UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 31, 2006

Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
Ferrellgas, L.P.
Ferrellgas Finance Corp.

(Exact name of registrants as specified in their charters)

Delaware Delaware Delaware Delaware		001-11331 333-06693 000-50182 000-50183		43-1698480 43-1742520 43-1698481 14-1866671
(States or other jurisdictions of incorporation or organization)		(Commission File Numbers)		(I.R.S. Employer Identification Nos.)

7500 College Blvd., Suite 1000, Overland Park, KS 66210

(Address of principal executive offices) (Zip Code)

Registrants’ telephone number, including area code: (913) 661-1500

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Ferrellgas, Inc. Audited Financial Statements

Deloitte & Touche LLP, an independent registered public accounting firm, has audited the consolidated balance sheets of Ferrellgas, Inc., the general partner of Ferrellgas Partners, L.P. and Ferrellgas, L.P., and subsidiaries as of July 31, 2006 and 2005, and the related consolidated statements of earnings, stockholders’ equity (deficiency), and cash flows for each of the three years in the period ended July 31, 2006. See Exhibit 99.15 for the audited financial statements and the report of the independent registered public accounting firm related hereto.

These audited financial statements and report of the independent registered public accounting firm dated November 3, 2006, and filed herewith, are incorporated by reference in Amendment No. 1 to Registration Statement Nos. 333-134867, 333-130193 and 333-137961, in Registration Nos. 333-121350, 333-115765 and 333-132337 on Form S-3, in Registration No. 333-132340 on Form S-4, and in Post-Effective Amendment No. 1 to Registration Statement Nos. 333-87633 and 333-84344 of Ferrellgas Partners, L.P. on Form S-8. See Exhibit 23.1 hereto for the independent registered public accounting firm’s consent.

These audited financial statements and report of the independent registered public accounting firm dated November 3, 2006, and filed herewith are incorporated by reference in Amendment No. 3 to Registration Statement No. 333-132337-01 of Ferrellgas Partners Finance Corp on Form S-3. See Exhibit 23.2 hereto for the independent registered public accounting firm’s consent.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

The following materials are filed as exhibits to this Current Report on Form 8-K.

Exhibit 23.1 — Consent of Deloitte & Touche LLP, independent registered accounting firm, for the certain use of its report appearing in the Current Report on Form 8-K of Ferrellgas Partners, L.P., as filed with the Securities and Exchange Commission on December 7, 2006.

Exhibit 23.2 — Consent of Deloitte & Touche LLP, independent registered accounting firm, for the certain use of its report appearing in the Current Report on Form 8-K of Ferrellgas Partners Finance Corp., as filed with the Securities and Exchange Commission on December 7, 2006.

Exhibit 99.15 — Audited consolidated balance sheets of Ferrellgas, Inc. as of July 31, 2006 and 2005, and the related consolidated statements of earnings, stockholders’ equity (deficiency), and cash flows for each of the three years in the period ended July 31, 2006.

     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.

Exhibit Index

Exhibit 23.1 — Consent of Deloitte & Touche LLP, independent registered accounting firm, for the certain use of its report appearing in the Current Report on Form 8-K of Ferrellgas Partners, L.P., as filed with the Securities and Exchange Commission on December 7, 2006.

Exhibit 23.2 — Consent of Deloitte & Touche LLP, independent registered accounting firm, for the certain use of its report appearing in the Current Report on Form 8-K of Ferrellgas Partners Finance Corp., as filed with the Securities and Exchange Commission on December 7, 2006.

Exhibit 99.15 — Audited consolidated balance sheets of Ferrellgas, Inc. as of July 31, 2006 and 2005, and the related consolidated statements of earnings, stockholders’ equity (deficiency), and cash flows for each of the three years in the period ended July 31, 2006.

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Amendment No. 1 to Registration Statement Nos. 333-134867, 333-130193 and 333-137961, in Registration Statement Nos. 333-121350, 333-115765 and 333-132337 on Form S-3; in Registration Statement No. 333-132340 of Form S-4; and in Post-Effective Amendment No. 1 to Registration Statement Nos. 333-87633 and 333-84344 of Ferrellgas Partners, L.P. on Form S-8 of our report dated November 3, 2006, relating to the consolidated financial statements of Ferrellgas, Inc. and subsidiaries appearing in this Current Report on Form 8-K of Ferrellgas Partners, L.P. for the year ended July 31, 2006.

/s/ DELOITTE & TOUCHE LLP

Kansas City, Missouri
December 7, 2006

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Amendment No. 3 to Registration Statement No. 333-132337-01 of Ferrellgas Partners Finance Corp. on Form S-3 of our report dated November 3, 2006, relating to the consolidated financial statements of Ferrellgas, Inc. and subsidiaries appearing in this Current Report on Form 8-K of Ferrellgas Partners Finance Corp. for the year ended July 31, 2006.

/s/ DELOITTE & TOUCHE LLP

Kansas City, Missouri
December 7, 2006

Exhibit 99.15

Ferrellgas, Inc. and Subsidiaries

Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm		2
Consolidated Balance Sheets — July 31, 2006 and 2005		3
Consolidated Statements of Earnings — Years ended July 31, 2006, 2005 and 2004		4
Consolidated Statements of Stockholder’s Equity (Deficiency) — Years ended July 31, 2006, 2005 and 2004		5-6
Consolidated Statements of Cash Flows — Years ended July 31, 2006, 2005 and 2004		7-8
Notes to Consolidated Financial Statements		9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of
Ferrellgas, Inc. and Subsidiaries
Overland Park, Kansas

We have audited the accompanying consolidated balance sheets of Ferrellgas, Inc. and subsidiaries (the “Company”) as of July 31, 2006 and 2005, and the related consolidated statements of earnings, stockholder’s equity (deficiency), and cash flows for each of the three years in the period ended July 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Ferrellgas, Inc. and subsidiaries as of July 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE

November 3, 2006

FERRELLGAS, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Ferrell Companies, Inc.)

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

		July 31,
		2006				2005
ASSETS
Current assets:
Cash and cash equivalents		$	17,168			$	21,023
Accounts and notes receivable (net of allowance for doubtful accounts of $5,628 and $3,674 in 2006 and 2005, respectively)			116,369				107,778
Inventories			154,613				97,743
Prepaid expenses and other current assets			15,342				12,861
Total current assets			303,492				239,405
Property, plant and equipment, net			790,362				819,230
Goodwill			480,258				468,350
Intangible assets, net			248,546				255,277
Other assets, net			11,981				13,930
Total assets		$	1,834,639			$	1,796,192
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable		$	128,049			$	108,667
Short-term borrowings			52,647				19,800
Other current liabilities			95,137				72,208
Total current liabilities			275,833				200,675
Long-term debt			983,545				948,977
Deferred income taxes			2,447				3,432
Other liabilities			18,528				19,798
Contingencies and commitments (Note N)			—				—
Minority interest			468,360				511,882
Parent investment in subsidiary			161,670				187,272
Stockholder’s equity (deficiency):
Common stock, $1 par value; 10,000 shares authorized; 990 shares issued			1				1
Additional paid-in-capital			19,207				18,654
Note receivable from parent			(145,601	)			(147,378	)
Retained earnings			49,269				53,491
Accumulated other comprehensive income (loss)			1,380				(612	)
Total stockholder’s equity (deficiency)			(75,744	)			(75,844	)
Total liabilities and stockholder’s equity (deficiency)		$	1,834,639			$	1,796,192

See notes to consolidated financial statements

FERRELLGAS, INC. AND SUBISIDIARIES
(a wholly-owned subsidiary of Ferrell Companies, Inc.)

CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands)

		For the year ended July 31,
		2006				2005				2004
Revenues:
Propane and other gas liquids sales		$	1,697,940			$	1,592,325			$	1,210,564
Other			197,530				161,789				97,822
Total revenues			1,895,470				1,754,114				1,308,386
Cost of product sold (exclusive of depreciation, shown with amortization below)
Propane and other gas liquids sales			1,109,177				1,052,005				730,377
Other			122,450				88,293				36,027
Gross profit			663,843				613,816				541,982
Operating expense			374,871				366,189				323,375
Depreciation and amortization expense			87,166				85,273				58,324
General and administrative expense			47,689				42,342				34,532
Equipment lease expense			27,320				25,495				19,652
Employee stock ownership plan compensation charge			10,277				12,266				7,892
Loss on disposal of assets and other			7,539				8,673				7,133
Operating income			108,981				73,578				91,074
Interest expense			(84,235	)			(91,518	)			(74,467	)
Interest income			2,068				1,903				1,590
Earnings (loss) before income taxes, minority interest, parent investment in subsidiary and discontinued operations			26,814				(16,037	)			18,197
Income tax expense			3,563				2,044				530
Minority interest			25,445				(2,718	)			11,544
Parent investment in subsidiary			(683	)			(12,441	)			8,798
Loss from continuing operations before discontinued operations			(1,511	)			(2,922	)			(2,675	)
Earnings from discontinued operations (including gain on sale in 2005 of $97,001), net of minority interest of $71,524 and $5,019 and parent investment in subsidiary of $31,623 and $2,949 in 2005 and 2004, respectively			—				2,105				163
Net loss		$	(1,511	)		$	(817	)		$	(2,512	)

See notes to consolidated financial statements.

FERRELLGAS, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Ferrell Companies, Inc.)

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY (DEFICIENCY)
(in thousands, except share data)

																						Accumulated other
																						comprehensive income (loss)
		Number												Note																				Total
		of								Additional				receivable												Currency								stockholder’s
		common				Common				paid-in				from				Retained				Risk				translation				Pension				equity
		shares				stock				capital				parent				earnings				management				adjustment				liability				(deficiency)
July 31, 2003			990			$	1			$	13,824			$	(146,864	)		$	62,303			$	—			$	—			$	(1,968	)		$	(72,704	)
Distributions to parent			—				—				—				—				(2,926	)			—				—				—				(2,926	)
Decrease in loan to parent			—				—				—				34				—				—				—				—				34
Contribution in connection with ESOP compensation charge			—				—				158				—				—				—				—				—				158
Contribution in connection with equity and debt offerings of subsidiary			—				—				1,400				—				—				—				—				—				1,400
Contribution related to exercise of options of subsidiary			—				—				80				—				—				—				—				—				80
Comprehensive income:
Net loss			—				—				—				—				(2,512	)			—				—				—				(2,512	)
Other comprehensive income:
Net earnings on risk management derivatives			—				—				—				—				—				1,911				—				—
Reclassification of derivatives to earnings			—				—				—				—				—				(139	)			—				—
Foreign currency translation adjustments			—				—				—				—				—				—				16				—
Pension liability adjustment			—				—				—				—				—				—				—				910				2,698
Comprehensive income																																			186
July 31, 2004			990				1				15,462				(146,830	)			56,865				1,772				16				(1,058	)			(73,772	)
Distributions to parent			—				—				—				—				(2,557	)			—				—				—				(2,557	)
Increase in loan to parent			—				—				—				(548	)			—				—				—				—				(548	)
Contribution in connection with ESOP compensation charge			—				—				245				—				—				—				—				—				245

																						Accumulated other
																						comprehensive income (loss)
		Number												Note																				Total
		of								Additional				receivable												Currency								stockholder’s
		common				Common				paid-in				from				Retained				Risk				translation				Pension				equity
		shares				stock				capital				parent				earnings				management				adjustment				liability				(deficiency)
Contribution in connection with equity offerings of subsidiary			—				—				2,799				—				—				—				—				—				2,799
Contribution in connection with acquisitions			—				—				142				—				—				—				—				—				142
Contribution related to exercise of options of subsidiary			—				—				6				—				—				—				—				—				6
Comprehensive income:
Net loss			—				—				—				—				(817	)			—				—				—				(817	)
Other comprehensive income:
Net earnings on risk management derivatives			—				—				—				—				—				70				—				—
Reclassification of derivatives to earnings			—				—				—				—				—				(1,772	)			—				—
Foreign currency translation adjustments			—				—				—				—				—				—				49				—
Pension liability adjustment			—				—				—				—				—				—				—				311				(1,342	)
Comprehensive income																																			(2,159	)
July 31, 2005			990				1				18,654				(147,378	)			53,491				70				65				(747	)			(75,844	)
Distributions to parent			—				—				—				—				(2,711	)			—				—				—				(2,711	)
Decrease in loan to parent			—				—				—				1,777				—				—				—				—				1,777
Contribution in connection with ESOP and stock-based compensation charges			—				—				243				—				—				—				—				—				243
Contribution in connection with acquisitions			—				—				256				—				—				—				—				—				256
Contribution related to exercise of options of subsidiary			—				—				32				—				—				—				—				—				32
Other cash contributions from parent			—				—				22				—				—				—				—				—				22
Comprehensive income:
Net loss			—				—				—				—				(1,511	)			—				—				—				(1,511	)
Other comprehensive income:
Net earnings on risk management derivatives			—				—				—				—				—				2,540				—
Reclassification of derivatives to earnings			—				—				—				—				—				(484	)			—				—
Foreign currency translation adjustments			—				—				—				—				—				—				(29	)			—
Tax effect on foreign currency translation adjustments																											(15	)
Pension liability adjustment			—				—				—				—				—				—				—				(20	)			1,992
Comprehensive income																																			481
July 31, 2006			990			$	1			$	19,207			$	(145,601	)		$	49,269			$	2,126			$	21			$	(767	)		$	(75,744	)

See notes to consolidated financial statements.

FERRELLGAS, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Ferrell Companies, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		For the year ended July 31,
		2006				2005				2004
Cash flows from operating activities:
Net loss		$	(1,511	)		$	(817	)		$	(2,512	)
Reconciliation of net loss to net cash provided by operating activities:
Depreciation and amortization expense			87,166				86,462				59,328
Employee stock ownership plan compensation charge			10,277				12,266				7,892
Stock-based compensation charge			1,863				—				—
Loss (gain) on disposal of assets and discontinued operations			1,188				(91,494	)			6,120
Loss on transfer of accounts receivable related to the accounts receivable securitization			10,075				5,894				2,454
Minority interest			25,445				19,182				16,563
Parent investment in subsidiary			(683	)			68,806				11,747
Deferred income tax expense (benefit)			(585	)			(291	)			294
Other			5,971				2,675				6,011
Changes in operating assets and liabilities, net of effects from business acquisitions:
Accounts and notes receivable, net of securitization			(20,412	)			(43,246	)			(24,943	)
Inventories			(57,334	)			(2,421	)			(5,264	)
Prepaid expenses and other current assets			(2,338	)			(2,440	)			(217	)
Accounts payable			19,621				4,505				17,308
Accrued interest expense			472				(4,662	)			5,427
Other current liabilities			7,802				(5,558	)			(12,927	)
Other liabilities			184				323				832
Accounts receivable securitization:
Proceeds from new accounts receivable securitizations			107,000				114,400				30,000
Proceeds from collections reinvested in revolving period accounts receivable securitizations			1,184,987				981,256				627,389
Remittances of amounts collected as servicer of accounts receivable securitizations			(1,287,987	)			(1,051,356	)			(669,689	)
Net cash provided by operating activities			91,201				93,484				75,813
Cash flows from investing activities:
Cash paid for assumed merger and related obligations			—				—				(343,414	)
Business acquisitions, net of cash acquired			(21,231	)			(23,904	)			(40,960	)
Cash paid for acquisition transaction fees			—				—				(1,476	)
Capital expenditures — technology initiative			(915	)			(10,466	)			(8,688	)
Capital expenditures — other			(42,451	)			(42,348	)			(32,692	)
Proceeds from sale of discontinued operations			—				144,000				—
Proceeds from sale of assets			18,950				11,948				5,766
Other, net			(5,595	)			(3,121	)			(3,319	)
Net cash provided by (used in) investing activities			(51,242	)			76,109				(424,783	)

		For the year ended July 31,
		2006				2005				2004
Cash flows from financing activities:
Distributions paid to parent by subsidiary-common unitholders			(36,768	)			(35,999	)			(35,706	)
Distributions paid to minority interest by subsidiary-common unitholders			(84,104	)			(70,771	)			(47,178	)
Distributions paid to minority interest by subsidiary-senior unitholder			—				(7,977	)			(7,977	)
Distributions paid to parent			(2,711	)			(2,482	)			(2,926	)
Issuance of common units of subsidiary			—				136,824				236,004
Proceeds from increase in long-term debt			45,453				44				314,048
Principal payments on debt			(3,050	)			(205,354	)			(58,710	)
Net additions (reductions) in loan to parent			1,777				(548	)			34
Net additions (reductions) to short-term borrowings			32,847				19,800				(43,719	)
Proceeds from exercise of options of subsidiary			3,124				472				4,223
Cash paid for financing costs			(375	)			(1,392	)			(7,043	)
Cash contributed by parent — other			22				2,877				1,480
Net cash provided by (used in) financing activities			(43,785	)			(164,506	)			352,530
Effect of exchange rate changes on cash			(29	)			49				16
Increase (decrease) in cash and cash equivalents			(3,855	)			5,136				3,576
Cash and cash equivalents — beginning of period			21,023				15,887				12,311
Cash and cash equivalents — end of period		$	17,168			$	21,023			$	15,887
Cash paid for interest		$	81,592			$	93,298			$	66,240
Cash paid for income taxes		$	1,063			$	1,404			$	23

See notes to consolidated financial statements.

FERRELLGAS , INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise designated)

A.

Organization and formation

The accompanying consolidated financial statements and related notes present the consolidated financial position, results of operations and cash flows of Ferrellgas, Inc. (the “Company”), its subsidiaries, which include its general partnership interest in both Ferrellgas Partners, L.P. (“Ferrellgas Partners”) and Ferrellgas, L.P. (the “operating partnership”). The Company is a wholly-owned subsidiary of Ferrell Companies, Inc., (“Ferrell” or “Parent”).

Ferrellgas Partners was formed on April 19, 1994, and is a publicly traded limited partnership, owning a 99% limited partner interest in Ferrellgas, L.P. Ferrellgas Partners and the operating partnership, collectively referred to as “Ferrellgas,” are both Delaware limited partnerships and are governed by their respective partnership agreements. Ferrellgas Partners was formed to acquire and hold a limited partner interest in the operating partnership. The operating partnership was formed to acquire, own and operate the propane business and assets of the Company. The Company has retained a 1% general partner interest in Ferrellgas Partners and also holds a 1.0101% general partner interest in the operating partnership, representing an effective 2% general partner interest in Ferrellgas on a combined basis. As general partner, it performs all management functions required by Ferrellgas.

Concurrent with the closing of the Ferrellgas Partner initial public offering in 1994, the Company contributed all of its propane business and assets to Ferrellgas Partners in exchange for 17,593,721 common units and Incentive Distribution Rights as well as a 2% general partner interest in Ferrellgas Partners and the operating partnership on a combined basis.

In July 1998, the Company transferred its entire limited partnership ownership of Ferrellgas Partners to Ferrell. In July 1998, 100% of the outstanding common stock of Ferrell was purchased primarily from Mr. James E. Ferrell (“Mr. Ferrell”) and his family by a newly created leveraged employee stock ownership trust (“ESOT”) established pursuant to the Ferrell Companies Employee Stock Ownership Plan (“ESOP”). The purpose of the ESOP is to provide employees of the Company an opportunity for ownership in Ferrell and indirectly in Ferrellgas. As contributions are made by Ferrell to the ESOT in the future, shares of Ferrell are allocated to the employees’ ESOP accounts.

On December 17, 1999, Ferrellgas Partners’ partnership agreement was amended to allow for the issuance of a newly created senior unit. As amended, the senior units were to be paid quarterly distributions in cash equivalent to 10% per annum of their liquidation value, or $4 per senior unit. Additionally, the holder of the senior units could convert any outstanding senior units into common units beginning on the earlier of June 29, 2005 or upon the occurrence of a “material event” as such term is defined by Ferrellgas Partners’ partnership agreement. On June 30, 2005, the senior units, owned by JEF Capital Management, Inc. (“JEF Capital”), were converted to common units. JEF Capital is beneficially owned by Mr. Ferrell. See Note L— Minority Interest — for additional discussion related to the conversion of these senior units to common units.

On June 5, 2000, Ferrellgas Partners’ partnership agreement was amended to allow the Company to have an option to maintain its effective 2% general partner interest concurrent with the issuance of other additional equity. Prior to this amendment, the Company was required to make capital contributions to maintain its effective 2% general partner interest concurrent with the issuance of any additional equity. Also as part of this amendment, the Company’s interest in Ferrellgas Partner’s common units became represented by newly created general partner units.

On March 7, 2005, Ferrellgas Partners amended its partnership agreement to extend an existing agreement with Ferrell concerning the distribution priority on common units owned by public investors over those owned by Ferrell. This provision was extended to April 30, 2010 and allows Ferrellgas Partners to defer distributions on the common units held by Ferrell up to an aggregate outstanding amount of $36.0 million. There have been no deferrals to date.

B.

Summary of significant accounting policies

(1) Nature of operations: The Company is a holding entity that conducts no operations and has two subsidiaries, Ferrellgas Partners and Ferrellgas Acquisitions Company, LLC (“Ferrellgas Acquisitions Company”). The Company owns a 100% equity interest in Ferrellgas Acquisitions Company, whose only purpose is to acquire the tax liabilities of acquirees of Ferrellgas. The Company owns a 1% general partnership interest in Ferrellgas Partners. The operating partnership is the only operating subsidiary of Ferrellgas Partners.

Ferrellgas is engaged primarily in the distribution of propane and related equipment and supplies primarily in the United States. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Ferrellgas serves more than one million residential, industrial/commercial, portable tank exchange, agricultural and other customers in all 50 states, the District of Columbia, Puerto Rico and Canada.

(2) Accounting estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment assets, residual values of tanks, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, valuation methods used to value allowance for doubtful accounts, valuation methods of derivative commodity contracts and valuation methods of stock and unit-based compensation expense calculation.

(3) Principles of consolidation: The accompanying consolidated financial statements include the Company’s accounts, those of its wholly-owned subsidiary, Ferrellgas Acquisition Company and Ferrellgas Partners, after elimination of all material intercompany accounts and transactions. The accounts of Ferrellgas Partners are included based on the determination that the Company possess a controlling financial interest through its ability to exert control over Ferrellgas and is consolidated with the Company.

Minority interest includes limited partner interests in Ferrellgas Partners’ common units held by the public. See Note L — Minority interest — for related discussion about the activity in minority interest. Minority interest expense includes allocations of income (loss) and distributions in excess of its basis, if any. Parent investment in subsidiary in the consolidated statements of earnings includes allocations of income (loss) associated with the common units held by Ferrell. The limited partner interest owned by Ferrell is reflected as “Parent investment in subsidiary” in the consolidated balance sheets.

(4) Cash and cash equivalents and non-cash activities: For purposes of the consolidated statements of cash flows, the Company considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less. Significant non-cash operating, investing and financing activities are primarily related to business combinations, accounts receivable securitization and transactions with related parties as disclosed in Note D— Business combinations, Note G — Accounts receivable securitization and Note M — Transactions with related parties, respectively.

(5) Inventories: Inventories are stated at the lower of cost or market using weighted average cost and actual cost methods.

(6) Accounts receivable securitization: The Company has agreements to transfer, on an ongoing basis, certain of its trade accounts receivable through an accounts receivable securitization facility and retains servicing responsibilities as well as a retained interest related to a portion of the transferred receivables. The related receivables are removed from the consolidated balance sheet and a retained interest is recorded for the amount of receivables sold in excess of cash received. The retained interest is included in “Accounts and notes receivable” in the consolidated balance sheets.

The Company determines the fair value of its retained interest based on the present value of future expected cash flows using management’s best estimates of various factors, including credit loss experience and discount rates commensurate with the risks involved. These assumptions are updated periodically based on actual results, therefore the estimated credit loss and discount rates utilized are materially consistent with historical performance. Due to the short-term nature of the Company’s trade receivables, variations in the credit and discount assumptions would not significantly impact the fair value of the retained interests. Costs associated with the sale of receivables are included in “Loss on disposal of assets and other” in the consolidated statements of earnings. See Note G — Accounts receivable securitization — for further discussion of these transactions.

(7) Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and routine repairs are expensed as incurred. The Company capitalizes computer software, equipment replacement and betterment expenditures that are (i) greater than $1 thousand, (ii) upgrade, replace or completely rebuild major mechanical components and (iii) extend the original useful life of the equipment. Depreciation is calculated using the straight-line method based on the estimated useful lives of the assets ranging from two to 30 years. The Company, using its best estimates based on reasonable and supportable assumptions and projections, reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of its assets might not be recoverable. See Note F — Supplemental financial statement information — for further discussion of property, plant and equipment.

(8) Goodwill: The Company records goodwill as the excess of the cost of acquisitions over the fair value of the related net assets at the date of acquisition. Goodwill is tested for impairment annually on January 31, or more frequently if circumstances dictate, and if impaired, written off against earnings at that time. The Company has not recognized any impairment losses as a result of these tests. For purposes of the Company’s goodwill impairment test, the Company has determined that it has one reporting unit. The Company assesses the carrying value of goodwill at its reporting unit based on an estimate of the fair value of the reporting unit. Fair value of the reporting unit is estimated using a market value approach taking into consideration the quoted market price of Ferrellgas Partners’ common units.

(9) Intangible assets: Intangible assets with finite useful lives, consisting primarily of customer lists, noncompete agreements and patented technology, are stated at cost, net of accumulated amortization calculated using the straight-line method over periods ranging from two to 15 years. Tradenames and trademarks have indefinite lives, are not amortized, and are stated at cost. The Company tests finite-lived intangible assets for impairment when events or changes in circumstances indicate that the

carrying amount of these assets might not be recoverable. The Company tests indefinite lived intangible assets for impairment annually on January 31 or more frequently if circumstances dictate. The Company has not recognized impairment losses as a result of these tests. When necessary, intangible assets’ useful lives are revised and the impact on amortization reflected on a prospective basis. See Note H — Goodwill and intangible assets, net — for further discussion of intangible assets.

(10) Derivatives and Hedging Activities: The Company’s overall objective for entering into derivative contracts, including commodity options and swaps, is to hedge exposures to product purchase price risk. These financial instruments are formally designated and documented as a hedge of a specific underlying exposure, as well as the risk management objectives and strategies for undertaking the hedge transaction. Because of the high degree of correlation between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instrument are generally offset by changes in the anticipated cash flows of the underlying exposure being hedged. The fair value of derivatives used to hedge our risks fluctuates over time. These fair value amounts should not be viewed in isolation, but rather in relation to the anticipated cash flows of the underlying hedged transaction and the overall reduction in our risk relating to adverse fluctuations in propane prices. The Company formally assesses, both at inception and at least quarterly thereafter, whether the financial instruments that are used in hedging transactions are effective at offsetting changes in the anticipated cash flows of the related underlying exposures. The Company also enters into derivative contracts that qualify for the normal purchases and normal sales exception under Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended.

(11) Revenue recognition: Revenues from the distribution of propane and other gas liquids are recognized by the Company at the time product is delivered to its customers. Other revenues, which include revenue from the sale of propane appliances and equipment is recognized at the time of delivery or installation. Revenues from repairs and maintenance are recognized upon completion of the service. The Company recognizes shipping and handling revenues and expenses for sales of propane, appliances and equipment at the time of delivery or installation. Shipping and handling revenues are included in the price of propane charged to customers, and are classified as revenue.

(12) Shipping and handling expenses: Shipping and handling expenses related to delivery personnel, vehicle repair and maintenance and general liability expenses are classified within operating expense on the statement of earnings. Depreciation expenses on delivery vehicles the Company owns are classified within depreciation and amortization expense. Delivery vehicles and distribution technology leased by the Company are classified within equipment lease expense. See Note F — Supplemental financial statement information — for the financial statement presentation of shipping and handling expenses.

(13) Cost of product sold: Cost of product sold — propane and other gas liquids sales includes all costs to acquire propane and other gas liquids, including the results from risk management activities related to supply procurement and transportation, the costs of storing and transporting inventory prior to delivery to the Company’s customers and the costs related to the refurbishment of the Company’s portable propane tanks. Cost of product sold — other primarily includes costs related to the sale of propane appliances and equipment.

(14) Operating expenses: Operating expenses primarily include the personnel, vehicle, delivery, handling, plant, office, selling, marketing, credit and collections and other expenses related to the retail distribution of propane and related equipment and supplies.

(15) General and administrative expenses: General and administrative expenses primarily include personnel and incentive expense related to executives and employees and other overhead expense related to centralized corporate functions.

(16) Income taxes: The Company is treated as a Subchapter S corporation for Federal income tax purposes and is liable for income tax in states that do not recognize Subchapter S status. Income taxes were computed as though each company filed its own tax return in accordance with the Company’s tax sharing agreement. Deferred income taxes are provided as a result of temporary differences between financial and tax reporting, as described in Note K — Income taxes — using the asset/liability method.

(17) Sales taxes: The Company accounts for the collection and remittance of sales tax on a net tax basis. As a result, these amounts are not reflected in the consolidated statements of earnings.

(18) Segment information: The Company is a single reportable operating segment engaging in the distribution of propane and related equipment and supplies to customers primarily in the United States.

(19) New accounting standards: SFAS No. 123 (R ), “Share-Based Payment” (“SFAS 123(R )”), is a revision of SFAS 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supersedes APB No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and its related implementation guidance. This statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. The Company adopted this standard on August 1, 2005. See Note C — Unit and stock-based compensation.

SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of SFAS No. 133 and 140” provides entities relief from the requirement to separately determine the fair value of an embedded derivative that would otherwise be bifurcated from the host contract under SFAS 133. This statement allows an irrevocable election on an instrument-by-instrument basis to measure such a hybrid financial instrument at fair value. This statement is effective for all financial instruments acquired or issued after the beginning of the fiscal years beginning after September 15, 2006. The Company has evaluated this statement and does not believe it will have a material effect on the Company’s financial position, results of operations and cash flows.

SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of SFAS No. 140” requires that all separately recognized servicing assets and liabilities be initially measured at fair value and permits (but does not require) subsequent measurement of servicing assets and liabilities at fair value. This statement is effective for fiscal years beginning after September 15, 2006. The Company has evaluated this statement and does not believe it will have a material effect on the Company’s financial position, results of operations and cash flows.

EITF 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty” addresses the accounting for an entity’s sale of inventory to another entity from which it also purchases inventory to be sold in the same line of business. EITF 04-3 concludes that two or more inventory transactions with the same counterparty should be accounted for as a single non-monetary transaction at fair value or recorded amounts based on inventory classifications. EITF 04-13 is effective for new arrangements entered into, and modifications or renewals of existing arrangements, beginning in the first interim or annual reporting period beginning after March 15, 2006. The Company adopted EITF 04-13 during fiscal 2006 without a material effect on its financial position, results of operations and cash flows.

FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” provides a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating FIN 48 and does not believe it will have a material effect on its financial position, results of operations and cash flows.

(20) Reclassifications: Certain reclassifications have been made to prior fiscal years’ consolidated financial statements to conform to the current fiscal year’s presentation.

C. Unit and stock-based compensation

The Company adopted SFAS 123(R ) on August 1, 2005. Prior to adoption, the Company accounted for unit and stock-based compensation plans using the intrinsic value method under the provisions of APB 25 and made the fair value method pro forma disclosures required under SFAS 123. SFAS 123(R ) requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. It also establishes fair value as the measurement method in accounting for share-based payment transactions with employees. Adoption of SFAS 123(R ) resulted in the following non-cash compensation charges:

		For the year ended July 31, 2006
Operating expense		$	438
General and administrative expense			1,425
		$	1,863

The Company adopted SFAS 123(R ) using the modified prospective application method. Under this method, SFAS 123(R) applies to new awards and to awards modified, repurchased, or cancelled after the adoption date of August 1, 2005. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of August 1, 2005 will be recognized as the requisite service is rendered. The compensation cost for that portion of awards is based on the fair value of those awards as of the grant-date as was calculated for pro forma disclosures under SFAS 123. The compensation cost for those earlier awards is attributed to periods beginning on or after August 1, 2005 using the attribution method that was used under SFAS 123.

Had compensation cost for these plans been recognized in the Company’s consolidated statement of earnings for the years ended July 31, 2005 and 2004, net earnings would have been adjusted as noted in the table below:

		For the years ended July 31,
		2005				2004
Net loss, as reported		$	(817	)		$	(2,512	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards			(5	)			(23	)
Pro forma net loss		$	(822	)		$	(2,535	)

Ferrellgas Unit Option Plan (“UOP”)

The UOP is authorized to issue options covering up to 1.35 million common units to employees of the Company or its affiliates. The Board of Directors of the Company administers the UOP, authorizes grants of unit options thereunder and sets the unit option price and vesting terms of unit options in accordance with the terms of the UOP. No single officer or director of the Company may acquire more than 314,895 common units under the UOP. In general, the options currently outstanding under the UOP vest over a five-year period, and expire on the tenth anniversary of the date of the grant. The fair value of each option award is estimated on the date of grant using a binomial option valuation model. There have been no awards granted pursuant to the UOP since fiscal 2001. Expected volatility is based on the historical volatility of Ferrellgas Partners’ publicly-traded common units. Historical information is used to estimate option exercise and employee termination behavior. Due to the limited number of employees eligible to participate in the UOP, there is only one group of employees. The expected term of options granted is derived using the simplified method and represents the period of time that options are expected to be outstanding. The risk free rate for periods within the contractual

life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. During the year ended July 31, 2006, the portion of the total non-cash compensation charge relating to the UOP was $0.3 million.

A summary of option activity under the UOP as of July 31, 2006 is presented below:

										Weighted-average
										remaining				Aggregate intrinsic
		Number of				Weighted average				contractual term				value
		units				exercise price				(in years)				(in thousands)
Outstanding, August 1, 2005			344,676			$	18.52
Exercised			(169,000	)			18.29
Forfeited			(27,476	)			20.43
Outstanding, July 31, 2006			148,200				18.43				3.7			$	601
Options exercisable, July 31, 2006			148,200				18.43				3.7			$	601

There were no options granted during the years ended July 31, 2006, 2005 and 2004. The total intrinsic value of options exercised during the years ended July 31, 2006, 2005 and 2004 was $0.7 million, $0.1 million and $0.5 million, respectively.

As of July 31, 2006 there is no unrecognized compensation cost related to unit-based compensation arrangements granted under the UOP because all options outstanding are fully vested.

Ferrell Companies, Inc. Incentive Compensation Plan (“ICP”)

The ICP is not a Ferrellgas stock-compensation plan. However, in accordance with Ferrellgas’ partnership agreements, all employee-related costs incurred by Ferrell are allocated to Ferrellgas and therefore recognized in the Company’s consolidated statements of earnings. On August 1, 2005 Ferrell adopted SFAS 123(R ) and now accounts for its stock-based compensation plan in accordance with that standard. As a result, the Company now incurs a non-cash compensation charge from Ferrell as they account for their plan in accordance with SFAS 123(R ).

Ferrell is authorized to issue options covering up to 6.25 million shares of Ferrell Companies common stock under the ICP. The ICP was established by Ferrell to allow upper middle and senior level managers of the Company to participate in the equity growth of Ferrell. The shares underlying the stock options are common shares of Ferrell. The ICP stock options vest ratably over periods ranging from three to 12 years or 100% upon a change of control of Ferrell, or the death, disability or retirement at the age of 65 of the participant. Vested options are exercisable in increments based on the timing of the retirement of Ferrell debt, but in no event later than 20 years from the date of issuance. The fair value of each option award is estimated on the date of grant using a binomial option valuation model. During the year ended July 31, 2006, the portion of the total non-cash compensation charge relating to the ICP was $1.6 million.

D. Business combinations

Business combinations are accounted for under the purchase method and the assets acquired and liabilities assumed are recorded at their estimated fair market values as of the acquisition dates. The results of operations are included in the consolidated statements of earnings from the date of acquisition.

During fiscal 2006, the Company acquired propane distribution assets with an aggregate value of $38.7 million in the following 11 transactions:

	•		Norwest Propane, Inc., based in Washington, acquired September 2005;
	•		Eastern Fuels, Inc., based in North Carolina, acquired November 2005;
	•		Petro Star, Corp., based in New York, acquired December 2005;
	•		Titan Propane, LLC (selected cylinder exchange assets), based in New York and New Jersey, acquired February 2006;
	•		Empire Propane Cylinder, Inc., based in New York, acquired in February 2006,
	•		United Energy, Inc., based in Ohio, acquired March 2006;
	•		Cal’s Propane Service, Inc., based in Oregon, acquired April 2006;
	•		Gaines Propane, Inc., based in Tennessee, acquired April 2006;
	•		Hometown Gas, Inc., based in Florida, acquired April 2006;
	•		Denman Cylinder Exchange, Ltd. and The Denman Company, Ltd., based in Texas, acquired May 2006; and
	•		Hampton Gas Company, Inc., based in South Carolina, acquired May 2006.

These acquisitions were funded by $21.2 million in cash payments, the issuance of 0.6 million Ferrellgas Partners’ common units valued at an aggregate of $12.4 million and the issuance of $5.1 million of liabilities and other consideration, which includes $1.8 million of contingent consideration.

The aggregate values of these 11 transactions were allocated as follows:

Current assets		$	689
Customer tanks, buildings and land			9,640
Non-compete agreements			5,598
Customer lists			9,586
Goodwill			13,218
Other assets			15
		$	38,746

The estimated fair values and useful lives of assets acquired are based on a preliminary internal valuation and are subject to final valuation adjustments. The Company intends to continue its analysis of the net assets of these transactions to determine the final allocation of the total purchase price to the various assets and liabilities acquired.

During fiscal 2005, the Company acquired propane distribution assets with an aggregate value of $31.7 million in the following seven transactions:

	•		Kamp’s Propane, Inc. (selected cylinder exchange assets), based in California, acquired August 2004;
	•		Suburban Propane’s Upper Midwest Retail Operations, based in Minnesota, North Dakota and Wisconsin, acquired September 2004;
	•		Basin Propane, based in Washington, acquired September 2004;
	•		Econogas Service, Inc., based in Iowa, acquired September 2004;
	•		Land Propane Gas Service, based in Kentucky, acquired September 2004;
	•		Parsons Gas & Appliance, Inc., Parsons Gas, Inc., and Dave’s Gas, Inc., based in Kentucky, acquired December 2004; and
	•		Commercial Propane Corporation, based in Wisconsin, acquired January 2005.

These acquisitions were funded by $23.9 million in cash payments, the issuance of 0.3 million Ferrellgas Partners’ common units valued at an aggregate of $7.0 million and the issuance of $0.8 million of liabilities.

The aggregate values of these seven transactions were allocated as follows:

Customer tanks, buildings and land		$	12,358
Non-compete agreements			2,914
Customer lists			12,690
Goodwill			4,016
Other assets			453
Current liabilities			(749	)
		$	31,682

The fair values and useful lives of assets acquired are based on an internal valuation and included only minor final valuation adjustments.

During fiscal 2004, the Company completed one material business combination, referred to as the Blue Rhino contribution (see discussion below), and acquired propane distribution assets in the following ten transactions:

	•		Chapman’s Propane Co., Inc, based in Illinois, acquired August 2003;
	•		Bud’s Propane Service, Inc., based in Oregon, acquired September 2003;
	•		Prairie Land Coop, based in Iowa, acquired October 2003;
	•		Aeropres Propane, Inc., based in Louisiana and Arkansas, acquired December 2003;
	•		Suburban Propane’s Midwest Retail Operations, based in Texas, Oklahoma, Missouri and Kansas, acquired January 2004;
	•		Crow’s LP Gas Co., based in Iowa, acquired March 2004;
	•		Hilltop Supply Company, based in Southern California, acquired March 2004;
	•		Blue Ribbon Propane, based in Canada, acquired May 2004;
	•		C. Barron & Sons, Inc., based in Michigan, acquired June 2004; and
	•		Tri-Counties Gas Companies, based in Northern California, acquired July 2004.

These acquisitions were funded by $41.0 million in cash payments, the issuance of 0.1 million Ferrellgas Partners’ common units valued at an aggregate of $1.5 million and $0.8 million of notes payable to the seller.

The aggregate values of these ten transactions were allocated as follows:

Customer tanks, buildings and land		$	24,576
Non-compete agreements			4,306
Customer lists			14,183
Goodwill			244
Other			(16	)
		$	43,293

The fair values and useful lives of assets acquired are based on an internal valuation and included only minor final valuation adjustments during the 12 month period after the date of acquisition.

Blue Rhino contribution

On April 20, 2004, FCI Trading Corp. (“FCI Trading”), an affiliate of the Company, acquired all of the outstanding common stock of Blue Rhino Corporation in an all-cash merger. Pursuant to an Agreement and Plan of Merger dated February 8, 2004, a subsidiary of FCI Trading merged with and into Blue Rhino Corporation whereby the then current stockholders of Blue Rhino Corporation were granted the right to receive a payment from FCI Trading of $17.00 in cash for each share of Blue Rhino Corporation common stock outstanding on April 20, 2004. FCI Trading thereafter became the

sole stockholder of Blue Rhino Corporation and immediately after the merger, FCI Trading converted Blue Rhino Corporation into a limited liability company, Blue Rhino LLC.

In a non-cash contribution, pursuant to a Contribution Agreement dated February 8, 2004, FCI Trading contributed on April 21, 2004 all of the membership interests in Blue Rhino LLC to the operating partnership through a series of transactions and the operating partnership assumed FCI Trading’s obligation under the Agreement and Plan of Merger to pay the $17.00 per share to the former stockholders of Blue Rhino Corporation together with other specific obligations, as detailed in the following table:

Assumption of obligations under the contribution agreement		$	343,414
Common units and general partner interest issued			11,850
Assumption of Blue Rhino’s bank credit facility outstanding balance			43,719
Assumption of other liabilities and acquisition costs			15,382
		$	414,365

In consideration of this contribution, Ferrellgas Partners issued 195,686 common units to FCI Trading. Both Ferrellgas Partners and FCI Trading have agreed to indemnify the Company from any damages incurred by the Company in connection with the assumption of any of the obligations described above. Also on April 21, 2004, subsequent to the contribution described above, Blue Rhino LLC merged with and into the operating partnership. The former operations of Blue Rhino LLC will hereafter be referred to as “Blue Rhino.”

In addition to the payment of $17.00 per share to the former stockholders of Blue Rhino Corporation, each vested stock option and warrant that permitted its holder to purchase common stock of Blue Rhino Corporation that was outstanding immediately prior to the merger was converted into the right to receive a cash payment from Blue Rhino Corporation equal to the difference between $17.00 per share and the applicable exercise price of the stock option or warrant. Unvested options and warrants not otherwise subject to automatic accelerated vesting upon a change in control vested on a pro rata basis through April 19, 2004, based on their original vesting date. The total payment to the former Blue Rhino Corporation stockholders for all common stock outstanding on April 20, 2004 and for those Blue Rhino Corporation options and warrants then outstanding was $343.4 million.

Prior to this contribution, Blue Rhino Corporation was the leading national provider of propane by portable tank exchange as well as a leading supplier of complementary propane and non-propane products to consumers through many of the nation’s largest retailers.

During fiscal 2005, the Company completed its valuation and allocation of the purchase price related to the Blue Rhino contribution. The purchase price was increased by $3.6 million due to the final valuation of property, plant and equipment received in the acquisition.

The aggregate value of the Blue Rhino contribution was allocated as follows:

Current assets		$	53,912
Customer tanks, buildings and land			96,160
Trademarks and tradenames			59,000
Non-compete agreements			3,300
Customer lists			95,500
Goodwill			132,396
Other intangibles			5,300
Other assets			1,375
Current liabilities			(32,578	)
		$	414,365

Management determined the estimated fair value and useful lives of assets and liabilities acquired with the assistance of an independent third-party valuation.

The Company’s valuation of the tangible and intangible assets of the Blue Rhino contribution resulted in the recognition of goodwill of $132.4 million. This valuation of goodwill was based on the Company’s belief that the contributions of Blue Rhino will be beneficial to the Company’s and Blue Rhino’s operations as Blue Rhino’s counter-seasonal business activities and anticipated future growth is expected to provide the Company with the ability to better utilize its seasonal resources to complement the Company’s retail distribution locations with Blue Rhino’s existing distributor network.

The results of operations of Blue Rhino are included in the consolidated statements of earnings of the combined entity from the date of contribution.

    Results of operations

The following summarized unaudited pro forma results of operations for fiscal 2004, assumes that the Blue Rhino contribution had occurred as of the beginning of the period presented. These unaudited pro forma financial results have been prepared for comparative purposes only and may not be indicative of (i) the results that would have occurred if the Company had completed the Blue Rhino contribution as of the beginning of the period presented or (ii) the results that will be attained in the future. Items not included in the reported pro forma results of operations for fiscal 2004, are $3.3 million of nonrecurring charges incurred by Blue Rhino Corporation in the period from February 1, 2004 through April 20, 2004, that are directly attributable to the Blue Rhino contribution.

		For the year ended
		July 31, 2004
Revenues		$	1,470,529
Loss before discontinued operations			(2,990	)
Net loss		$	(2,827	)

E. Discontinued operations

During July 2005, the Company sold its wholesale storage business which consisted of non-strategic storage and terminal assets located in Arizona, Kansas, Minnesota, North Carolina and Utah for $144.0 million in cash, before $1.9 million of fees and expenses. The Company recorded a gain of $97.0 million on the sale. The assets consisted of underground storage facilities and rail and pipeline-to-truck terminals. The Company considers the sale of these assets to be discontinued operations. Therefore, the Company has reported results of operations from these assets as discontinued operations for all periods presented on the consolidated statements of earnings.

Earnings from discontinued operations consist of the following:

		For the year ended July 31,
		2006				2005				2004
Total revenues		$	—			$	89,339			$	70,995
Cost of product sold (exclusive of depreciation, shown with amortization below)
Propane and other gas liquids sales			—				77,407				59,441
Gross profit			—				11,932				11,554
Operating expense			—				2,506				2,362
Depreciation and amortization expense			—				1,189				1,004
Equipment lease expense			—				22				22
Loss on disposal of assets and other			—				(36	)			35
Earnings before income taxes, minority interest, and discontinued operations			—				8,251				8,131

		For the year ended July 31,
		2006				2005				2004
Minority interest			—				71,524				5,019
Parent investment in subsidiary			—				31,623				2,949
Gain on sale of discontinued operations			—				97,001				—
Earnings from discontinued operations, net of minority interest		$	—			$	2,105			$	163

A test of goodwill related to the remaining operations did not indicate an impairment.

F. Supplemental financial statement information

Inventories consist of:

		2006				2005
Propane gas and related products		$	130,644			$	70,380
Appliances, parts and supplies			23,969				27,363
		$	154,613			$	97,743

In addition to inventories on hand, the Company enters into contracts primarily to buy propane for supply procurement purposes. Most of these contracts have terms of less than one year and call for payment based on market prices at the date of delivery. All fixed price contracts have terms of fewer than 24 months. As of July 31, 2006, the Company had committed, for supply procurement purposes, to take net delivery of approximately 48.5 million gallons of propane at fixed prices.

Property, plant and equipment consist of:

		Estimated useful
		lives		2006				2005
Land		indefinite		$	31,963			$	32,619
Land improvements		2-20			10,313				10,139
Buildings and improvements		20			60,548				61,192
Vehicles, including transport trailers		8-20			86,787				90,215
Bulk equipment and district facilities		5-30			95,986				96,047
Tanks and customer equipment		2-30			829,624				816,557
Computer and office equipment		2-5			108,102				104,773
Construction in progress		n/a			6,608				8,136
					1,229,931				1,219,678
Less: accumulated depreciation					439,569				400,448
				$	790,362			$	819,230

Depreciation expense totaled $64.9 million, $63.5 million, and $43.4 million for fiscal 2006, 2005 and 2004, respectively.

     Other current liabilities consist of:

		2006				2005
Accrued interest		$	24,800			$	24,328
Accrued payroll			18,724				13,816
Accrued insurance			10,062				8,627
Current portion of long-term debt			14,758				2,502
Other			26,793				22,935
		$	95,137			$	72,208

Loss on disposal of assets and other consist of:

		For the year ended July 31,
		2006				2005				2004
Loss on disposal of assets		$	1,188			$	5,543			$	6,085
Loss on transfer of accounts receivable related to the accounts receivable securitization			10,075				5,894				2,454
Service income related to the accounts receivable securitization			(3,724	)			(2,764	)			(1,406	)
Loss on disposal of assets and other		$	7,539			$	8,673			$	7,133

Shipping and handling expenses are classified in the following consolidated statements of earnings line items:

		For the year ended July 31,
		2006				2005				2004
Operating expense		$	148,125			$	156,072			$	136,768
Depreciation and amortization expense			5,837				6,427				6,396
Equipment lease expense			24,356				23,313				15,232
		$	178,318			$	185,812			$	158,396

G. Accounts receivable securitization

The Company participates in an accounts receivable securitization facility. As part of this renewable 364-day facility, the Company transfers an interest in a pool of its trade accounts receivable to Ferrellgas Receivables, a wholly-owned unconsolidated, special purpose entity, which sells its interest to a commercial paper conduit. The Company does not provide any guarantee or similar support to the collectibility of these receivables. The Company structured the facility using a wholly-owned unconsolidated, qualifying special purpose entity in order to facilitate the transaction and to comply with the Company’s various debt covenants. If the covenants are compromised, funding from the facility could be restricted or suspended, or its costs could increase. As a servicer, the Company remits daily to this special purpose entity funds collected on the pool of trade receivables held by Ferrellgas Receivables. The Company renewed the facility with JPMorgan Chase Bank, N.A. and Fifth Third Bank for an additional 364-day commitment on June 6, 2006.

The Company transfers certain of its trade accounts receivable to Ferrellgas Receivables and retains an interest in a portion of these transferred receivables. As these transferred receivables are subsequently collected and the funding from the accounts receivable securitization facility is reduced, the Company’s retained interest in these receivables is reduced. The accounts receivable securitization facility consisted of the following items:

		2006				2005
Retained interest		$	16,373			$	15,710
Accounts receivable transferred		$	87,500			$	82,500

The retained interest was classified as accounts and notes receivable on the consolidated balance sheets. The Company had the ability to transfer, at its option, an additional $12.5 million of its trade accounts receivable at July 31, 2006.

Other accounts receivable securitization disclosures consist of the following items:

		For the year ended July 31,
		2006				2005				2004
Net non-cash activity		$	2,579			$	1,101			$	664
Bad debt expense		$	618			$	466			$	289

The net non-cash activity reported in the consolidated statements of earnings approximate the financing cost of issuing commercial paper backed by these accounts receivable plus an allowance for doubtful accounts associated with the outstanding receivables transferred to Ferrellgas Receivables. The weighted average discount rates used to value the retained interest in the transferred receivables were 6.0% and 4.3% as of July 31, 2006 and 2005, respectively.

H. Goodwill and intangible assets, net

Goodwill and intangible assets, net consist of:

		July 31, 2006												July 31, 2005
		Gross												Gross
		carrying				Accumulated								carrying				Accumulated
		amount				amortization				Net				amount				amortization				Net
GOODWILL, NET		$	480,258				—			$	480,258			$	468,350				—			$	468,350
INTANGIBLE ASSETS, NET
Amortized intangible assets
Customer lists		$	345,103			$	(171,721	)		$	173,382			$	335,557			$	(155,281	)		$	180,276
Non-compete agreements			40,921				(27,605	)			13,316				34,270				(21,803	)			12,467
Other			5,340				(2,590	)			2,750				5,470				(2,010	)			3,460
			391,364				(201,916	)			189,448				375,297				(179,094	)			196,203
Unamortized intangible assets
Tradenames & trademarks			59,098				—				59,098				59,074				—				59,074
Total intangibles assets, net		$	450,462			$	(201,916	)		$	248,546			$	434,371			$	(179,094	)		$	255,277