans, 6.0% weighted average interest
rate, due 2001 (3) (4) 58,314
Notes payable, 7.3% weighted average interest rate,
due 1999 to 2007 (5) 18,154
-------------
586,468
Less: current portion 2,628
-------------
$583,840
=============
-8-
(1) The new OLP fixed rate Senior Notes ("New Senior Notes"), issued in
August 1998, are general unsecured obligations of the OLP and rank
on an equal basis in right of payment with all senior indebtedness
of the OLP and senior to all subordinated indebtedness of the OLP.
The outstanding principal amount of the Series A, B, C, D and E
Notes shall be due on August 1, 2005, 2006, 2008, 2010, and 2013,
respectively. In general, the Notes may not be prepaid prior to
maturity at the option of the Partnership.
(2) The MLP fixed rate Senior Secured Notes, issued in April 1996,
will be redeemable at the option of the MLP, in whole or in part,
at any time on or after June 15, 2001. The notes are
secured by the MLP's partnership interest in the OLP. The Senior
Secured Notes bear interest from the date of issuance, payable
semi-annually in arrears on June 15 and December 15 of
each year. Due to a change of control in the ownership of the
Company on July 17, 1998, as a result of the ESOP transaction as
described in Note A, the MLP was required, pursuant to the
MLP fixed rate Senior Secured Note Indenture, to offer to
purchase the outstanding MLP fixed rate Senior Secured Notes at
a price of 101% of the principal amount thereof plus accrued
and unpaid interest. The offer to purchase was made on July 27,
1998 and expired August 26,1998. Upon the expiration of the
offer, the MLP accepted for purchase $65,000 of the notes
which were all of the notes tendered pursuant to the offer.
The MLP assigned its right to purchase the notes to a third party,
thus the notes remain outstanding.
(3) At July 31, 1999, the unsecured $145,000,000 Credit Facility
(the "Credit Facility"), expiring July 2001, consisted of a
$50,000,000 unsecured working capital and general
corporate facility including a letter of credit facility, a
$55,000,000 unsecured general
corporate and acquisition facility and a $40,000,000 revolving
working capital facility, which is subject to an annual
reduction in outstanding balances to zero for thirty
consecutive days. All borrowings under the Credit Facility bear
interest at either LIBOR plus an applicable margin varying from
0.425% to 1.375% or the bank's base rate, depending on the
nature of the borrowing. The bank's base rate at July 31, 1999
was 8.0%. To offset the variable rate characteristic of the
Credit Facility, the OLP entered into a interest rate collar
agreement, expiring December 2001, with a major bank limiting
the floating rate portion of LIBOR-based loan interest rates
on a notional amount of $25,000,000 to between 5.05% and 6.5%.
(4) The OLP entered into a credit facility agreement on April 30, 1999.
This new facility ("Additional Credit Facility") provides for a
$38,000,000 unsecured facility for acquisitions, capital
expenditures and general corporate purposes. The outstanding
Additional Credit Facility balance at April 29, 2000, may be
converted to a term loan and will be due and payable in full July
2, 2001. There was not an outstanding balance on this facility at
July 31, 1999.
(5) The notes payable are secured by approximately $2,893,000 of
property and equipment at July 31, 1999.
At July 31, 1999, $20,486,000 of short-term borrowings were outstanding
under the revolving line of credit and letters of credit outstanding, used
primarily to secure obligations under certain insurance arrangements,
totaled $32,178,000.
-9-
The Senior Secured Notes, the New Senior Notes, the Credit Facility and
Additional Credit Facility Agreements contain various restrictive covenants
applicable to the MLP and OLP and its subsidiaries, the most restrictive
relating to additional indebtedness, sale and disposition of assets, and
transactions with affiliates. In addition, the Partnership is prohibited
from making cash distributions of the Minimum Quarterly Distribution if a
default or event of default exists or would exist upon making such
distribution, or if the Partnership fails to meet certain coverage tests.
The Partnership is in compliance with all requirements, tests, limitations
and covenants related to the Senior Secured Note Indenture, the New Senior
Note Indenture, Credit Facility and Additional Credit Facility agreements.
The New Senior Notes and the credit facility agreements have similar
restrictive covenants to the Senior Note Indenture and Credit Facility
agreement that were replaced.
The annual principal payments on long-term debt for each of the next five
fiscal years are $2,628,000 in 2000, $3,808,000 in 2001, $1,755,000 in 2002,
$1,891,000 in 2003 and $2,031,000 in 2004.
E. Income Taxes
The significant components of the net deferred tax liability included in
the Consolidated Balance Sheet are as follows:
(in thousands):
Deferred tax liabilities:
Partnership basis difference $(2,260)
Deferred tax assets:
Operating loss and credit carryforwards 110
-------------
Net deferred tax liability $(2,150)
=============
In connection with the public offering described in Note A, the Company's
tax basis in the assets and liabilities contributed became its tax basis in
the units received. Partnership basis differences are primarily
attributable to differences in the tax and book basis of fixed assets and
amortizable intangibles.
For Federal income tax purposes, the Company has net operating loss
carryforwards of approximately $105,000,000 at July 31, 1999 available to
offset future taxable income. These net operating loss carryforwards expire
at various dates through 2011.
The Company's parent, Ferrell, elected Subchapter S status for federal
income tax purposes, effective August 1, 1998. In conjunction with this
election, Ferrell elected to treat the Company as a qualified Subchapter S
subsidiary. For federal income tax purposes, the Company was deemed
liquidated into the parent on July 31, 1998. As a result of these
elections, Ferrell and its subsidiaries will no longer be liable for
federal income tax; however, they may be liable for tax in states that do
not recognize Subchapter S status. Thus, the deferred tax liability balance
relating to federal income tax was eliminated during fiscal 1999.
-10-
The Company is potentially subject to the built-in gains tax, which could
be incurred on the sale of assets owned as of August 1, 1998, that have a
fair market value in excess of their tax basis as of that date. However,
the Company anticipates that it can avoid incurring any built-in gains tax
liability through utilization of its net operating loss carryovers and tax
planning relating to the retention/ disposition of assets owned as of
August 1, 1998. In the event that the built-in gains tax is not incurred,
the Company may not utilize the net operating loss carryforwards.
F. Contingencies and Commitments
The Company is threatened with or named as a defendant in various lawsuits
which, among other items, claim damages for product liability. It is not
possible to determine the ultimate disposition of these matters; however,
management is of the opinion that there are no known claims or known
contingent claims that are likely to have a material adverse effect on the
financial condition of the Company.
Certain property and equipment is leased under non-cancelable operating
leases that require fixed monthly rental payments which expire at various
dates through 2018. Future minimum lease commitments for such leases are
$15,846,000 in 2000, $13,094,000 in 2001, $9,931,000 in 2002, $5,229,000 in
2003, $1,563,000 in 2004 and $2,161,000 thereafter.
G. Employee Benefits
On July 17, 1998, Ferrell formed an Employee Stock Ownership Plan ("ESOP").
Ferrell makes contributions to the ESOT which causes a release of a portion
of the shares of Ferrell owned by the ESOT to be allocated to employees'
accounts over time. The allocation of Ferrell shares to employee accounts
causes a non-cash compensation charge to be incurred by Ferrell equivalent
to the fair value of such shares allocated.
The Company and its parent have a defined contribution profit-sharing plan
which covers substantially all employees with more than one year of
service. Contributions are made to the plan at the discretion of Ferrell's
Board of Directors. With the establishment of the ESOP in July 1998, the
Board of Directors suspended future contributions to the profit sharing
plan beginning with fiscal year 1998. The profit sharing plan, which
qualifies under section 401(k) of the Internal Revenue Code, also provides
for matching contributions under a cash or deferred arrangement based upon
participant salaries and employee contributions to the plan.
H. Unit Options of the Partnership and Stock Options of Ferrell Companies, Inc.
The Ferrellgas, Inc. Unit Option Plan (the "Unit Option Plan") currently
authorizes the issuance of options (the "Unit Options") covering up to
850,000 of the MLP's units to certain officers and employees of the
Company. Effective August 1, 1999, with the conversion of the Subordinated
Units, the units covered by the options are Common Units. The Unit Options
are exercisable beginning after July 31, 1999, at exercise prices ranging
from $16.80 to $21.67 per unit, which is an estimate of the fair market
value of the Subordinated Units at the time of the grant. The options vest
immediately or over a one to five year period, and expire on the tenth
anniversary of the date of the grant.
-11-
Number of
Units
---------------
Outstanding, July 31, 1999 781,025
---------------
Options exercisable, July 31, 1999 0
---------------
Options Outstanding at July 31, 1999
-------------------------------------------------
Range of option prices at end of year $16.80-$21.67
Weighted average remaining contractual life 6.9 years
The Ferrell Companies, Inc. nonqualified stock option plan (the "NQP") was
established by Ferrell to allow upper middle and senior level managers of
the General Partner to participate in the equity growth of Ferrell and,
indirectly in the equity growth of the Partnership. The Ferrell NQP stock
options vest ratably in 5% to 10% increments over 12 years or 100% upon a
change of control, death, disability or retirement of the participant.
Vested options are exercisable in increments based on the timing of the
payoff of Ferrell debt, but in no event later than 20 years from the date
of issuance.
I. Transactions with Related Parties
The Company has two notes receivable from Ferrell on an unsecured basis.
These notes are due on demand. Because Ferrell no longer intends to repay
the notes, the Company did not accrue interest income in fiscal 1999. The
balance outstanding on these notes at July 31, 1999 was $148,286,000. As
discussed in Note A, the Note Receivable from Parent is reported in
Stockholder's Equity as of July 31, 1998.
J. Disclosures About Off Balance Sheet Risk and Fair Value of Financial
Instruments
The carrying amount of current financial instruments approximates fair
value because of the short maturity of the instruments. The estimated fair
value of the Company's long-term debt was $568,459,000 as of July 31, 1999.
The fair value is estimated based on quoted market prices.
Interest Rate Collar Agreements. The Company has entered into various
interest rate collar agreements involving the exchange of fixed and
floating interest payment obligations without the exchange of the
underlying principal amounts. At July 31, 1999, the total notional
principal amount of these agreements was $25,000,000 and the fair value of
these agreements was immaterial to the financial position of the Company.
The counterparties to these agreements are large financial institutions.
The interest rate collar agreements subject the Company to financial risk
that will vary during the life of these agreements in relation to market
interest rates. The mark to market adjustment applicable to the portion of
the notional amount in excess of variable rate indebtedness at July 31,
1999 was not material to the financial position of the Company.
-12-
Option Commodity Contracts. The Company is a party to certain option
contracts, involving various energy commodities, for risk management
purposes in connection with its trading activities. Such contracts do not
meet the criteria for classification as hedge transactions. Contracts are
executed with private counterparties and to a lesser extent on national
mercantile exchanges.
Open contract positions are summarized below.
Forward, Futures and Swaps Commodity Contracts. The Company is a party to
certain forward, futures and swaps contracts for trading purposes. Such
contracts do not meet the criteria for classification as a hedge
transaction. Such contracts permit settlement by delivery of the commodity.
Open contract positions are summarized below (assets are defined as
purchases or long positions and liabilities are sales or short positions).
As of July 31
(In thousands, except price per gallon data)
Derivative Commodity Instruments Held for
Purposes Other than Trading Instruments Held for
Trading Purposes
(Options) (Forwards, Futures and Swaps)
Asset Liab. Asset Liab.
--------------------- --------------------- ------------------- ----------------------
Volume (gallons) 3,245 (22,648) 2,814,698 (2,720,295)
Price ((cent)/gal) 23-39 27-55 19-49 19-49
Maturity 8/99- 8/99- 8/99- 8/99-
Dates 3/00 3/00 12/01 12/01
Contract Amounts
($) 10,775 (13,973) 1,232,209 (1,215,341)
Fair Value ($) 10,941 (15,850) 1,337,924 (1,318,526)
Unrealized gain
(loss) ($) 166 (1,877) 105,715 (103,185)
Risks related to these contracts arise from the possible inability of
counterparties to meet the terms of their contracts and changes in
underlying product prices. The Company attempts to minimize market risk
through the enforcement of its trading policies, which include total
inventory limits and loss limits, and attempts to minimize credit risk
through application of its credit policies.
K. Business Combinations
During the year ended July 31, 1999, the Company made acquisitions of 11
businesses valued at $50,049,000. This amount was funded by $43,838,000
cash payments, $199,000 in Common Units and non-cash transactions totaling
$6,012,000 in the issuance of non-compete notes and other costs and
consideration.
-13-