UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended January 31, 2009

or

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

For the transition period from                      to                     

Commission file numbers: 001-11331, 333-06693, 000-50182 and 000-50183

Ferrellgas Partners, L.P.

Ferrellgas Partners Finance Corp.

Ferrellgas, L.P.

Ferrellgas Finance Corp.

(Exact name of registrants as specified in their charters)

Delaware Delaware Delaware Delaware		43-1698480 43-1742520 43-1698481 14-1866671
(States or other jurisdictions of incorporation or organization)		(I.R.S. Employer Identification Nos.)

7500 College Boulevard, Suite 1000, Overland Park, KS 66210
(Address of principal executive offices) (Zip Code)

(913) 661-1500

(Registrants’ telephone number, including area code)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Ferrellgas Partners, L.P.		Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
						(Do not check if a smaller reporting company)

Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and
Ferrellgas Finance Corp.		Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
						(Do not check if a smaller reporting company)

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).

Ferrellgas Partners, L.P. and Ferrellgas, L.P.		Yes o		No þ
Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp.		Yes þ		No o

At February 27, 2009, the registrants had common units or shares of common stock outstanding as follows:

		Ferrellgas Partners, L.P.		68,178,103		Common Units
		Ferrellgas Partners Finance Corp.		1,000		Common Stock
		Ferrellgas, L.P.		n/a		n/a
		Ferrellgas Finance Corp.		1,000		Common Stock

EACH OF FERRELLGAS PARTNERS FINANCE CORP. AND FERRELLGAS FINANCE CORP. MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1) (A) AND (B) OF FORM 10-Q AND ARE THEREFORE, WITH RESPECT TO EACH SUCH REGISTRANT, FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.

 

 

FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.

For the quarterly period ended January 31, 2009
FORM 10-Q QUARTERLY REPORT

Table of Contents

		Page
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Ferrellgas Partners, L.P. and Subsidiaries
Condensed Consolidated Balance Sheets — January 31, 2009 and July 31, 2008			1
Condensed Consolidated Statements of Earnings — Three and six months ended January 31, 2009 and 2008			2
Condensed Consolidated Statement of Partners’ Capital — Six months ended January 31, 2009			3
Condensed Consolidated Statements of Cash Flows — Six months ended January 31, 2009 and 2008			4
Notes to Condensed Consolidated Financial Statements			5
Ferrellgas Partners Finance Corp.
Condensed Balance Sheets — January 31, 2009 and July 31, 2008			15
Condensed Statements of Earnings — Three and six months ended January 31, 2009 and 2008			15
Condensed Statements of Cash Flows — Six months ended January 31, 2009 and 2008			16
Note to Condensed Financial Statements			16
Ferrellgas, L.P. and Subsidiaries
Condensed Consolidated Balance Sheets — January 31, 2009 and July 31, 2008			17
Condensed Consolidated Statements of Earnings — Three and six months ended January 31, 2009 and 2008			18
Condensed Consolidated Statement of Partners’ Capital — Six months ended January 31, 2009			19
Condensed Consolidated Statements of Cash Flows — Six months ended January 31, 2009 and 2008			20
Notes to Condensed Consolidated Financial Statements			21
Ferrellgas Finance Corp.
Condensed Balance Sheets — January 31, 2009 and July 31, 2008			30
Condensed Statements of Earnings — Three and six months ended January 31, 2009 and 2008			30

		Page
Condensed Statements of Cash Flows — Six months ended January 31, 2009 and 2008			31
Note to Condensed Financial Statements			31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			47
ITEM 4. CONTROLS AND PROCEDURES			48
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			49
ITEM 1A. RISK FACTORS			49
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			50
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			50
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			50
ITEM 5. OTHER INFORMATION			50
ITEM 6. EXHIBITS			51
Exhibit 4.2
Exhibit 4.3
Exhibit 4.4
Exhibit 4.5
Exhibit 4.8
Exhibit 4.9
Exhibit 4.10
Exhibit 10.17
Exhibit 10.19
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 31.4
Exhibit 32.1
Exhibit 32.2
Exhibit 32.3
Exhibit 32.4

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS. (unaudited)

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

		January 31,				July 31,
		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	17,206			$	16,614
Accounts and notes receivable, net			164,329				145,081
Inventories			116,411				152,301
Price risk management assets			—				26,086
Prepaid expenses and other current assets			26,173				10,924
Total current assets			324,119				351,006
Property, plant and equipment, net			675,281				685,328
Goodwill			248,939				248,939
Intangible assets, net			219,196				225,273
Other assets, net			22,428				18,685
Total assets		$	1,489,963			$	1,529,231
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable		$	132,866			$	71,348
Short-term borrowings			27,444				125,729
Price risk management liabilities			90,157				7,337
Other current liabilities			101,482				100,517
Total current liabilities			351,949				304,931
Long-term debt			1,057,642				1,034,719
Other liabilities			23,358				23,237
Contingencies and commitments (Note I)			—				—
Minority interest			4,219				4,220
Partners’ capital:
Common unitholders (63,192,503 and 62,961,674 units outstanding at January 31, 2009 and July 31, 2008, respectively)			201,204				201,618
General partner (638,308 and 635,977 units outstanding at January 31, 2009 and July 31, 2008, respectively)			(58,040	)			(58,036	)
Accumulated other comprehensive income (loss)			(90,369	)			18,542
Total partners’ capital			52,795				162,124
Total liabilities and partners’ capital		$	1,489,963			$	1,529,231

See notes to condensed consolidated financial statements.

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
Revenues:
Propane and other gas liquids sales		$	647,536			$	684,456			$	1,084,424			$	1,043,391
Other			68,089				79,512				111,275				115,493
Total revenues			715,625				763,968				1,195,699				1,158,884
Costs and expenses:
Cost of product sold — propane and other gas liquids sales			428,527				504,524				746,272				757,043
Cost of product sold — other			43,625				48,422				60,439				59,382
Operating expense			105,710				91,020				201,927				181,479
Depreciation and amortization expense			20,219				21,075				41,535				42,440
General and administrative expense			11,761				11,115				20,847				22,908
Equipment lease expense			4,781				6,143				10,136				12,494
Employee stock ownership plan compensation charge			1,656				3,072				3,405				6,246
Loss on disposal of assets and other			4,019				3,680				6,601				6,067
Operating income			95,327				74,917				104,537				70,825
Interest expense			(23,393	)			(22,851	)			(47,063	)			(45,137	)
Other income (expense), net			(343	)			181				(1,161	)			998
Earnings before income taxes and minority interest			71,591				52,247				56,313				26,686
Income tax expense (benefit)			1,167				464				866				(2,024	)
Minority interest			772				585				682				412
Net earnings			69,652				51,198				54,765				28,298
Net earnings available to general partner unitholder			11,633				3,657				548				283
Net earnings available to common unitholders		$	58,019			$	47,541			$	54,217			$	28,015
Basic and diluted net earnings available per common unit		$	0.92			$	0.76			$	0.86			$	0.44

See notes to condensed consolidated financial statements.

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

																		Accumulated other
		Number of units																comprehensive income (loss)
						General								General								Currency								Total
		Common				partner				Common				partner				Risk				translation				Pension				partners’
		unitholders				unitholder				unitholders				unitholder				management				adjustments				liability				capital
July 31, 2008			62,961.7				636.0			$	201,618			$	(58,036	)		$	18,749			$	26			$	(233	)		$	162,124
Contributions in connection with ESOP and stock-based compensation charges			—				—				3,981				40				—				—				—				4,021
Common unit distribution			—				—				(63,077	)			(637	)			—				—				—				(63,714	)
Common units issued in connection with acquisition			230.8				2.3				4,465				45				—				—				—				4,510
Comprehensive income (loss):
Net earnings			—				—				54,217				548				—				—				—				54,765
Other comprehensive income (loss):
Net loss on risk management derivatives			—				—				—				—				(92,203	)			—				—
Reclassification of derivatives to earnings			—				—				—				—				(16,703	)			—				—
Foreign currency translation adjustment			—				—				—				—				—				(13	)			—
Tax effect on foreign currency translation adjustment			—				—				—				—				—				2				—
Pension liability adjustment			—				—				—				—				—				—				6				(108,911	)
Comprehensive loss																															(54,146	)
January 31, 2009			63,192.5				638.3			$	201,204			$	(58,040	)		$	(90,157	)		$	15			$	(227	)		$	52,795

See notes to condensed consolidated financial statements.

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

		For the six months
		ended January 31,
		2009				2008
Cash flows from operating activities:
Net earnings		$	54,765			$	28,298
Reconciliation of net earnings to net cash provided by operating activities:
Depreciation and amortization expense			41,535				42,440
Employee stock ownership plan compensation charge			3,405				6,246
Stock-based compensation charge			657				900
Loss on disposal of assets			3,030				2,015
Minority interest			682				412
Loss on transfer of accounts receivable related to the accounts receivable securitization			5,521				5,815
Deferred tax expense (benefit)			129				(2,381	)
Other			3,828				4,959
Changes in operating assets and liabilities, net of effects from business acquisitions:
Accounts and notes receivable, net of securitization			(109,742	)			(156,542	)
Inventories			35,890				(70,000	)
Prepaid expenses and other current assets			(14,240	)			(12,848	)
Accounts payable			61,598				72,253
Accrued interest expense			559				(2,857	)
Other current liabilities			1,030				(3,835	)
Other liabilities			(464	)			159
Accounts receivable securitization:
Proceeds from new accounts receivable securitizations			109,000				103,000
Proceeds from collections reinvested in revolving period accounts receivable securitizations			701,744				671,536
Remittances of amounts collected as servicer of accounts receivable securitizations			(725,744	)			(675,536	)
Net cash provided by operating activities			173,183				14,034
Cash flows from investing activities:
Business acquisitions, net of cash acquired			(298	)			(187	)
Capital expenditures			(27,545	)			(15,289	)
Proceeds from sale of assets			4,905				6,250
Other			(2,460	)			(203	)
Net cash used in investing activities			(25,398	)			(9,429	)
Cash flows from financing activities:
Distributions			(63,714	)			(63,594	)
Proceeds from increase in long-term debt			186,806				97,527
Reductions in long-term debt			(168,026	)			(91,721	)
Net additions to (reductions in) short-term borrowings			(98,285	)			70,273
Cash paid for financing costs			(3,191	)			—
Minority interest activity			(770	)			(769	)
Proceeds from exercise of common unit options			—				19
Net cash provided by (used in) financing activities			(147,180	)			11,735
Effect of exchange rate changes on cash			(13	)			(7	)
Increase in cash and cash equivalents			592				16,333
Cash and cash equivalents — beginning of period			16,614				20,685
Cash and cash equivalents — end of period		$	17,206			$	37,018

See notes to condensed consolidated financial statements.

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.

Partnership organization and formation

Ferrellgas Partners, L.P. (“Ferrellgas Partners”) is a publicly traded limited partnership, owning an approximate 99% limited partner interest in Ferrellgas, L.P. (the “operating partnership”). Ferrellgas Partners and the operating partnership are collectively referred to as “Ferrellgas.” Ferrellgas, Inc. (the “general partner”), a wholly-owned subsidiary of Ferrell Companies, Inc. (“Ferrell Companies”), has retained a 1% general partner interest in Ferrellgas Partners and also holds an approximate 1% general partner interest in the operating partnership, representing an effective 2% general partner interest in Ferrellgas on a combined basis. As general partner, it performs all management functions required by Ferrellgas. At January 31, 2009 Ferrell Companies beneficially owned 20.3 million of Ferrellgas Partners’ outstanding common units.

The condensed consolidated financial statements of Ferrellgas reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal, recurring nature. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes, each as set forth in Ferrellgas’ Annual Report on Form 10-K for fiscal 2008.

B.

Summary of significant accounting policies

(1) Nature of operations:

Ferrellgas Partners is a holding entity that conducts no operations and has two subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners owns a 100% equity interest in Ferrellgas Partners Finance Corp., whose only business activity is to act as the co-issuer and co-obligor of any debt issued by Ferrellgas Partners. The operating partnership is the only operating subsidiary of Ferrellgas Partners.

The operating partnership is engaged primarily in the distribution of propane and related equipment and supplies in the United States. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Therefore, the results of operations for the six months ended January 31, 2009 and 2008 are not necessarily indicative of the results to be expected for a full fiscal year. The operating partnership serves approximately one million residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all 50 states, the District of Columbia and Puerto Rico.

(2) Accounting estimates:

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

(3) Supplemental cash flow information:

		For the six months
		ended January 31,
		2009				2008
CASH PAID FOR:
Interest		$	42,774			$	46,978
Income taxes			332				1,279
NON-CASH INVESTING ACTIVITIES:
Issuance of common units in connection with acquisitions		$	4,515			$	—
Issuance of liabilities in connection with acquisitions			1,002				—
Property, plant and equipment additions			1,866				2,132

(4) Accounts receivable securitization:

Ferrellgas has agreements to transfer, on an ongoing basis, certain of its trade accounts receivable through an accounts receivable securitization facility and retains servicing responsibilities as well as a retained interest related to a portion of the transferred receivables. Ferrellgas has no other continuing involvement with the transferred receivables, other than providing the servicing functions. The related receivables are removed from the condensed consolidated balance sheets and a retained interest is recorded for the amount of receivables sold in excess of cash received. The retained interest is included in “Accounts and notes receivable” in the condensed consolidated balance sheets.

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

(5) New accounting standards:

Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The adoption of this statement effective August 1, 2008 did not have a significant impact to Ferrellgas. See additional discussion about commodity derivative and financial derivative transactions in Note G — Derivatives.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” provides entities the irrevocable option to elect to carry most financial assets and liabilities at fair value with changes in fair value recorded in earnings. The adoption of this statement was effective August 1, 2008; however, Ferrellgas did not elect the fair value option for any of its financial assets or liabilities.

SFAS No. 141(R) “Business Combinations” (a replacement of SFAS No. 141, “Business Combinations”) establishes principles and requirements for how the acquirer in a business combination recognizes and measures the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, how the acquirer recognizes and measures goodwill or a gain from a bargain purchase (formerly negative goodwill) and how the acquirer determines what information to disclose. This statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Ferrellgas is currently evaluating the potential impact of this statement.

SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements” establishes accounting and reporting standards for the noncontrolling interest (formerly minority interest) in a subsidiary and for the deconsolidation of a subsidiary and it clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Ferrellgas is currently evaluating the potential impact of this statement.

SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities, an Amendment to FASB Statement No. 133” enhances disclosure requirements for derivative instruments and hedging activities. This statement is effective for fiscal years and interim periods beginning on or after November 15, 2008. Ferrellgas is currently evaluating the potential impact of this statement.

FASB Staff Position (“FSP”) SFAS 140-4 and FASB Interpretation No. 46R-8 “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” improves the transparency of transfers of financial assets and an enterprise’s involvement with variable interest entities, including qualifying special-purpose entities. This FSP is effective for interim and annual reporting periods ending after December 15, 2008. The adoption of this FSP effective November 1, 2008 did not have a significant impact to Ferrellgas.

EITF No. 07-4, “Application of the Two-Class Method under FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships” addresses the computation of incentive distribution rights and the appropriate allocation of these rights to current period earnings in the computation of earnings per share. This statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and interim periods within those fiscal years. Ferrellgas is currently evaluating the potential impact of this statement.

Financial instruments formally designated and documented as a hedge of a specific underlying exposure are recorded at fair value as either “Price risk management assets” or “Price risk management liabilities” on the condensed consolidated balance sheets with changes in fair value reported in other comprehensive income. See additional discussion about price risk assets and liabilities in Note G — Derivatives.

(7) Income taxes:

Income tax expense (benefit) consisted of the following:

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
Current expense		$	1,006			$	670			$	737			$	357
Deferred expense (benefit)			161				(206	)			129				(2,381	)
Income tax expense (benefit)		$	1,167			$	464			$	866			$	(2,024	)

Deferred taxes consisted of the following:

		January 31,				July 31,
		2009				2008
Deferred tax assets		$	4,562			$	4,065
Deferred tax liabilities			(5,314	)			(4,689	)
Net deferred tax liability		$	(752	)		$	(624	)

During the first quarter of fiscal 2008 the Governor of the State of Michigan signed into law a one time credit for a previously passed Michigan Business Tax law. The passing of this new tax law caused Ferrellgas to recognize a one time deferred tax benefit of $2.8 million during the first quarter of fiscal 2008.

C.

Supplemental financial statement information

Inventories consist of the following:

		January 31,				July 31,
		2009				2008
Propane gas and related products		$	97,322			$	128,776
Appliances, parts and supplies			19,089				23,525
Inventories		$	116,411			$	152,301

In addition to inventories on hand, Ferrellgas enters into contracts primarily to buy propane for supply procurement purposes. Most of these contracts have terms of less than one year and call for payment based on market prices at the date of delivery. All supply procurement fixed price contracts have terms of fewer than 24 months. As of January 31, 2009, Ferrellgas had committed, for supply procurement purposes, to take net delivery of approximately 11.2 million gallons of propane at fixed prices.

Other current liabilities consist of the following:

		January 31,				July 31,
		2009				2008
Accrued interest		$	20,434			$	19,875
Accrued payroll			21,926				12,621
Accrued insurance			8,630				10,987
Customer deposits and advances			19,538				25,065
Other			30,954				31,969
Other current liabilities		$	101,482			$	100,517

Loss on disposal of assets and other consist of the following:

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
Loss on disposal of assets		$	1,757			$	912			$	3,030			$	2,015
Loss on transfer of accounts receivable related to the accounts receivable securitization			3,468				3,947				5,521				5,815
Service income related to the accounts receivable securitization			(1,206	)			(1,179	)			(1,950	)			(1,763	)
		$	4,019			$	3,680			$	6,601			$	6,067

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

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
Operating expense		$	48,460			$	46,571			$	91,612			$	83,021
Depreciation and amortization expense			1,200				1,236				2,433				2,532
Equipment lease expense			4,371				5,686				9,322				11,531
		$	54,031			$	53,493			$	103,367			$	97,084

D.

Accounts receivable securitization

The operating partnership participates in an accounts receivable securitization facility. As part of this renewable 364-day facility, the operating partnership transfers an interest in a pool of its trade accounts receivable to Ferrellgas Receivables, LLC (“Ferrellgas Receivables”) a wholly-owned unconsolidated, special purpose entity, which sells its interest to a commercial paper conduit. The operating partnership does not provide any guarantee or similar support to the collectability of these receivables. The operating partnership structured the facility using a wholly-owned unconsolidated, qualifying special purpose entity in order to facilitate the transaction while complying with Ferrellgas’ various debt covenants. If the covenants are compromised, funding from the facility could be restricted or suspended, or its costs could increase. As a servicer, the operating partnership remits daily to this special purpose entity funds collected on the pool of trade receivables held by Ferrellgas Receivables. Ferrellgas renewed the facility with JPMorgan Chase Bank, N.A. and Fifth Third Bank for an additional 364-day commitment during May 2008.

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

		January 31,				July 31,
		2009				2008
Retained interest		$	49,975			$	22,753
Accounts receivable transferred			210,667				97,333

The retained interest is classified as accounts and notes receivable on the condensed consolidated balance sheets. The accounts receivable transferred are recorded on the balance sheet of Ferrellgas Receivables. Ferrellgas Receivables activities only relate to these transfers of accounts receivables from Ferrellgas which have an aging of 60 days or less. The operating partnership had the ability to transfer, at its option, an additional $2.7 million of its trade accounts receivable at January 31, 2009.

Other accounts receivable securitization disclosures consist of the following items:

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
Net non-cash activity		$	2,262			$	2,768			$	3,571			$	4,052
Bad debt expense			50				—				300				—

The net non-cash activity reported in the condensed consolidated statements of earnings approximates the financing cost of issuing commercial paper backed by these accounts receivable plus an allowance for doubtful accounts associated with the outstanding receivables transferred to Ferrellgas Receivables. See details of the net non-cash activity disclosed in Note C — Supplemental financial statement information — “Loss on transfer of accounts receivable related to the accounts receivable securitization” and “Service income related to the accounts receivable securitization.” The weighted average discount rate used to value the retained interest in the transferred receivables was 3.5% and 4.7% as of January 31, 2009 and July 31, 2008, respectively.

E.

Long-term debt

Long-term debt consists of the following:

		January 31,				July 31,
		2009				2008
Senior notes
Fixed rate, Series D-E, ranging from 7.24% to 7.42% due 2010-2013		$	152,000			$	204,000
Fixed rate, 8.75%, due 2012, net of unamortized premium of $1,281 and $1,471 at January 31, 2009 and July 31, 2008, respectively			269,281				269,471
Fixed rate, Series C, 8.87%, due 2009			73,000				73,000
Fixed rate, 6.75% due 2014, net of unamortized discount of $27,938 and $518 at January 31, 2009 and July 31, 2008, respectively			422,062				249,482
Credit facilities, variable interest rates, expiring 2009 and 2010 (net of $27.4 million and $125.7 million classified as short-term borrowings at January 31, 2009 and July 31, 2008, respectively)			137,556				235,270
Notes payable, 8.0% weighted average interest rate in 2009 due 2009 to 2016, net of unamortized discount of $1,168 and $1,160 at January 31, 2009 and July 31, 2008, respectively			5,557				5,864
Capital lease obligations			22				29
			1,059,478				1,037,116
Less: current portion, included in other current liabilities on the condensed consolidated balance sheets			1,836				2,397
Long-term debt		$	1,057,642			$	1,034,719

On August 1, 2008, Ferrellgas made scheduled principal payments of $52.0 million on the 7.12% Series C senior notes using proceeds from borrowings on the unsecured credit facility due 2010.

On August 4, 2008, the operating partnership issued $200.0 million in aggregate principal amount of its 6.75% senior notes due 2014 at an offering price equal to 85% of par. The proceeds from this offering were used to reduce outstanding indebtedness under our unsecured credit facility due 2010.

Unsecured credit facilities

On October 15, 2008, the operating partnership executed a second amendment to its Fifth Amended and Restated Credit Agreement due 2010 which increased the letter of credit sublimit from $90.0 million to $200.0 million through February 28, 2009 and to $150.0 million thereafter. The letter of credit sublimit is part of, and not in addition to, the aggregate credit facility commitment. The amendment also requires the operating partnership to cash collateralize any outstanding letter of credit obligations in an amount equal to the pro rata share of any defaulting lender.

As of January 31, 2009, Ferrellgas had total borrowings outstanding under its two unsecured credit facilities of $165.0 million. Ferrellgas classified $27.4 million of this amount as short-term borrowings since it was used to fund working capital needs that management intends to pay down within the next 12 months. These borrowings have a weighted average interest rate of 3.1%. As of July 31, 2008, Ferrellgas had total borrowings outstanding under its two unsecured credit facilities of $361.0 million.

Ferrellgas classified $125.7 million of this amount as short-term borrowings since it was used to fund working capital needs that management had intended to pay down within the following 12 months. These borrowings had a weighted average interest rate of 4.72%.

Letters of credit outstanding at January 31, 2009 totaled $148.4 million and were used primarily to secure margin calls under certain risk management activities, and to a lesser extent, product purchases and insurance arrangements. Letters of credit outstanding at July 31, 2008 totaled $42.3 million and were used primarily for insurance arrangements. At January 31, 2009, Ferrellgas had available letter of credit capacity of $51.6 million.

F.

Partners’ capital

Partnership distributions paid

Ferrellgas Partners has paid the following distributions:

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
Public common unit holders		$	19,266			$	19,169			$	38,416			$	38,339
Ferrell Companies (1)			10,040				10,040				20,081				20,081
FCI Trading Corp. (2)			98				98				196				196
Ferrell Propane, Inc. (3)			26				26				51				51
James E. Ferrell (4)			2,167				2,146				4,333				4,292
General partner			319				318				637				635
		$	31,916			$	31,797			$	63,714			$	63,594

(1)		Ferrell Companies is the owner of the general partner and a 32% owner of Ferrellgas’ common units and thus a related party.
(2)		FCI Trading Corp. (“FCI Trading”) is an affiliate of the general partner and thus a related party.
(3)		Ferrell Propane, Inc. (“Ferrell Propane”) is controlled by the general partner and thus a related party.
(4)		James E. Ferrell is the Chairman and Chief Executive Officer of the general partner and thus a related party.

On February 24, 2009, Ferrellgas Partners declared a cash distribution of $0.50 per common unit for the three months ended January 31, 2009, which is expected to be paid on March 17, 2009.

Included in this cash distribution are the following amounts expected to be paid to related parties:

Ferrell Companies		$	10,040
FCI Trading Corp.			98
Ferrell Propane, Inc.			26
James E. Ferrell			2,167
General partner			344

See additional discussions about transactions with related parties in Note H — Transactions with related parties.

Other comprehensive income (“OCI”)

See Note G — Derivatives — for details regarding changes in fair value on risk management financial derivatives recorded within OCI for the six months ended January 31, 2009.

G.

Derivatives

Ferrellgas is exposed to price risk related to the purchase, storage, transport and sale of propane generally in the contract and spot markets from major domestic energy companies on a short-term basis. Ferrellgas’ costs fluctuate with the movement of market prices. This fluctuation subjects Ferrellgas to potential price risk, which Ferrellgas may attempt to minimize through the use of financial derivative instruments. Ferrellgas monitors its price exposure and utilizes financial derivative instruments to mitigate the risk of future price fluctuations.

Ferrellgas may use a combination of financial derivative instruments including, but not limited to, price swaps, options, futures and basis swaps to manage our exposure to market fluctuations in propane prices. Ferrellgas enters into these financial derivative instruments directly with third parties in the over-the-counter market and with brokers who are clearing members with the New York Mercantile Exchange.

Ferrellgas enters into forecasted propane sales transactions with a portion of its customers and also enters into forecasted propane purchase contracts with suppliers. Both of these transaction types qualify for the normal purchase normal sales exception within SFAS 133 and are therefore not recorded on Ferrellgas’ financial statements. Ferrellgas also uses financial derivative instruments to hedge a portion of these transactions. These financial derivative instruments are designated as cash flow hedges, thus the effective portions of changes in the fair value of the financial derivatives are recorded in OCI prior to settlement and are subsequently recognized in the condensed consolidated statements of earnings when the forecasted propane sales transaction impacts earnings. The fair value of financial derivative instruments is classified on the condensed consolidated balance sheets as either “Price risk management assets” or “Price risk management liabilities.”

As of January 31, 2009 and 2008, Ferrellgas had the following cash flow hedge activity included in OCI in the condensed consolidated statements of partners’ capital:

		For the six months
		ended January 31,
		2009				2008
Fair value gain (loss) adjustment classified as OCI		$	(92,203	)		$	1,856
Reclassification of net gains to statement of earnings			16,703				5,055

The fair value loss reported above relates to the recent significant decrease in wholesale propane prices. Assuming a minimal change in future market prices, Ferrellgas expects to reclassify net losses of approximately $90.2 million to earnings during the next 12 months. These net losses are expected to be offset by higher margins on sales under propane sales commitments Ferrellgas has with its customers that qualify for the normal purchase normal sales exception under SFAS 133.

Changes in the fair value of cash flow hedges due to hedge ineffectiveness, if any, are recognized in “Cost of product sold — propane and other gas liquids sales.” During the six months ended January 31, 2009 and 2008, Ferrellgas did not recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of the financial derivative contract gain or loss from the assessment of hedge effectiveness related to these cash flow hedges. Additionally, Ferrellgas had no reclassifications to earnings resulting from discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship.

In accordance with SFAS 157, Ferrellgas determines the fair value of its assets and liabilities subject to fair value measurement by using the highest possible “Level” as defined within SFAS 157. The three levels defined by the SFAS 157 hierarchy are as follows:

	•		Level 1 — Quoted prices available in active markets for identical assets or liabilities.
	•		Level 2 — Pricing inputs not quoted in active markets but either directly or indirectly observable.
	•		Level 3 — Significant inputs to pricing that have little or no transparency with inputs requiring significant management judgment or estimation.

Ferrellgas considers over-the-counter derivative instruments entered into directly with third parties as Level 2 valuation since the values of these derivatives are quoted by third party brokers and are on an exchange for similar transactions. The market prices used to value our derivatives have been determined using independent third party prices, readily available market information, broker quotes, and appropriate valuation techniques. Ferrellgas had the following recurring fair values based on inputs used to derive its fair values in accordance with SFAS 157:

		January 31,				July 31,
		2009				2008
Derivatives — Price risk management assets		$	—			$	26,086
Derivatives — Price risk management liabilities			90,157				7,337

At January 31, 2009 and July 31, 2008 all derivative assets and liabilities qualified for classification as Level 2 — other observable inputs as defined within SFAS 157. All financial derivatives assets and liabilities were non-trading positions.

H.

Transactions with related parties

Reimbursable costs

Ferrellgas has no employees and is managed and controlled by its general partner. Pursuant to Ferrellgas’ partnership agreements, the general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas and all other necessary or appropriate expenses allocable to Ferrellgas or otherwise reasonably incurred by its general partner in connection with operating Ferrellgas’ business. These costs primarily include compensation and benefits paid to employees of the general partner who perform services on Ferrellgas’ behalf and are reported in the condensed consolidated statements of earnings as follows:

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
Operating expense		$	59,934			$	46,494			$	108,807			$	91,923
General and administrative expense			6,077				6,436				11,743				13,432

During the three and six months ended January 31, 2009, Ferrellgas received payments totaling $75 thousand and $120 thousand, respectively, for services provided to and sublease revenue receipts from Samson Dental Practice Management, LLC, a company wholly-owned by James E. Ferrell. No payments were received from Samson Dental Practice Management, LLC during the three and six months ended January 31, 2008.

See additional discussions about transactions with related parties in Note F — Partners’ capital.

I.

Contingencies

Ferrellgas’ operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane. As a result, at any given time, Ferrellgas is threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. Currently, Ferrellgas is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that are reasonably expected to have a material adverse effect on the condensed consolidated financial condition, results of operations and cash flows of Ferrellgas.

J.

Earnings per common unit

Below is a calculation of the basic and diluted net earnings available per common unit in the condensed consolidated statements of earnings for the periods indicated. In accordance with EITF 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share” (“EITF 03-6”), Ferrellgas calculates net earnings per limited partner unit for each period presented according to distributions declared and participation rights in undistributed earnings, as if all of the earnings for the period had been distributed. In periods with undistributed earnings above certain levels, the calculation according to the two-class method results in an increased allocation of undistributed earnings to the general partner and a dilution of the earnings to the limited partners. Due to the seasonality of the propane business, the dilution effect of EITF 03-6 typically impacts only the three months ending January 31. The dilutive effect of EITF 03-6 on basic and diluted net earnings available per common unit was $0.18 and $0.05 for the three months ended January 31, 2009 and 2008, respectively. EITF 03-6 did not result in a dilutive effect for the six months ended January 31, 2009 and 2008.

In periods with year-to-date net losses, the allocation of the net losses to the limited partners and the general partner will be determined based on the same allocation basis specified in the Ferrellgas Partners’ partnership agreement that would apply to periods in which there were no undistributed earnings. Ferrellgas typically incurs net losses in the three month period ended October 31.

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
Net earnings available to common unitholders		$	58,019			$	47,541			$	54,217			$	28,015
Weighted average common units outstanding (in thousands)			63,192.5				62,958.7				63,122.3				62,958.7
Dilutive securities			58.0				12.6				58.0				13.3
Weighted average common units outstanding plus dilutive securities			63,250.5				62,971.3				63,180.3				62,972.0
Basic and diluted net earnings available per common unit		$	0.92			$	0.76			$	0.86			$	0.44

K.

Subsequent event

In February 2009, Ferrellgas completed a registered public offering of 5.0 million common units representing limited partner interests. This transaction was comprised of both an original offering of 4.5 million common units and an overallotment offering of 0.5 million common units. The net proceeds received from this offering of $69.8 million were used to reduce long term borrowings under Ferrellgas’ unsecured credit facility. Ferrellgas intends to use the resulting additional credit facility capacity to make principal payments on debt on or prior to their maturity on August 1, 2009.

FERRELLGAS PARTNERS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas Partners, L.P.)

CONDENSED BALANCE SHEETS

		January 31,				July 31,
		2009				2008
ASSETS
Cash		$	1,000			$	1,000
Total assets		$	1,000			$	1,000
STOCKHOLDER’S EQUITY
Common stock, $1.00 par value; 2,000 shares authorized; 1,000 shares issued and outstanding		$	1,000			$	1,000
Additional paid in capital			5,194				5,149
Accumulated deficit			(5,194	)			(5,149	)
Total stockholder’s equity		$	1,000			$	1,000

CONDENSED STATEMENTS OF EARNINGS

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
General and administrative expense		$	—			$	60			$	45			$	105
Net loss		$	—			$	(60	)		$	(45	)		$	(105	)

See note to condensed financial statements.

FERRELLGAS PARTNERS FINANCE CORP.
(A wholly-owned subsidiary of Ferrellgas Partners, L.P.)

		For the six months
		ended January 31,
		2009				2008
Cash flows from operating activities:
Net loss		$	(45	)		$	(105	)
Cash used in operating activities			(45	)			(105	)
Cash flows from financing activities:
Capital contribution			45				105
Cash provided by financing activities			45				105
Change in cash			—				—
Cash — beginning of period			1,000				1,000
Cash — end of period		$	1,000			$	1,000

See note to condensed financial statements.

NOTE TO CONDENSED FINANCIAL STATEMENTS

A.		Formation
		Ferrellgas Partners Finance Corp. (the “Finance Corp.”), a Delaware corporation, was formed on March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners, L.P (the “Partnership”).
		The condensed financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the interim periods presented. All adjustments to the condensed financial statements were of a normal, recurring nature.

The Finance Corp. has nominal assets, does not conduct any operations, has no employees and serves as co-issuer and co-obligor for debt securities of the Partnership.

FERRELLGAS, L.P. AND SUBSIDIARIES

		January 31,				July 31,
		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	17,158			$	16,545
Accounts and notes receivable, net			164,329				145,081
Inventories			116,411				152,301
Price risk management assets			—				26,086
Prepaid expenses and other current assets			25,500				10,251
Total current assets			323,398				350,264
Property, plant and equipment, net			675,281				685,328
Goodwill			248,939				248,939
Intangible assets, net			219,196				225,273
Other assets, net			20,778				16,817
Total assets		$	1,487,592			$	1,526,621
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable		$	132,866			$	71,348
Short-term borrowings			27,444				125,729
Price risk management liabilities			90,157				7,337
Other current liabilities			98,151				97,453
Total current liabilities			348,618				301,867
Long-term debt			788,361				765,248
Other liabilities			23,358				23,237
Contingencies and commitments (Note I)			—				—
Partners’ capital
Limited partner			413,405				413,507
General partner			4,219				4,220
Accumulated other comprehensive income (loss)			(90,369	)			18,542
Total partners’ capital			327,255				436,269
Total liabilities and partners’ capital		$	1,487,592			$	1,526,621

See notes to condensed consolidated financial statements.

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

		For the three months								For the six months
		ended January 31,								ended January 31,
		2009				2008				2009				2008
Revenues:
Propane and other gas liquids sales		$	647,536			$	684,456			$	1,084,424			$	1,043,391
Other			68,089				79,512				111,275				115,493
Total revenues			715,625				763,968				1,195,699				1,158,884
Costs and expenses:
Cost of product sold — propane and other gas liquids sales			428,527				504,524				746,272				757,043
Cost of product sold — other			43,625				48,422				60,439				59,382
Operating expense			105,647				90,958				201,790				181,354
Depreciation and amortization expense			20,219				21,075				41,535				42,440
General and administrative expense			11,761				11,115				20,847				22,908
Equipment lease expense			4,781				6,143				10,136				12,494
Employee stock ownership plan compensation charge			1,656				3,072				3,405				6,246
Loss on disposal of assets and other			4,019				3,680				6,601				6,067
Operating income			95,390				74,979				104,674				70,950
Interest expense			(17,467	)			(16,917	)			(35,211	)			(33,277	)
Other income (expense), net			(343	)			181				(1,161	)			998
Earnings before income taxes			77,580				58,243				68,302				38,671
Income tax expense (benefit)			1,149				389				819				(2,099	)
Net earnings		$	76,431			$	57,854			$	67,483			$	40,770