e424b3
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-132340
PROSPECTUS
$250,000,000
Ferrellgas Partners, L.P.
Common Units
This prospectus relates to up to $250,000,000 of common units representing limited
partner interests in us that we may offer for sale in connection with acquisitions by us or our
subsidiaries of the businesses, assets or securities of other entities.
The amount and type of consideration that we will offer and the other specific terms of each
acquisition will be determined by negotiations with the owners or the persons who control the
businesses, assets or securities that we may acquire. We may structure business acquisitions in a
variety of ways, including acquiring stock, other equity interests or assets of the acquired
business or merging the acquired business with us or one of our subsidiaries. We expect that the
price of the common units that we issue will be related to their market price, either when we agree
to the particular acquisition, when we issue the common units or during some other negotiated
period. We may issue common units at fixed offering prices, which may be changed, or at other
negotiated prices. Once we know the actual information concerning a specific acquisition, we will
be required to provide further information either by means of a post-effective amendment to the
registration statement of which this prospectus is a part or by means of a prospectus supplement.
We will pay all expenses of this offering. We do not expect to pay any underwriting discounts
or commissions in connection with issuing these common units, although we may pay finders fees in
specific acquisitions. Any person receiving a finders fee may be deemed an underwriter within the
meaning of the Securities Act.
We may also permit individuals or entities who have received or will receive common units in
connection with the acquisitions described above to use this prospectus to cover resales of those
common units. If this happens, we will not receive any proceeds from the sale of those common
units. See Selling Unitholders for information relating to resales of our common units pursuant
to this prospectus.
Ferrellgas Partners common units are traded on the New York Stock Exchange under the symbol
FGP. On March 7, 2006, the last reported sales price for our common units as reported on
the NYSE Composite Transactions tape was $22.13 per common unit.
Investing in our securities involves risks. See Risk Factors beginning on page 2 of
this prospectus and the section entitled Risk Factors in our most recently-filed Annual Report on
Form 10-K for a discussion of the material risks involved in investing in our securities. See
Where You Can Find More Information on page 31 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is
March 24, 2006.
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
i |
|
|
|
|
1 |
|
|
|
|
2 |
|
|
|
|
18 |
|
|
|
|
18 |
|
|
|
|
29 |
|
|
|
|
31 |
|
|
|
|
31 |
|
|
|
|
32 |
|
|
|
|
32 |
|
|
|
|
32 |
|
ABOUT THIS PROSPECTUS
This prospectus is part of a shelf registration statement that we have filed with the SEC.
Under the shelf registration process, we may, from time to time, offer common units representing
limited partner interests in us to acquire other securities, businesses or assets. The aggregate
offering prices of the common units that may be sold under this prospectus will not exceed
$250,000,000. All of the common units offered by this prospectus may, subject to certain
conditions, also be subsequently offered and resold from time to time pursuant to this prospectus
by unitholders who receive our common units in those acquisitions.
This prospectus gives you a general description of the common units that we may offer. Once
we know the actual information concerning a specific acquisition, we will be required to provide
further information either by means of a post-effective amendment to the registration statement of
which this prospectus is a part, or by means of a prospectus supplement. You should read this
prospectus and any applicable post-effective amendment or prospectus supplement, together with the
additional information described under the heading Where you Can Find More Information.
The
information in this prospectus is accurate as of March 24, 2006. You should rely only on the information contained in this prospectus and the information
we have incorporated by reference. We have not authorized anyone to provide you with different
information. You should not assume that the information provided by this prospectus or the
information we have incorporated by reference is accurate as of any date other than the date of the
respective document or information, as applicable. If information in any of the documents we have
incorporated by reference conflicts with information in this prospectus, you should rely on the
most recent information. If information in an incorporated document conflicts with information in
another incorporated document, you should rely on the information in the most recent incorporated
document.
This prospectus incorporates important business and financial information that is not included
in or delivered with this prospectus. This information is available without charge to security
holders upon written or oral request to Ferrellgas Partners, L.P., Attn: Investor Relations, 7500
College Boulevard, Suite 1000, Overland Park, KS 66210, Telephone: (913) 661-1500. To ensure
timely delivery of the requested information, you should make your request at least five business
days before the date you must make your investment decision.
YOU SHOULD CAREFULLY READ THIS PROSPECTUS AND THE INFORMATION WE HAVE INCORPORATED BY
REFERENCE AS DESCRIBED UNDER THE SECTION ENTITLED WHERE YOU CAN FIND MORE INFORMATION. WE ARE
NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR SALE IS NOT PERMITTED.
i
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important to you. You should
carefully read this entire prospectus and the other information incorporated by reference to
understand fully the terms of our common units being offered hereunder, as well as the material tax
and other considerations that may be important to you in making your investment decision. You
should pay special attention to the section entitled Risk Factors beginning on page 2 of this
prospectus and the section entitled Item 1. BusinessRisk Factors in our most recently-filed
Annual Report on Form 10-K, to determine whether an investment in our common units is appropriate
for you. See Where You Can Find More Information on page 31 of this prospectus.
In this prospectus, unless the context indicates otherwise:
|
|
|
us, we, our, or ours, refer to Ferrellgas Partners, L.P. together
with its consolidated subsidiaries, except when used in connection with common units,
in which case we refer only to Ferrellgas Partners, L.P. without its consolidated
subsidiaries; |
|
|
|
|
Ferrellgas Partners refers to Ferrellgas Partners, L.P. itself, without its consolidated subsidiaries; |
|
|
|
|
operating partnership refers to Ferrellgas, L.P., together with its consolidated subsidiaries; |
|
|
|
|
general partner refers to Ferrellgas, Inc.; and |
|
|
|
|
unitholders refers to holders of common units of Ferrellgas Partners. |
Ferrellgas Partners, L.P. is a Delaware limited partnership. Its common units are listed on
the New York Stock Exchange under the symbol FGP. Ferrellgas Partners is a holding entity that
conducts no operations and has two direct subsidiaries, Ferrellgas Partners Finance Corp., a
Delaware corporation, and its operating partnership, Ferrellgas, L.P., a Delaware limited
partnership. Ferrellgas Partners activities are primarily conducted through the operating
partnership. Ferrellgas Partners only significant assets are its approximate 99% limited
partnership interest in the operating partnership and its 100% equity interest in Ferrellgas
Partners Finance Corp. Ferrellgas Partners is the sole limited partner of the operating
partnership.
We are a leading distributor of propane and related equipment and supplies to customers
primarily in the United States. We believe that we are the second
largest retail marketer of propane in
the United States, including the largest national provider of propane by portable tank exchange, as
measured by our propane sales volumes in fiscal 2005.
Ferrellgas
Partners general partner, Ferrellgas, Inc., beneficially performs all management functions for
Ferrellgas Partners and its subsidiaries, and holds a 1% general partner interest in Ferrellgas
Partners and an approximate 1% general partner interest in the operating partnership. The general
partner does not receive any management fee in connection with its management of Ferrellgas
Partners or its subsidiaries, and does not receive any remuneration for its services as the general
partner of Ferrellgas Partners and the operating partnership, other than reimbursement for all
direct and indirect expenses it incurs in connection with Ferrellgas Partners operations and those
of its subsidiaries.
The
parent company of the general partner, Ferrell Companies, Inc.,
beneficially owns approximately 31% of
our outstanding common units. Ferrell Companies is owned 100% by an employee stock ownership
trust, established in 1998 for the benefit of the employees of Ferrell Companies and the general
partner.
For additional information regarding our business, we refer you to our filings with the SEC
incorporated by reference in this prospectus. See Where You Can Find More Information.
Our
executive offices are located at 7500 College Boulevard, Suite 1000, Overland Park, KS 66210, and our telephone number is (913) 661-1500.
1
RISK FACTORS
Before you invest in our common units, you should be aware that there are various risks,
including those described below. You should consider carefully these risk factors together with
all of the other information included in this prospectus, the applicable amendment to the
registration statement of which this prospectus is a part, or the applicable prospectus supplement,
as well as the documents we have incorporated by reference, before purchasing the common units to
which this prospectus relates.
Investing in our common units is speculative and involves significant risk. Any of the risks
described in this prospectus, the applicable amendment to the registration statement of which this
prospectus is a part, or the applicable prospectus supplement, as well as the documents we have
incorporated by reference, could impair our business, financial condition or results of operations.
Any impairment may affect our ability to make distributions to our unitholders. In addition, the
trading price of our common units could decline and you could lose all or part of your investment.
Risks Inherent in the Distribution of Propane
Weather conditions may reduce the demand for propane; our financial condition is vulnerable to warm
winters and poor weather in the grilling season.
Weather conditions have a significant impact on the demand for propane for both heating and
agricultural purposes. Many of our customers rely heavily on propane as a heating fuel.
Accordingly, our sales volumes of propane are highest during the five-month winter-heating season
of November through March and are directly affected by the temperatures during these months.
During fiscal 2005, approximately 59% of our propane sales volume was attributable to sales during
the winter-heating season. Actual weather conditions can vary substantially from year to year,
which may significantly affect our financial performance. Furthermore, variations in weather in
one or more regions in which we operate can significantly affect our total propane sales volume and
therefore our realized profits. A negative effect on our sales volume may in turn affect our
results of operations. The agricultural demand for propane is also affected by weather, as dry or
warm weather during the harvest season may reduce the demand for propane used in some crop drying
applications.
Our portable tank exchange operations experience higher volumes in the spring and summer,
which includes the majority of the grilling season. Sustained periods of poor weather,
particularly in the grilling season, can negatively affect our portable tank exchange revenues. In
addition, poor weather may reduce consumers propensity to purchase and use grills and other
propane-fueled appliances thereby reducing demand for portable tank exchange as well as the demand
for our outdoor products.
The impact of hurricanes Katrina and Rita could have a material adverse effect on our business,
financial condition and results of operations.
In the fall of 2005, hurricanes Katrina and Rita struck the coast of a number of states on the
Gulf of Mexico, including Texas, Louisiana, Mississippi and Alabama. The hurricanes destroyed
thousands of business structures and homes. It is not possible at this time to determine either
the short- or long-term effects the hurricanes may have on our business. Following the hurricanes,
oil and gas prices have increased and supplies have decreased. It is likely that there will be
disruptions in the supply chain for oil and gas products. Disruptions in supply could have a
material adverse effect on our business, financial condition and results of operations. Damages
and higher prices caused by the hurricanes could have an adverse effect on our financial condition
due to the impact on the financial condition of our customers located in the Gulf Coast region and
elsewhere in the United States.
The propane distribution business is highly competitive, which may negatively affect our sales
volumes and/or our results of operations.
Our profitability is affected by the competition for customers among all of the participants
in the propane distribution business. We compete with a number of large national and regional
firms and several thousand small independent firms. Because of the relatively low barriers to
entry into the propane market, there is the potential for small independent propane distributors,
as well as other companies not previously engaged in propane distribution, to compete with us. In
recent years, some rural electric cooperatives and fuel oil distributors have expanded their
businesses to include propane distribution. As a result, we are subject to the risk of additional
competition in the future. Some of our competitors may have greater financial resources than we
do. Should a competitor attempt to increase market share by reducing prices, our operating margins
and customer base may be negatively impacted. Generally, warmer-than-normal weather further
intensifies competition. We believe that our ability to compete effectively depends on our service
reliability, our responsiveness to customers, our ability to maintain competitive propane
prices and control our operating expenses.
2
The propane distribution industry is a mature one, which may limit our growth.
The propane distribution industry is a mature one. We foresee only limited growth in total
national demand for propane in the near future. Year-to-year industry volumes are primarily
impacted by fluctuations in temperatures and economic conditions. Our ability to grow our sales
volumes within the propane distribution industry is primarily dependent upon our ability to acquire
other propane distributors and upon the success of our marketing efforts to acquire new customers.
If we are unable to compete effectively in the propane distribution business, we may lose existing
customers or fail to acquire new customers.
The propane distribution business faces competition from other energy sources, which may reduce the
existing demand for our propane.
Propane competes with other sources of energy, some of which are less costly for equivalent
energy value. We compete for customers against other propane suppliers and against suppliers of
electricity, natural gas and fuel oil. Electricity is a major competitor of propane, but propane
generally enjoys a competitive price advantage over electricity. Except for some industrial and
commercial applications, propane is generally not competitive with natural gas in areas where
natural gas pipelines already exist because such pipelines generally make it possible for the
delivered cost of natural gas to be less expensive than the bulk delivery of propane. The
expansion of natural gas into traditional propane markets has historically been inhibited by the
capital cost required to expand distribution and pipeline systems, however, the gradual expansion
of the nations natural gas distribution systems has resulted in the availability of natural gas in
areas that were previously dependent upon propane. Although propane is similar to fuel oil in some
applications and market demand, propane and fuel oil compete to a lesser extent primarily because
of the cost of converting from one to the other and due to the fact that both fuel oil and propane
have generally developed their own distinct geographic markets. We cannot predict the effect that
the development of alternative energy sources might have on our operations.
Energy efficiency and technology advances may affect demand for propane; increases in propane
prices may cause our residential customers to increase their conservation efforts.
The national trend toward increased conservation and technological advances, including
installation of improved insulation and the development of more efficient furnaces and other
heating devices, has reduced the demand for propane in our industry. We cannot predict the
materiality of the effect of future conservation measures or the effect that any technological
advances in heating, conservation, energy generation or other devices might have on our operations.
As the price of propane increases, some of our customers tend to increase their conservation
efforts and thereby decrease their consumption of propane. We cannot predict the materiality of
the effect of those decreases on our financial results.
Current economic and political conditions may harm the energy business disproportionately to other
industries.
Deteriorating regional and global economic conditions and the effects of ongoing military
actions against terrorists may cause significant disruptions to commerce throughout the world. If
those disruptions occur in areas of the world which are tied to the energy industry, such as the
Middle East, it is most likely that our industry will be either affected first or affected to a
greater extent than other industries. These conditions or disruptions may:
|
|
|
impair our ability to effectively market or acquire propane; or |
|
|
|
|
impair our ability to raise equity or debt capital for acquisitions,
capital expenditures or ongoing operations. |
Fuel prices are currently at high levels and rising fuel prices may adversely affect our profits.
Fuel is a significant operating expense for us in connection with the delivery of propane to
our customers. Rising fuel prices have resulted in increased transportation costs to us. The
price and supply of fuel is unpredictable and fluctuates based on events we cannot control, such as
geopolitical developments, supply and demand for oil and gas, actions by oil and gas producers, war
and unrest in oil producing countries and regions, regional production patterns and weather
concerns. As a result, current fuel prices, and any increases in these prices, may adversely
affect our profitability and competitiveness.
The revenues received from our portable tank exchange are concentrated with a limited number of
retailers under non-exclusive arrangements that may be terminated at will.
The propane gallons sales that we generate from our delivery of propane by portable tank
exchange are concentrated with a limited number of retailers. If one or more of these retailers
were to materially reduce or terminate its business with us, the results from our delivery of
propane by portable tank exchange operations may suffer. For fiscal 2005, Wal*Mart, Lowes, and
Home Depot represented approximately 31%, 16% and 14% of our portable tank exchanges
net revenues, respectively. None of our significant retail accounts associated with our
portable tank exchange operations are contractually bound to offer portable tank exchange service
or products. Therefore, retailers can discontinue our delivery of propane to them by portable tank
exchange service, or sales of our propane related products, at any time and accept a competitors
delivery of propane by portable tank exchange, or its related propane products or none at all.
3
Continued relations with a retailer depend upon various factors, including price, customer service,
consumer demand and competition. In addition, most of our significant retailers have multiple
vendor policies and may seek to accept a competitors delivery of propane by portable tank
exchange, or accept products competitive with our propane related products, at new or existing
locations of these significant retailers. If any significant retailer materially reduces,
terminates or requires price reductions or other adverse modifications in our selling terms, our
results from our delivery of propane by portable tank exchange operations may suffer.
If the distributors that our customers rely upon for the delivery of propane by portable tank
exchange do not perform up to the expectations of such customers, if we encounter difficulties in
managing the operations of these distributors or if we or these distributors are not able to manage
growth effectively, our relationships with our customers may be adversely impacted and our delivery
of propane by portable tank exchange may suffer.
We rely primarily on our distributors to deliver our propane for a retailers portable tank
exchange service. Accordingly, our success depends on our ability to maintain and manage
distributor relationships and operations and on the distributors ability to set up and adequately
service accounts. Many of our distributors are independent, and we exercise only limited influence
over the resources that these distributors devote to the delivery of propane by portable tank
exchange. National retailers impose demanding service requirements on us, and we could suffer a
loss of consumer or retailer goodwill if our distributors do not adhere to our quality control and
service guidelines or fail to ensure the timely delivery of an adequate supply of propane by
portable tank exchange at retail locations. The poor performance of a single distributor to a
national retailer could jeopardize our entire relationship with that retailer and cause our
delivery of propane by portable tank exchange to that particular retailer to suffer. In addition,
the number of retail locations accepting delivery of our propane by portable tank exchange and,
subsequently, the retailers corresponding sales have historically grown significantly along with
the creation of our distributor network. Accordingly, our distributors must be able to adequately
service an increasing number of retail accounts. If we or our independent distributors fail to
manage growth effectively, our financial results from our delivery of propane by portable tank
exchange may suffer.
If we are unable to manage the impact of overfill prevention device valve guidelines, our delivery
of propane by portable tank exchange may suffer.
Guidelines published by the National Fire Protection Association in the current form of
Pamphlet 58 and adopted in many states require that all portable propane tanks refilled after April
1, 2002 must be fitted with an overfill prevention valve. If we or our distributors cannot satisfy
the demand for compliant portable propane tanks such that our retailers maintain an adequate
supply, our retailer relationships and our delivery of propane by portable tank exchange may
suffer. In addition, for some of our customers, we have fixed in advance the price of propane per
portable tank exchange unit charged to our retailers. When pricing, we make assumptions with
regard to the number of portable tanks that will already have an overfill prevention valve when
presented for exchange, on which our margins will be greater, and the number of tanks that will
need an overfill prevention valve. If our actual experience is inconsistent with our assumptions,
our margins on sales to that retailer may be lower than expected, which may have an adverse effect
on our financial condition and results of operations of our delivery of propane by portable tank
exchange.
We depend on particular management information systems to effectively manage all aspects of our
delivery of propane.
We depend on our management information systems to process orders, manage inventory and
accounts receivable collections, maintain distributor and customer information, maintain
cost-efficient operations and assist in delivering propane on a timely basis. In addition, our
staff of management information systems professionals relies heavily on the support of several key
personnel and vendors. Any disruption in the operation of those management information systems,
loss of employees knowledgeable about such systems, termination of our relationship with one or
more of these key vendors or failure to continue to modify such systems effectively as our business
expands could negatively affect our business.
Potential retail partners may not be able to obtain necessary permits or may be substantially
delayed in obtaining necessary permits, which may adversely impact our ability to increase our
delivery of propane by portable tank exchange to new retail locations.
Local ordinances, which vary from jurisdiction to jurisdiction, generally require retailers to
obtain permits to store and sell propane tanks. These ordinances influence retailers acceptance
of propane by portable tank exchange, distribution methods, propane tank packaging and storage.
The ability and time required to obtain permits varies by jurisdiction. Delays in obtaining
permits have from time to time significantly delayed the installation of new retail locations.
Some
jurisdictions have refused to issue the necessary permits, which has prevented some
installations. Some jurisdictions may also impose additional restrictions on our ability to market
and our distributors ability to transport propane tanks or otherwise maintain its portable tank
exchange services.
4
Risks Inherent to Our Business
Our substantial debt and other financial obligations could impair our financial condition and our
ability to fulfill our obligations.
We have substantial indebtedness and other financial obligations. As of January 31, 2006:
|
|
we had total indebtedness of approximately $964.1 million; |
|
|
|
Ferrellgas Partners had partners capital of approximately $317.3 million; |
|
|
|
the operating partnership had availability under its bank credit facility
of approximately $238.5 million; and |
|
|
|
we had aggregate future minimum rental commitments under non-cancelable
operating leases of approximately $118.3 million; provided, however, if we
elect to purchase the underlying assets at the end of the lease terms, such aggregate
buyout would be $26.2 million. |
The operating partnership has issued notes with maturity dates ranging from fiscal 2007 to
2014, that bear interest at rates ranging from 6.75% to 8.87%. These notes do not contain any
sinking fund provisions but do require annual aggregate principal payments, without premium, during
the following fiscal years of approximately:
|
|
$58.0 million 2007; |
|
|
|
$90.0 million 2008; |
|
|
|
$52.0 million 2009; |
|
|
|
$73.0 million 2010; |
|
|
|
$82.0 million 2011; and |
|
|
|
$320.0 million 2014. |
Amounts outstanding under the operating partnerships bank credit facility will be due on
April 22, 2010. All of the indebtedness and other obligations described above are obligations of
the operating partnership except for $268.0 million of senior debt due 2012 issued by Ferrellgas
Partners and Ferrellgas Partners Finance Corp. This $268.0 million in principal amount of senior
notes also contain no sinking fund provisions.
Subject to the restrictions governing the operating partnerships indebtedness and other
financial obligations and the indenture governing Ferrellgas Partners outstanding senior notes due
2012, we may incur significant additional indebtedness and other financial obligations, which may
be secured and/or structurally senior to any debt securities we may issue.
Our substantial indebtedness and other financial obligations could have important consequences
to our security holders. For example, it could:
|
|
make it more difficult for us to satisfy our obligations with respect to
our securities; |
|
|
|
impair our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes; |
|
|
|
result in higher interest expense in the event of increases in interest
rates since some of our debt is, and will continue to be, at variable rates of
interest; |
|
|
|
impair our operating capacity and cash flows if we fail to comply with
financial and restrictive covenants in our debt agreements and an event of default
occurs as a result of that failure that is not cured or waived; |
|
|
|
require us to dedicate a substantial portion of our cash flow to payments
on our indebtedness and other financial obligations, thereby reducing the availability
of our cash flow to fund distributions, working capital, capital expenditures and other
general partnership requirements; |
|
|
|
limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and |
|
|
|
place us at a competitive disadvantage compared to our competitors that
have proportionately less debt. |
Ferrellgas Partners or the operating partnership may be unable to refinance their indebtedness or
pay that indebtedness if it becomes due earlier than scheduled.
If Ferrellgas Partners or the operating partnership are unable to meet their debt service
obligations or other financial obligations, they could be forced to restructure or refinance their
indebtedness and other financial transactions, seek additional equity capital or sell their assets.
They may then be unable to obtain such financing or capital or sell their
5
assets on satisfactory
terms, if at all. Their failure to make payments, whether after acceleration of the due date of
that indebtedness or otherwise, or our failure to refinance the indebtedness would impair their
operating capacity and cash flows.
Restrictive covenants in the agreements governing our indebtedness and other financial obligations
may reduce our operating flexibility.
The indenture governing the outstanding notes of Ferrellgas Partners and the agreements
governing the operating partnerships indebtedness and other financial obligations contain, and any
indenture that will govern debt securities issued by Ferrellgas Partners or the operating
partnership may contain, various covenants that limit our ability and the ability of specified
subsidiaries of ours to, among other things:
|
|
incur additional indebtedness; |
|
|
|
make distributions to our unitholders; |
|
|
|
purchase or redeem our outstanding equity interests or subordinated debt; |
|
|
|
make specified investments; |
|
|
|
create or incur liens; |
|
|
|
sell assets; |
|
|
|
engage in specified transactions with affiliates; |
|
|
|
restrict the ability of our subsidiaries to make specified payments, loans,
guarantees and transfers of assets or interests in assets; |
|
|
|
engage in sale-leaseback transactions; |
|
|
|
effect a merger or consolidation with or into other companies or a sale of
all or substantially all of our properties or assets; and |
|
|
|
engage in other lines of business. |
These restrictions could limit the ability of Ferrellgas Partners, the operating partnership
and our other subsidiaries:
|
|
to obtain future financings; |
|
|
|
to make needed capital expenditures; |
|
|
|
to withstand a future downturn in our business or the economy in general; or |
|
|
|
to conduct operations or otherwise take advantage of business opportunities that may arise. |
Some of the agreements governing our indebtedness and other financial obligations also require
the maintenance of specified financial ratios and the satisfaction of other financial conditions.
Our ability to meet those financial ratios and conditions can be affected by unexpected downturns
in business operations beyond our control, such as significantly warmer than normal weather, a
volatile energy commodity cost environment or an economic downturn. Accordingly, we may be unable
to meet these ratios and conditions. This failure could impair our operating capacity and cash
flows and could restrict our ability to incur debt or to make cash distributions, even if
sufficient funds were available.
Our breach of any of these covenants or the operating partnerships failure to meet any of
these ratios or conditions could result in a default under the terms of the relevant indebtedness,
which could cause such indebtedness or other financial obligations, and by reason of cross-default
provisions, any of Ferrellgas Partners or the operating partnerships other outstanding notes or
future debt securities, to become immediately due and payable. If we were unable to repay those
amounts, the lenders could initiate a bankruptcy proceeding or liquidation proceeding or proceed
against the collateral, if any. If the lenders of the operating partnerships indebtedness or
other financial obligations accelerate the repayment of borrowings or other amounts owed, we may
not have sufficient assets to repay our indebtedness or other financial obligations, including our
outstanding notes and any future debt securities.
Our results of operations and our ability to make distributions or pay interest or principal on
debt securities could be negatively impacted by price and inventory risk and management of these
risks.
The amount of gross profit we make depends significantly on the excess of the sales price over
our costs to purchase and distribute propane. Consequently, our profitability is sensitive to
changes in energy prices, in particular, changes in wholesale propane prices. Propane is a
commodity whose market price can fluctuate significantly based on changes in supply, changes in
other energy prices or other market conditions. We have no control over these market
6
conditions.
In general, product supply contracts permit suppliers to charge posted prices plus transportation
costs at the time of delivery or the current prices established at major delivery points. Any
increase in the price of product could reduce our gross profit because we may not be able to
immediately pass rapid increases in such costs, or costs to distribute product, on to our
customers.
While we generally attempt to minimize our inventory risk by purchasing product on a
short-term basis, we may purchase and store propane or other natural gas liquids depending on
inventory and price outlooks. We may purchase large volumes of propane at the then current market
price during periods of low demand and low prices, which generally occurs during the summer months.
The market price for propane could fall below the price at which we made the purchases, which
would adversely affect our profits or cause sales from that inventory to be unprofitable. A
portion of our inventory is purchased under supply contracts that typically have a one-year term
and at a price that fluctuates based on the prevailing market prices. Our contracts with our
independent portable tank exchange distributors provide for a portion of our payment to the
distributor to be based upon a price that fluctuates based on the prevailing propane market prices.
To limit our overall price risk, we may purchase and store physical product and enter into fixed
price over-the-counter energy commodity forward contracts, swaps and options that have terms of up
to 18 months. This strategy may not be effective in limiting our price risk if, for example,
weather conditions significantly reduce customer demand, or market or weather conditions prevent
the delivery of physical product during periods of peak demand, resulting in excess physical
product after the end of the winter heating season and the expiration of related forward or option
contracts.
Some of our sales are pursuant to commitments at fixed prices. To manage these commitments,
we may purchase and store physical product and/or enter into fixed price-over-the-counter energy
commodity forward contracts and options. We may enter into these agreements at volume levels that
we believe are necessary to mitigate the price risk related to our anticipated sales volumes under
the commitments. If the price of propane declines and our customers purchase less propane than we
have purchased from our suppliers, we could incur losses when we sell the excess volumes. If the
price of propane increases and our customers purchase more propane than we have purchased from our
suppliers, we could incur losses when we are required to purchase additional propane to fulfill our
customers orders. The risk management of our inventory and contracts for the future purchase of
product could impair our profitability if the price of product changes in ways we do not
anticipate.
We also purchase and sell derivatives to manage other risks associated with commodity prices.
Our risk management trading activities use various types of energy commodity forward contracts,
options and swaps traded on the over-the-counter financial markets and futures and options traded
on the New York Mercantile Exchange to manage and hedge our exposure to the volatility of floating
commodity prices and to protect our inventory positions. These risk management trading activities
are based on our managements estimates of future events and prices and are intended to generate a
profit which we then apply to reduce our cost of product sold. However, if those estimates are
incorrect or other market events outside of our control occur, such activities could generate a
loss in future periods which would increase our cost of product sold and potentially impair our
profitability.
The Board of Directors of our general partner has adopted a commodity risk management policy
which places specified restrictions on all of our commodity risk management activities such as
limits on the types of commodities, loss limits, time limits on contracts and limitations on our
ability to enter into derivative contracts. The policy also requires the establishment of a risk
management committee of senior executives. This committee is responsible for monitoring commodity
risk management activities, establishing and maintaining timely reporting and establishing and
monitoring specific limits on the various commodity risk management activities. These limits may
be waived on a case-by-case basis by a majority vote of the risk management committee and/or Board
of Directors, depending on the specific limit being waived. From time to time, for valid business
reasons based on the facts and circumstances, authorization has been granted to allow specific
commodity risk management positions to exceed established limits. If we sustain material losses
from our risk management activities due to our failure to anticipate future events, a failure of
the policy, incorrect waivers or otherwise, our ability to make distributions to our unitholders or
pay interest or principal of any debt securities may be negatively impacted as a result of such
loss.
We are dependent on our principal suppliers, which increases the risks from an interruption in
supply and transportation.
Through our supply procurement activities, we purchased approximately 50% of our propane from
eight suppliers during fiscal 2005. In addition, during extended periods of colder than normal
weather, suppliers may temporarily run out of propane necessitating the transportation of propane
by truck, rail car or other means from other areas. If supplies from these sources were
interrupted or difficulties in alternative transportation were to arise, the cost of procuring
replacement supplies and transporting those supplies from alternative locations might be materially
higher and, at least on a short-term basis, our margins could be reduced.
7
The availability of cash from our credit facilities may be impacted by many factors beyond our
control.
We typically borrow on the operating partnerships bank credit facility or sell accounts
receivable under its accounts receivable securitization facility to fund our working capital
requirements. We may also borrow on the operating partnerships bank credit facility to fund
distributions to our unitholders. We purchase product from suppliers and make payments with terms
that are typically within five to ten days of delivery. We believe that the availability of cash
from the operating partnerships bank credit facility and the accounts receivable securitization
facility will be sufficient to meet our future working capital needs. However, if we were to
experience an unexpected significant increase in working capital requirements or have insufficient
funds to fund distributions, this need could exceed our immediately available resources. Events
that could cause increases in working capital borrowings or letter of credit requirements may
include:
|
|
|
a significant increase in the cost of propane; |
|
|
|
|
a significant delay in the collections of accounts receivable; |
|
|
|
|
increased volatility in energy commodity prices related to risk management activities; |
|
|
|
|
increased liquidity requirements imposed by insurance providers; |
|
|
|
|
a significant downgrade in our credit rating; |
|
|
|
|
decreased trade credit; or |
|
|
|
|
a significant acquisition. |
As is typical in our industry, our retail customers generally do not pay upon receipt, but pay
between thirty and sixty days after delivery. During the winter heating season, we experience
significant increases in accounts receivable and inventory levels and thus a significant decline in
working capital availability. Although we have the ability to fund working capital with borrowings
from the operating partnerships bank credit facility and sales of accounts receivable under its
accounts receivable securitization facility, we cannot predict the effect that increases in propane
prices and colder than normal winter weather may have on future working capital availability.
We may not be successful in making acquisitions and any acquisitions we make may not result in our
anticipated results; in either case, potentially limiting our growth, limiting our ability to
compete and impairing our results of operations.
We have historically expanded our business through acquisitions. We regularly consider and
evaluate opportunities to acquire local, regional and national propane distributors. We may choose
to finance these acquisitions through internal cash flow, external borrowings or the issuance of
additional common units or other securities. We have substantial competition for acquisitions of
propane companies among the publicly-traded master limited partnerships. Although we believe there
are numerous potential large and small acquisition candidates in our industry, there can be no
assurance that:
|
|
|
we will be able to acquire any of these candidates on economically acceptable terms; |
|
|
|
|
we will be able to successfully integrate acquired operations with any expected cost savings; |
|
|
|
|
any acquisitions made will not be dilutive to our earnings and distributions; |
|
|
|
|
any additional equity we issue as consideration for an acquisition will not be dilutive to our unitholders; or |
|
|
|
|
any additional debt we incur to finance an acquisition will not affect the
operating partnerships ability to make distributions to Ferrellgas Partners or service
the operating partnerships existing debt. |
We are subject to operating and litigation risks, which may not be covered by insurance.
Our operations are subject to all operating hazards and risks normally incidental to the
handling, storing and delivering of combustible liquids such as propane. As a result, we have
been, and are likely to be, a defendant in various legal proceedings arising in the ordinary course
of business. We will maintain insurance policies with insurers in such amounts and with such
coverages and deductibles as we believe are reasonable and prudent. However, we cannot
guarantee that such insurance will be adequate to protect us from all material expenses
related to potential future claims for personal injury and property damage or that such levels of
insurance will be available in the future at economical prices.
Risks Inherent to an Investment in Our Equity
We may sell additional limited partner interests, diluting existing interests of unitholders.
The partnership agreement of Ferrellgas Partners generally allows Ferrellgas Partners to issue
additional limited partner interests and other equity securities. When Ferrellgas Partners issues
additional equity securities, a unitholders proportionate partnership interest will decrease.
Such an issuance could negatively affect the amount of cash distributed to
8
unitholders and the
market price of common units. The issuance of additional common units will also diminish the
relative voting strength of the previously outstanding common units.
Cash distributions are not guaranteed and may fluctuate with our performance and other external
factors.
Although we are required to distribute all of our available cash, we cannot guarantee the
amounts of available cash that will be distributed to the holders of our equity securities.
Available cash is generally all of our cash receipts, less cash disbursements and adjustments for
net changes in reserves. The actual amounts of available cash will depend upon numerous factors,
including:
|
|
cash flow generated by operations; |
|
|
|
weather in our areas of operation; |
|
|
|
borrowing capacity under our credit facilities; |
|
|
|
principal and interest payments made on our debt; |
|
|
|
the costs of acquisitions, including related debt service payments; |
|
|
|
restrictions contained in debt instruments; |
|
|
|
issuances of debt and equity securities; |
|
|
|
fluctuations in working capital; |
|
|
|
capital expenditures; |
|
|
|
adjustments in reserves made by our general partner in its discretion; |
|
|
|
prevailing economic conditions; and |
|
|
|
financial, business and other factors, a number of which will be beyond our control. |
Cash distributions are dependent primarily on cash flow, including from reserves and, subject
to limitations, working capital borrowings. Cash distributions are not dependent on profitability,
which is affected by non-cash items. Therefore, cash distributions might be made during periods
when we record losses and might not be made during periods when we record profits.
Our general partner has broad discretion to determine the amount of available cash for
distribution to holders of our equity securities through the establishment and maintenance of cash
reserves, thereby potentially lessening and limiting the amount of available cash eligible for
distribution.
Our general partner determines the timing and amount of our distributions and has broad
discretion in determining the amount of funds that will be recognized as available cash. Part of
this discretion comes from the ability of our general partner to establish and make additions to
our reserves. Decisions as to amounts to be placed in or released from reserves have a direct
impact on the amount of available cash for distributions because increases and decreases in
reserves are taken into account in computing available cash. Funds within or added to our reserves
are not considered to be available cash and are therefore not required to be distributed. Each
fiscal quarter, our general partner may, in its reasonable discretion, determine the amounts to be
placed in or released from reserves, subject to restrictions on the purposes of the reserves.
Reserves may be made, increased or decreased for any proper purpose, including, but not limited to,
reserves:
|
|
to comply with the terms of any of our agreements or obligations, including
the establishment of reserves to fund the payment of interest and principal in the
future of any debt securities of Ferrellgas Partners or the operating partnership; |
|
|
|
to provide for level distributions of cash notwithstanding the seasonality
of our business; and |
|
|
|
to provide for future capital expenditures and other payments deemed by our
general partner to be necessary or advisable. |
The decision by our general partner to establish, increase or decrease our reserves may limit
the amount of cash available for distribution to holders of our equity securities. Holders of our
equity securities will not receive payments required by such securities unless we are able to first
satisfy our own obligations and the establishment of any reserves. See the first risk factor under
Risks Arising from Our Partnership Structure and Relationship with Our General Partner.
9
The debt agreements of Ferrellgas Partners and the operating partnership may limit their ability to
make distributions to holders of their equity securities.
The debt agreements governing Ferrellgas Partners and the operating partnerships outstanding
indebtedness contain restrictive covenants that may limit or prohibit distributions to holders of
their equity securities under various circumstances. Ferrellgas Partners existing indenture
generally prohibits it from:
|
|
making any distributions to unitholders if an event of default exists or
would exist when such distribution is made; |
|
|
|
if its consolidated fixed charge coverage ratio as defined in the indenture
is greater than 1.75 to 1.00, distributing amounts in excess of 100% of available cash
for the immediately preceding fiscal quarter; or |
|
|
|
if its consolidated fixed charge coverage ratio as defined in the indenture
is less than or equal to 1.75 to 1.00, distributing amounts in excess of $25.0 million
less any restricted payments made for the prior sixteen fiscal quarters plus the
aggregate cash contributions made to us during that period. |
See the first risk factor under Risks Arising from Our Partnership Structure and Relationship
with Our General Partner for a description of the restrictions on the operating partnerships
ability to distribute cash to Ferrellgas Partners. Any indenture applicable to future issuances of
debt securities by Ferrellgas Partners or the operating partnership may contain restrictions that
are the same as or similar to those in their existing debt agreements.
The distribution priority to our common units owned by the public terminates no later than April
30, 2010.
Assuming that the restrictions under our debt agreements are met, our partnership agreements
require us to distribute 100% of our available cash to our unitholders on a quarterly basis.
Available cash is generally all of our cash receipts, less cash disbursements and adjustments for
net changes in reserves. Currently, the common units owned by the public have a right to receive
distributions of available cash before any distributions of available cash are made on the common
units owned by Ferrell Companies. We must pay a distribution on the publicly-held common units
before we pay a distribution on the common units held by Ferrell Companies. If there exists an
outstanding amount of deferred distributions on the common units held by Ferrell Companies of $36.0
million, the common units held by Ferrell Companies will be paid in the same manner as the
publicly-held common units. While there are any deferred distributions outstanding on common units
held by Ferrell Companies, we may not increase the distribution to our public common unitholders
above the highest quarterly distribution paid on our common units for any of the immediately
preceding four fiscal quarters. After payment of all required distributions, we will use remaining
available cash to reduce any amount previously deferred on the common units held by Ferrell
Companies.
This distribution priority right is scheduled to end April 30, 2010, or earlier if there is a
change of control, we dissolve or Ferrell Companies sells all of our common units held by it.
Whether an extension of the expiration of the distribution priority is likely or unlikely involves
several factors that are not currently known and/or cannot be assessed until a time closer to the
expiration date. The termination of this distribution priority may lower the market price for our
common units.
Persons owning 20% or more of Ferrellgas Partners common units cannot vote. This limitation does
not apply to common units owned by Ferrell Companies, our general partner and its affiliates.
All common units held by a person that owns 20% or more of Ferrellgas Partners common units
cannot be voted. This provision may:
|
|
discourage a person or group from attempting to remove our general partner
or otherwise change management; and |
|
|
|
reduce the price at which our common units will trade under various
circumstances. |
This limitation does not apply to our general partner and its affiliates. Ferrell Companies,
the parent of our general partner, owns all of the outstanding capital stock of our general partner
in addition to beneficially owning approximately 31% of our common units.
Risks Arising from Our Partnership Structure and Relationship with Our General Partner
Ferrellgas Partners is a holding entity and has no material operations or assets. Accordingly,
Ferrellgas Partners is dependent on distributions from the operating partnership to service its
obligations. These distributions are not guaranteed and may be restricted.
Ferrellgas Partners is a holding entity for our subsidiaries, including the operating
partnership. Ferrellgas Partners has no material operations and only limited assets. Ferrellgas
Partners Finance Corp. is Ferrellgas Partners wholly-owned finance subsidiary, serves as a
co-obligor on any of Ferrellgas Partners debt securities, conducts no business and has nominal assets.
10
Accordingly, Ferrellgas Partners is dependent on cash distributions from the operating partnership
and its subsidiaries to service obligations of Ferrellgas Partners. The operating partnership is
required to distribute all of its available cash each fiscal quarter, less the amount of cash
reserves that our general partner determines is necessary or appropriate in its reasonable
discretion to provide for the proper conduct of our business, to provide funds for distributions
over the next four fiscal quarters or to comply with applicable law or with any of our debt or
other agreements. This discretion may limit the amount of available cash the operating partnership
may distribute to Ferrellgas Partners each fiscal quarter. Holders of Ferrellgas Partners
securities will not receive payments required by those securities unless the operating partnership
is able to make distributions to Ferrellgas Partners after the operating partnership first
satisfies its obligations under the terms of its own borrowing arrangements and reserves any
necessary amounts to meet its own financial obligations.
In addition, the various agreements governing the operating partnerships indebtedness and
other financing transactions permit quarterly distributions only so long as each distribution does
not exceed a specified amount, the operating partnership meets a specified financial ratio and no
default exists or would result from such distribution. Those agreements include the indentures
governing the operating partnerships existing notes, a bank credit facility and an accounts
receivable securitization facility. Each of these agreements contain various negative and
affirmative covenants applicable to the operating partnership and some of these agreements require
the operating partnership to maintain specified financial ratios. If the operating partnership
violates any of these covenants or requirements, a default may result and distributions would be
limited. These covenants limit the operating partnerships ability to, among other things:
|
|
incur additional indebtedness; |
|
|
|
engage in transactions with affiliates; |
|
|
|
create or incur liens; |
|
|
|
sell assets; |
|
|
|
make restricted payments, loans and investments; |
|
|
|
enter into business combinations and asset sale transactions; and |
|
|
|
engage in other lines of business. |
The ownership of our general partner could change if Ferrell Companies defaults on its outstanding
indebtedness.
Ferrell Companies owns all of the outstanding capital stock of our general partner in addition
to approximately 31% of our common units. During fiscal 2005, Ferrell Companies had pledged 30% of
our common units against approximately $49.3 million of variable interest debt, net of pledged cash
reserves, with a scheduled maturity of December 2011. In addition to its cash reserves, Ferrell
Companies primary sources of income to pay its debt are dividends that Ferrell Companies receives
from our general partner and distributions received on the common units it holds. For fiscal 2005,
Ferrell Companies received approximately $38.2 million from these sources. If Ferrell Companies
defaults on its debt, its lenders could acquire control of our general partner and the common units
owned by it. In that case, the lenders could change management of our general partner and operate
the general partner with different objectives than current management.
Unitholders have limits on their voting rights; our general partner manages and operates us,
thereby generally precluding the participation of our unitholders in operational decisions.
Our general partner manages and operates us. Unlike the holders of common stock in a
corporation, unitholders have only limited voting rights on matters affecting our business.
Amendments to the agreement of limited partnership of Ferrellgas Partners may be proposed only by
or with the consent of our general partner. Proposed amendments must generally be approved by
holders of at least a majority of our common units.
Unitholders will have no right to elect our general partner on an annual or other continuing
basis, and our general partner may not be removed except pursuant to:
|
|
the vote of the holders of at least 66 2/3% of the outstanding units
entitled to vote thereon, which includes the common units owned by our general partner
and its affiliates; and |
|
|
|
upon the election of a successor general partner by the vote of the holders
of not less than a majority of the outstanding common units entitled to vote. |
Because
Ferrell Companies is the parent of our general partner and
beneficially owns approximately 31% of our
outstanding common units and James E. Ferrell, the President, Chief Executive Officer and Chairman
of the Board of Directors of our general partner, beneficially owns 7% of our outstanding
common units, amendments to the agreement of limited partnership of Ferrellgas Partners or the
removal of our general partner may not be made if neither Ferrell Companies nor Mr. Ferrell consent
to such action.
11
Our general partner has a limited call right with respect to the limited partner interests of
Ferrellgas Partners.
If at any time less than 20% of the then-issued and outstanding limited partner interests of
any class of Ferrellgas Partners are held by persons other than our general partner and its
affiliates, our general partner has the right, which it may assign to any of its affiliates or to
us, to acquire all, but not less than all, of the remaining limited partner interests of such class
held by such unaffiliated persons at a price generally equal to the then-current market price of
limited partner interests of such class. As a consequence, a unitholder may be required to sell
its common units at a time when the unitholder may not desire to sell them or at a price that is
less than the price desired to be received upon such sale.
Unitholders may not have limited liability in specified circumstances and may be liable for the
return of distributions.
The limitations on the liability of holders of limited partner interests for the obligations
of a limited partnership have not been clearly established in some states. If it were determined
that we had been conducting business in any state without compliance with the applicable limited
partnership statute, or that the right, or the exercise of the right by the limited partners as a
group, to:
|
|
|
remove or replace our general partner; |
|
|
|
|
make specified amendments to our partnership agreements; or |
|
|
|
|
take other action pursuant to our partnership agreements that constitutes
participation in the control of our business, |
then the limited partners could be held liable in some circumstances for our obligations to the
same extent as a general partner.
In addition, under some circumstances a unitholder may be liable to us for the amount of a
distribution for a period of three years from the date of the distribution. Unitholders will not
be liable for assessments in addition to their initial capital investment in our common units.
Under Delaware General Corporate Law, we may not make a distribution to our unitholders if the
distribution causes all our liabilities to exceed the fair value of our assets. Liabilities to
partners on account of their partnership interests and liabilities for which recourse is limited to
specific property are not counted for purposes of determining whether a distribution is permitted.
Delaware law provides that a limited partner who receives such a distribution and knew at the time
of the distribution that the distribution violated the Delaware law will be liable to the limited
partnership for the distribution amount for three years from the distribution date. Under Delaware
law, an assignee that becomes a substituted limited partner of a limited partnership is liable for
the obligations of the assignor to make contributions to the partnership. However, such an
assignee is not obligated for liabilities unknown to that assignee at the time such assignee became
a limited partner if the liabilities could not be determined from the partnership agreements.
Our general partners liability to us and our unitholders may be limited.
The partnership agreements of Ferrellgas Partners and the operating partnership contain
language limiting the liability of our general partner to us and to our unitholders. For example,
those partnership agreements provide that:
|
|
|
the general partner does not breach any duty to us or our unitholders by
borrowing funds or approving any borrowing; our general partner is protected even if
the purpose or effect of the borrowing is to increase incentive distributions to our
general partner; |
|
|
|
|
our general partner does not breach any duty to us or our unitholders by
taking any actions consistent with the standards of reasonable discretion outlined in
the definitions of available cash and cash from operations contained in our partnership
agreements; and |
|
|
|
|
our general partner does not breach any standard of care or duty by
resolving conflicts of interest unless our general partner acts in bad faith. |
The modifications of state law standards of fiduciary duty contained in our partnership agreements
may significantly limit the ability of unitholders to successfully challenge the actions of our
general partner as being a breach of what would otherwise have been a fiduciary duty. These
standards include the highest duties of good faith, fairness and loyalty to the limited partners.
Such a duty of loyalty would generally prohibit a general partner of a Delaware limited partnership
from taking any action or engaging in any transaction for which it has a conflict of interest.
Under our partnership agreements, our general partner may exercise its broad discretion and
authority in our management and the conduct of our operations as long as our general partners
actions are in our best interest.
Our general partner and its affiliates may have conflicts with us.
The directors and officers of our general partner and its affiliates have fiduciary duties to
manage itself in a manner that is beneficial to its stockholder. At the same time, our general
partner has fiduciary duties to manage us in a
12
manner that is beneficial to us and our unitholders.
Therefore, our general partners duties to us may conflict with the duties of its officers and
directors to its stockholder.
Matters in which, and reasons that, such conflicts of interest may arise include:
|
|
|
decisions of our general partner with respect to the amount and timing of
our cash expenditures, borrowings, acquisitions, issuances of additional securities and
changes in reserves in any quarter may affect the amount of incentive distributions we
are obligated to pay our general partner; |
|
|
|
|
borrowings do not constitute a breach of any duty owed by our general
partner to our unitholders even if these borrowings have the purpose or effect of
directly or indirectly enabling us to make distributions to the holder of our incentive
distribution rights, currently our general partner, or to hasten the expiration of the
deferral period with respect to the common units held by Ferrell Companies; |
|
|
|
|
we do not have any employees and rely solely on employees of our general
partner and its affiliates; |
|
|
|
|
under the terms of our partnership agreements, we must reimburse our
general partner and its affiliates for costs incurred in managing and operating us,
including costs incurred in rendering corporate staff and support services to us; |
|
|
|
|
our general partner is not restricted from causing us to pay it or its
affiliates for any services rendered on terms that are fair and reasonable to us or
causing us to enter into additional contractual arrangements with any of such entities; |
|
|
|
|
neither our partnership agreements nor any of the other agreements,
contracts and arrangements between us, on the one hand, and our general partner and its
affiliates, on the other, are or will be the result of arms-length negotiations; |
|
|
|
|
whenever possible, our general partner limits our liability under
contractual arrangements to all or a portion of our assets, with the other party
thereto having no recourse against our general partner or its assets; |
|
|
|
|
our partnership agreements permit our general partner to make these
limitations even if we could have obtained more favorable terms if our general partner
had not limited its liability; |
|
|
|
|
any agreements between us and our general partner or its affiliates will
not grant to our unitholders, separate and apart from us, the right to enforce the
obligations of our general partner or such affiliates in favor of us; therefore, our
general partner will be primarily responsible for enforcing those obligations; |
|
|
|
|
our general partner may exercise its right to call for and purchase common
units as provided in the partnership agreement of Ferrellgas Partners or assign that
right to one of its affiliates or to us; |
|
|
|
|
our partnership agreements provide that it will not constitute a breach of
our general partners fiduciary duties to us for its affiliates to engage in activities
of the type conducted by us, other than retail propane sales to end users in the
continental United States in the manner engaged in by our general partner immediately
prior to our initial public offering, even if these activities are in direct
competition with us; |
|
|
|
|
our general partner and its affiliates have no obligation to present
business opportunities to us; |
|
|
|
|
our general partner selects the attorneys, accountants and others who
perform services for us. These persons may also perform services for our general
partner and its affiliates. Our general partner is authorized to retain separate
counsel for us or our unitholders, depending on the nature of the conflict that arises;
and |
|
|
|
|
Mr. Ferrell is the President and Chief Executive Officer of our general
partner and the Chairman of its Board of Directors. Mr. Ferrell also owns other
companies with whom we conduct our ordinary business operations.
Mr. Ferrells ownership of these entities may conflict with his duties as an officer and
director of our general partner, including our relationship and conduct of business with
any of Mr. Ferrells companies. |
See Conflicts of Interest and Fiduciary Responsibilities.
Ferrell Companies may transfer the ownership of our general partner which could cause a change of
our management and affect the decisions made by our general partner regarding resolutions of
conflicts of interest.
Ferrell Companies, the owner of our general partner, may transfer the capital stock of our
general partner without the consent of our unitholders. In such an instance, our general partner
will remain bound by our partnership agreements. If, however, through share ownership or
otherwise, persons not now affiliated with our general partner were to acquire its general partner
interest in us or effective control of our general partner, our management and resolutions of
conflicts of interest, such as those described above, could change substantially.
13
Our general partner may voluntarily withdraw or sell its general partner interest.
Our general partner may withdraw as the general partner of Ferrellgas Partners and the
operating partnership without the approval of our unitholders. Our general partner may also sell
its general partner interest in Ferrellgas Partners and the operating partnership without the
approval of our unitholders. Any such withdrawal or sale could have a material adverse effect on
us and could substantially change the management and resolutions of conflicts of interest, as
described above.
Our general partner can protect itself against dilution.
Whenever we issue equity securities to any person other than our general partner and its
affiliates, our general partner has the right to purchase additional limited partner interests on
the same terms. This allows our general partner to maintain its partnership interest in us. No
other unitholder has a similar right. Therefore, only our general partner may protect itself
against dilution caused by our issuance of additional equity securities.
Tax Risks
The IRS could treat us as a corporation for tax purposes, which would substantially reduce the cash
available for distribution to our unitholders.
The anticipated after-tax economic benefit of an investment in us depends largely on our being
treated as a partnership for federal income tax purposes. We believe that, under current law, we
have been and will continue to be classified as a partnership for federal income tax purposes. One
of the requirements for such classification is that at least 90% of our gross income for each
taxable year has been and will be qualifying income within the meaning of Section 7704 of the
Internal Revenue Code. Whether we will continue to be classified as a partnership in part depends
on our ability to meet this qualifying income test in the future.
If we were classified as a corporation for federal income tax purposes, we would pay tax on
our income at corporate rates, currently, 35% at the federal level, and we would probably pay
additional state income taxes as well. In addition, distributions would generally be taxable to
the recipient as corporate distributions and no income, gains, losses or deductions would flow
through to our unitholders. Because a tax would be imposed upon us as a corporation, the cash
available for distribution to our unitholders would be substantially reduced. Therefore, treatment
of us as a corporation would result in a material reduction in the anticipated cash flow and
after-tax return to our unitholders and thus would likely result in a substantial reduction in the
value of our common units.
A change in current law or a change in our business could cause us to be treated as a
corporation for federal income tax purposes or otherwise subject us to entity-level taxation. Our
partnership agreements provide that if a law is enacted or existing law is modified or interpreted
in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level
taxation for federal, state or local income tax purposes, provisions of our partnership agreements
will be subject to change. These changes would include a decrease in the minimum quarterly
distribution and the target distribution levels to reflect the impact of such law on us.
A successful IRS contest of the federal income tax positions we take may reduce the market value of
our common units and the costs of any contest will be borne by us and therefore indirectly by our
unitholders and our general partner.
We have not requested any ruling from the IRS with respect to:
|
|
|
our classification as a partnership for federal income tax purposes; or |
|
|
|
|
whether our propane operations generate qualifying income under Section
7704 of the Internal Revenue Code. |
The IRS may adopt positions that differ from those expressed herein or from the positions we take.
It may be necessary to resort to administrative or court proceedings in an effort to sustain some
or all of the positions we take, and some or all of these positions ultimately may not be
sustained. Any contest with the IRS may materially reduce the market value of our common units and
the prices at which our common units trade. In addition, our costs of any contest with the IRS
will be borne by us and therefore indirectly by our unitholders and our general partner.
Unitholders may be required to pay taxes on income from us even if unitholders do not receive any
cash distributions from us.
A unitholder will be required to pay federal income taxes and, in some cases, state and local
income taxes on its share of our taxable income, even if it does not receive cash distributions
from us. A unitholder may not receive cash distributions equal to its share of our taxable income
or even the tax liability that results from that income. Further, a unitholder may incur a tax
liability in excess of the amount of cash it receives upon the sale of its units.
14
The ratio of taxable income to cash distributions could be higher or lower than our estimates,
which could result in a material reduction of the market value of our common units.
We estimate that a person who acquires common units in an offering pursuant to this prospectus
and owns those common units through the period ending on the record date for the cash distribution
payable for the fiscal quarter ended July 31, 2008, will be allocated, on a cumulative basis, an
amount of federal taxable income that will be less than 10% of the cumulative cash distributed to
such person for those periods. The taxable income allocable to a unitholder for subsequent periods
may constitute an increasing percentage of distributable cash. These estimates are based on
several assumptions and estimates that are subject to factors beyond our control. Accordingly, the
actual percentage of distributions that will constitute taxable income could be higher or lower and
any differences could result in a material reduction in the market value of our common units.
There are limits on the deductibility of losses
In the case of unitholders subject to the passive loss rules (generally, individuals, closely
held corporations and regulated investment companies), any losses generated by us will only be
available to offset our future income and cannot be used to offset income from other activities,
including passive activities or investments. Unused losses may be deducted when the unitholder
disposes of its entire investment in us in a fully taxable transaction with an unrelated party. A
unitholders share of our net passive income may be offset by unused losses carried over from prior
years, but not by losses from other passive activities, including losses from other publicly-traded
partnerships.
Tax gain or loss on the disposition of our common units could be different than expected.
If a unitholder sells its common units, the unitholder will recognize a gain or loss equal to
the difference between the amount realized and its tax basis in those common units. Prior
distributions in excess of the total net taxable income the unitholder was allocated for a common
unit, which decreased its tax basis in that common unit, will, in effect, become taxable income to
the unitholder if the common unit is sold at a price greater than its tax basis in that common
unit, even if the price you receive is less than its original cost. A substantial portion of the
amount realized, whether or not representing a gain, will likely be ordinary income to that
unitholder. Should the IRS successfully contest some positions we take, a selling unitholder could
recognize more gain on the sale of units than would be the case under those positions, without the
benefit of decreased income in prior years. In addition, if a unitholder sells its units, the
unitholder may incur a tax liability in excess of the amount of cash that unitholder receives from
the sale.
Tax-exempt entities, regulated investment companies, and foreign persons face unique tax issues
from owning common units that may result in additional tax liability or reporting requirements for
them.
An investment in common units by tax-exempt entities, such as employee benefit plans,
individual retirement accounts, regulated investment companies, generally known as mutual funds,
and non-U.S. persons, raises issues unique to them. For example, virtually all of our income
allocated to organizations exempt from federal income tax, including individual retirement accounts
and other retirement plans, will be unrelated business taxable income and thus will be taxable to
them. Very little of our income will be qualifying income to a regulated investment company or
mutual fund. Distributions to non-U.S. persons will be reduced by withholding taxes, at the
highest effective tax rate applicable to individuals, and non-U.S. persons will be required to file
federal income tax returns and generally pay tax on their share of our taxable income.
Our tax shelter registration could increase the risk of a potential IRS audit.
We are registered with the IRS as a tax shelter. The IRS has issued to us the following tax
shelter registration number: 94201000010. Issuance of the registration number does not indicate
that an investment in us or the claimed tax benefits have been reviewed, examined or approved by
the IRS. The tax laws require that some types of entities, including
some partnerships, register as tax shelters in response to the perception that they claim
tax benefits that may be unwarranted. As a result, we may be audited by the IRS and tax
adjustments could be made. The rights of a unitholder owning less than a 1% interest in us to
participate in the income tax audit process are very limited. Further, any adjustments in our tax
returns will lead to adjustments in the unitholders tax returns and may lead to audits of
unitholders tax returns and adjustments of items unrelated to us. A unitholder will bear the cost
of any expenses incurred in connection with an examination of its personal tax return.
Reporting of partnership tax information is complicated and subject to audits; we cannot guarantee
conformity to IRS requirements.
We will furnish each unitholder with a Schedule K-1 that sets forth that unitholders
allocable share of income, gains, losses and deductions. In preparing these schedules, we will use
various accounting and reporting conventions and adopt various depreciation and amortization
methods. We cannot guarantee that these schedules will yield a result that conforms to statutory
or regulatory requirements or to administrative pronouncements of the IRS. If any of the
information on these schedules is successfully challenged by the IRS, the character and amount of
items of income, gain, loss or
15
deduction previously reported by unitholders might change, and
unitholders might be required to adjust their tax liability for prior years and incur interest and
penalties with respect to those adjustments.
Unitholders may lose tax benefits as a result of nonconforming depreciation conventions.
Because we cannot match transferors and transferees of common units, uniformity of the
economic and tax characteristics of our common units to a purchaser of common units of the same
class must be maintained. To maintain uniformity and for other reasons, we will take depreciation
and amortization positions that may not conform to all aspects of the Treasury Regulations. A
successful IRS challenge to those positions could reduce the amount of tax benefits available to
our unitholders. A successful challenge could also affect the timing of these tax benefits or the
amount of gain from the sale of common units and could have a negative impact on the value of our
common units or result in audit adjustments to a unitholders tax returns.
As a result of investing in our common units, a unitholder will likely be subject to state and
local taxes and return filing requirements in jurisdictions where it does not live.
In addition to federal income taxes, unitholders will likely be subject to other taxes, such
as state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes
that are imposed by the various jurisdictions in which we do business or own property. A
unitholder will likely be required to file state and local income tax returns and pay state and
local income taxes in some or all of the various jurisdictions in which we do business or own
property and may be subject to penalties for failure to comply with those requirements. We
currently conduct business in 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin
Islands and Canada. It is a unitholders responsibility to file all required United States
federal, state and local tax returns.
States may subject partnerships to entity-level taxation in the future; thereby decreasing the
amount of cash available to us for distributions and potentially causing a decrease in our
distribution levels, including a decrease in the minimum quarterly distribution.
Because of widespread state budget deficits, several states are evaluating ways to subject
partnerships to entity-level taxation through the imposition of state income, franchise or other
forms of taxation. If any state were to impose a tax upon us as an entity, the cash available for
distribution to unitholders would be reduced. The partnership agreements of Ferrellgas Partners
and the operating partnership each provide that if a law is enacted or existing law is modified or
interpreted in a manner that subjects one or both partnerships to taxation as a corporation or
otherwise subjects one or both partnerships to entity-level taxation for federal, state or local
income tax purposes, provisions of one or both partnership agreements will be subject to change.
These changes would include a decrease in the minimum quarterly distribution and the target
distribution levels to reflect the impact of those taxes.
Unitholders may have negative tax consequences if we default on our debt or sell assets.
If we default on any of our debt, the lenders will have the right to sue us for non-payment.
That action could cause an investment loss and negative tax consequences for our unitholders
through the realization of taxable income by unitholders without a corresponding cash distribution.
Likewise, if we were to dispose of assets and realize a taxable gain while there is substantial
debt outstanding and proceeds of the sale were applied to the debt, our unitholders could have
increased taxable income without a corresponding cash distribution.
Recently enacted tax legislation may make investments in corporations more attractive than they
used to be when compared to investments in our common units.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 generally reduces the maximum tax
rate on particular dividends paid by particular corporations to individuals to 15% in 2003 through
2008 and, for taxpayers in the 10% and 15% ordinary income tax brackets, to 5% in 2003 through 2007
and to zero in 2008. The Tax Relief Reconciliation Act also reduces the maximum tax rate for an
individual to 35% and the maximum tax rate applicable to net long-term capital gains of an
individual to 15%. Absent further legislation, the maximum 15% tax rate on long-term capital gains
will cease to apply to taxable years beginning after December 31, 2008 and will increase to 20% for
taxable years beginning thereafter. The Tax Relief Reconciliation Act may cause some investments
in corporations to be more attractive to individual investors than they used to be when compared to
an investment in our common units and could materially affect the value of our common units.
Conflicts of Interest
Conflicts of interest could arise as a result of the relationships between us, on the one
hand, and our general partner and its affiliates, on the other. The directors and officers of our
general partner have fiduciary duties to manage our general partner in a manner beneficial to its
stockholder. At the same time, our general partner has fiduciary duties to manage us in a manner
beneficial to us and our unitholders. The duties of our general partner to us and our unitholders,
therefore, may conflict with the duties of the directors and officers of our general partner to its
stockholder.
16
Matters in which, and reasons that, such conflicts of interest may arise include:
|
|
|
decisions of our general partner with respect to the amount and timing of
our cash expenditures, borrowings, acquisitions, issuances of additional securities and
changes in reserves in any quarter may affect the amount of incentive distributions we
are obligated to pay our general partner; |
|
|
|
|
borrowings do not constitute a breach of any duty owed by our general
partner to our unitholders even if these borrowings have the purpose or effect of
directly or indirectly enabling us to make distributions to the holder of our incentive
distribution rights, currently our general partner, or to hasten the expiration of the
deferral period with respect to the common units held by Ferrell Companies; |
|
|
|
|
we do not have any employees and rely solely on employees of our general
partner and its affiliates; |
|
|
|
|
under the terms of our partnership agreements, we must reimburse our
general partner and its affiliates for costs incurred in managing and operating us,
including costs incurred in rendering corporate staff and support services to us; |
|
|
|
|
our general partner is not restricted from causing us to pay it or its
affiliates for any services rendered on terms that are fair and reasonable to us or
causing us to enter into additional contractual arrangements with any of such entities; |
|
|
|
|
neither our partnership agreements nor any of the other agreements,
contracts and arrangements between us, on the one hand, and our general partner and its
affiliates, on the other, are or will be the result of arms-length negotiations; |
|
|
|
|
whenever possible, our general partner limits our liability under
contractual arrangements to all or a portion of our assets, with the other party
thereto having no recourse against our general partner or its assets; |
|
|
|
|
our partnership agreements permit our general partner to make these
limitations even if we could have obtained more favorable terms if our general partner
had not limited its liability; |
|
|
|
|
any agreements between us and our general partner or its affiliates will
not grant to our unitholders, separate and apart from us, the right to enforce the
obligations of our general partner or such affiliates in favor of us; therefore, our
general partner will be primarily responsible for enforcing those obligations; |
|
|
|
|
our general partner may exercise its right to call for and purchase common
units as provided in the partnership agreement of Ferrellgas Partners or assign that
right to one of its affiliates or to us; |
|
|
|
|
our partnership agreements provide that it will not constitute a breach of
our general partners fiduciary duties to us for its affiliates to engage in activities
of the type conducted by us, other than retail propane sales to end users in the
continental United States in the manner engaged in by our general partner immediately
prior to our initial public offering, even if these activities are in direct
competition with us; |
|
|
|
|
our general partner and its affiliates have no obligation to present
business opportunities to us; |
|
|
|
|
our general partner selects the attorneys, accountants and others who
perform services for us. These persons may also perform services for our general
partner and its affiliates. Our general partner is authorized to retain separate
counsel for us or our unitholders, depending on the nature of the conflict that arises;
and |
|
|
|
|
Mr. Ferrell is the President and Chief Executive Officer of our general
partner and the Chairman of its Board of Directors. Mr. Ferrell also owns other
companies with whom we conduct our ordinary business operations. Mr. Ferrells
ownership of these entities may conflict with his duties as an officer and director of
our general partner, including our relationship and conduct of business with any of Mr.
Ferrells companies. |
Fiduciary Responsibilities
Unless otherwise provided for in a partnership agreement, Delaware law generally requires a
general partner of a Delaware limited partnership to adhere to fiduciary duty standards under which
it owes its limited partners the highest duties of good faith, fairness and loyalty and which
generally prohibit the general partner from taking any action or engaging in any transaction as to
which it has a conflict of interest. Our partnership agreements expressly permit our general
partner to resolve conflicts of interest between itself or its affiliates, on the one hand, and us
or our unitholders, on the other, and to consider, in resolving such conflicts of interest, the
interests of other parties in addition to the interests of our unitholders. In addition, the
partnership agreement of Ferrellgas Partners provides that a purchaser of common units is deemed to
have consented to specified conflicts of interest and actions of our general partner and its
affiliates that might otherwise be prohibited, including those described above, and to have agreed
that such conflicts of interest and actions do not constitute a breach by our general partner of
any duty stated or implied by law or equity. Our general partner will not be in breach of its
obligations under our partnership agreements or its duties to us or our unitholders if the
resolution of
17
such conflict is fair and reasonable to us. Any resolution of a conflict approved by
the audit committee of our general partner is conclusively deemed fair and reasonable to us. The
latitude given in our partnership agreements to our general partner in resolving conflicts of
interest may significantly limit the ability of a unitholder to challenge what might otherwise be a
breach of fiduciary duty.
The partnership agreements of Ferrellgas Partners and the operating partnership expressly
limit the liability of our general partner by providing that our general partner, its affiliates
and their officers and directors will not be liable for monetary damages to us, our unitholders or
assignees thereof for errors of judgment or for any acts or omissions if our general partner and
such other persons acted in good faith. In addition, we are required to indemnify our general
partner, its affiliates and their respective officers, directors, employees, agents and trustees to
the fullest extent permitted by law against liabilities, costs and expenses incurred by our general
partner or such other persons if our general partner or such persons acted in good faith and in a
manner they reasonably believed to be in, or (in the case of a person other than our general
partner) not opposed to, the best interests of us and, with respect to any criminal proceedings,
had no reasonable cause to believe the conduct was unlawful.
ACQUISITION TRANSACTIONS
By means of this prospectus, we may offer for sale common units representing limited partner
interests in us in connection with acquisitions by us or our subsidiaries of the businesses, assets
or securities of other entities. We may structure business acquisitions in a variety of ways,
including acquiring stock, other equity interests or assets of the acquired business or merging the
acquired business with us or one of our subsidiaries. The amount and type of consideration that we
will offer and the other specific terms of each acquisition will be determined by negotiations with
the owners or the persons who control the businesses, assets or securities that we may acquire. We
expect that the price of the common units that we issue will be related to their market price,
either when we agree to the particular acquisition, when we issue the common units or during some
other negotiated period. We may issue common units at fixed offering prices, which may be changed,
or at other negotiated prices.
TAX CONSEQUENCES
This section discusses the material tax consequences that may be relevant to prospective
unitholders who are individual citizens or residents of the United States. It is based upon
current provisions of the Internal Revenue Code, existing regulations, proposed regulations to the
extent noted, and current administrative rulings and court decisions, all of which are subject to
change. Later changes in these authorities may cause the actual tax consequences to vary
substantially from the consequences described below. Unless the context otherwise requires,
references in this section to us or we are to Ferrellgas Partners, L.P. and the operating
partnership.
No attempt has been made in the following discussion to comment on all federal income tax
matters affecting us or the unitholders. Moreover, this discussion focuses on unitholders who are
individual citizens or residents of the United States and has only limited application to
corporations, estates, trusts, non-resident aliens or other unitholders that may be subject to
specialized tax treatment, such as tax-exempt institutions, foreign persons, individual retirement
accounts, real estate investment trusts or mutual funds. Accordingly, we recommend that each
prospective unitholder consult, and depend on, that unitholders own tax advisor in analyzing the
federal, state, local and foreign tax consequences particular to that unitholder of the ownership
or disposition of our common units.
All statements as to matters of law and legal conclusions, but not as to factual matters,
contained in this section entitled Tax Consequences are, unless otherwise noted, the opinion of
Mayer, Brown, Rowe & Maw LLP, counsel to us and our general partner, and are, to the extent noted
herein, based on the accuracy of various factual matters.
No ruling has been or will be requested from the IRS regarding any matter affecting us or
prospective unitholders, other than a ruling we received relating to our taxable year. An opinion
of counsel represents only that counsels best legal judgment and does not bind the IRS or the
courts. Accordingly, the opinions and statements made in this prospectus may not be sustained by a
court if contested by the IRS. Any contest of this sort with the IRS may materially reduce the
prices at which our common units trade. In addition, the costs of any contest with the IRS will be
borne directly or indirectly by the unitholders and our general partner. Furthermore, the tax
treatment of us, or of an investment in us, may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may or may not be retroactively
applied.
For the reasons described below, Mayer, Brown, Rowe & Maw LLP has not rendered an opinion with
respect to the following specific federal income tax issues:
|
|
|
the treatment of a unitholder whose common units are loaned to a short
seller to cover a short sale of common units; see Tax Consequences of Unit
OwnershipTreatment of Short Sales; |
18
|
|
|
whether our monthly convention for allocating taxable income and losses is
permitted by existing Treasury Regulations; see Disposition of Common
UnitsAllocations Between Transferors and Transferees; and |
|
|
|
|
whether our method for depreciating Section 743 adjustments is sustainable;
see Tax Consequences of Unit OwnershipSection 754 Election. |
Partnership Status
A partnership is not a taxable entity and incurs no federal income tax liability. Instead,
each partner of a partnership is required to take into account that partners allocable share of
items of income, gain, loss and deduction of the partnership in computing that partners federal
income tax liability, regardless of whether cash distributions are made. In most cases,
distributions by a partnership to a partner are not taxable unless the amount of any cash
distributed is in excess of the partners adjusted basis in that partners partnership interest.
No ruling has been or will be sought from the IRS and the IRS has made no determination as to
our status for federal income tax purposes or whether our operations generate qualifying income
under Section 7704 of the Internal Revenue Code. Instead, we rely on the opinion of Mayer, Brown,
Rowe & Maw LLP that, based upon the Internal Revenue Code, its regulations, published revenue
rulings and court decisions, that we and the operating partnership will each be classified as a
partnership for federal income tax purposes so long as:
|
|
|
we do not elect to be treated as a corporation; and |
|
|
|
|
for each taxable year, more than 90% of our gross income has been and
continues to be qualifying income within the meaning of Section 7704(d) of the
Internal Revenue Code. |
Qualifying income includes income and gains from the processing, refining, transportation and
marketing of crude oil, natural gas and products thereof, including the transportation and retail
and wholesale marketing of propane. Other types of qualifying income include interest other than
from a financial business, dividends, gains from the sale of real property and gains from the sale
or other disposition of assets held for the production of income that otherwise constitutes
qualifying income. We believe that more than 90% of our income has been, and will be, within one
or more categories of income that are qualifying income. The portion of our income that is
qualifying income can change from time to time.
Section 7704 of the Internal Revenue Code provides that publicly-traded partnerships will, as
a general rule, be taxed as corporations. However, an exception, referred to as the Qualifying
Income Exception, exists with respect to publicly-traded partnerships of which 90% or more of the
gross income for every taxable year consists of qualifying income. Although we expect to conduct
our business so as to meet the Qualifying Income Exception, if we fail to meet the Qualifying
Income Exception, other than a failure that is determined by the IRS to be inadvertent and that is
cured within a reasonable time after discovery, we will be treated as if we had transferred all of
our assets, subject to liabilities, to a newly formed corporation on the first day of the year in
which we fail to meet the Qualifying Income Exception in return for stock in that corporation, and
as if we had then distributed that stock to the unitholders in liquidation of their interests in
us. This contribution and liquidation should be tax-free to us so long as we, at that time, do not
have liabilities in excess of the tax basis of our assets and should be tax-free to a unitholder so
long as that unitholder does not have liabilities allocated to that unitholder in excess of the tax
basis in that unitholders units. Thereafter, we would be treated as a corporation for federal
income tax purposes.
If we were treated as a corporation in any taxable year, either as a result of a failure to
meet the Qualifying Income Exception or otherwise, our items of income, gain, loss and deduction
would be reflected only on our tax return rather than being passed through to the unitholders, and
our net income would be taxed to us at corporate rates. In addition, any distribution made to a
unitholder would be treated as either taxable dividend income (to the extent of our current or
accumulated earnings and profits) or (in the absence of earnings and profits or any amount in
excess of earnings and profits) a nontaxable return of capital (to the extent of the tax basis in
that unitholders common units) or taxable capital gain (after the tax basis in that unitholders
common units is reduced to zero). Accordingly, treatment of us as a corporation would result in a
material reduction in a unitholders cash flow and after-tax return and thus would likely result in
a substantial reduction of the value of our common units.
The discussion below in this section entitled Tax Consequences assumes that we will be
treated as a partnership for federal income tax purposes.
Tax Treatment of Unitholders
Limited Partner Status
Unitholders who have become our limited partners will be treated as our partners for federal
income tax purposes. Also:
19
|
|
|
assignees who have executed and delivered transfer applications, and are
awaiting admission as limited partners; and |
|
|
|
unitholders whose common units are held in street name or by a nominee and
who have the right to direct the nominee in the exercise of all substantive rights
attendant to the ownership of their common units |
will be treated as our partners for federal income tax purposes. Assignees of common units who are
entitled to execute and deliver transfer applications and become entitled to direct the exercise of
attendant rights, but who fail to execute and deliver transfer applications, may not be treated as
one of our partners for federal income tax purposes. Furthermore, a purchaser or other transferee
of common units who does not execute and deliver a transfer application may not receive particular
federal income tax information or reports furnished to record holders of common units unless our
common units are held in a nominee or street name account and the nominee or broker has executed
and delivered a transfer application for those common units.
A beneficial owner of common units whose common units have been transferred to a short seller
to complete a short sale would appear to lose its status as one of our partners with respect to
those common units for federal income tax purposes. See Tax Consequences of Unit
OwnershipTreatment of Short Sales.
No portion of our income, gains, deductions or losses is reportable by a unitholder who is not
one of our partners for federal income tax purposes, and any cash distributions received by a
unitholder who is not one of our partners for federal income tax purposes would therefore appear to
be fully taxable as ordinary income. These holders are urged to consult their own tax advisors
with respect to the consequences of holding common units for federal income tax purposes.
The following discussion in this section entitled Tax Consequences assumes that a unitholder
is treated as one of our partners.
Tax Consequences of Unit Ownership
Flow-through of Taxable Income
Each unitholder will be required to report on that unitholders income tax return its
allocable share of our income, gains, losses and deductions without regard to whether corresponding
cash distributions are received by that unitholder. Consequently, we may allocate income to a
unitholder even if that unitholder has not received a cash distribution. Each unitholder will be
required to include in income that unitholders allocable share of our income, gain, loss and
deduction for our taxable year. Our taxable year is the calendar year.
Treatment of Partnership Distributions
Except as described below, our distributions to a unitholder will not be taxable to that
unitholder for federal income tax purposes to the extent of the tax basis in that unitholders
common units immediately before the distribution. Except as described below, our cash
distributions in excess of a unitholders tax basis will be considered to be gain from the sale or
exchange of our common units, taxable in accordance with the rules described under Disposition of
Common Units below. Any reduction in a unitholders share of our liabilities for which no
partner, including our general partner, bears the economic risk of loss, which are known as
nonrecourse liabilities, will be treated as a distribution of cash to that unitholder. To the
extent that our distributions cause a unitholders at risk amount to be less than zero at the end
of any taxable year, that unitholder must recapture any losses deducted in previous years. See
Tax Consequences of Unit OwnershipLimitations on Deductibility of Partnership Losses.
A decrease in a unitholders percentage interest in us because of our issuance of additional
common units will decrease that unitholders share of our nonrecourse liabilities and result in a
corresponding deemed distribution of cash. A non-pro rata distribution of money or property may
result in ordinary income to a unitholder, regardless of the tax basis in that unitholders common
units, if the distribution reduces the unitholders share of our unrealized receivables,
including depreciation recapture, and substantially appreciated inventory items, both as defined
in Section 751 of the Internal Revenue Code and collectively referred to as Section 751 Assets.
To that extent, the unitholder will be treated as having been distributed that unitholders
proportionate share of the Section 751 Assets and having exchanged those assets with us in return
for the non-pro rata portion of the actual distribution made to that unitholder. This latter
deemed exchange will result in the unitholders realization of ordinary income which will equal the
excess of:
|
|
|
the non-pro rata portion of that distribution; over |
|
|
|
|
the unitholders tax basis for the share of Section 751 Assets deemed relinquished in the exchange. |
Ratio of Taxable Income to Cash Distributions
We estimate that a person who:
|
|
|
acquires common units in an offering pursuant to this prospectus; and |
20
|
|
|
owns those common units through the period ending on the record date for
the cash distribution payable for the fiscal quarter ended July 31, 2008, |
will be allocated, on a cumulative basis, an amount of federal taxable income that will be less
than 10% of the cumulative cash distributed to such person for that period. The taxable income
allocable to a unitholder for subsequent periods may constitute an increasing percentage of
distributable cash. These estimates are based upon many assumptions regarding our business and
operations, including assumptions about weather conditions in our area of operations, capital
expenditures, cash flows and anticipated cash distributions. These estimates and our assumptions
are subject to numerous business, economic, regulatory, competitive and political uncertainties
beyond our control. Furthermore, these estimates are based on current tax law and tax reporting
positions with which the IRS could disagree. Accordingly, we cannot assure you that these
estimates will be correct. The actual percentage of distributions that will constitute taxable
income could be higher or lower and any differences could materially affect the value of our common
units.
Basis of Common Units
A unitholder will have an initial tax basis for its common units equal to the amount that
unitholder paid for our common units plus that unitholders share of our nonrecourse liabilities.
That basis will be increased by that unitholders share of our income and by any increases in that
unitholders share of our nonrecourse liabilities. That basis will be decreased, but not below
zero, by distributions that that unitholder receives from us, by that unitholders share of our
losses, by any decreases in that unitholders share of our nonrecourse liabilities and by that
unitholders share of our expenditures that are not deductible in computing our taxable income and
are not required to be capitalized. A unitholder will have no share of our debt which is recourse
to our general partner, but will have a share, primarily based on that unitholders share of
profits, of our nonrecourse liabilities. See Disposition of Common UnitsRecognition of Gain or
Loss.
Limitations on Deductibility of Partnership Losses
The deduction by a unitholder of that unitholders share of our losses will be limited to the
unitholders tax basis in its common units and, in the case of an individual unitholder or a
corporate unitholder (if more than 50% of the value of the corporate unitholders stock is owned
directly or indirectly by five or fewer individuals or particular tax-exempt organizations), to the
amount for which the unitholder is considered to be at risk with respect to our activities, if
that is less than the unitholders tax basis. A unitholder must recapture losses deducted in
previous years to the extent that our distributions cause that unitholders at risk amount to be
less than zero at the end of any taxable year. Losses disallowed to a unitholder or recaptured as
a result of these limitations will carry forward and will be allowable to the extent that the
unitholders tax basis or at risk amount, whichever is the limiting factor, subsequently increases.
Upon the taxable disposition of a common unit, any gain recognized by a unitholder can be offset
by losses that were previously suspended by the at risk limitation but may not be offset by losses
suspended by the basis limitation. Any excess loss, above such gain, previously suspended by the
at risk or basis limitations would no longer be utilizable.
Subject to each unitholders specific tax situation, a unitholder will be at risk to the
extent of the tax basis in that unitholders common units, excluding any portion of that basis
attributable to that unitholders share of our nonrecourse liabilities, reduced by any amount of
money the unitholder borrows to acquire or hold that unitholders common units if the lender of
such borrowed funds owns an interest in us, is related to the unitholder or can look only to the
common units for repayment. A unitholders at risk amount will increase or decrease as the tax
basis of the unitholders common units increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in that unitholders share of our nonrecourse
liabilities.
The passive loss limitations provide that individuals, estates, trusts and specific closely
held corporations and personal service corporations can deduct losses from passive activities
(which for the most part consist of activities in which the taxpayer does not materially
participate) only to the extent of the taxpayers income from those passive activities. The
passive loss limitations also apply to a regulated investment company (or mutual fund) holding an
interest in a qualified publicly-traded partnership. See Tax-Exempt Organizations and Various
Other Investors. The passive loss limitations are applied separately with respect to each
publicly-traded partnership. Consequently, any passive losses generated by us will only be
available to offset our passive income generated in the future and will not be available to offset
income from other passive activities or investments (including other publicly-traded partnerships)
or salary or active business income. Passive losses which are not deductible because they exceed a
unitholders share of our income may be deducted in full when that unitholder disposes of its
entire investment in us in a fully taxable transaction with an unrelated party. The passive
activity loss rules are applied after other applicable limitations on deductions such as the at
risk rules and the basis limitation.
A unitholders share of our net income may be offset by any suspended passive losses from us,
but it may not be offset by any other current or carryover losses from other passive activities,
including those attributable to other publicly-traded partnerships. The IRS has announced that
Treasury Regulations will be issued which characterize net passive
21
income from a publicly-traded partnership as investment income for purposes of the limitations
on the deductibility of investment interest.
Limitations on Interest Deductions
The deductibility of a non-corporate taxpayers investment interest expense is limited to
the amount of such taxpayers net investment income. As noted, a unitholders net passive income
from us will be treated as investment income for this purpose. In addition, the unitholders share
of our portfolio income will be treated as investment income. Investment interest expense
includes:
|
|
|
interest on indebtedness properly allocable to property held for investment; |
|
|
|
|
our interest expense attributed to portfolio income; and |
|
|
|
|
the portion of interest expense incurred to purchase or carry an interest
in a passive activity to the extent attributable to portfolio income. |
The computation of a unitholders investment interest expense will take into account interest
on any margin account borrowing or other loan incurred to purchase or carry a common unit. Net
investment income includes gross income from property held for investment and amounts treated as
portfolio income pursuant to the passive loss rules less deductible expenses, other than interest,
directly connected with the production of investment income, but in most cases does not include
gains attributable to the disposition of property held for investment.
Allocation of Partnership Income, Gain, Loss and Deduction
If we have a net profit, our items of income, gain, loss and deduction, after taking into
account any special allocations required under our partnership agreement, will be allocated among
our general partner and the unitholders in accordance with their respective percentage interests in
us. At any time that cash distributions are made to the holders of our incentive distribution
rights or a disproportionate distribution is made to a holder of our common units, gross income
will be allocated to the recipients to the extent of such distributions. If we have a net loss,
our items of income, gain, loss and deduction, after taking into account any special allocations
required under our partnership agreement, will be allocated first, to the general partner and the
unitholders in accordance with their respective percentage interests in us to the extent of their
positive capital accounts, as maintained under our partnership agreements, and, second, to our
general partner.
Various items of our income, gain, loss and deduction will be allocated to account for the
difference between the tax basis and fair market value of property contributed to us by our general
partner or any other person contributing property to us, and to account for the difference between
the fair market value of our assets and their carrying value on our books at the time of any
offering made pursuant to this prospectus. The effect of these allocations to a unitholder
purchasing common units pursuant to this prospectus will be essentially the same as if the tax
basis of our assets were equal to their fair market value at the time of purchase. In addition,
items of recapture income will be allocated to the extent possible to the partner allocated the
deduction or curative allocation giving rise to the treatment of such gain as recapture income to
minimize the recognition of ordinary income by some unitholders. Finally, although we do not
expect that our operations will result in the creation of negative capital accounts, if negative
capital accounts nevertheless result, items of our income and gain will be allocated in an amount
and manner sufficient to eliminate the negative balance as quickly as possible.
Mayer, Brown, Rowe & Maw LLP is of the opinion that, with the exception of the issues
described in Tax Consequences of Unit OwnershipSection 754 Election and Disposition of
Common UnitsAllocations Between Transferors and Transferees, the allocations in the partnership
agreement of Ferrellgas Partners will be given effect for federal income tax purposes in
determining how our income, gain, loss or deduction will be allocated among the holders of its
equity that is outstanding immediately after an offering made pursuant to this prospectus.
Entity-Level Collections
If we are required or elect under applicable law to pay any federal, state or local income tax
on behalf of any unitholder or the general partner or any former unitholder, we are authorized to
pay those taxes from our funds. Such payment, if made, will be treated as a distribution of cash
to the unitholder on whose behalf the payment was made. If the payment is made on behalf of a
person whose identity cannot be determined, we are authorized to treat the payment as a
distribution to current unitholders. We are authorized to amend the partnership agreement of
Ferrellgas Partners in the manner necessary to maintain uniformity of intrinsic tax characteristics
of common units and to adjust subsequent distributions, so that after giving effect to such
distributions, the priority and characterization of distributions otherwise applicable under that
partnership agreement is maintained as nearly as is practicable. Payments by us as described above
could give rise to an overpayment of tax on behalf of a unitholder in which event the unitholder
could file a claim for credit or refund.
22
Treatment of Short Sales
A unitholder whose common units are loaned to a short seller to cover a short sale of common
units may be considered to have disposed of ownership of those common units. If so, that
unitholder would no longer be a partner with respect to those common units during the period of the
loan and may recognize gain or loss from the disposition. As a result, during this period:
|
|
|
any of our income, gain, loss or deduction with respect to those common
units would not be reportable by the unitholder; |
|
|
|
|
any cash distributions received by the unitholder with respect to those
common units would be fully taxable; and |
|
|
|
|
all of such distributions would appear to be treated as ordinary income. |
Mayer, Brown, Rowe & Maw LLP has not rendered an opinion regarding the treatment of a
unitholder whose common units are loaned to a short seller; therefore, unitholders desiring to
assure their status as partners and avoid the risk of gain recognition should modify any applicable
brokerage account agreements to prohibit their brokers from borrowing their common units. The IRS
has announced that it is actively studying issues relating to the tax treatment of short sales of
partnership interests. See Disposition of Common UnitsRecognition of Gain or Loss.
Alternative Minimum Tax
Each unitholder will be required to take into account that unitholders distributive share of
any of our items of income, gain, loss or deduction for purposes of the alternative minimum tax. A
portion of our depreciation deductions may be treated as an adjustment item for this purpose. A
unitholders alternative minimum taxable income derived from us may be higher than that
unitholders share of our net income because we may use accelerated methods of depreciation for
purposes of computing federal taxable income or loss. The minimum tax rate for non-corporate
taxpayers is 26% on the first $175,000 of alternative minimum taxable income in excess of the
exemption amount and 28% on any additional alternative minimum taxable income. Prospective
unitholders should consult with their tax advisors as to the impact of an investment in common
units on their liability for the alternative minimum tax.
Tax Rates
The highest effective United States federal income tax rate for individuals for 2006 is 35%
and the maximum United States federal income tax rate for net capital gains of an individual that
are recognized prior to January 1, 2009 is 15%, if the asset disposed of was held for more than 12
months at the time of disposition.
Section 754 Election
We have made the election permitted by Section 754 of the Internal Revenue Code. The election
is irrevocable without the consent of the IRS. The election permits us to adjust a common unit
purchasers tax basis in our assets under Section 743(b) of the Internal Revenue Code to reflect
that unitholders purchase price when common units are purchased from a holder thereof. The
Section 743(b) adjustment does not apply to a person who purchases common units pursuant to an
initial offering by us (including a person who purchases the common units offered pursuant to this
prospectus).
The calculations that are required to determine a Section 743(b) adjustment are made
additionally complex because common units held by the public have been issued pursuant to multiple
offerings. For example, particular regulations require that the portion of the Section 743(b)
adjustment that eliminates the effect of any unamortized difference in book and tax basis of
recovery property to the holder of such a common unit be depreciated over the remaining recovery
period of that property, but Treasury Regulation Section 1.167(c)-1(a)(6) may require that any such
difference in book and tax basis of other property be depreciated over a different period. In
addition, the holder of a common unit, other than a holder who purchased such common unit pursuant
to an initial offering by us, may be entitled by reason of a Section 743(b) adjustment to
amortization deductions in respect of property to which the traditional method of eliminating
differences in book and tax basis applies but to which the holder of a common unit that is sold
in an initial offering will not be entitled.
Because we cannot match transferors and transferees of common units, uniformity of the
economic and tax characteristics of our common units to a purchaser of such common units must be
maintained. In the absence of uniformity, compliance with a number of federal income tax
requirements, both statutory and regulatory, could be substantially diminished. Under the
partnership agreement of Ferrellgas Partners, our general partner is authorized to take a position
to preserve our ability to determine the tax attributes of a common unit from its date of purchase
and the amount that is paid therefor even if that position is not consistent with the Treasury
Regulations.
We intend to depreciate the portion of a Section 743(b) adjustment attributable to any
unamortized difference between the book and tax basis of an asset in respect of which we use the
remedial method in a manner that is consistent
23
with the regulations under Section 743 of the Internal Revenue Code as to recovery property in
respect of which the remedial allocation method is adopted. Such method is arguably inconsistent
with Treasury Regulation Section 1.167(c)-1(a)(6), which is not expected to directly apply to a
material portion of our assets. If we determine that this position cannot reasonably be taken, we
may take a depreciation or amortization position which may result in lower annual depreciation or
amortization deductions than would otherwise be allowable to some unitholders. In addition, if
common units held by the public other than those that are sold in an initial offering by us are
entitled to different treatment in respect of property as to which we are using the traditional
method of eliminating differences in book and tax basis, we may also take a position that results
in lower annual deductions to some or all of our unitholders than might otherwise be available.
Mayer, Brown, Rowe & Maw LLP is unable to opine as to the validity of any position that is
described in this paragraph because there is no clear applicable authority.
A Section 754 election is advantageous if the tax basis in a transferees common units is
higher than such common units share of the aggregate tax basis of our assets immediately prior to
the transfer. In such a case, as a result of the election, the transferee would have a higher tax
basis in its share of our assets for purposes of calculating, among other items, the transferees
depreciation and amortization deductions and the transferees share of any gain or loss on a sale
of our assets. Conversely, a Section 754 election is disadvantageous if the transferees tax basis
in such common units is lower than such common units share of the aggregate tax basis of our
assets immediately prior to the transfer. However, we would be required to make a Section 743(b)
adjustment in connection with such transfer if the tax basis of our assets exceeds the value of our
assets by more than $250,000 immediately after such transfer (a Substantial Built-in Loss), even
if we had not made a Section 754 election. Thus, the fair market value of our common units may be
affected either favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and will be made by us on
the basis of assumptions as to the value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our assets must be made in accordance with the
Internal Revenue Code. The IRS could seek to reallocate some or all of any Section 743(b)
adjustment allocated by us to our tangible assets to goodwill instead. Goodwill, as an intangible
asset, is amortizable over a longer period of time or under a less accelerated method than most of
our tangible assets. The determinations we make may be successfully challenged by the IRS and the
deductions resulting from them may be reduced or disallowed altogether. Should the IRS require a
different basis adjustment to be made, and should, in our opinion, the expense of compliance exceed
the benefit of the election, we may seek permission from the IRS to revoke our Section 754
election. If such permission is granted, a subsequent purchaser of common units may be allocated
more income than that purchaser would have been allocated had the election not been revoked, but we
would still be required to make Section 743(b) adjustments with respect to any Substantial Built-in
Loss existing at the time such purchaser acquired our common units.
Tax Treatment of Operations
Accounting Method and Taxable Year
We use the year ending December 31 as our taxable year and the accrual method of accounting
for federal income tax purposes. Each unitholder will be required to include in income that
unitholders share of our income, gain, loss and deduction for our taxable year ending within or
with that unitholders taxable year. In addition, a unitholder who has a taxable year ending on a
date other than December 31 and who disposes of all of its units following the close of our taxable
year but before the close of its taxable year must include that unitholders share of our income,
gain, loss and deduction in income for its taxable year, with the result that that unitholder will
be required to include in income for its taxable year that unitholders share of more than one year
of our income, gain, loss and deduction. See Disposition of Common UnitsAllocations Between
Transferors and Transferees.
Initial Tax Basis, Depreciation and Amortization
We will use the tax basis of our various assets for purposes of computing depreciation and
cost recovery deductions and, ultimately, gain or loss on the disposition of such assets. Assets
that we acquired from our general partner in connection with our formation initially had an
aggregate tax basis equal to the tax basis of the assets in the possession of the general partner
immediately prior to our formation. The majority of the assets that we acquired after our
formation had an initial tax basis equal to their cost, however some of our assets were contributed
to us and had an initial tax basis equal to the contributors tax basis in those assets immediately
prior to such contribution. The federal income tax burden associated with the difference between
the fair market value of our property and its tax basis immediately prior to an initial offering by
us will be borne by unitholders holding interests in us prior to that offering. See Tax
Consequences of Unit OwnershipAllocation of Partnership Income, Gain, Loss and Deduction.
We may elect to use permitted depreciation and cost recovery methods that will result in the
largest deductions being taken in the early years after assets are placed in service. Property we
acquire or construct in the future may be depreciated using accelerated methods permitted by the
Internal Revenue Code.
24
If we dispose of depreciable property by sale, foreclosure, or otherwise, all or a portion of
any gain, determined by reference to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed as ordinary income rather than
capital gain. Similarly, a unitholder who has taken cost recovery or depreciation deductions with
respect to property owned by us may be required to recapture such deductions as ordinary income
upon a sale of that unitholders interest in us. See Tax Consequences of Unit
OwnershipAllocation of Partnership Income, Gain, Loss and Deduction and Disposition of Common
UnitsRecognition of Gain or Loss.
The costs that we incurred in our organization have previously been amortized over a period of
60 months. The costs incurred in selling our common units, i.e. syndication expenses, must be
capitalized and cannot be deducted currently, ratably or upon our termination. Uncertainties exist
regarding the classification of costs as organization expenses, which have previously been
amortized by us over a period of 60 months, and as syndication expenses, which may not be amortized
by us. The underwriting discounts and commissions we incur will be treated as syndication
expenses.
Valuation and Tax Basis of our Properties
The federal income tax consequences of the ownership and disposition of common units will
depend in part on our estimates of the fair market values, and determinations of the tax bases, of
our assets. Although we may from time to time consult with professional appraisers regarding
valuation matters, we will make many of the fair market value estimates ourselves. These estimates
of value and determinations of basis are subject to challenge and will not be binding on the IRS or
the courts. If the estimates and determinations of fair market value or basis are later found to
be incorrect, the character and amount of items of income, gain, loss or deduction previously
reported by unitholders might change, and unitholders might be required to adjust their tax
liability for prior years and incur interest and penalties with respect to those adjustments.
Disposition of Common Units
Recognition of Gain or Loss
Gain or loss will be recognized on a sale of common units equal to the difference between the
amount realized and the unitholders tax basis for the common units sold. A unitholders amount
realized will be measured by the sum of the cash or the fair market value of other property
received plus that unitholders share of our nonrecourse liabilities. Because the amount realized
includes a unitholders share of our nonrecourse liabilities, the gain recognized on the sale of
common units could result in a tax liability in excess of any cash received from such sale. Prior
distributions from us in excess of cumulative net taxable income in respect of a common unit which
decreased a unitholders tax basis in such common unit will, in effect, become taxable income if
our common unit is sold at a price greater than the unitholders tax basis in such common unit,
even if the price is less than that unitholders original cost.
Should the IRS successfully contest our convention to amortize only a portion of the Section
743(b) adjustment attributable to an amortizable intangible asset described in Section 197 of the
Internal Revenue Code after a sale of common units, a unitholder could realize additional gain from
the sale of common units than had such convention been respected. See Tax Consequences of Unit
OwnershipSection 754 Election. In that case, the unitholder may have been entitled to
additional deductions against income in prior years but may be unable to claim them, with the
result to that unitholder of greater overall taxable income than appropriate. Counsel is unable to
opine as to the validity of the convention but believes such a contest by the IRS to be unlikely
because a successful contest could result in substantial additional deductions to other
unitholders.
Except as noted below, gain or loss recognized by a unitholder, other than a dealer in
common units, on the sale or exchange of a common unit will be taxable as capital gain or loss.
Capital gain recognized on the sale of common units held for more than 12 months will be taxed at a
maximum rate of 15% for sales occurring prior to January 1, 2009. A portion of this gain or loss,
which will likely be substantial, however, will be separately computed and taxed as ordinary income
or loss under Section 751 of the Internal Revenue Code to the extent attributable to assets giving
rise to depreciation recapture or other unrealized receivables or to inventory items owned by
us. The term unrealized receivables includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized receivables, inventory items and
depreciation recapture may exceed net taxable gain realized upon the sale of our common unit and
may be recognized even if there is a net taxable loss realized on the sale of our common unit.
Thus, a unitholder may recognize both ordinary income and a capital loss upon a disposition of
common units. Net capital loss may offset no more than $3,000 of ordinary income in the case of
individuals and may only be used to offset capital gain in the case of corporations.
The IRS has ruled that a partner who acquires interests in a partnership in separate
transactions must combine those interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of such interests, a portion of that
tax basis must be allocated to the interests sold using an equitable apportionment method.
Treasury Regulations under Section 1223 of the Internal Revenue Code allow a selling unitholder who
can identify common units transferred with an ascertainable holding period to elect to use the
actual holding period of the
25
common units transferred. Thus, according to the ruling, a holder of common units will be
unable to select high or low basis common units to sell, but, under the regulations, may designate
specific common units sold for purposes of determining the holding period of the common units sold.
A unitholder electing to use the actual holding period of common units transferred must
consistently use that identification method for all subsequent sales or exchanges of our common
units. A unitholder considering the purchase of additional common units or a sale of common units
purchased in separate transactions should consult that unitholders tax advisor as to the possible
consequences of this ruling and application of the regulations.
The Internal Revenue Code treats a taxpayer as having sold a partnership interest, such as our
units, in which gain would be recognized if it were actually sold at its fair market value, if the
taxpayer or related persons enters into:
|
|
|
a short sale; |
|
|
|
|
an offsetting notional principal contract; or |
|
|
|
|
a futures or forward contract with respect to the partnership interest or substantially identical property. |
Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional
principal contract or a futures or forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the taxpayer or a related person then
acquires the partnership interest or substantially identical property.
Allocations Between Transferors and Transferees
In most cases, our taxable income and losses will be determined annually, will be prorated on
a monthly basis and will be subsequently apportioned among the unitholders in proportion to the
number of common units owned by each of them as of the opening of the New York Stock Exchange on
the first business day of the month. However, gain or loss realized on a sale or other disposition
of our assets other than in the ordinary course of business will be allocated among the unitholders
as of the opening of the New York Stock Exchange on the first business day of the month in which
that gain or loss is recognized. As a result, a unitholder transferring common units in the open
market may be allocated income, gain, loss and deduction accrued after the date of transfer.
The use of this method may not be permitted under existing Treasury Regulations. Accordingly,
Mayer, Brown, Rowe & Maw LLP is unable to opine on the validity of this method of allocating income
and deductions between transferors and transferees of common units. If this method is not allowed
under the Treasury Regulations, or only applies to transfers of less than all of the unitholders
interest, our taxable income or losses might be reallocated among the unitholders. We are
authorized to revise our method of allocation between transferors and transferees, as well as among
unitholders whose interests otherwise vary during a taxable period, to conform to a method
permitted under future Treasury Regulations.
A unitholder who owns common units at any time during a quarter and who disposes of such
common units prior to the record date set for a cash distribution with respect to such quarter will
be allocated items of our income, gain, loss and deduction attributable to such quarter but will
not be entitled to receive that cash distribution.
Notification Requirements
A unitholder who sells or exchanges common units is required to notify us in writing of that
sale or exchange within 30 days after the sale or exchange and in any event by no later than
January 15 of the year following the calendar year in which the sale or exchange occurred. We are
required to notify the IRS of that transaction and to furnish specific information to the
transferor and transferee. However, these reporting requirements do not apply with respect to a
sale by an individual who is a citizen of the United States and who effects the sale or exchange
through a broker. Additionally, a transferor and a transferee of a common unit will be required to
furnish statements to the IRS, filed with their income tax returns for the taxable year in which
the sale or exchange occurred, that sets forth the amount of the consideration paid for the common
unit. Failure to satisfy these reporting obligations may lead to the imposition of substantial
penalties.
Constructive Termination
We will be considered to have been terminated for tax purposes if there is a sale or exchange
of 50% or more of the total interests in our capital and profits within a 12-month period. A
termination of us will result in the closing of our taxable year for all unitholders. In the case
of a unitholder reporting on a taxable year other than a year ending December 31, the closing of
our taxable year may result in more than 12 months of our taxable income or loss being includable
in that unitholders taxable income for the year of our termination. New tax elections required to
be made by us, including a new election under Section 754 of the Internal Revenue Code, must be
made subsequent to a termination, and a termination could result in a deferral of our deductions
for depreciation. A termination could also result in penalties if we were unable to determine that
the termination had occurred. Moreover, a termination might either accelerate the application of,
or subject us to, any tax legislation enacted prior to the termination.
26
Tax-Exempt Organizations and Various Other Investors
Ownership of common units by employee benefit plans, other tax-exempt organizations,
nonresident aliens, foreign corporations, other foreign persons and regulated investment companies
raises issues unique to such persons and, as described below, may substantially increase the tax
liability and requirements imposed on such persons.
Employee benefit plans and most other organizations exempt from federal income tax, including
individual retirement accounts and other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of the taxable income derived by such an
organization from the ownership of a common unit will be unrelated business taxable income and thus
will be taxable to such a unitholder.
A regulated investment company (or mutual fund) is required to derive 90% or more of its
gross income from interest, dividends, gains from the sale of stocks or securities or foreign
currency or related sources, and net income derived from an interest in a qualified
publicly-traded partnership. However, no more than 25% of the value of a regulated investment
companys total assets may be invested in the securities of one or more qualified publicly-traded
partnerships. A qualified publicly-traded partnership is a publicly-traded partnership as to which
less than 90% of its gross income for each taxable year consists of interest, dividends, gains from
the sale of stocks or securities or foreign currency or related sources. We expect Ferrellgas
Partners to be treated as a qualified publicly-traded partnership.
Non-resident aliens and foreign corporations, trusts or estates which hold common units will
be considered to be engaged in business in the United States on account of ownership of common
units. As a consequence, they will be required to file federal tax returns in respect of their
share of our income, gain, loss or deduction and pay federal income tax at regular rates on any net
income or gain. Moreover, under rules applicable to publicly-traded partnerships, we will withhold
at the highest effective tax rate applicable to individuals, currently 35%, from cash distributions
made quarterly to foreign unitholders. Each foreign unitholder must obtain a taxpayer
identification number from the IRS and submit that number to our transfer agent on a Form W-8 BEN
or applicable substitute form in order to obtain credit for the taxes withheld. A change in
applicable law may require us to change these procedures.
In addition, because a foreign corporation which owns common units will be treated as engaged
in a United States trade or business, that corporation may be subject to United States branch
profits tax at a rate of 30%, in addition to regular federal income tax, on its allocable share of
our income and gain (as adjusted for changes in the foreign corporations U.S. net equity) which
are effectively connected with the conduct of a United States trade or business. That tax may be
reduced or eliminated by an income tax treaty between the United States and the country with
respect to which the foreign corporate unitholder is a qualified resident. In addition, such a
unitholder is subject to special information reporting requirements under Section 6038C of the
Internal Revenue Code.
Under a ruling of the IRS, a foreign unitholder who sells or otherwise disposes of a common
unit will be subject to federal income tax on gain realized on the disposition of such common unit
to the extent that such gain is effectively connected with a United States trade or business of the
foreign unitholder. Apart from the ruling, a foreign unitholder will not be taxed upon the
disposition of a common unit if that foreign unitholder has held less than 5% in value of our
common units during the five-year period ending on the date of the disposition and if our common
units are regularly traded on an established securities market at the time of the disposition.
Administrative Matters
Information Returns and Audit Procedures
We intend to furnish to each unitholder, within 90 days after the close of each calendar year,
specific tax information, including a Schedule K-1, which sets forth each unitholders share of our
income, gain, loss and deduction for our preceding taxable year. In preparing this information,
which in most cases will not be reviewed by counsel, we will use various accounting and reporting
conventions, some of which have been mentioned in the previous discussion, to determine the
unitholders share of income, gain, loss and deduction. There is no assurance that any of those
conventions will yield a result which conforms to the requirements of the Internal Revenue Code,
regulations or administrative interpretations of the IRS. We cannot assure prospective unitholders
that the IRS will not successfully contend in court that such accounting and reporting conventions
are impermissible. Any such challenge by the IRS could negatively affect the value of our common
units.
The IRS may audit our federal income tax information returns. Adjustments resulting from any
such audit may require each unitholder to adjust a prior years tax liability, and possibly may
result in an audit of the unitholders own return. Any audit of a unitholders return could result
in adjustments not related to our returns as well as those related to our returns.
In most respects, partnerships are treated as separate entities for purposes of federal tax
audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings.
The tax treatment of partnership items of income, gain, loss and deduction are determined in a
partnership proceeding rather than in separate proceedings with the partners.
27
The Internal Revenue Code requires that one partner be designated as the Tax Matters Partner
for these purposes. Our partnership agreements appoint our general partner as our Tax Matters
Partner.
The Tax Matters Partner will make various elections on our behalf and on behalf of the
unitholders. In addition, the Tax Matters Partner can extend the statute of limitations for
assessment of tax deficiencies against unitholders for items in our returns. The Tax Matters
Partner may bind a unitholder with less than a 1% profits interest in us to a settlement with the
IRS unless that unitholder elects, by filing a statement with the IRS, not to give such authority
to the Tax Matters Partner. The Tax Matters Partner may seek judicial review (by which all the
unitholders are bound) of a final partnership administrative adjustment and, if the Tax Matters
Partner fails to seek judicial review, such review may be sought by any unitholder having at least
a 1% interest in our profits and by the unitholders having in the aggregate at least a 5% profits
interest. However, only one action for judicial review will go forward, and each unitholder with
an interest in the outcome may participate.
A unitholder must file a statement with the IRS identifying the treatment of any item on that
unitholders federal income tax return that is not consistent with the treatment of the item on our
return. Intentional or negligent disregard of the consistency requirement may subject a unitholder
to substantial penalties.
Nominee Reporting
Persons who hold an interest in us as a nominee for another person are required to furnish to us:
|
|
|
the name, address and taxpayer identification number of the beneficial owner and the nominee;
|
|
|
|
|
whether the beneficial owner is: |
|
|
|
a person that is not a United States person; |
|
|
|
|
a foreign government, an international organization or any wholly-owned
agency or instrumentality of either of the foregoing; or |
|
|
|
|
a tax-exempt entity; |
|
|
|
the amount and description of common units held, acquired or transferred for the beneficial owner; and |
|
|
|
|
particular information including the dates of acquisitions and transfers,
means of acquisitions and transfers, and acquisition cost for purchases, as well as the
amount of net proceeds from sales. |
Brokers and financial institutions are required to furnish additional information, including
whether they are United States persons and specific information on common units they acquire, hold
or transfer for their own account. A penalty of $50 per failure, up to a maximum of $100,000 per
calendar year, is imposed by the Internal Revenue Code for failure to report this information to
us. The nominee is required to supply the beneficial owner of our common units with the
information furnished to us.
Tax Shelter Reporting Rules
Treasury Regulations require taxpayers to report particular information on Form 8886 if they
participate in a reportable transaction. Unitholders may be required to file this form with the
IRS. A transaction may be a reportable transaction based upon any of several factors. Unitholders
are urged to consult with their own tax advisors concerning the application of any of these factors
to their investment in our common units. Significant penalties may be imposed for failure to
comply with these disclosure requirements. Disclosure and information maintenance obligations are
also imposed on material advisors that organize, manage or sell interests in reportable
transactions. Unitholders are urged to consult with their own tax advisors concerning any possible
disclosure obligation with respect to their investment and should be aware that we and our material
advisors intend to comply with the disclosure and information maintenance requirements.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an underpayment of tax which is
attributable to one or more of particular listed causes, including negligence or disregard of rules
or regulations, substantial understatements of income tax and substantial valuation misstatements,
is imposed by the Internal Revenue Code. No penalty will be imposed, however, with respect to any
portion of an underpayment if it is shown that there was a reasonable cause for that portion and
that the taxpayer acted in good faith with respect to that portion.
A substantial understatement of income tax in any taxable year exists if the amount of the
understatement exceeds (i) the greater of 10% of the tax required to be shown on the return for the
taxable year or $5,000, or (ii) in the case of most corporations, the lesser of 10% of the tax
required to be shown on the return for the taxable year or $10,000,000. The amount of any
understatement subject to penalty is reduced if any portion is attributable to a position adopted
on the return:
|
|
|
with respect to which there is, or was, substantial authority; or |
|
|
|
|
as to which there is a reasonable basis and the pertinent facts of such position are disclosed on the return. |
28
This reduction does not apply to an understatement attributable to a tax shelter, a term that in
this context does not appear to include us.
An additional penalty tax applies to certain listed transactions and reportable transactions
with a significant tax avoidance purposes (reportable avoidance transactions). The amount of the
penalty is equal to 20% of any understatement of income tax attributable to an adequately disclosed
reportable avoidance transaction. No penalty will be imposed, however, if the relevant facts
affecting the tax treatment of the transaction are adequately disclosed, there is or was
substantial authority for the claimed tax treatment, and the taxpayer reasonably believed that the
claimed tax treatment was more likely than not the proper treatment. If the reportable avoidance
transaction is not adequately disclosed, this exception will not apply and the penalty will be
increased to 30% of the understatement.
If any item of our income, gain, loss or deduction included in the distributive shares of
unitholders might result in such an understatement of income for which no substantial authority
exists, we must disclose the pertinent facts on our return. In addition, we will make a reasonable
effort to furnish sufficient information for unitholders to make adequate disclosure on their
returns to avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any property, or the adjusted
basis of any property, claimed on a tax return is 200% or more of the amount determined to be the
correct amount of such valuation or adjusted basis. No penalty is imposed unless the portion of
the underpayment attributable to a substantial valuation misstatement exceeds $5,000, $10,000 for
most corporations. If the valuation claimed on a return is 400% or more than the correct
valuation, the penalty imposed increases to 40%.
State, Local and Other Tax Consequences
In addition to federal income taxes, unitholders will be subject to other taxes, such as state
and local income taxes, unincorporated business taxes, and estate, inheritance or intangible taxes
that may be imposed by the various jurisdictions in which we do business or own property. Although
an analysis of those various taxes is not presented here, each prospective unitholder should
consider their potential impact on that unitholders investment in us. We currently conduct
business in all 50 states. A unitholder will be required to file state income tax returns and to
pay state income taxes in some or all of the states in which we do business or own property and may
be subject to penalties for failure to comply with those requirements. In some states, tax losses
may not produce a tax benefit in the year incurred (if, for example, we have no income from sources
within that state) and also may not be available to offset income in subsequent taxable years.
Some of the states may require that we, or we may elect to, withhold a percentage of income from
amounts to be distributed to a unitholder who is not a resident of the state. Withholding, the
amount of which may be greater or less than a particular unitholders income tax liability to the
state, does not relieve the non-resident unitholder from the obligation to file an income tax
return. Amounts withheld may be treated as if distributed to unitholders for purposes of
determining the amounts distributed by us. See Tax Consequences of Unit OwnershipEntity-Level
Collections. Based on current law and our estimate of future operations, we anticipate that any
amounts required to be withheld will not be material.
It is the responsibility of each unitholder to investigate the legal and tax consequences
under the laws of pertinent states and localities of that unitholders investment in us.
Accordingly, each prospective unitholder should consult, and must depend upon, that unitholders
own tax counsel or other advisor with regard to those matters. Further, it is the responsibility
of each unitholder to file all state and local, as well as U.S. federal, tax returns that may be
required of such unitholder. Mayer, Brown, Rowe & Maw LLP has not rendered an opinion on the state
or local tax consequences of an investment in us.
INVESTMENT IN US BY EMPLOYEE BENEFIT PLANS
An investment in us by an employee benefit plan is subject to additional considerations
because the investments of these plans are subject to:
|
|
|
the fiduciary responsibility and prohibited transaction provisions of the
Employee Retirement Income Security Act of 1974, often referred to as ERISA; and |
|
|
|
|
restrictions imposed by Section 4975 of the Internal Revenue Code. |
For these purposes, the term employee benefit plan may include:
|
|
|
qualified pension, profit-sharing and stock bonus plans; |
|
|
|
|
simplified employee pension plans; and |
|
|
|
|
tax deferred annuities or individual retirement accounts established or
maintained by an employer or employee organization. |
Prior to making an investment in us, consideration should be given to, among other things:
29
|
|
|
whether the investment is permitted under the terms of the employee benefit plan;
|
|
|
|
|
whether the investment is prudent under Section 404(a)(1)(B) of ERISA; |
|
|
|
|
whether in making the investment, the employee benefit plan will satisfy
the diversification requirements of Section 404(a)(1)(C) of ERISA; |
|
|
|
|
whether the investment will result in recognition of unrelated business
taxable income by the employee benefit plan and, if so, the potential after-tax
investment return; and |
|
|
|
|
whether, as a result of the investment, the employee benefit plan will be
required to file an exempt organization business income tax return with the IRS. |
See Tax ConsequencesDisposition of Common UnitsTax-Exempt Organizations and Various Other
Investors.
The person with investment discretion with respect to the assets of an employee benefit plan,
often called a fiduciary, should determine whether an investment in us is authorized by the
appropriate governing instrument and is a proper investment for the employee benefit plan. A
fiduciary should also consider whether the employee benefit plan will, by investing in us, be
deemed to own an undivided interest in our assets. If so, our general partner would also be a
fiduciary of the employee benefit plan, and we would be subject to the regulatory restrictions of
ERISA, including its prohibited transaction rules, as well as the prohibited transaction rules of
the Internal Revenue Code.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit employee benefit
plans, and also individual retirement accounts that are not considered part of an employee benefit
plan, from engaging in specified transactions involving plan assets with parties that are
parties in interest under ERISA or disqualified persons under the Internal Revenue Code with
respect to the employee benefit plan. The Department of Labor regulations provide guidance with
respect to whether the assets of an entity in which employee benefit plans acquire equity interests
would be deemed plan assets under some circumstances. Under these regulations, an entitys
assets would not be considered to be plan assets if, among other things:
|
|
|
the equity interests acquired by employee benefit plans are
publicly-offered securities; meaning the equity interests are: |
|
|
|
widely held by 100 or more investors independent of us and each other; |
|
|
|
|
freely transferable; and |
|
|
|
|
registered under some provisions of the federal securities laws; |
|
|
|
the entity is an operating company; meaning that it is primarily engaged
in the production or sale of a product or service, other than the investment of
capital, either directly or through a majority owned subsidiary or subsidiaries; or |
|
|
|
|
there is no significant investment by employee benefit plan investors;
meaning that less than 25% of the value of each class of equity interest, disregarding
particular interests held by our general partner, its affiliates, and particular other
persons, is held by: |
|
|
|
the employee benefit plans referred to above; |
|
|
|
|
individual retirement accounts; and |
|
|
|
|
other employee benefit plans not subject to ERISA, including governmental plans. |
Our assets should not be considered plan assets under these regulations because it is
expected that an investment in us will satisfy the requirements of the first bullet point
immediately above.
Plan fiduciaries contemplating an investment in us should consult with their own counsel
regarding the potential consequences of such an investment under ERISA and the Internal Revenue
Code in light of the serious penalties imposed on persons who engage in prohibited transactions or
otherwise violate any applicable statutory provisions.
30
SELLING UNITHOLDERS
In general, the persons to whom we issue common units under this prospectus will be able to
resell those common units, subject to certain conditions, in the public markets without further
registration and without being required to deliver a prospectus. However, certain persons who are
affiliates, as defined in the SECs rules, of an entity acquired by us or any of our subsidiaries
may be deemed underwriters in connection with the sale of our common units received hereunder,
unless those common units are sold pursuant to the provisions of Rule 145 of the Securities Act.
Sales of our common units by persons deemed underwriters may be made pursuant to this prospectus
and the registration statement of which it is a part. For any such sales, we will provide
information concerning the selling unitholders either in a post-effective amendment to the
registration statement of which this prospectus is a part or in a prospectus supplement.
WHERE YOU CAN FIND MORE INFORMATION
Where Documents are Filed; Copies of Documents
We file annual, quarterly and other reports and other information with the SEC. You may read
and download our SEC filings over the Internet from several commercial document retrieval services
as well as at the SECs website at http://www.sec.gov. You may also read and copy our SEC filings
at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information concerning the Public Reference Room and any
applicable copy charges. You can also obtain information about us through the New York Stock
Exchange, 11 Wall Street, New York, New York 10005, on which our common units are listed.
In addition, you may also access further information about us by visiting our website at
http://www.ferrellgas.com. Please note that the information and materials found on our website,
except for our SEC filings expressly described below, are not part of this prospectus and are not
incorporated by reference into this prospectus.
Incorporation of Documents by Reference
We have filed with the SEC a registration statement on Form S-4 with respect to the securities
offered by this prospectus. This prospectus is a part of that registration statement. As allowed
by the SEC, this prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement. Instead, the SEC allows us
to incorporate by reference information into this prospectus. This means that we can disclose
particular important information to you without actually including such information in this
prospectus by simply referring you to another document that we filed separately with the SEC.
The information we incorporate by reference is an important part of this prospectus and should
be carefully read in conjunction with this prospectus and any prospectus supplement. Information
that we file with the SEC after the date of this prospectus will automatically update and may
supersede some of the information in this prospectus as well as information we previously filed
with the SEC and that was incorporated by reference into this prospectus.
The following documents are incorporated by reference into this prospectus:
|
|
|
the description of Ferrellgas Partners L.P.s common units in its
registration statement on Form 8-A/A, as filed with the SEC on December 7, 2005, and
any amendments or reports filed to update the description; |
|
|
|
|
the Annual Report on Form 10-K of Ferrellgas Partners, L.P., Ferrellgas
Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp. for the fiscal
year ended July 31, 2005, as filed with the SEC on October 14, 2005, as amended on Form
10-K/A filed with the SEC on November 10, 2005; |
|
|
|
|
the Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P., Ferrellgas
Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Partners Finance Corp. for the
quarterly period ended October 31, 2005, as filed with the SEC on December 7, 2005; |
|
|
|
|
the Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P., Ferrellgas
Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Partners Finance Corp. for the
quarterly period ended January 31, 2006, as filed with the SEC on March 10, 2006; |
|
|
|
|
the Current Reports on Form 8-K of Ferrellgas Partners, L.P., Ferrellgas
Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp., as filed with
the SEC on December 7, 2005, and March 10, 2006; and |
|
|
|
|
all reports or documents that we file under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and until the earlier of
the termination of the registration statement to which this prospectus relates or until
we sell all of the securities offered by this prospectus. |
If information in any of these incorporated documents conflicts with information in this
prospectus, any amendment to the registration statement or any prospectus supplement, you should
rely on the most recent information. If
31
information in an incorporated document conflicts with information in another incorporated
document, you should rely on the information in the most recent incorporated document.
You may request from us at no cost a copy of any document we incorporate by reference,
excluding all exhibits to such incorporated documents (unless we have specifically incorporated by
reference such exhibits either in this prospectus or in the incorporated document), by making such
a request in writing or by telephone to the following address:
Ferrellgas, Inc.
7500 College Boulevard, Suite 1000
Overland Park, Kansas 66210
Attention: Investor Relations
(913) 661-1533
Except as provided above, no other information (including information on our website) is
incorporated by reference into this prospectus.
LEGAL MATTERS
Particular legal matters related to the common units described in this prospectus have been
and/or will be passed upon for us by Mayer, Brown, Rowe & Maw LLP.
EXPERTS
The consolidated financial statements, the related financial statement schedules, and
managements report on the effectiveness of internal control over financial reporting incorporated
in this prospectus by reference from Ferrellgas Partners, L.P.s, Ferrellgas Partners Finance
Corp.s, Ferrellgas L.P.s and Ferrellgas Finance Corp.s Annual Report on Form 10-K for the year
ended July 31, 2005, as amended on Form 10-K/A, have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their reports (which reports relating
to Ferrellgas Partners, L.P. and Ferrellgas, L.P. express an unqualified opinion and explanatory
paragraph relating to a change in accounting principle), which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Ferrellgas, Inc. and Subsidiaries incorporated in
this prospectus by reference from Ferrellgas Partners, L.P.s, Ferrellgas Partners Finance Corp.s,
Ferrellgas, L.P.s and Ferrellgas Finance Corp.s Current Report on Form 8-K dated December 7,
2005, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm,
as stated in their report (which report expresses an unqualified opinion and explanatory paragraph
relating to a change in accounting principle), which is incorporated herein by reference, and has
been so incorporated in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents we have incorporated by reference include forward-looking
statements. These forward-looking statements are identified as any statement that does not relate
strictly to historical or current facts. They often use words such as anticipate, believe,
intend, plan, projection, forecast, strategy, position, continue, estimate,
expect, may, will, or the negative of those terms or other variations of them or comparable
terminology. These statements often discuss plans, strategies, events or developments that we
expect or anticipate will or may occur in the future and are based upon the beliefs and assumptions
of our management and on the information currently available to them. In particular, statements,
express or implied, concerning our future operating results or our ability to generate sales,
income or cash flow are forward-looking statements.
Forward-looking statements are not guarantees of performance. You should not put undue
reliance on any forward-looking statements. All forward-looking statements are subject to risks,
uncertainties and assumptions that could cause our actual results to differ materially from those
expressed in or implied by these forward-looking statements. Many of the factors that will affect
our future results are beyond our ability to control or predict.
Some of our forward-looking statements include the following:
|
|
|
whether the operating partnership will have sufficient funds to meet its
obligations, including its obligations under its debt securities, and to enable it to
distribute to Ferrellgas Partners sufficient funds to permit Ferrellgas Partners to
meet its obligations with respect to its existing debt and equity securities; |
|
|
|
|
whether we and the operating partnership will continue to meet all of the
quarterly financial tests required by the agreements governing our and its
indebtedness; and |
|
|
|
|
the expectation that propane and other liquid sales, cost of product sold,
gross profit, operating income and net earnings will increase. |
32
For a more detailed description of these particular forward-looking statements and for other
factors that may affect any forward-looking statements, see the section entitled Managements
Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our most
recently filed Annual Report on Form 10-K and in Item 2 of our most recently-filed Quarterly Report
on Form 10-Q, both as incorporated herein by reference. See Where You Can Find More Information.
When considering any forward-looking statement, you should also keep in mind the risk factors
described under the section entitled Risk Factors in this prospectus, and the section entitled
Item 1. BusinessRisk Factors of our most recently filed Annual Report on Form 10-K, or in the
applicable prospectus supplement. See Where You Can Find More Information. Any of these risks
could impair our business, financial condition or results of operation. Any such impairment may
affect our ability to make distributions to our unitholders. In addition, the trading price of our
common units could decline as a result of any such impairment. Except for our ongoing obligations
to disclose material information as required by federal securities laws, we undertake no obligation
to update any forward-looking statements after we distribute this prospectus and any applicable
amendment to the registration statement of which this prospectus is a part, or any prospectus
supplement.
In addition, the classification of Ferrellgas Partners as a partnership for federal income tax
purposes means that Ferrellgas Partners does not generally pay federal income taxes. Ferrellgas
Partners does, however, pay taxes on the income of its subsidiaries that are corporations.
Ferrellgas Partners relies on a legal opinion from its counsel, and not a ruling from the Internal
Revenue Service, as to its proper classification for federal income tax purposes. See the section
entitled Risk Factors Tax Risks The IRS could treat us as a corporation for tax purposes,
which would substantially reduce the cash available for distribution to our unitholders in this
prospectus.
33