UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended January 31, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________ to __________
Commission file numbers: 1-11331
333-06693
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1698480
Delaware 43-1742520
---------------------------- -------------------------------
(States or other jurisdictions of (I.R.S. Employer Identification Nos.)
incorporation or organization)
One Liberty Plaza, Liberty, Missouri 64068
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (816) 792-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
At February 28, 2002, the registrants had units or shares outstanding as
follows:
Ferrellgas Partners, L.P. 36,072,703 Common Units
2,782,211 Senior Units
Ferrellgas Partners Finance Corp. 1,000 Common Stock
FERRELLGAS PARTNERS, L.P. and SUBSIDIARIES
FERRELLGAS PARTNERS FINANCE CORP.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Ferrellgas Partners, L.P. and Subsidiaries
Consolidated Balance Sheets - January 31, 2002 (unaudited) and
July 31, 2001 1
Consolidated Statements of Earnings -
Three and six months ended January 31, 2002 and 2001 (unaudited) 2
Consolidated Statement of Partners' Capital -
Six months ended January 31, 2002 (unaudited) 3
Consolidated Statements of Cash Flows -
Six months ended January 31, 2002 and 2001 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Ferrellgas Partners Finance Corp.
Balance Sheets - January 31, 2002 (unaudited) and July 31, 2001 9
Statements of Earnings - Three and six months ended
January 31, 2002 and 2001 (unaudited) 9
Statements of Cash Flows - Six months ended
January 31, 2002 and 2001 (unaudited) 10
Notes to Financial Statements (unaudited) 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 22
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
PART I - FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
January 31, July 31,
ASSETS 2002 2001
- ------------------------------------------- ------------- ---------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 26,402 $ 25,386
Accounts and notes receivable, net 123,851 56,772
Inventories 51,528 65,284
Prepaid expenses and other current assets 9,889 10,504
------------- ---------------
Total Current Assets 211,670 157,946
Property, plant and equipment, net 497,416 491,194
Goodwill 124,190 124,190
Intangible assets, net 103,572 108,526
Other assets, net 10,609 14,303
------------- ---------------
Total Assets $ 947,457 $ 896,159
============= ===============
LIABILITIES AND PARTNERS' CAPITAL
- -------------------------------------------
Current Liabilities:
Accounts payable $ 70,789 $ 58,274
Other current liabilities 70,588 77,610
Short-term borrowings 8,135 -
------------- ---------------
Total Current Liabilities 149,512 135,884
Long-term debt 725,223 704,782
Other liabilities 14,273 15,472
Contingencies and commitments - -
Minority interest 2,217 2,034
Partners' Capital:
Senior unitholder (2,801,622 units
outstanding at both January 2002 and
July 2001, - liquidation preference
$112,065 at both January 2002 and
July 2001) 112,065 112,065
Common unitholders (36,063,953 and
35,908,366 units outstanding at
January 2002 and July 2001, repectively) 5,173 (12,959)
General partner unitholder (364,275 and
362,711 units outstanding at
January 2002 and July 2001, respectively) (58,637) (58,738)
Accumulated other comprehensive loss (2,369) (2,381)
------------- ---------------
Total Partners' Capital 56,232 37,987
------------- ---------------
Total Liabilities and Partners' Capital $ 947,457 $ 896,159
============= ===============
See notes to consolidated financial statements.
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per-unit data)
(unaudited)
For the three months ended For the six months ended
--------------------------------- ---------------------------------
January 31, 2002 January 31, 2001 January 31, 2002 January 31, 2001
---------------- ---------------- ---------------- ----------------
Revenues:
Gas liquids and related product sales $ 331,129 $ 615,458 $ 555,414 $ 880,016
Other 24,609 26,359 45,567 50,262
---------------- ---------------- ---------------- ----------------
Total revenues 355,738 641,817 600,981 930,278
Cost of product sold (exclusive of
depreciation, shown separately below) 176,591 407,667 326,538 603,987
---------------- ---------------- ---------------- ----------------
Gross profit 179,147 234,150 274,443 326,291
Operating expense 70,373 90,345 137,500 155,488
Depreciation and amortization expense 10,765 13,947 22,219 27,978
General and administrative expense 6,632 6,910 13,457 11,627
Equipment lease expense 6,086 8,661 12,631 16,768
Employee stock ownership plan compensation charge 1,274 1,125 2,583 2,194
Loss on disposal of assets and other 431 1,983 1,278 3,154
---------------- ---------------- ---------------- --------------
Operating income 83,586 111,179 84,775 109,082
Interest expense (15,208) (16,106) (30,322) (32,274)
Interest income 545 882 871 1,439
---------------- ---------------- ---------------- --------------
Earnings before minority interest 68,923 95,955 55,324 78,247
Minority interest 735 1,007 638 864
---------------- ---------------- ---------------- --------------
Net earnings 68,188 94,948 54,686 77,383
Distribution to senior unitholder 2,802 4,769 5,604 9,422
Net earnings available to general partner 654 902 491 680
---------------- ---------------- ---------------- --------------
Net earnings available to common unitholders $ 64,732 $ 89,277 $ 48,591 $ 67,281
================ ================ ================ ==============
Basic earnings per common unit:
Net earnings available to common unitholders $ 1.80 $ 2.85 $ 1.35 $ 2.15
================ ================ ================ ==============
Diluted earnings per common unit:
Net earnings available to common unitholders $ 1.79 $ 2.85 $ 1.35 $ 2.15
================ ================ ================ ==============
See notes to consolidated financial statements.
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Number of units Accumulated
----------------------------------- other
General General compre- Total
Senior Common partner Senior Common partner hensive partners'
unitholder unitholders unitholder unitholder unitholders unitholder loss capital
---------- ----------- ---------- ---------- ----------- ---------- ------------ ---------
August 1, 2001 2,801.6 35,908.4 362.7 $ 112,065 $ (12,959) $ (58,738) $ (2,381) $137,987
Contribution in connection with
ESOP compensation charge - - - - 2,531 26 - 2,557
Common unit cash distributions - - - - (35,969) (363) - (36,332)
Senior unit cash and accrued
distributions - - - - (5,519) (141) - (5,660)
Common unit options exercised - 38.1 0.4 - 640 9 - 649
Common units issued in connection
with acquisitions - 117.5 1.2 - 2,310 23 - 2,333
Comprehensive income:
Net earnings - - - - 54,139 547 - 54,686
Other comprehensive income:
Risk management fair value
adjustment - - - - - - 12 12
---------
Comprehensive income 54,698
---------- ----------- ---------- ---------- ----------- ----------- ----------- ---------
January 31, 2002 2,801.6 36,064.0 364.3 $ 112,065 $ 5,173 $ (58,637) $ (2,369) $ 56,232
========== =========== ========== ========== =========== =========== =========== =========
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the six months ended
------------------------------------
January 31, 2002 January 31, 2001
------------------ -----------------
Cash Flows From Operating Activities:
Net earnings $ 54,686 $ 77,383
Reconciliation of net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization expense 22,219 27,978
Employee stock ownership plan compensation charge 2,583 2,194
Minority interest 638 864
Other 757 840
Changes in operating assets and liabilities, net of
effects from business acquisitions:
Accounts and notes receivable, net of securitization (52,176) (192,177)
Inventories 13,812 (18,163)
Prepaid expenses and other current assets 615 (3,244)
Accounts payable 15,317 61,612
Accrued interest expense 139 1,198
Other current liabilities (10,308) 5,828
Other liabilities 436 89
------------------ -----------------
Net cash provided by (used in) operating activities 48,718 (35,598)
------------------ -----------------
Cash Flows From Investing Activities:
Business acquisitions, net of cash acquired (6,536) (4,216)
Capital expenditures (16,040) (6,054)
Net activity from accounts receivable securitization (12,000) 100,000
Other 2,088 1,070
------------------ -----------------
Net cash (used in) provided by investing activities (32,488) 90,800
------------------ -----------------
Cash Flows From Financing Activities:
Distributions (41,992) (31,624)
Additions to long-term debt 30,107 5,897
Reductions of long-term debt (11,655) (2,351)
Net additions (reductions) to short-term borrowings 8,135 (6,597)
Minority interest activity (481) (392)
Proceeds from exercise of common unit options 649 -
Cash contribution from general partner 23 -
Cash paid for debt and lease financing costs - (35)
------------------ -----------------
Net cash used in financing activities (15,214) (35,102)
------------------ -----------------
Increase in cash and cash equivalents 1,016 20,100
Cash and cash equivalents - beginning of period 25,386 14,838
------------------ -----------------
Cash and cash equivalents - end of period $ 26,402 $ 34,938
================== =================
Cash paid for interest $ 29,038 $ 29,521
================== =================
See notes to consolidated financial statements.
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
(unaudited)
A. Organization
Ferrellgas Partners, L.P. activities are primarily conducted through its
subsidiary Ferrellgas, L.P. Ferrellgas Partners is the sole limited partner
of Ferrellgas, L.P. with an approximate 99% limited partner interest.
Ferrellgas Partners and Ferrellgas L.P. are together referred to as the
Partnership. The general partner of both Ferrellgas Partners and
Ferrellgas, L.P. is Ferrellgas, Inc. which owns a 2% general partner
interest in the combined Partnership.
The consolidated financial statements of Ferrellgas Partners and
Subsidiaries reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the interim periods
presented. All adjustments to the consolidated financial statements were of
a normal, recurring nature, as well as the accounting change to adopt
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangibles Assets." The information included in this Quarterly
Report on Form 10-Q should be read in conjunction with Management's
Discussion and Analysis and the financial statements with related notes
included in the Partnership's Annual Report on Form 10-K for the year ended
July 31, 2001.
B. Accounting estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from these estimates.
C. Reclassifications
Certain amounts, including Goodwill (see Note F), included in the first
quarter of fiscal 2001 consolidated financial statements have been
reclassified to conform to the first quarter of fiscal 2002 presentation.
In fiscal 2001 and after the filing of the Quarterly Report on Form 10-Q
for the quarterly period ended January 31, 2001, the Partnership applied
the provisions of Emerging Issues Task Force (EITF Issue) No. 99-19
"Reporting Revenue Gross as a Principal versus Net as an Agent" which
affects the presentation of certain revenue and cost of product sold items.
D. Nature of operations
The propane industry is seasonal in nature with peak activity during the
winter months. Therefore, the results of operations for the periods ended
January 31, 2002 and 2001 are not necessarily indicative of the results to
be expected for a full year.
E. Supplemental Balance Sheet Information:
Inventories consist of:
January 31, July 31,
(in thousands) 2002 2001
----------- -----------
Liquefied propane gas and related products $32,368 $45,966
Appliances, parts and supplies 19,160 19,318
----------- -----------
$51,528 $65,284
=========== ===========
In addition to inventories on hand, the Partnership enters into contracts
to buy product for supply purposes. Nearly all of these 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 January 31, 2002, in addition to the inventory on
hand, the Partnership had committed to make net delivery of approximately
20,457,000 gallons at a fixed price.
Property, plant and equipment, net consist of:
January 31, July 31,
(in thousands) 2002 2001
----------- -----------
Property, plant and equipment $791,192 $774,128
Less: accumulated depreciation 293,776 282,934
----------- -----------
$497,416 $491,194
=========== ===========
F. Goodwill and Other Intangible Assets - Adoption of SFAS No. 142:
Statement of Financial Accounting Standard (SFAS) No. 142 modified the
financial accounting and reporting for acquired goodwill and other
intangible assets, including the requirement that goodwill and some
intangible assets no longer be amortized. The Partnership adopted SFAS No.
142 beginning in the first quarter of fiscal 2002. This adoption resulted
in a reclassification to goodwill of both assembled workforce and other
assets with remaining book value of $10,019,000. The remaining intangible
assets are subject to amortization. Although there will be no cash flow
effect, the Partnership believes its amortization expense will decrease by
$10,600,000 in fiscal 2002, compared to the amortization that would have
been recorded had the new accounting standard not been adopted. See
additional discussion about the decrease in amortization expense in
Management Discussion and Analysis of Financial Condition and Results of
Operations. This new standard also required the Partnership to test
goodwill for impairment at the time the standard was adopted and also on an
annual basis. The results of the initial impairment test of goodwill
performed at the time the standard was adopted did not have a material
effect on the Partnership's financial position, results of operations or
cash flows. The following disclosures are required by SFAS No. 142.
Intangible assets, net consist of:
January 31, 2002 July 31, 2001
---------------------- ----------------------
Gross Accum- Gross Accum-
Carrying ulated Carrying ulated
(in thousands) Amount Amortization Amount Amortization
-------- ------------ -------- ------------
Customer lists $208,024 $(120,832) $207,667 $(114,679)
Non-compete agreem 62,893 (46,513) 60,222 (44,684)
-------- ------------ -------- ------------
Total $270,917 $(167,345) $267,889 $(159,363)
======== ============ ======== ============
(in thousands)
Aggregate Amortization Expense:
2002 2001
---- ----
For the six months ended January 31 $ 7,982 $7,385
Estimated Amortization Expense:
For the six months ended July 31, 2002 $ 5,709
For the year ended July 31, 2002 13,691
For the year ended July 31, 2003 11,111
For the year ended July 31, 2004 10,067
For the year ended July 31, 2005 9,488
For the year ended July 31, 2006 8,968
For the six months ended
---------------------------------
January 31, January 31,
(in thousands) 2002 2001
-------------- --------------
Reported net earnings $54,686 $77,383
Add back: Goodwill amortization - 5,630
-------------- --------------
Adjusted net earnings $54,686 $83,013
============== ==============
Basic and diluted earnings per common unit:
Reported net earnings available to
common unitholders $1.35 $2.15
Goodwill amortization - 0.18
-------------- --------------
Adjusted net earnings available to
common unitholders $1.35 $2.33
============== ==============
G. Contingencies
The Partnership is currently threatened with or named as a defendant in
various lawsuits arising in the ordinary course of business which, among
other items, claim damages for product liability. It is not possible to
determine the ultimate disposition of these matters; however, management is
of the opinion that there are no known claims or contingent claims that are
likely to have a material adverse effect on the financial condition,
results of operations or cash flows of the Partnership.
H. Distributions
On December 14, 2001, the Partnership paid cash distributions of $1.00 and
$0.50 per senior and common unit, respectively, for the quarter ended
October 31, 2001. On February 18, 2002, the Partnership declared its second
fiscal quarter cash distribution of $1.00 and $0.50 per senior and common
unit, respectively, that was paid March 14, 2002.
I. Earnings Per Common Unit
Below is a calculation of the basic and diluted earnings per unit as
displayed on the consolidated statements of earnings. For the purpose of
computing diluted earnings per unit, the senior units were excluded. The
senior units are considered contingently issuable common units for which
all necessary conditions for their issuance have not been satisfied as of
the end of the reporting period. In order to compute the basic and diluted
earnings per common unit, the distributions on senior units are subtracted
from net earnings to compute net earnings available to common unitholders.
(in thousands, except per unit data)
Three months ended Six months ended
----------------------- -----------------------
January 31 January 31 January 31 January 31
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net earnings available
to common unitholders $64,732 $89,277 $48,591 $67,284
----------- ----------- ----------- -----------
Weighted average common
units outstanding 36,022.7 31,307.1 35,970.9 31,307.1
Basic earnings per
common unit $ 1.80 $ 2.85 $ 1.35 $ 2.15
=========== =========== =========== ===========
Net earnings available
to common unitholders $64,732 $89,277 $48,591 $67,284
Weighted average common
units outstanding 36,022.7 31,307.1 35,970.9 31,307.1
Dilutive securities 64.3 - 32.9 -
----------- ----------- ----------- -----------
Weighted average common
units outstanding +
dilutive securities 36,087.0 31,307.1 36,003.8 31,307.1
Diluted earnings per
common unit $ 1.79 $ 2.85 $ 1.35 $ 2.15
=========== =========== =========== ===========
J. Adoption of New Accounting Standards
The Financial Accounting Standards Board recently issued SFAS No. 143
"Accounting for Asset Retirement Obligations" and SFAS No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 143 requires the recognition of a liability if a company has a
legal or contractual financial obligation in connection with the retirement
of a tangible long-lived asset. The Partnership will implement SFAS No. 143
beginning in the fiscal year ending July 31, 2003, and expects to record a
one-time charge to earnings during the first quarter of fiscal 2003, as a
cumulative change in accounting principle, of between $2,000,000 and
$3,000,000. The Partnership believes the implementation will not have a
material ongoing effect on its financial position, results of operations
and cash flows.
SFAS No. 144 modifies the financial accounting and reporting for long-lived
assets to be disposed of by sale and it broadens the presentation of
discontinued operations to include more disposal transactions. The
Partnership will implement SFAS No. 144 beginning in the fiscal year ending
July 31, 2003, and believes the implementation will not have a material
effect on its financial position, results of operations and cash flows.
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly owned subsidiary of Ferrellgas Partners, L.P.)
BALANCE SHEETS
January 31, July 31,
ASSETS 2002 2001
- ---------------------------------- ------------ ------------
(unaudited)
Cash $1,000 $1,000
------------ ------------
Total Assets $1,000 $1,000
============ ============
STOCKHOLDER'S EQUITY
- ----------------------------------
Common stock, $1.00 par value; 2,000 shares
Authorized; 1,000 shares issued and outstanding $1,000 $1,000
Additional paid in capital 1,757 1,662
Accumulated deficit (1,757) (1,662)
------------ ------------
Total Stockholder's Equity $1,000 $1,000
============ ============
STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended Six Months Ended
----------------------- -----------------------
January 31, January 31, January 31, January 31,
2002 2001 2002 2001
----------- ----------- ----------- -----------
General and administrative expense $ 50 $ 50 $ 95 $ 141
----------- ----------- ----------- -----------
Net loss $(50) $(50) $(95) $(141)
=========== =========== =========== ===========
See notes to financial statements.
FERRELLGAS PARTNERS FINANCE CORP.
(A wholly owned subsidiary of Ferrellgas Partners, L.P.)
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
--------------------------
January 31, January 31,
2002 2001
------------ ------------
Cash Flows From Operating Activities:
Net loss $(95) $ (141)
------------ ------------
Cash used in operating activities (95) (141)
------------ ------------
Cash Flows From Financing Activities:
Capital contribution 95 141
------------ ------------
Cash provided by financing activities 95 141
------------ ------------
Change in cash - -
Cash - beginning of period 1,000 1,000
------------ ------------
Cash - end of period $1,000 $1,000
============ ============
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2002
(unaudited)
A. Ferrellgas Partners Finance Corp., a Delaware corporation, was formed on
March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners,
L.P.
B. The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the interim periods
presented. All adjustments to the financial statements were of a normal,
recurring nature.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the historical financial condition and
results of operations of Ferrellgas Partners and its subsidiaries and should be
read in conjunction with the historical consolidated financial statements and
accompanying notes thereto included elsewhere in this Quarterly Report on Form
10-Q.
On January 22, 2002, the Securities and Exchange Commission issued an
interpretive release (SEC Release Nos. 33-8056; 34-45321), on various types of
disclosures. The Partnership has provided the disclosures recommended by this
interpretive release as follows:
o liquidity and capital resources, including off-balance sheet
arrangements; see discussion in "Liquidity and Capital Resources -
Investing Activities",
o certain trading activities; see discussion regarding the fair value of
the Partnership's risk management trading contracts in "Liquidity and
Capital Resources - Disclosures about Risk Management Activities
Accounted for at Fair Value", and
o transactions with related and certain other parties; see discussion
regarding the nature of these transactions in "Certain Relationships
and Related Transactions" within the Partnership's Annual Report Form
10-K filed with the Commission on October 25, 2001.
Forward-looking statements
Statements included in this report include forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. These forward-looking statements are
identified as any statement that does not relate strictly to historical or
current facts. They 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 by comparable terminology. In particular, statements, express or
implied, concerning future operating results, or the ability to generate sales,
income or cash flow are forward-looking statements. Forward-looking statements
are not guarantees of performance. They involve risks, uncertainties and
assumptions. The Partnership's future results may differ materially from those
expressed in these forward-looking statements. Many of the factors that will
determine these results are beyond the Partnership's ability to control or
predict. These statements include, but are not limited to, the following:
o whether Ferrellgas, L.P. will have sufficient funds 1) to meet its
obligations and to enable it to distribute to Ferrellgas Partners
sufficient funds to permit Ferrellgas Partners to meet its obligations
with respect to its $160,000,000 senior secured notes and 2) assuming
all quarterly financial tests required by various financing
instruments are met, to pay the required distribution on its senior
units and the minimum quarterly distribution of $0.50 per common unit,
o whether or not the Partnership will continue to meet all of the
quarterly financial tests required by various financing instruments,
and
o whether the fiscal 2002 decrease in gas liquid sales, gross profit,
and equipment lease and depreciation expense as compared to fiscal
2001 will continue during the remainder of fiscal 2002.
Readers of this report should not put undue reliance on any forward-looking
statements. The forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the statements. The risks and uncertainties and their
effect on the Partnership's operations include, but are not limited to, the
following risks, which are more fully described in the Partnership's Securities
Act filings:
o the retail propane industry is a mature one,
o the effect of weather conditions on demand for propane,
o increases in propane prices may cause higher levels of conservation by
the Partnership's customers,
o price, availability and inventory risk of propane supplies, including
risk management activities,
o the timing of collections of the Partnership's accounts receivable and
increases in product costs and demand may decrease its working capital
availability,
o the availability of capacity to transport propane to market areas,
o competition from other energy sources and within the propane industry,
o operating risks incidental to transporting, storing, and distributing
propane, including the litigation risks which may not be covered by
insurance,
o the Partnership may not be successful in making acquisitions,
o changes in interest rates, including the refinancing of long-term
financing at favorable interest rates,
o governmental legislation and regulations,
o energy efficiency and technology trends may affect demand for propane,
o the condition of the capital markets in the United States,
o the political and economic stability of the oil producing nations,
o the Partnership may sell additional limited partner interests, thus
diluting existing interests of unitholders,
o the distribution priority to the Partnership's common units owned by
the public terminates no later than December 31, 2005,
o the holder of the Partnership's senior units may have the right in the
future to convert the senior units into common units,
o the holder of the Partnership's senior units may be able to sell the
senior units or convert into common units with special indemnification
rights available to the holder from the Partnership,
o a redemption of the senior units may be dilutive to the Partnership's
common unitholders,
o the terms of the senior units limit the Partnership's use of proceeds
from sales of equity and the rights of the common unitholders,
o the current holder of the senior units has a special voting exemption
if the senior units convert into common units, and
o the expectation that the remaining senior units will be redeemed in
the future with proceeds from an offering of equity at a price
satisfactory to the Partnership.
Results of Operations
Due to the seasonality of the retail distribution of propane, results of
operations for the six months ended January 31, 2002 and 2001, are not
necessarily indicative of the results to be expected for a full year. Other
factors affecting the results of operations include competitive conditions,
demand for product, timing of acquisitions, general economic conditions in the
United States, variations in the weather and fluctuations in commodity prices.
As the Partnership has grown through acquisitions, fixed costs such as
personnel costs, equipment leases, depreciation and interest expense have
increased. Historically, due to the seasonality of the Partnership's business,
these fixed cost increases have caused net losses in the first and fourth fiscal
quarters and net earnings in the second and third fiscal quarters to be more
pronounced.
Three Months Ended January 31, 2002 vs. January 31, 2001
Gas liquid and related product sales. Total gas liquids and related product
sales decreased 46.2% to $331,129,000, due to both a significant decrease in the
average propane sales price per gallon and a significant decrease in retail
propane sales volume.
The average retail and wholesale propane sales price per gallon decreased
due to the effect of a significant decrease in the wholesale cost of propane. In
addition, retail sales volumes decreased 27.2% to 290,394,000 gallons in the
second quarter of fiscal 2002 as compared to the second quarter of fiscal 2001,
primarily due to the effects of the significantly warmer than normal weather and
to a lesser extent the slowing national economy. For the quarter, national
temperatures as reported by the National Oceanic and Atmospheric Administration,
were 16% warmer than normal as compared to 6% colder than normal in the prior
year's quarter. The second quarter was the warmest November through January
period in recorded history, according to the National Oceanic and Atmospheric
Administration.
Other revenues. Other revenues decreased 6.6% to $24,609,000 for the second
quarter compared to the same quarter last year, primarily due to lower appliance
sales and service labor related to effects of the slowing economy.
Cost of product sold. Cost of product sold decreased 56.7% to $176,591,000
primarily due to the effect of a significant decline in the wholesale cost of
propane during the second quarter of fiscal 2002 compared to the second quarter
of fiscal 2001. The wholesale market price at one of the major supply points,
Mt. Belvieu, Texas, averaged $0.31 per gallon during the second quarter of
fiscal 2002 compared to an average of $0.72 per gallon in the prior year
quarter. Other major supply points in the United States also experienced
significant declines in propane prices. Another significant factor causing a
decrease in the cost of product sold was a 27.2% decline in retail sales volumes
experienced this quarter. However, cost of product sold was increased by a
change in risk management trading results this quarter. Exceptional gains from
risk management trading activities recognized in the second quarter of fiscal
2001 were not repeated this quarter, causing an increase to cost of sales of
$19,151,000. See additional discussion regarding risk management trading
activities in "Quantitative and Qualitative Disclosures about Market Risk."
Gross profit. Gross profit decreased 23.5% to $179,147,000, primarily due
to the effect of the significant decrease in retail propane volumes experienced
this quarter. Other factors affecting gross profit included the decrease in risk
management trading gains, which was partially offset by an increase in retail
margins which exceeded the strong retail margin performance realized in the
prior year's quarter.
Operating expense. Operating expense decreased 22.1% to $70,373,000,
primarily due to decreased compensation and variable operating expenses
resulting from the decreased retail volumes delivered to customers and from
reduced operating results this quarter.
General and administrative expense. General and administrative expense
decreased 4.0% to $6,632,000, primarily due to decreased compensation expense
resulting from the reduced operating results this quarter.
Depreciation and amortization expense. Depreciation and amortization
expense decreased 22.8% to $10,765,000 primarily due to the implementation of
SFAS No. 142, which eliminated routine goodwill amortization. See further
discussion of the implementation of SFAS No. 142 in Note F to the consolidated
financial statements.
Equipment lease expense. Equipment lease expense decreased 29.7% to
$6,086,000 due to the effect of significantly lower interest rates on variable
rate operating tank leases this quarter as compared to the prior year's quarter.
See further discussion about these leases in the "Liquidity and Capital
Resources - Investing Activities" and "Financing Activities."
Loss on disposal of assets and other. Loss on disposal of assets and other
decreased $1,552,000 to $431,000 primarily due to a decrease in the loss on
disposal of fixed assets and a decrease in the losses related to the transfer of
accounts receivables pursuant to the accounts receivable securitization
facility. See further discussion about this facility in "Liquidity and Capital
Resources - Investing Activities" and "Financing Activities."
Interest expense. Interest expense decreased 5.6% to $15,208,000 primarily
due to significantly lower interest rates and to a lesser extent reduced
borrowings on the Partnership's credit facility. This decrease was partially
offset by the effect of the termination of an interest rate swap agreement in
the fourth quarter of fiscal 2001.
Six Months Ended January 31, 2002 vs. January 31, 2001
Gas liquid and related product sales. Total gas liquids and related product
sales decreased 36.9% to $555,414,000, due to both a significant decrease in the
average propane sales price per gallon and a significant decrease in retail
propane sales volume.
The average retail and wholesale propane sales price per gallon decreased
due to the effect of a significant decrease in the wholesale cost of propane. In
addition, retail sales volumes decreased 19.8% to 480,305,000 gallons in the
first half of fiscal 2002 as compared to the same period of fiscal 2001,
primarily due to the effects of the significantly warmer than normal weather and
to a lesser extent the slowing national economy. For the six month period ended
January 31, 2002, temperatures as reported by the National Oceanic and
Atmospheric Administration, were 14% warmer than normal as compared to 4% colder
than normal in the prior year period. The first six month period of fiscal 2002
was the second warmest August through January period in recorded United States
history, according to National Oceanic and Atmospheric Administration data.
Other revenues. Other revenues decreased 9.3% to $45,567,000, for the first
six months compared to the same period last year, primarily due to lower
appliance sales and service labor related to effects of the slowing economy.
Cost of product sold. Cost of product sold decreased 45.9% to $326,538,000
primarily due to the effect of a significant decline in the wholesale cost of
propane during the first six months of fiscal 2002 compared to the same period
last year. The wholesale market price at one of the major supply points, Mt.
Belvieu, Texas, averaged $0.36 per gallon during the first six months of fiscal
2002 compared to an average of $0.66 per gallon for the same period in the prior
year. Other major supply points in the United States also experienced
significant declines in propane prices. Another factor causing a decrease in the
cost of product sold was a 19.8% decline in retail sales volumes for the
six-month period ended January 31, 2002. However, cost of product sold was
increased by a change in risk management trading results this six-month period.
Exceptional gains from risk management trading activities recognized in the
first half of fiscal 2001 were not repeated for the same period this year,
causing an increase to cost of sales of $21,196,000. See additional discussion
regarding risk management trading activities in "Quantitative and Qualitative
Disclosures about Market Risk."
Gross profit. Gross profit decreased 15.9% to $274,443,000, primarily due
to the effect of a significant decrease in retail propane volumes experienced
during the first half of the fiscal year. Other factors affecting gross profit
included the decrease in risk management trading gains, which was partially
offset by an increase in retail margin which exceeded the strong retail margin
performance realized in the first six months of fiscal 2001.
Operating expense. Operating expense decreased 11.6% to $137,500,000,
primarily due to decreased compensation and variable operating expenses
resulting from the decreased retail volumes delivered to customers and from
reduced operating results in the first six-months of fiscal 2002 as compared to
the same period last year.
General and administrative expense. General and administrative expense
increased 15.7% to $13,457,000, primarily due to increased expenses related to
the operational improvement initiative discussed in "Liquidity and Capital
Resources - Investing Activities" and higher staffing levels. The increases were
partially offset by decreased compensation expense related to the reduced
operating results reported in the first six-months of fiscal 2002 as compared to
the same period last year.
Depreciation and amortization expense. Depreciation and amortization
expense decreased 20.6% to $22,219,000 primarily due to the implementation of
SFAS No. 142, which eliminated routine goodwill amortization. See further
discussion of the implementation of SFAS No. 142 in Note F to the consolidated
financial statements.
Equipment lease expense. Equipment lease expense decreased 24.7% to
$12,631,000 due to significantly lower interest rates on variable rate operating
leases as compared to the same period last year. See further discussion about
these leases in "Liquidity and Capital Resources - Investing Activities" and
"Financing Activities."
Loss on disposal of assets and other. Loss on disposal of assets and other
decreased $1,876,000 to $1,278,000 primarily due to a decrease in the loss on
disposal of fixed assets and a decrease in the losses related to the transfer of
accounts receivables pursuant to the accounts receivable securitization
facility. See further discussion about this facility in "Liquidity and Capital
Resources - Investing Activities" and "Financing Activities."
Interest expense. Interest expense decreased 6.0% to $30,322,000 primarily
due to reduced borrowings and to a lesser extent significantly lower interest
rates on the Partnership's credit facility. This decrease was partially offset
by the effect of the termination of an interest rate swap agreement in the
fourth quarter of fiscal 2001.
Forward looking statements. The Partnership expects the declines in gas
liquid sales and cost of product sold experienced in the second quarter of
fiscal 2002 to continue in the third and fourth quarters of fiscal 2002 as
compared to the same periods in fiscal 2001. These expected declines in gas
liquid sales and cost of product sold are expected due to the effects of
significantly lower wholesale propane prices experienced during fiscal 2002 as
compared to last year.
Due to significantly warmer than normal weather in the second quarter of
fiscal 2002, retail propane volumes and gross profit are expected to be
negatively impacted in the third quarter of fiscal 2002 as compared to the third
quarter in fiscal 2001. Gross profit for the third quarter is expected to be
favorably impacted by continued strong retail margins compared to the same
quarter last year but may be offset by exceptional gains from risk management
trading activities realized in the third quarter last year that are not expected
to repeat again in the third quarter of this fiscal year.
Due to the implementation of SFAS No. 142, which eliminated routine
goodwill amortization, the Partnership expects a similar depreciation and
amortization expense variance during the second quarter to continue the
remainder of the fiscal year. In addition, the current lower interest rate
environment is expected to lead to continued decreases in equipment lease
expense in the third and fourth quarters of fiscal 2002 compared to the same
quarters last year. Lower borrowing levels and the current lower interest rates
environment is expected to lead to continued decreased interest expense in the
third and fourth quarters of fiscal 2002 compared to the same quarters last
year.
Liquidity and Capital Resources
The ability of the Partnership to satisfy its obligations is dependent upon
future performance, which will be subject to prevailing economic, financial,
business and weather conditions and other factors, many of which are beyond its
control. In the three months ended January 31, 2002, the country experienced the
nation's warmest November through January in recorded United States history,
according to the National Oceanic and Atmospheric Administration. Moreover, the
weather has been significantly warmer than normal in four of the last five
winter heating seasons. Despite these challenges, the Partnership paid a full
$0.50 distribution on all common units on March 14, 2002. This distribution
represents the thirtieth consecutive full $0.50 distribution paid to the common
unitholders dating back to October 1994.
Due to the seasonality of the retail propane distribution business, a
significant portion of the Partnership's cash flow from operations is typically
generated during the winter heating season which occurs during the Partnership's
second and third fiscal quarters. Typically, the Partnership generates
significantly lower cash flows from operations in its first and fourth fiscal
quarters as compared to the second and third quarters because fixed costs exceed
gross profit during the non-peak season. Subject to meeting the financial tests
discussed below, the Partnership's general partner, Ferrellgas, Inc., believes
that Ferrellgas, L.P. will have sufficient funds available to meet its
obligations, and to distribute to Ferrellgas Partners sufficient funds to permit
Ferrellgas Partners to meet its obligations with respect to the $160,000,000
senior secured notes. In addition, the general partner believes that Ferrellgas,
L.P. will have sufficient funds available to distribute to Ferrellgas Partners
sufficient cash to pay the required quarterly distribution on the senior units
and the minimum quarterly distribution on all common units during fiscal 2002.
The Partnership's credit facilities, public debt, private debt, accounts
receivable securitization facility and certain operating tank leases contain
several financial tests and covenants restricting the Partnership's ability to
pay distributions, incur debt and engage in certain other business transactions.
In general, these tests are based on the Partnership's debt to cash flow ratio
and cash flow to interest expense ratio. The general partner believes that the
most restrictive of these tests currently are debt incurrence limitations within
the credit facility, operating tank leases and accounts receivable
securitization facility and limitations on the payment of distributions within
the Ferrellgas Partners' senior secured notes. The credit facility, operating
tank leases and accounts receivable securitization facility limit Ferrellgas,
L.P.'s ability to incur debt if Ferrellgas, L.P. exceeds prescribed ratios of
either debt to cash flow or cash flow to interest expense. Ferrellgas Partners'
senior secured notes restrict payments if a minimum ratio of cash flow to
interest expense is not met. This restriction places limitations on the
Partnership's ability to make restricted payments such as the payment of cash
distributions to unitholders. The cash flow used to determine these financial
tests generally is based upon the Partnership's most recent cash flow
performance giving pro forma effect for acquisitions and divestitures made
during the test period.
Based upon current estimates of the Partnership's cash flow, the general
partner believes that the Partnership will be able to continue to meet all of
the required quarterly financial tests and covenants. However, if the
Partnership were to encounter unexpected downturns in business operations in the
future, such as continued significantly warmer than normal weather as
experienced during most of this heating season, a volatile energy commodity cost
environment or continued economic downturn, the Partnership may not meet the
applicable financial tests in immediate future quarters. This could have a
materially adverse effect on the Partnership's operating capacity and cash flows
and could restrict the ability of the Partnership to incur debt or to make cash
distributions to its unitholders, even if sufficient funds were available.
Depending on the circumstances, the Partnership may consider alternatives to
permit the incurrence of debt or the continued payment of the quarterly cash
distribution to its unitholders. No assurances can be given, however, that such
alternatives can or will be implemented with respect to any given quarter.
Future capital expenditures and working capital needs of the Partnership
are expected to be provided by cash generated from future operations, existing
cash balances, the credit facility and the accounts receivable securitization
facility. To fund expansive capital projects and future acquisitions,
Ferrellgas, L.P. may borrow on the existing credit facility, Ferrellgas Partners
or Ferrellgas, L.P. may issue additional debt to the extent permitted under
existing debt agreements or Ferrellgas Partners may issue additional equity
securities, including, among others, common units.
Toward this purpose, on February 5, 1999, Ferrellgas Partners filed a shelf
registration statement with the Securities and Exchange Commission for the
periodic sale of equity and/or debt securities. The registered securities would
be available for sale by the Partnership in the future to fund acquisitions, to
reduce indebtedness or to fund general corporate purposes. On June 5, 2001, the
Partnership issued almost $90,000,000 worth of equity pursuant to this
registration statement and currently has the ability to sell approximately
$210,000,000 more in equity and/or debt.
Ferrellgas Partners also maintains an additional shelf registration
statement with the Securities and Exchange Commission for 2,010,484 common
units. These common units may be issued by Ferrellgas Partners in connection
with the Partnership's acquisition of other businesses, properties or securities
in business combination transactions.
Operating Activities. Cash provided by operating activities was $48,718,000
for the six months ended January 31, 2002, compared to cash used in operating
activities of $35,598,000 for the six months ended January 31, 2001. This
increase in the cash provided by operations is primarily due to the significant
decrease in the retail sales prices and its effect on accounts receivable this
fiscal year and, to a lesser extent, a decrease in inventory and increase in
accounts payable. Due to the seasonality of the retail distribution of propane,
cash from operating activities for the six months ended January 31, 2002 and
2001, are not necessarily indicative of the cash from operations expected for a
full year.
Investing Activities. During the first six months of fiscal 2002, the
Partnership made growth and maintenance capital expenditures of $16,040,000
consisting primarily of the following:
o purchase and development of computer software,
o upgrading district plant facilities,
o additions to propane storage tanks and cylinders, and
o vehicle lease buyouts.
The Partnership has recently completed a review of its key business
processes to identify areas where it can use technology and process enhancements
to improve its operations. Specifically, the Partnership has identified areas
where it can reduce operating expenses and improve customer satisfaction in the
near future. These areas under review include improvements to the routing and
scheduling of customer deliveries, customer administration and operational
workflow. During fiscal 2002, the Partnership has allocated considerable
resources, including the purchase and development of software, toward these
improvements and intends to continue to fund the necessary capital requirements
primarily from excess cash from operations generated during its record
performance in fiscal 2001. For the six months ended January 31, 2002, the
Partnership made growth and maintenance capital expenditures of $6,100,000
related to this initiative. Other than this initiative, the Partnership's
capital requirements for repair and maintenance of property, plant and equipment
are expected to remain relatively low due to limited technological change and
long useful lives of propane tanks and cylinders.
The Partnership leases computers and light and medium duty trucks, tractors
and trailers. The Partnership believes vehicle leasing is a cost-effective
method for meeting its transportation and technology equipment needs. The
Partnership purchased $707,000 of vehicles whose lease terms expired in the
first six months of fiscal 2002.
The Partnership utilizes an accounts receivable securitization facility for
the purpose of providing the Partnership with additional short-term working
capital funding, especially during the winter heating months. As part of this
364-day facility, the Partnership transfers an interest in a pool of its trade
accounts receivable to Ferrellgas Receivables, LLC, a wholly-owned, special
purpose subsidiary, which sells its interest to a commercial paper conduit of
Banc One, NA. The Partnership does not provide any guarantee or similar support
to the collectability of these receivables. The Partnership structured the
facility using a wholly-owned, special purpose subsidiary in order to facilitate
the transaction as required by Banc One, N.A. and to comply with the
Partnership's various debt covenants. The Partnership remits daily to this
special purpose entity funds collected on its pool of trade receivables. This
unconsolidated entity, together with the accounts receivable securitization
facility, provides additional working capital liquidity to the Partnership at
interest rates approximately one-half of one percent lower than borrowings from
the Partnership's credit facility, based on the most recent twelve month period.
The level of funding available from this facility is currently limited to the
lesser of $60,000,000 or qualified trade accounts receivable. At January 31,
2002, $19,000,000 was funded from this facility. During the first six months of
fiscal 2002, the funding outstanding from this facility was reduced by
$12,000,000. This decrease in funding resulted from reduced liquidity needs of
the Partnership caused primarily by the significant decrease in the amount of
account receivables outstanding and lower inventory levels caused primarily from
the lower wholesale propane cost environment experienced for most of this fiscal
year as compared to last year. This facility was renewed effective September 25,
2001 for a one-year commitment with Banc One, N.A. In accordance with SFAS No.
140, this transaction is reflected on the Partnership's consolidated financial
statements as a sale of accounts receivable and an investment in an
unconsolidated subsidiary. The Partnership intends to refinance/renew this
facility in September 2002, however no assurances can be given that such
refinance/renewal will be obtained or, if obtained, such refinance/renewal will
be on terms equally favorable to the Partnership. See further discussion about
this facility in "Liquidity and Capital Resources - Investing Activities" of the
Partnership's Annual Report filed under Form 10-K with the Commission on October
25, 2001.
The Partnership continues to consider opportunities to expand its
operations through strategic acquisitions of retail propane operations located
throughout the United States. During the six months ended January 31, 2002, the
Partnership made total acquisition capital expenditures of approximately
$10,916,000 pursuant to the acquisition of two retail propane companies. This
amount was funded by approximately $6,387,000 of cash payments, the issuance of
$2,325,000 in common units and $2,204,000 in notes and other consideration.
Financing Activities. Ferrellgas, L.P.'s credit facility, which expires
June 30, 2003, is an unsecured facility and consists of the following:
o a $117,000,000 working capital, general corporate and acquisition facility,
including a letter of credit sub-facility, and
o 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 the borrower's
option, at a rate equal to either London Interbank Offered Rate plus an
applicable margin, based upon the Partnership's debt to cash flow ratio, varying
from 1.25 percent to 2.25 percent or the bank's base rate plus an applicable
margin varying from 0.25 percent to 1.25 percent. The bank's base rates at
January 31, 2002 and January 31, 2001 were 5.25% and 10.25%, respectively. See
"Investing Activities" for a discussion of additional cash availability related
to the accounts receivable facility agreement.
At January 31, 2002, $28,000,000 of borrowings and $45,475,000 of letters
of credit were outstanding under this credit facility at an average interest
rate of 3.5%. Letters of credit are currently used to cover obligations
primarily relating to requirements for insurance coverage and risk management
activities. All but $8,135,000 of the borrowings on the credit facility were
classified as long-term. Based on the pricing grid contained in the credit
facility, the current borrowing rate for future borrowings under the credit
facility is LIBOR plus 1.5%.
At January 31, 2002, Ferrellgas, L.P. had a total of $124,525,000 of
funding available under two facilities:
o $83,525,000 available for general corporate, acquisition and working
capital purposes under the credit facility, and
o $41,000,000 of funding available from the accounts receivable
securitization facility.
The Partnership believes that the liquidity available from these facilities
will be sufficient to meet its future working capital needs. However, if the
Partnership were to experience an unexpected significant increase in working
capital requirements, it could exceed its immediately available resources.
Events that could cause increases in working capital borrowings or letter of
credit requirements include, but are not limited to, the following:
o a significant increase in the cost of propane,
o a significant delay in the collections of accounts receivable,
o increased volatility in energy commodity prices related to risk management
activities,
o increased liquidity requirements imposed by insurance providers, or
o decreased vendor credit.
If one or more of these events caused a significant use of available funding,
the Partnership would consider alternatives to provide increased working capital
funding. No assurances can be given, however, that such alternatives could be
implemented.
On September 14, 2001, and December 14, 2001, the Partnership paid cash
distributions of $1.00 and $0.50 per senior and common unit, respectively, for
the quarters ended July 31, 2001 and October 31, 2001, respectively. Cash
distributions increased by $10,368,000 during the six-month period primarily due
to 1) cash distributions of $5,604,000 paid on the senior units versus in-kind
distributions paid on these senior units in the first six months of fiscal 2001
and 2) cash distributions of $4,500,000 paid on the 4,500,000 common units
issued in June 2001. On March 14, 2002, the Partnership paid its second fiscal
quarter cash distribution of $1.00 and $0.50 per senior and common unit.
The Partnership has provided information summarizing its liquidity and
capital resources in the following discussion and table below. In addition, the
Partnership has provided similar information in previous Securities Act filings
in regards to its off-balance sheet financing arrangements, which include:
o the accounts receivable securitization facility (see "Investing Activities"
above),
o the operating tank leases entered into during December 1999, and
o various equipment operating leases.
In December 1999, Ferrellgas, L.P. entered into a $25,000,000 operating
lease involving a portion of its customer tanks. Also in December 1999,
Ferrellgas, L.P. assumed a $135,000,000 operating lease involving a portion of
the Thermogas acquisition related customer tanks. Both arrangements utilize a
structure referred to as a synthetic operating lease, using a special purpose
entity as lessor and Ferrellgas, L.P. as lessee; thus, the assets and
liabilities of the special purpose entities are not included on the
Partnership's consolidated balance sheet. The Partnership made $4,839,000 of
rent payments related to these leases for the most recent six-month period. Both
arrangements have terms that expire June 30, 2003. Prior to the end of the lease
terms, the Partnership intends to secure additional financing in order to either
lease or purchase the related customer tanks. No assurances can be given that
such financing will be obtained or, if obtained, such financing will be on terms
equally favorable to the Partnership. See further discussion about these lease
arrangements in "Liquidity and Capital Resources - Investing Activities" and in
"Liquidity and Capital Resources - Financing Activities" of the Partnership's
Annual Report filed under Form 10-K with the Commission on October 25, 2001.
In addition, the Partnership leases property, computers and light and
medium duty trucks, tractors and trailers. These arrangements are accounted for
as operating leases by the Partnership. See further discussion about these
leases in "Liquidity and Capital Resources - Investing Activities" and in
"Liquidity and Capital Resources - Financing Activities" of the Partnership's
Annual Report filed under Form 10-K with the Commission on October 25, 2001.
The following table summarizes the Partnership's long-term debt obligations
as of January 31, 2002:
(in thousands) Principal Payments due by Pay Period
------------------------------------------------------
Less than After
Total 1 year 1-3 years 4-5 years 5 years
---------------------------------- ---------- ---------- ---------- ---------- ----------
Long-term debt, including current
portion of long-term debt $727,339 $2,116 $24,782 $331,753 $368,688
The following tables summarizes the Partnership's future minimum rental
commitments under non-cancelable operating lease financing agreements (including
the tank and equipment operating leases discussed above) as of January 31, 2002.
The summary presents the future minimum rental payments and, should the
Partnership elect to do so, the buyout amounts necessary to purchase the
equipment off lease at the end of the lease terms.
(in thousands) Future Minimum Rental and Buyout Amounts
------------------------------------------------------
Less than After
Total 1 year 1-3 years 4-5 years 5 years
---------------------------------- ---------- ---------- ---------- ---------- ----------
Operating leases rental payment $ 80,350 $29,248 $ 30,107 $14,932 $6,063
Operating leases buyouts 185,535 5,293 168,538 4,520 7,184
At January 31, 2002, the Partnership had $28,000,000 outstanding on its
credit facility. All but $8,135,000 of these borrowings were classified as
long-term. In addition, the Partnership had letters of credit outstanding in the
amount of $45,475,000 used to cover obligations relating to requirements for
insurance coverage and risk management activities. At January 31, 2002, the
Partnership also had $19,000,000 funded utilizing its accounts receivable
securitization facility. As of January 31, 2002, in addition to the inventory on
hand, the Partnership had committed to make net delivery of approximately
20,457,000 gallons at a fixed price.
Adoption of New Accounting Standards. The Financial Accounting Standards
Board recently issued SFAS No. 143 "Accounting for Asset Retirement Obligations"
and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived
Assets."
SFAS No. 143 requires the recognition of a liability if a company has a
legal or contractual financial obligation in connection with the retirement of a
tangible long-lived asset. The Partnership will implement SFAS No. 143 beginning
in the fiscal year ending July 31, 2003, and expects to record a one-time charge
to earnings during the first quarter of fiscal 2003, as a cumulative change in
accounting principle, of between $2,000,000 and $3,000,000. The Partnership
believes the implementation will not have a material effect on the its financial
position, results of operations and cash flows.
SFAS No. 144 modifies the financial accounting and reporting for long-lived
assets to be disposed of by sale and it broadens the presentation of
discontinued operations to include more disposal transactions. The Partnership
will implement SFAS No. 144 beginning in the fiscal year ending July 31, 2003,
and believes the implementation will not have a material effect on its financial
position, results of operations and cash flows.
Disclosures about Risk Management Activities Accounted for at Fair Value
The following table summarizes the change in the unrealized fair value of
risk management contracts for the three and six months ended January 31, 2002.
This table summarizes the contracts where the Partnership remains exposed to
market risk:
Three Months Ended Six Months Ended
(in thousands) January 31, 2002 January 31, 2002
---------------------------- ------------------ ------------------
Unrealized fair value of
contracts outstanding at
beginning of period $ 1,887 $ 5,900
Change in unrealized fair value (4,512) (8,525)
Unrealized fair value of
contracts outstanding at
January 31, 2002 $(2,625) $(2,625)
The following table summarizes the maturity of these risk management contracts
carried at fair value for the valuation methodologies utilized by the
Partnership as of January 31, 2002. This table summarizes the contracts where
the Partnership remains exposed to market risk:
(in thousands) Fair Value of Contracts at Period-End
------------------------------- ------------------------------------------
Maturity less than Maturity in excess
Source of Fair Value 1 year of 1 year
------------------------------- ------------------ -------------------
Prices actively quoted $ (345) $ -
Prices provided by other
external sources (2,280) -
Prices based on models and other
valuation methods - -
Unrealized fair value of contracts
outstanding at January 31, 2002 $(2,625) $ -
See additional discussion about market, counterparty credit and liquidity risks
related to the Partnership's risk management trading and other than trading
activities in "Quantitative and Qualitative Disclosures about Market Risk."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Partnership's market risk sensitive
instruments and positions is the potential loss arising from adverse changes in
commodity prices. The Partnership's risk management trading activities utilize
certain types of energy commodity forward contracts, options, and swaps traded
on the over-the-counter financial markets and futures traded on the New York
Mercantile Exchange to manage and hedge its exposure to the volatility of
floating commodity prices and to protect its inventory positions. The
Partnership's risk management other than trading activities also utilize certain
over-the-counter energy commodity forward contracts to limit overall price risk
and options to hedge its exposure to inventory price movements. The Partnership
includes the results from its risk management other than trading activities in
its discussion and analysis of retail margin.
Market risks associated with energy commodities are monitored daily by
senior management for compliance with the Partnership's trading and other than
trading risk management policies. These policies include specific dollar
exposure limits, limits on the term of various contracts and volume limits for
various energy commodities. The Partnership also utilizes loss limits and daily
review of open positions to manage exposures to changing market prices.
Market, Credit and Liquidity Risk. New York Mercantile Exchange traded
futures are guaranteed by the New York Mercantile Exchange and have nominal
credit risk. The Partnership is exposed to credit risk associated with forwards,
swaps and option transactions in the event of nonperformance by counterparties.
For each counterparty, the Partnership analyzes its financial condition prior to
entering into an agreement, establishes credit limits and monitors the
appropriateness of each limit. The change in market value of Exchange-traded
futures contracts requires daily cash settlement in margin accounts with
brokers. Forwards and most other over-the-counter instruments are generally
settled at the expiration of the contract term. In order to minimize the
liquidity risk of cash, margin or collateral requirements of counterparties for
over-the-counter instruments, the Partnership attempts to balance maturities and
positions with individual counterparties. Historically, the Partnership's risk
management activities have not experienced significant credit related losses in
any year or with any individual counterparty.
Sensitivity Analysis. The Partnership has prepared a sensitivity analysis
to estimate the exposure to market risk of its energy commodity positions.
Forward contracts, futures, swaps and options used in the Partnership risk
management trading 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 from a 10% adverse
movement in market prices of the underlying energy commodities is estimated at
$4,562,000. Options used in the Partnership risk management other than trading
activities would not have any additional potential loss after assuming a
hypothetical 10% adverse change in price as of January 2002. The preceding
hypothetical analysis is limited because changes in prices may or may not equal
10%, thus actual results may differ.
Additionally, the Partnership seeks to mitigate its variable rate interest
rate risk exposure on operating leases by entering into interest rate cap
agreements. At January 31, 2002, the Partnership had $28,000,000 of variable
rate debt, $156,800,000 outstanding in variable rate operating leases and an
equal amount of interest rate cap agreements outstanding to hedge the related
variable rate exposure. Thus, assuming a one percent increase in the variable
interest rate to the Partnership, the interest rate risk related to the variable
rate debt, the operating leases and the associated interest rate cap agreements
would be a decrease to earnings of $1,711,000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Form of Indemnity
(b) Reports on Form 8-K
The Partnership furnished one Form 8-K and filed one Form 8-K during the quarter
ended January 31, 2002.
Items
Date of Report Reported Financial Statements Filed
- --------------------------- -------- --------------------------
Furnished November 20, 2001 9 None
Filed December 12, 2001 5, 7(c) Audited balance sheets of
Ferrellgas, Inc. as of
July 31, 2001 and 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FERRELLGAS PARTNERS, L.P.
By Ferrellgas, Inc. (General Partner)
Date: March 15, 2002 By /s/ Kevin T. Kelly
---------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
FERRELLGAS PARTNERS FINANCE CORP.
Date: March 15, 2002 By /s/ Kevin T. Kelly
---------------------------------
Kevin T. Kelly
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
DIRECTOR/OFFICER
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this _____ day of
________, 199__, by and between Ferrellgas, Inc., a Delaware corporation
("Ferrellgas"), Ferrellgas Partners, L.P., and Ferrellgas, L.P. (collectively,
jointly and severally, the "Company"), and the person whose name appears on the
signature page attached hereto ("Indemnitee").
WHEREAS, qualified persons are reluctant to serve privately or
publicly-held corporations as directors or officers or in other capacities,
unless they are provided with adequate protection against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of such corporations;
WHEREAS, the uncertainties related to obtaining adequate
insurance and indemnification have increased the difficulty of attracting and
retaining such persons;
WHEREAS, it is reasonable, prudent and necessary for the Company
to obligate itself contractually to indemnify such persons to the fullest extent
permitted by law, so that such persons will serve or continue to serve the
Company and/or its subsidiaries free from undue concern that they will not be
adequately indemnified;
WHEREAS, the Company and the Indemnitee recognize that the legal
risks and potential liabilities, and the threat thereof, associated with
lawsuits filed against persons serving the Company and/or its subsidiaries, and
the resultant substantial time, expense and anxiety spent and endured in
defending lawsuits bears no reasonable relationship to the compensation received
by such persons, and thus poses a significant deterrent and increased reluctance
on the part of experienced and capable individuals to serve the Company and/or
its subsidiaries;
WHEREAS, the Certificate of Incorporation, Limited Partnership
Agreement or Bylaws of the Companies, and the General Corporation Law of the
State of Delaware ("Delaware Law") provide for the elimination of personal
liability on the part of directors and officers for monetary damages resulting
from certain actions taken in such capacity and permit indemnification of
directors, officers, agents and employees and specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and persons providing services to it; and
WHEREAS, Indemnitee is willing to serve, continue to serve, and
to take on additional service for or on behalf of the Company on the condition
that he/she be indemnified according to the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and promises
contained herein, the parties agree as follows:
SECTION 1 . Services by Indemnitee.
In addition to serving as an officer and/or director of
Ferrellgas on behalf of Ferrellgas in its own name and as general partner of
Ferrellgas Partners, L.P. and Ferrellgas, L.P., Indemnitee agrees, at the
Company's request or for its benefit to serve, as a director, officer, employee,
agent or fiduciary (including trustee) of certain other corporations and
entities, including without limitation, the Ferrell Companies, Inc. Employee
Stock Ownership Plan. Nothing contained herein shall entitle or require
Indemnitee to continue in Indemnitee's present position or any future position
with any of the Companies.
SECTION 2 . Term of Agreement.
This Agreement shall continue until and terminate upon the later
of (a) fifteen years after the date that Indemnitee ceases to hold a Corporate
Status or (b) 120 days after the final termination of all pending Proceedings in
respect of which Indemnitee is granted rights of indemnification or advancement
of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 8 of this Agreement.
SECTION 3 . Indemnification.
3.1. General. The Company hereby irrevocably, absolutely and
unconditionally agrees to hold harmless and indemnify Indemnitee against all
Liabilities and advance to Indemnitee all Expenses to the fullest extent
permitted by Delaware Law, or by any amendment thereof (but in the case of any
such amendment only to the extent such amendment permits the Company to provide
broader indemnification than provided prior to such amendment), or by other
statutory provisions authorizing or permitting such indemnification applicable
from time to time hereafter.
3.2. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3.2 if, by reason of Indemnitee's Corporate Status, Indemnitee
is, or is threatened to be, made a party to any threatened, pending or completed
Proceeding, other than a Proceeding by or in the right of the Company. Under
this Section 3.2, Indemnitee shall be indemnified against all Liabilities
incurred by Indemnitee or on Indemnitee's behalf in connection with such
Proceeding or any claim, issue or matter therein, if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in or not opposed to
the best interests of the Company and, with respect to any criminal Proceeding,
had no reasonable cause to believe the conduct was unlawful.
3.3. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 3.3,
if by reason of Indemnitee's Corporate Status, Indemnitee is, or is threatened
to be, made a party to any threatened, pending or completed Proceeding brought
by or in the right of the Company to procure a judgment in its favor. Subject to
the last sentence of this Section 3.3, Indemnitee shall be indemnified against
all Liabilities incurred by Indemnitee or on Indemnitee's behalf in connection
with such Proceeding or any claim, issue or matter therein, if Indemnitee acted
in good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company. No indemnification of Liabilities
shall be made in respect of any claim, issue or matter in such Proceeding as to
which Indemnitee shall have been adjudged to be liable to the Company unless and
only to the extent that a court of competent jurisdiction in the State of
Delaware, or the court in which such Proceeding was brought, determines such
indemnification is proper.
3.4. Indemnification for Expenses as a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of Indemnitee's Corporate Status, a witness in any Proceeding, he shall
be indemnified against all Expenses actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith.
3.5. Partial Indemnity. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Liabilities but not, however, for all of the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled. Moreover, notwithstanding any other
provision of this Agreement to the extent that Indemnitee has been successful on
the merits or otherwise in defense of any Proceeding or in defense of any claim,
issue or matter therein, including dismissal without prejudice, Indemnitee shall
be indemnified against all Expenses incurred in connection therewith.
SECTION 4 . Advancement of Expenses.
The Company shall advance all Expenses incurred by or on behalf
of Indemnitee in connection with any Proceeding within fifteen (15) days after
the receipt by Ferrellgas of a statement from Indemnitee requesting such advance
from time to time, whether prior to or after final disposition of such
Proceeding. Each such statement shall reasonably evidence the Expenses incurred
by Indemnitee. Indemnitee hereby undertakes to repay any Expenses advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses.
SECTION 5 . Specific Limitations on Indemnity.
Indemnitee shall not be entitled to indemnification under this
Agreement:
(a) In respect to remuneration paid to or
advantage gained by Indemnitee, if it shall be determined by
final judgment or other final adjudication that Indemnitee was
not legally entitled to such remuneration or advantage;
(b) On account of Indemnitee's conduct which is
finally adjudged to have been knowingly fraudulent, deliberately
dishonest, willful misconduct or outside the scope of
Indemnitee's position or responsibility with the Company; or
(c) In an action by the Company against Indemnitee
for the breach, violation or failure to comply by Indemnitee with
any term, condition or provision set forth in the Employee
Agreement and/or Option Grantee Agreement to which such
Indemnitee is a party.
SECTION 6 . Procedure for Determination of Entitlement to
Indemnification.
6.1. Initial Request. To obtain indemnification under this
Agreement in connection with any Proceeding and for the duration thereof,
Indemnitee shall submit to Ferrellgas a written request including such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of Ferrellgas shall, promptly upon
receipt of any request for indemnification, advise the Board of Directors of
Ferrellgas in writing that Indemnitee has requested indemnification, and the
Ferrellgas Board shall in turn advise Ferrellgas, L.P. and Ferrellgas Partners,
L.P.
6.2. Method of Determination. Upon written request by Indemnitee
for indemnification pursuant to Section 6.1 and if required by applicable law, a
determination with respect to Indemnitee's entitlement thereto shall be made:
(a) by Independent Counsel, in a written opinion to the Board of Directors of
Ferrellgas, a copy of which shall be delivered to Indemnitee; (b) by the Board
of Directors of Ferrellgas by a majority vote of a quorum consisting of
Disinterested Directors, if applicable,; or (c) by the stockholders of
Ferrellgas as provided in Section 7.2. If it is determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination.
6.3. Selection, Payment and Discharge of Independent Counsel. If
required, Independent Counsel shall be selected by the Board of Directors of
Ferrellgas by a majority vote of a quorum consisting of Disinterested Directors,
if obtainable; and Ferrellgas shall give written notice to Indemnitee advising
Indemnitee of the identity of Independent Counsel so selected; or (b) if such a
vote is not obtainable, Independent Counsel shall be selected by Indemnitee, and
Indemnitee shall give written notice to Ferrellgas advising it of the identity
of Independent Counsel so selected. In either event Indemnitee or Ferrellgas, as
the case may be, within seven (7) days after such written notice of selection
shall have been given, may deliver to Ferrellgas or to Indemnitee, as the case
may be, a written objection to such selection. Such objection may be asserted
only on the ground that Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in this Agreement and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, Independent Counsel so selected
may not serve as Independent Counsel, unless and until a court has determined
that such objection is without merit. If within twenty (20) days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 6.1, no Independent Counsel shall have been selected and not objected
to, either Ferrellgas or Indemnitee may petition a court of competent
jurisdiction in the State of Delaware, or another court of competent
jurisdiction, for resolution of any objection which shall have been made by
Ferrellgas or Indemnitee to the other's selection of Independent Counsel and/or
for the appointment as Independent Counsel of a person selected by such court or
by such other person as such court shall designate, and the person with respect
to whom an objection is so resolved or the person so appointed shall act as
Independent Counsel under Section 6.2. The Company shall pay any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel in connection with its actions pursuant to this Agreement, and the
Company shall pay all reasonable fees and expenses incident to the procedures of
this Section 6.3, regardless of the manner in which such Independent Counsel was
selected or appointed. Upon the due commencement date of any judicial proceeding
or arbitration pursuant to Section 8.1, Independent Counsel shall be discharged
and relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
6.4. Cooperation. Both the Company and Indemnitee shall cooperate
with the person, persons or entity making the determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person,
persons or entity any documentation or information which is not privileged or
otherwise protected from disclosure and which is reasonably available to
Indemnitee or the Company, as the case may be, and reasonably necessary to such
determination. Any reasonable costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification).
SECTION 7 . Presumptions and Effects of Certain Proceedings.
7.1. Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person, persons or entity making
such determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for indemnification
in accordance with Section 6.1, and the Company shall have the burden of proof
to overcome that presumption in connection with the making by any person,
persons or entity of any determination contrary to that presumption.
7.2. Failure to Determine Entitlement. If the person, persons or
entity empowered or selected under Section 6 to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within sixty
(60) days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification; provided,
however, that such 60-day period may be extended for a reasonable time, not to
exceed an additional thirty (30) days, if the person, persons or entity making
the determination with respect to entitlement to indemnification in good faith
require(s) such additional time for the obtaining or evaluating of documentation
or information relating thereto; and provided, further, that the foregoing
provisions of this Section 7.2 shall not apply if the determination of
entitlement to indemnification is to be made by the stockholders of Ferrellgas
pursuant to Section 6.2 and if (a) within fifteen (15) days after receipt by the
Company of the request for such determination, the Board of Directors of
Ferrellgas has resolved to submit such determination to the stockholders of
Ferrellgas for their consideration at an annual meeting thereof to be held
within seventy-five (75) days after such receipt and such determination is made
thereat, or (b) a special meeting of the stockholders of Ferrellgas is called
within fifteen (15) days after such receipt for the purpose of making such
determination, such meeting is held for such purpose within sixty (60) days
after having been so called, and such determination is made thereat.
7.3. Effect of Other Proceedings. The termination of any
Proceeding or of any claim, issue or matter therein, by judgment order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this Agreement) of itself
adversely affect the right to Indemnitee to indemnification or create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal Proceeding, that Indemnitee had
reasonable cause to believe that the conduct was unlawful.
SECTION 8 . Remedies of Indemnitee.
8.1. Adjudication. In the event that (a) a determination is made
pursuant to Section 6 that Indemnitee is not entitled to indemnification under
this Agreement, (b) advancement of Expenses is not timely made pursuant to
Section 4, (c) payment of indemnification is not made pursuant to Section 3
within ten (10) days after receipt by the Company of a written request therefor,
or (d) payment of indemnification is not made within ten (10) days after a
determination has been made the Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Sections 6 or 7 of
this Agreement, Indemnitee shall be entitled to an adjudication, in any court of
competent jurisdiction selected by Indemnitee within or without the State of
Delaware, of Indemnitee's entitlement to such indemnification or advancement of
Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association. Indemnitee shall commence any action under
this Section 8.1 within 180 days following the date on which Indemnitee first
has the right to commence such action hereunder.
8.2. De Novo Review. In the event that a determination shall have
been made pursuant to Section 6 that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
Section 8.1 shall be conducted in all respects as a de novo trial or arbitration
on the merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. In any such judicial proceeding or arbitration, the Company shall
have the burden of proving that Indemnitee is not entitled to indemnification or
the advancement of Expenses.
8.3. Company Bound. If a determination shall have been made or
deemed to have been made pursuant to Sections 6 or 7 that Indemnitee is entitled
to indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration absent (a) a misstatement of a material fact
or an omission of a material fact necessary to make Indemnitee's statement not
materially misleading by Indemnitee, in connection with the request for
indemnification or the furnishing of information or (b) a prohibition of such
indemnification under applicable law. The Company shall be precluded from
asserting in any such judicial proceeding or arbitration that the procedures and
presumptions of this Agreement are not valid, binding, and enforceable and shall
stipulate in any such court or before any such arbitrator that the Company is
bound by all provisions of this Agreement.
8.4. Expenses of Adjudication. In the event that Indemnitee seeks
an adjudication or an award to enforce his or her rights under this Agreement or
to recover damages for breach of this Agreement, Indemnitee shall be entitled to
recover from the Company, and shall be indemnified by the Company against any
and all expenses (of the type described in the definition of Expenses) actually
and reasonably incurred by Indemnitee in such adjudication or arbitration, but
only if Indemnitee prevails therein. If it shall be determined in such
adjudication or arbitration that Indemnitee is entitled to receive part, but not
all, of the indemnification or advancement of Expenses sought, Indemnitee shall
be entitled to recover such expenses from the Company on a pro rata basis. If it
shall be determined in such adjudication or arbitration, that Indemnitee is not
entitled to receive any indemnification or advancement of Expenses sought,
Indemnitee shall bear his own Expenses and shall release the Company for its
Expenses.
SECTION 9 . Non-Exclusivity; Subrogation.
9.1. Non-Exclusivity. The rights of indemnification and to
receive advancement of Expenses as provided by this Agreement shall not be
deemed exclusive of any other rights to which Indemnitee may at any time be
entitled under applicable law, the certificate of incorporation or bylaws of any
corporation, any other agreement, a vote of stockholders a resolution of
directors, or otherwise.
9.2. Subrogation. In the event of any payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all papers required
to take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to embrace such
rights.
9.3. No Duplicative Payment. The Company shall not be liable
under this Agreement to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent the Indemnitee has otherwise actually received
such payment under any insurance policy, contract, agreement, or otherwise.
SECTION 10 . Insurance.
The Company hereby covenants and agrees that during the term
hereof the Company shall use its best efforts to obtain and maintain in full
force and effect directors' and officers' liability insurance ("D&O Insurance")
in reasonable amounts from established and reputable insurers. Indemnitee shall
be named as an insured in such a manner as to provide Indemnitee the same rights
and benefits as are accorded to the most favorably insured of the Company's
directors. Notwithstanding the provisions of this Section 10, the Company shall
have no obligation to obtain or maintain D&O Insurance if the Company determines
in good faith that such insurance is not reasonably available, the premium costs
for such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusion so as to provide an
insufficient benefit, or Indemnitee is covered by similar insurance maintained
by an affiliate of the Company. If, at the time of the receipt of the notice of
the commencement of a Proceeding, the Company has D&O Insurance in effect which
could provide coverage therefore of if it had prior D&O Insurance which could
provide coverage therefor, the Company shall give prompt notice of the
commencement of such Proceeding to the insurers in accordance with the
procedures set forth in the applicable policy or policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay
on behalf of the Indemnitee all amounts payable as a result of such Proceeding
in accordance with the terms of such policy or policies.
SECTION 11 . Company May Assume Defense.
In the event the Company shall be obligated to pay the Expenses
of any Proceeding against Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such Proceeding, with counsel reasonably
acceptable to the Indemnitee, upon the delivery to Indemnitee of written notice
of its election to do so. After delivery of such notice, the Company shall not
be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same Proceeding;
provided, however, that (a) Indemnitee shall have the right to employ counsel in
any such Proceeding at Indemnitee's expense and (b) if (i) the employment of
counsel by Indemnitee and the payment of such counsel's fees and expenses has
been previously authorized by the Company in writing, (ii) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense and has provided
Company written notice setting forth the existence and nature of such conflict
of interest, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such Proceeding, the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.
SECTION 12 . Definitions.
For purposes of this Agreement:
(a) "Corporate Status" means that the position of
a person as a director, officer, employee, agent or fiduciary
(including trustee) of any of the Companies or of any other
corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise at the request of any of the Companies
shall include any position which imposes duties on, or involves
services by, such person with respect to an employee benefit
plan, its participants or beneficiaries.
(b) "Disinterested Director" means a director of
Ferrellgas, Inc. who is not and was not a party to the Proceeding
in respect of which indemnification is sought by Indemnitee.
(c) "Expenses" means all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees,
and all other disbursements or expenses of the types of
customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, or being or
preparing to be a witness in a Proceeding.
(d) "Independent Counsel" means a law firm, or a
member of a law firm, that is recognized as experienced in
matters of corporation law and neither presently is, nor in the
past five years has been, retained to represent either (i) the
Company or Indemnitee in any matter material to either such party
or (ii) any other party to the Proceeding giving rise to a claim
for indemnification hereunder. The term "Independent Counsel"
shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement.
(e) "Liabilities" means any judgments, fines,
penalties, or similar payments or amounts paid or incurred by
Indemnitee in connection with any Proceeding, amounts paid or
incurred by Indemnitee or on Indemnitee's behalf in settlement of
any Proceeding (including any excise taxes assessed upon
Indemnitee with respect to any employee benefit plan), and all
Expenses.
(f) "Proceeding" means any action, suit,
arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing, or any other proceeding,
pending or threatened, whether civil administrative or
investigative, except one initiated by the Indemnitee, unless the
Board of Directors of Ferrellgas, Inc. consents thereto.
SECTION 13 . Notices.
All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (a)
delivered by hand and receipted for by the party to whom such notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed:
(a) If to Indemnitee, to the address set forth on
the signature page.
(b) If to any Company, to:
Ferrellgas, Inc.
One Liberty Plaza
Liberty, Missouri 64068
Attention: Chief Financial Officer
or to such other address as may have been furnished to the other
party. Promptly after receipt by the Indemnitee of notice of the commencement of
or the threat of commencement of any Proceeding, the Indemnitee shall notify the
Company of the commencement or the threat of commencement thereof.
SECTION 14 . General Provisions.
14.1. Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his or her heirs, executors, and administrators. The Company
shall require and cause any successor that owns substantially all of the
business or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
14.2. No Adequate Remedy. The parties acknowledge that it is
impossible to measure in money the damages which will accrue to either party by
reason of a failure to perform any of the obligations under this Agreement.
Therefore, if either party shall institute any action or proceeding to enforce
the provisions hereof, the party against whom such action or proceeding is
brought hereby waives the claim or defense that the party bringing such action
has an adequate remedy at law, and the party against whom the action is brought
shall not urge in any action or proceeding the claim or defense that the other
party has an adequate remedy at law.
14.3. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
14.4. Severability. If any provision or provisions of this
Agreement shall be held to be invalid or unenforceable for any reason
whatsoever: (a) the validity, legality, and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the remaining provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid or unenforceable, that is not itself invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision or provisions held invalid or unenforceable.
14.5. Modification and Waiver. No supplement modification, or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No amendment, alteration, rescission, or replacement of
this Agreement or any provision hereof shall be effective as to Indemnitee with
respect to any action taken or omitted by Indemnitee before such amendment,
alteration, rescission or replacement. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver. The party shall not be deemed to have waived a right or
remedy provided in or relating to this Agreement unless the waiver is in writing
and duly executed by the party.
14.6. Entire Agreement. This Agreement, as to its subject matter,
exclusively and completely states the rights and duties of the parties, sets
forth their entire understanding, and merges all prior and contemporaneous
representations, promises, proposals, discussions, and understandings by or
between the parties. The parties agree that this Agreement does not in any way
alter, change or supersede the terms, conditions and obligations of the parties
set forth in the Employee Agreement and/or Option Grantee Agreement to which the
Company or Indemnitee may be a party.
14.7. Joint and Several. The obligations of Ferrellgas, Inc.,
Ferrellgas Partners, L.P. and Ferrellgas, L.P. hereunder shall be joint and
several.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
FERRELLGAS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
FERRELLGAS, L.P.
By: Ferrellgas, Inc., its General Partner
By:
-----------------------------------------
Title:
---------------------------------------
FERRELLGAS PARTNERS, L.P.
By: Ferrellgas, Inc., its General Partner
By:
------------------------------------------
Title:
--------------------------------------
INDEMNITEE:
Name:
--------------------------------------
Address:
------------------------------------
---------------, -- ----