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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**Form 10-K**

 

**(Mark One)**

 

| **x**                                             | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|---------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                              |                                                                                                    |
| **For the  fiscal year ended July 31, 2010** |
| ** **                                        |
| **or**                                            |
| ** **                                        | ** **                                                                                              |
| **o**                                             | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from         to         **

** **

**Commissionfile numbers: 001-11331, 333-06693, 000-50182 and 000-50183**

 

**FerrellgasPartners, L.P.**

**FerrellgasPartners Finance Corp.**

**Ferrellgas,L.P.**

**FerrellgasFinance Corp.**

(Exact name ofregistrants as specified in their charters)

 

| **Delaware  Delaware  Delaware  Delaware**(States or other  jurisdictions of incorporation or organization) | ** ** | **43-1698480  43-1742520  43-1698481  14-1866671**(I.R.S. Employer  Identification Nos.) |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| ** **                                                                                                            | ** ** | ** **                                                                                    |
| **7500  College Boulevard,  Suite 1000, Overland Park, Kansas**(Address of  principal executive office)          | ** ** | **66210**(Zip Code)                                                                           |

 

Registrants’ telephonenumber, including area code:**(913) 661-1500**

 

Securities registeredpursuant to Section 12(b) of the Act:

 

| **Title of each class**     | ** ** | **Name of each exchange on which registered** |
|--------------------------------------------|------------|-----------------------------------------------------------------------------|
| Common Units of  Ferrellgas Partners, L.P. |       | New York Stock Exchange                                                     |

 

Securities registered pursuant tosection 12(g) of the Act:

 

**LimitedPartner Interests of Ferrellgas, L.P.Common Stock of Ferrellgas Partners Finance Corp.Common Stock of Ferrellgas Finance Corp.**(Title of class)

 

Indicate by check mark ifthe registrants are well-known seasoned issuers, as defined in Rule 405 ofthe Securities Act.

 

Ferrellgas Partners, L.P.:Yes x No o

 

Ferrellgas PartnersFinance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp.: Yes o No x

 

Indicate by check mark ifthe registrants are not required to file reports pursuant to Section 13 orSection 15(d) of the Act. Yes o No x

 

Indicate by check markwhether the registrants (1) have filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrants wererequired to file such reports), and (2) have been subject to such filingrequirements for the past 90 days. Yes xNo o

 

Indicate by check markwhether the registrants have submitted electronically and posted on theircorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405of this chapter) during the preceding 12 months (or for such shorterperiod that the registrants were required to submit and post such files).Yes o No x*

 

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*          The registrants have not yet beenphased into the interactive data requirements.

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, andwill not be contained, to the best of registrants’ knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check markwhether the registrants are large accelerated filers, accelerated filers,non-accelerated filers, or smaller reporting companies. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):

 

| Ferrellgas Partners, L.P.: |   |                |   |                                                                   |   |                         |
|----------------------------|--------|---------------------|--------|------------------------------------------------------------------------|--------|------------------------------|
| Large accelerated filer x  |   | Accelerated filer o |   | Non-accelerated filer o  (do not check if a smaller reporting company) |   | Smaller reporting  company o |

 

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

 

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

 

Ferrellgas Partners, L.P.and Ferrellgas, L.P. Yes o No x

 

Ferrellgas PartnersFinance Corp. and Ferrellgas Finance Corp. Yes xNo o

 

The aggregate market valueas of January 29, 2010, of Ferrellgas Partners, L.P.’s common units heldby nonaffiliates of Ferrellgas Partners, L.P., based on the reported closingprice of such units on the New York Stock Exchange on such date, wasapproximately $973,729,600. There is no aggregate market value of the commonequity of Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and FerrellgasFinance Corp. as their common equity is not sold or traded.

 

At August 31, 2010,the registrants had common units or shares of common stock outstanding asfollows:

 
| Ferrellgas Partners, L.P.         |   | 69,548,318 |   | Common Units |
|-----------------------------------|--------|------------|--------|-------------------|
| Ferrellgas Partners Finance Corp. |   | 1,000      |   | Common Stock |
| Ferrellgas, L.P.                  |   | n/a        |   | n/a               |
| Ferrellgas Finance Corp.          |   | 1,000      |   | Common Stock |

 

**DocumentsIncorporated by Reference**: None

 

EACH OF FERRELLGASPARTNERS FINANCE CORP. AND FERRELLGAS FINANCE CORP. MEET THE CONDITIONS SETFORTH IN GENERAL INSTRUCTION I(1)(A) AND (B) OF FORM 10-KAND ARE THEREFORE, WITH RESPECT TO EACH SUCH REGISTRANT, FILING THISFORM 10-K WITH THE REDUCED DISCLOSURE FORMAT.

 

 

 

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**FERRELLGAS PARTNERS, L.P.**

**FERRELLGAS PARTNERS FINANCE CORP.**

**FERRELLGAS, L.P.**

**FERRELLGAS FINANCE CORP.**

 

**2010 FORM 10-K ANNUAL REPORT**

** **

**Table of Contents**

 
| ** **        | ** ** | ** ** | ** ** | ** **                                                                                                                         | ** ** | **Page** |
|-------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
|              |       |       |       | ** **                                                                                                                         |       |     |
| **PART I**   |
|              |       |       |       | ** **                                                                                                                         |       |     |
| ITEM              |       | 1.         |       | BUSINESS                                                                                                                           |       | 1        |
| ITEM              |       | 1A.        |       | RISK FACTORS                                                                                                                       |       | 10       |
| ITEM              |       | 1B.        |       | UNRESOLVED  STAFF COMMENTS                                                                                                         |       | 31       |
| ITEM              |       | 2.         |       | PROPERTIES                                                                                                                         |       | 32       |
| ITEM              |       | 3.         |       | LEGAL PROCEEDINGS                                                                                                                  |       | 33       |
| ITEM              |       | 4.         |       | (REMOVED AND  RESERVED)                                                                                                            |       | 33       |
|              |       |       |       |                                                                                                                               |       |     |
| **PART II**  |
|              |       |       |       | ** **                                                                                                                         |       |     |
| ITEM              |       | 5.         |       | MARKET FOR  REGISTRANTS’ COMMON EQUITY, RELATED UNITHOLDER AND STOCKHOLDER MATTERS AND  ISSUER PURCHASES OF EQUITY SECURITIES |       | 33       |
| ITEM              |       | 6.         |       | SELECTED  FINANCIAL DATA                                                                                                           |       | 36       |
| ITEM              |       | 7.         |       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                        |       | 38       |
| ITEM              |       | 7A.        |       | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                        |       | 60       |
| ITEM              |       | 8.         |       | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                                       |       | 61       |
| ITEM              |       | 9.         |       | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                              |       | 61       |
| ITEM              |       | 9A.        |       | CONTROLS AND PROCEDURES                                                                                                            |       | 61       |
| ITEM              |       | 9B.        |       | OTHER INFORMATION                                                                                                                  |       | 67       |
|              |       |       |       |                                                                                                                               |       |     |
| **PART III** |
|              |       |       |       | ** **                                                                                                                         |       |     |
| ITEM              |       | 10.        |       | DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                                            |       | 67       |
| ITEM              |       | 11.        |       | EXECUTIVE  COMPENSATION                                                                                                            |       | 73       |
| ITEM              |       | 12.        |       | SECURITY OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS                                     |       | 88       |
| ITEM              |       | 13.        |       | CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                                         |       | 92       |
| ITEM              |       | 14.        |       | PRINCIPAL  ACCOUNTING FEES AND SERVICES                                                                                            |       | 93       |
|              |       |       |       |                                                                                                                               |       |     |
| **PART IV**  |
|              |       |       |       | ** **                                                                                                                         |       |     |
| ITEM              |       | 15.        |       | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES                                                                                           |       | 94       |

 

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**PART I**

 

**ITEM 1.          BUSINESS.**

 

Ferrellgas Partners, L.P. is a Delaware limited partnership. Our commonunits are listed on the New York Stock Exchange and our activities areprimarily conducted through our operating partnership, Ferrellgas, L.P., aDelaware limited partnership. We are the sole limited partner of Ferrellgas,L.P. with an approximate 99% limited partner interest.

 

In this Annual Report on Form 10-K, unless the context indicatesotherwise:

 

·                  “us,” “we,” “our,” “ours,”or “consolidated” are references exclusively to Ferrellgas Partners, L.P.together with its consolidated subsidiaries, including Ferrellgas PartnersFinance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp., except when usedin connection with “common units,” in which case these terms refer toFerrellgas Partners, L.P. without its consolidated subsidiaries;

 

·                  “Ferrellgas Partners” refersto Ferrellgas Partners, L.P. itself, without its consolidated subsidiaries;

 

·                  the “operating partnership”refers to Ferrellgas, L.P., together with its consolidated subsidiaries,including Ferrellgas Finance Corp.;

 

·                  our “general partner” refersto Ferrellgas, Inc.;

 

·                  “Ferrell Companies” refersto Ferrell Companies, Inc., the sole shareholder of our general partner;

 

·                  “unitholders” refers toholders of common units of Ferrellgas Partners;

 

·                  “customers” refers tocustomers other than our wholesale customers or our other bulk propanedistributors or marketers;

 

·                  “retail sales” refers toPropane and other gas liquid sales: Retail — Sales to End Users or the volumeof propane sold primarily to our residential, industrial/commercial andagricultural customers;

 

·                  “wholesale sales” refers toPropane and other gas liquid sales: Wholesale — Sales to Resellers or thevolume of propane sold primarily to our portable tank exchange customers andbulk propane sold to wholesale customers;

 

·                  “other gas sales” refers toPropane and other gas liquid sales: Other Gas Sales or the volume of bulkpropane sold to other third party propane distributors or marketers and thevolume of refined fuel sold;

 

·                  “propane sales volume”refers to the volume of propane sold to our retail sales and wholesale salescustomers; and

 

·                  “Notes” refers to the notesof the consolidated financial statements of Ferrellgas Partners or theoperating partnership, as applicable.

 

Ferrellgas Partners is a holding entity that conducts no operations andhas two direct subsidiaries, Ferrellgas Partners Finance Corp. and theoperating partnership. Ferrellgas Partners’ only significant assets are itsapproximate 99% limited partnership interest in the operating partnership andits 100% equity interest in Ferrellgas Partners Finance Corp.

 

The operating partnership was formed on April 22, 1994, andaccounts for substantially all of our consolidated assets, sales and operatingearnings, except for interest expense related to the senior notes co-issued byFerrellgas Partners and Ferrellgas Partners Finance Corp.

 

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Our general partner performs all management functions for us and oursubsidiaries and holds a 1% general partner interest in Ferrellgas Partners andan approximate 1% general partner interest in the operating partnership. Theparent company of our general partner, Ferrell Companies, beneficially ownsapproximately 29% of our outstanding common units. Ferrell Companies is owned100% by an employee stock ownership trust.

 

We file annual, quarterly, and other reports and information with theSEC. You may read and download our SEC filings over the Internet from severalcommercial document retrieval services as well as at the SEC’s website atwww.sec.gov. You may also read and copy our SEC filings at the SEC’s PublicReference Room located at 100 F Street, NE, Washington, DC 20549. Pleasecall the SEC at 1-800-SEC-0330 for further information concerning the PublicReference Room and any applicable copy charges. Because our common unitsare traded on the New York Stock Exchange under the ticker symbol of “FGP,” wealso provide our SEC filings and particular other information to the New YorkStock Exchange. You may obtain copies of these filings and such otherinformation at the offices of the New York Stock Exchange located at 11 WallStreet, New York, New York 10005. In addition, our SEC filings are available onour website at www.ferrellgas.com at no cost as soon as reasonably practicableafter our electronic filing or furnishing thereof with the SEC. Please notethat any Internet addresses provided in this Annual Report on Form 10-Kare for informational purposes only and are not intended to behyperlinks. Accordingly, no information found and/or provided at suchInternet addresses is intended or deemed to be incorporated by referenceherein.

 

**General**

 

We are a leading distributor of propane and related equipment andsupplies to customers primarily in the United States and conduct our businessas a single reportable operating segment. We believe that we are the secondlargest retail marketer of propane in the United States as measured by thevolume of our retail sales in fiscal 2010, and the largest national provider ofpropane by portable tank exchange.

 

We serve 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. Ouroperations primarily include the distribution and sale of propane and relatedequipment and supplies with concentrations in the Midwest, Southeast, Southwestand Northwest regions of the United States. Our propane distribution businessconsists principally of transporting propane purchased from third parties toour propane distribution locations and then to tanks on customers’ premises orto portable propane tanks delivered to nationwide and local retailers. We alsodistribute bulk propane to wholesale customers. Our portable tank exchangeoperations, nationally branded under the name Blue Rhino, are conducted througha network of independent and partnership-owned distribution outlets. Our marketareas for our residential and agricultural customers are generally rural, but alsoinclude urban areas for industrial applications. Our market area for ourindustrial/commercial and portable tank exchange customers is generally urban;however, our portable tank exchange customer base continues to grow in bothurban and rural areas.

 

In the residential and industrial/commercial markets, propane isprimarily used for space heating, water heating, cooking and other propanefueled appliances. In the portable tank exchange market, propane is usedprimarily for outdoor cooking using gas grills. In the agricultural market,propane is primarily used for crop drying, space heating, irrigation and weedcontrol. In addition, propane is used for a variety of industrial applications,including as an engine fuel which is burned in internal combustion engines thatpower vehicles and forklifts, and as a heating or energy source inmanufacturing and drying processes.

 

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In our past three fiscal years, our totalannual propane sales volumes in gallons were:

 
| **Fiscal year ended** | ** ** | **Propane sales  volumes  (in millions)** | ** ** |
|---------------------------------|------------|-----------------------------------------------------|------------|
| July 31, 2010              |       | 923                                                 |       |
| July 31, 2009              |       | 875                                                 |       |
| July 31, 2008              |       | 839                                                 |       |

 

**Our History**

 

We were formed in 1994 in connection with our initial public offering.Our operations began in 1939 as a single location propane distributor inAtchison, Kansas. Our initial growth largely resulted from small acquisitionsin rural areas of eastern Kansas, northern and central Missouri, Iowa,western Illinois, southern Minnesota, South Dakota and Texas. Since 1986, wehave acquired approximately 180 propane distributors. As of July 31, 2010,we distribute product to our propane customers from 884 propane distributionlocations. See Item 2. “Properties” for more information about our propanedistribution locations.

 

**Business Strategy**

 

Our business strategy is to:

 

·                  expand our operations through disciplinedacquisitions and internal growth;

·                  capitalize on our national presence andeconomies of scale;

·                  maximize operating efficiencies throughutilization of our technology platform; and

·                  align employee interests with our investorsthrough significant employee ownership.

 

Expand our operations through disciplinedacquisitions and internal growth.

 

We expect to continue the expansion of our propane customer basethrough the acquisition of other propane distributors. We intend to concentrateon acquisition activities in geographical areas within or adjacent to ourexisting operating areas, and on a selected basis in areas that broaden ourgeographic coverage. We also intend to focus on acquisitions that can beefficiently combined with our existing propane operations to provide anattractive return on investment after taking into account the economies ofscale and cost savings we anticipate will result from those combinations. Ourgoal is to improve the operations and profitability of the businesses weacquire by integrating them into our established national organization andleveraging our technology platforms to help reduce costs and enhance customerservice. We believe that our enhanced operational synergies, improved customerservice and ability to better track the financial performance of acquiredoperations provide us a distinct competitive advantage and better analysis aswe consider future acquisition opportunities.

 

We believe that we are positioned to successfully compete for growthopportunities within and outside of our existing operating regions. Our effortswill focus on adding density to our existing customer base, providing propaneand complementary services to national accounts and providing other product offeringsto existing customer relationships. This continued expansion will give us newgrowth opportunities by leveraging the capabilities of our operating platforms.

 

Capitalize on our national presence and economiesof scale.

 

We believe our national presence of 884 propane distribution locationsin the United States as of July 31, 2010 gives us advantages over oursmaller competitors. These advantages include economies of scale in areas suchas:

 

·                  product procurement;

 

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·                  transportation;

·                  fleet purchases;

·                  propane customer administration; and

·                  general administration.

 

We believe that our national presence allows us to be one of the fewpropane distributors that can competitively serve commercial and portable tankexchange customers on a nationwide basis, including the ability to serve suchpropane customers through leading home-improvement centers, mass merchants andhardware, grocery and convenience stores. In addition, we believe that ournational presence provides us opportunities to make acquisitions of otherpropane distribution companies whose operations overlap with ours, providingeconomies of scale and significant cost savings in these markets.

 

We also believe that investments in technology similar to ours requireboth a large scale and a national presence, in order to generate sustainableoperational savings to produce a sufficient return on investment. For thisreason, we believe our technology platforms provide us with an on-goingcompetitive advantage.

 

Maximizeoperating efficiencies through utilization of our technology platform.

 

Webelieve our significant investments in technology give us a competitiveadvantage to operate more efficiently and effectively at a lower cost comparedto most of our competitors. We do not believe that many of our competitors willbe able to justify similar investments in the near term. Our technologyadvantage has resulted from significant investments made in our retail propanedistribution operating platform together with our state-of-the-art tankexchange operating platform.

 

Ourtechnology platform allows us to efficiently route and schedule our customerdeliveries, customer administration and operational workflow for the retailsale and delivery of bulk propane. Our service centers are staffed to provideoversight and management to multiple distribution locations, referred to asservice units. Currently we operate a retail distribution network using astructure of 154 service centers and 862 service units. The service unitlocations utilize hand-held computers and satellite technology to communicatewith management personnel who are typically located at the associated servicecenter. We believe this structure and our technology platform allow us to moreefficiently route and schedule customer deliveries and significantly reduce theneed for daily on-site management.

 

Theefficiencies gained from operating our technology platform allow us toconsolidate our management teams at fewer locations, quickly adjust the salesprices to our customers and manage our personnel and vehicle costs moreeffectively to meet customer demand.

 

Thetechnology platform has substantially improved the forecasting of our customers’demand and our routing and scheduling. We also utilize a call center to acceptemergency customer calls 24 hours a day, seven days a week. These combinedcapabilities provide us cost savings while improving customer service byreducing customer inconvenience associated with multiple, unnecessarydeliveries.

 

Align employee interests with our investors throughsignificant employee ownership.

 

In 1998, we established an employee benefit plan that we believe alignsthe interests of our employees with those of our investors. Through the FerrellCompanies, Inc. Employee Stock Ownership Trust, our employees beneficiallyown approximately 29% of our outstanding common units, allowing them toparticipate directly in our overall success. We believe this plan is unique inthe propane distribution industry and that the entrepreneurial culture fosteredby employee-ownership provides us with another distinct competitive advantage.

 

**Distribution of Propane andRelated Equipment and Supplies**

 

Ourpropane distribution business consists principally of transporting propanepurchased from third parties to our propane distribution locations and then totanks on customers’ premises or to portable

 

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propanetanks delivered to nationwide and local retailers. We also distribute bulkpropane to wholesale customers. Our portable tank exchange operations,nationally branded under the name Blue Rhino, are conducted through a networkof distribution outlets, either independently-owned or owned by us. Our marketareas for our residential and agricultural customers are generally rural, butalso include urban areas for industrial applications. Our market area for ourindustrial/commercial and portable tank exchange customers is generally urban;however, our portable tank exchange customer base continues to grow in bothurban and rural areas. We utilize marketing programs targeting both new andexisting customers by emphasizing:

 

·                  our efficiency in delivering propane tocustomers;

·                  our employee training and safety programs;

·                  our enhanced customer service, facilitated byour technology platform and our 24 hours a day, seven days a week emergencyretail customer call support capabilities; and

·                  our national distributor network for ourcommercial and portable tank exchange customers.

 

The distribution of propane to residential customers generally involveslarge numbers of small volume deliveries. Our retail deliveries of propane aretypically transported from our retail propane distribution locations to ourcustomers by our fleet of bulk delivery trucks, which are generally fitted witha 3,000 gallon tank. Propane storage tanks located on our customers’ premisesare then filled from these bulk delivery trucks. We also deliver propane to ourindustrial/commercial and portable tank exchange customers using our fleet ofportable tank and portable tank exchange delivery trucks, truck tractors andportable tank exchange delivery trailers.

 

A substantial majority of our gross margin from propane and other gasliquids sales is derived from the distribution and sale of propane and relatedrisk management activities, and is derived primarily from five customer groups:

 

·                  residential;

·                  portable tankexchange;

·                  industrial/commercial;

·                  agricultural;

·                  wholesale; and

·                  other.

 

Our gross margin from the distribution of propane is primarily based onthe cents-per-gallon difference between the sales price we charge our customersand our costs to purchase and deliver propane to our propane distributionlocations. Our residential and portable tank exchange customers typicallyprovide us a greater cents-per-gallon margin than our industrial/commercial,agricultural, wholesale and other customers. We track “Propane sales volumes,” “Revenues— Propane and other gas liquids sales” and “Gross Margin — Propane and othergas liquids sales” by customer; however, we are not able to specificallyallocate operating and other costs in a manner that would determine theirspecific profitability with a high degree of accuracy. The wholesale propaneprice per gallon is subject to various market conditions and may fluctuatebased on changes in demand, supply and other energy commodity prices, primarilycrude oil and natural gas, as propane prices tend to correlate with thefluctuations of these underlying commodities.

 

Residential customers typically rent their storage tanks from theirdistributors. Approximately 64% of our residential customers rent their tanksfrom us. Our rental terms and the fire safety regulations in some statesrequire rented bulk tanks to be filled only by the propane supplier owning thetank. The cost and inconvenience of switching bulk tanks helps minimize acustomer’s tendency to switch suppliers of propane on the basis of minorvariations in price, helping us minimize customer loss.

 

In addition, we lease tanks to some of our independent distributorsinvolved with our delivery of propane by portable tank exchange operations. Ourowned and independent distributors provide portable tank exchange customerswith a national delivery presence that is generally not available from most ofour competitors.

 

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Some of our propane distribution locations also conduct the retail saleof propane appliances and related parts and fittings, as well as other retailpropane related services and consumer products. We also sell gas grills, patioheaters, fireplace and garden accessories, mosquito traps and other outdoorproducts through Blue Rhino Global Sourcing, Inc.

 

In fiscal 2010, no one customer accounted for 10% or more of ourconsolidated revenues.

 

Effect of Weather and Seasonality

 

Weather conditions have a significant impact on demand for propane forheating purposes during the months of November through March (the “winterheating season”). Accordingly, the volume of propane used by our customers forthis purpose is directly affected by the severity of the winter weather in theregions we serve and can vary substantially from year to year. In any givenregion, sustained warmer-than-normal temperatures will tend to result inreduced propane usage, while sustained colder-than-normal temperatures willtend to result in greater usage. Although there is a direct correlation betweenweather and customer usage, there is a natural time lag between the onset ofcold weather and increased sales to customers. If the United States were toexperience a cooling trend we could expect nationwide demand for propane toincrease which could lead to greater sales, income and liquidity availability.Conversely, if the United States were to experience a warming trend we couldexpect nationwide demand for propane to decrease which could lead to areduction in our sales, income and liquidity availability.

 

The market for propane is seasonal because of increased demand duringthe winter heating season primarily for the purpose of providing heating inresidential and commercial buildings. Consequently, sales and operating profitsare concentrated in our second and third fiscal quarters, which are during thewinter heating season. However, our propane by portable tank exchange salesvolume provides us increased operating profits during our first and fourthfiscal quarters due to its counter-seasonal business activities. These salesalso provide us the ability to better utilize our seasonal resources at ourpropane distribution locations. Other factors affecting our results ofoperations include competitive conditions, volatility in energy commodityprices, demand for propane, timing of acquisitions and general economicconditions in the United States.

 

We believe that our broad geographic distribution helps us minimizeexposure to regional weather and economic patterns. During times ofcolder-than-normal winter weather, we have been able to take advantage of ourlarge, efficient distribution network to avoid supply disruptions, therebyproviding us a competitive advantage in the markets we serve.

 

Risk Management Activities

 

We employ risk management activities that attempt to mitigate pricerisks related to the purchase, storage, transport and sale of propane. Weattempt to mitigate these price risks through the use of financial derivativeinstruments and forward propane purchase and sales contracts. We enter intopropane sales commitments with a portion of our customers that provide for acontracted price agreement for a specified period of time. These commitmentscan expose us to product price risk if not immediately hedged with anoffsetting propane purchase commitment.

 

Our risk management strategy involves taking positions in the forwardor financial markets that are equal and opposite to our positions in thephysical products market in order to minimize the risk of financial loss froman adverse price change. This risk management strategy is successful when itsgains or losses in the physical product markets are offset by its losses orgains in the forward or financial markets. These financial derivatives aredesignated as cash flow hedges.

 

Our risk management activities include the use of financial derivativeinstruments including, but not limited to, price swaps, options, futures andbasis swaps to seek protection from adverse price movements and to minimizepotential losses. We enter into these financial derivative instruments directlywith third parties in the over-the-counter market and with brokers who areclearing members with the New York Mercantile Exchange. We also enter intoforward propane purchase and sales contracts with

 

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counterparties.These forward contracts qualify for the normal purchase normal sales exceptionwithin generally accepted accounting principles (“GAAP”) guidance and aretherefore not recorded by us prior to settlement.

 

Through our supply procurement activities, we purchase propaneprimarily from major domestic energy companies. Supplies of propane from thesesources have traditionally been readily available, although no assurance can begiven that they will be readily available in the future. We may purchase andstore inventories of propane to avoid delivery interruptions during the periodsof increased demand and to take advantage of favorable commodity prices. As aresult of our ability to buy large volumes of propane and utilize our nationaldistribution system, we believe we are in a position to achieve product costsavings and avoid shortages during periods of tight supply to an extent notgenerally available to other propane distributors. During fiscal 2010, BritishPetroleum (17%) and Enterprise Products, L.P. (14%) accounted for approximately31% of our total propane purchases. Because there are numerous alternativesuppliers available, we do not believe it is reasonably possible that thissupplier concentration could cause a near-term severe impact on our ability toprocure propane. No other single supplier accounted for more than 10% of ourtotal propane purchases during fiscal 2010. If supplies were interrupted ordifficulties in obtaining alternative transportation were to arise, the cost ofprocuring replacement supplies may materially increase. These transactions areaccounted for at cost in “Cost of product sold — propane and other gas liquidssales” in our consolidated statement of earnings.

 

A portion of our propane inventory is purchased under supply contractsthat typically have a one-year term and a price that fluctuates based on thespot market prices. In order to limit overall price risk, we will enter intofixed price over-the-counter energy commodity forward and swap contracts thatgenerally have terms of less than 24 months. We may also use options to hedge aportion of our forecasted purchases for up to 24 months in the future.

 

We also incur risks related to the price and availability of propaneduring periods of much colder-than-normal weather, temporary supply shortagesconcentrated in certain geographic regions and commodity price distortionsbetween geographic regions. We attempt to mitigate these risks through ourtransportation activities by utilizing our transport truck and railroad tankcar fleet to distribute propane between supply or storage locations and propanedistribution locations. The propane we sell to our customers is generallytransported from petrochemical processing plants and refineries, pipelineterminals and storage facilities to propane distribution locations or storagefacilities by our leased railroad tank cars and our owned or leased highwaytransport trucks. We use common carrier and owner-operated transport trucksduring the peak delivery season in the winter months or to provide service inareas where economic considerations favor their use. We also use a portion ofour transport truck fleet during the spring and summer months to transportpropane to service our portable tank exchange customers.

 

**Industry**

 

Natural gas liquids are derived from petroleum products and are sold incompressed or liquefied form. Propane, the predominant natural gas liquid, istypically extracted from natural gas or separated during crude oil refining.Although propane is gaseous at normal pressures, it is compressed into liquidform at relatively low pressures for storage and transportation. Propane is aclean-burning energy source, recognized for its transportability and ease ofuse relative to alternative forms of stand-alone energy sources.

 

Based upon industry publications, propane accounts for approximately 3%to 4% of energy consumption in the United States, a level which has remainedrelatively constant for the past two decades. Propane competes primarily withnatural gas, electricity and fuel oil as an energy source principally on thebasis of price, availability and portability. Propane serves as an alternativeto natural gas in rural and urban areas where natural gas is unavailable orportability of product is required. Propane is generally more expensive thannatural gas on an equivalent British Thermal Unit (“BTU”) basis in locationsserved by natural gas, although propane is often sold in such areas as astandby fuel for use during peak demands and during interruption in natural gasservice. The expansion of natural gas into traditional propane markets hashistorically been inhibited by the capital costs required to expanddistribution and 

 

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pipelinesystems. Although the extension of natural gas pipelines tends to displacepropane distribution in the neighborhoods affected, we believe that newopportunities for propane sales arise as more geographically remoteneighborhoods are developed.

 

Propane has historically been less expensive to use than electricityfor space heating, water heating and cooking and competes effectively withelectricity in the parts of the country where propane is less expensive thanelectricity on an equivalent BTU basis. Although propane is similar to fuel oilin application, market demand and price, propane and fuel oil have generallydeveloped their own distinct geographic markets. Because residential furnacesand appliances that burn propane will not operate on fuel oil, a conversionfrom one fuel to the other requires the installation of new equipment.Residential propane customers will have an incentive to switch to fuel oil onlyif fuel oil becomes significantly less expensive than propane. Conversely, wemay be unable to expand our customer base in areas where fuel oil is widelyused, particularly the northeast United States, unless propane becomessignificantly less expensive than fuel oil. However, many industrial customerswho use propane as a heating fuel have the capacity to switch to other fuels,such as fuel oil, on the basis of availability or minor variations in price.

 

**Competition**

 

In addition to competing with marketers of other fuels, we compete withother companies engaged in the propane distribution business. Competitionwithin the propane distribution industry stems from two types of participants:the larger, multi-state marketers, including farmers’ cooperatives, and thesmaller, local independent marketers, including rural electric cooperatives.Based on our propane sales volumes in fiscal 2010, we believe that we are thesecond largest marketer of propane in the United States and the largestnational provider of propane by portable tank exchange.

 

Most of our retail propane distribution locations compete with three ormore marketers or distributors, primarily on the basis of reliability ofservice and responsiveness to customer needs, safety and price. Each retaildistribution outlet operates in its own competitive environment because propanemarketers typically reside in close proximity to their customers to lower thecost of providing service.

 

**Other Activities**

 

Our other activities primarily include the following:

 

·                  wholesale marketing ofpropane appliances;

·                  the sale of refined fuels;and

·                  common carrier services.

 

These other activities comprised less than 10% of our total revenues infiscal 2010, 2009 and 2008.

 

**Employees**

 

We have no employees and are managed by our general partner pursuant toour partnership agreement. At August 31, 2010, our general partner had3,685 full-time employees.

 

Our general partner employed its employees in the following areas:

 
| Propane distribution locations                |   | 3,193 |   |
|-----------------------------------------------|--------|-------|--------|
| Risk management, transportation and wholesale |   | 153   |   |
| Centralized corporate functions               |   | 339   |   |
| Total                                         |   | 3,685 |   |

 

Less than one percent of these employees are represented by anaggregate of five different local labor unions, which are all affiliated withthe International Brotherhood of Teamsters. Our general partner has notexperienced any significant work stoppages or other labor problems.

 

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**Governmental Regulation -Environmental and Safety Matters**

 

Propane is not currently subject to any price or allocation regulationand has not been defined by any federal or state environment law as anenvironmentally hazardous substance.

 

In connection with all acquisitions of propane distribution businessesthat involve the purchase of real property, we conduct a due diligenceinvestigation to attempt to determine whether any substance other than propanehas been sold from, stored on or otherwise come into contact with any such realproperty prior to its purchase. At a minimum, due diligence includesquestioning the sellers, obtaining representations and warranties concerningthe sellers’ compliance with environmental laws and visual inspections of thereal property.

 

With respect to the transportation of propane by truck, we are subjectto regulations promulgated under the Federal Motor Carrier Safety Act. These regulationscover the transportation of flammable materials and are administered by theUnited States Department of Transportation. The National Fire ProtectionAssociation Pamphlet No. 58 establishes a national standard for the safehandling and storage of propane. Those rules and procedures have been adoptedby us and serve as the industry standard by the states in which we operate.

 

We believe that we are in material compliance with all governmentalregulations and industry standards applicable to environmental and safetymatters.

 

**Trademarks and Service Marks**

 

We market our goods and services under various trademarks and tradenames, which we own or have a right to use. Those trademarks and trade namesinclude marks or pending marks before the United States Patent and TrademarkOffice such as Ferrellgas, Ferrell North America, and Ferrellmeter. Our generalpartner has an option to purchase for a nominal value the trade names “Ferrellgas”and “Ferrell North America” and the trademark “Ferrellmeter” that it contributedto us during 1994, if it is removed as our general partner other than “forcause.” If our general partner ceases to serve as our general partner for anyreason other than “for cause,” it will have the option to purchase our othertrade names and trademarks from us for fair market value.

 

We believe that the Blue Rhino mark and Blue Rhino’s other trademarks,service marks and patents are an important part of our consistent growth inboth tank exchange and outdoor living product categories. Included in theregistered and pending trademarks and service marks are the designations BlueRhino®, Blue Rhino& Design®, Rhino DesignTM, Grill Gas & Design®, A Better WayTM, Spark Something Fun®, America’s Choice for GrillGas®, RhinoTUFF®, Tri-Safe®, Drop, Swap and GoTM, Rhino PowerTM, Uniflame®, UniGrill®, Patriot®, Grill Aficionado®, Skeetervac®, Fine Tune®, Vac & Tac®, Wavedrawer®, It’s Your Backyard. EnjoyIt More With Skeetervac®, Less BitingInsects. More Backyard Fun®, DuraClay®, EndlessSummer® and Endless Summer Comfort®. In addition, we havepatents issued for a Method for Reconditioning a Propane Gas Tank and anOverflow Protection Valve Assembly, which expire in 2017 and 2018,respectively, as well as various other patents and patent applications pending.The protection afforded by our patents furthers our ability to cost-effectivelyservice our customers and to maintain our competitive advantages.

 

**Businesses of Other Subsidiaries**

 

Ferrellgas Partners Finance Corp. is a Delaware corporation formed in 1996and is our wholly-owned subsidiary. Ferrellgas Partners Finance Corp. hasnominal assets, no employees other than officers and does not conduct anyoperations, but serves as a co-issuer and co-obligor for debt securities ofFerrellgas Partners. Institutional investors that might otherwise be limited intheir ability to invest in debt securities of Ferrellgas Partners because it isa partnership are potentially able to invest in debt securities of FerrellgasPartners because Ferrellgas Partners Finance Corp. acts as a co-issuer andco-obligor. Because of its structure and pursuant to the reduced disclosureformat, a discussion of the results of operations, liquidity and capitalresources of Ferrellgas Partners Finance Corp. is not presented in this AnnualReport on Form 

 

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10-K.See Note B — Commitment — to Ferrellgas Partners Finance Corp.’s financialstatements for a discussion of the debt securities with respect to whichFerrellgas Partners Finance Corp. is serving as a co-issuer and co-obligor.

 

Ferrellgas Finance Corp. is a Delaware corporation formed in 2003 andis a wholly-owned subsidiary of the operating partnership. Ferrellgas FinanceCorp. has nominal assets, no employees other than officers and does not conductany operations, but serves as a co-issuer and co-obligor for debt securities ofthe operating partnership. Institutional investors that might otherwise belimited in their ability to invest in debt securities of the operatingpartnership because it is a partnership are potentially able to invest in debtsecurities of the operating partnership because Ferrellgas Finance Corp. actsas a co-issuer and co-obligor. Because of its structure and pursuant to thereduced disclosure format, a discussion of the results of operations, liquidityand capital resources of Ferrellgas Finance Corp. is not presented in thisAnnual Report on Form 10-K. See Note B — Commitment — to Ferrellgas FinanceCorp.’s financial statements for a discussion of the debt securities withrespect to which Ferrellgas Finance Corp. is serving as a co-issuer andco-obligor.

 

We have agreements to transfer, on an ongoing basis, a portion of ourtrade accounts receivable through Ferrellgas Receivables, LLC (“FerrellgasReceivables”), a wholly-owned entity that maintains an accounts receivablesecuritization facility. We retain servicing responsibilities for transferredaccounts receivable but have no other continuing involvement with thetransferred receivables. The accounts receivable securitization facility ismore fully described in Item 7. “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Liquidity and Capital Resources— Operating Activities” and in Note F — Accounts and notes receivable, net andaccounts receivable securitization — to our consolidated financial statementsprovided herein.

 

We also sell gas grills, patio heaters, fireplace and gardenaccessories, mosquito traps, and other outdoor products. These products aremanufactured by independent third parties in Asia and are sold to mass marketretailers in Asia or shipped to the United States, where they are sold underour various trade names. These products are sold through Blue Rhino GlobalSourcing, Inc., a taxable corporation that is a wholly-owned subsidiary of theoperating partnership.

 

**ITEM 1A.       RISK FACTORS.**

 

Risks Inherent in the Distribution of Propane

 

*Weather conditions may reduce the demand for propane; ourfinancial condition is vulnerable to warm winters and poor weather in thegrilling season.*

 

Weatherconditions have a significant impact on the demand for propane for both heatingand agricultural purposes. Many of our customers rely heavily on propane as aheating fuel. Accordingly, our sales volumes of propane are highest during thefive-month winter-heating season of November through March and are directlyaffected by the temperatures during these months. During fiscal 2010, approximately59% of our propane sales volume was attributable to sales during thewinter-heating season. Actual weather conditions can vary substantially fromyear to year, which may significantly affect our financial performance.Furthermore, variations in weather in one or more regions in which we operatecan significantly affect our total propane sales volume and therefore ourrealized profits. A negative effect on our sales volume may in turn affect ourfinancial position or results of operations. The agricultural demand forpropane is also affected by weather, as dry or warm weather during the harvestseason may reduce the demand for propane used in some crop drying applications.

 

Our portable tank exchange operations experience higher volumes in thespring and summer, which includes the majority of the grilling season.Sustained periods of poor weather, particularly in the grilling season, cannegatively affect our portable tank exchange revenues. In addition, poorweather may reduce consumers’ propensity to purchase and use grills and otherpropane-fueled appliances thereby reducing demand for portable tank exchange aswell as the demand for our outdoor products.

 

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*Suddenand sharp propane wholesale price increases cannot be passed on to customerswith contracted pricing arrangements and will adversely affect our profitmargins if they are not immediately hedged with an offsetting propane purchasecommitment.*

 

Gross margin from thedistribution of propane is primarily based on the cents-per-gallon differencebetween the sales price we charge our customers and our costs to purchase anddeliver propane to our propane distribution locations. We enter into propanesales commitments with a portion of our customers that provide for a contractedprice agreement for a specified period of time. The wholesale propane price pergallon is subject to various market conditions and may fluctuate based onchanges in demand, supply and other energy commodity prices. Propane pricestend to correlate primarily with crude oil and natural gas prices. We employrisk management activities that attempt to mitigate risks related to the purchasing,storing, transporting, and selling of propane. However, sudden and sharppropane price increases cannot be passed on to customers with contractedpricing arrangements. Therefore, these commitments expose us to product pricerisk and reduced profit margins if those transactions are not immediatelyhedged with an offsetting propane purchase commitment.

 

*Suddenand sharp wholesale propane price decreases may result in customers notfulfilling their obligations under contracted pricing arrangements previouslyentered into with us. The decreased sales volumes of these higher sales pricearrangements may adversely affect our profit margins.*

 

We may attempt to lock-in a gross margin per gallon on our contractedsales commitments by immediately hedging or entering into a fixed price propanepurchase contract. If we were to experience sudden and sharp propane pricedecreases, our customers may not fulfill their obligation to purchase propanefrom us at their previously contracted price per gallon and we may not be ableto sell the related hedged or fixed price propane at a profitable sales priceper gallon in the current pricing environment.

 

*The counterparties to our commodity derivative and financialderivative contracts may not be able to perform their obligations to us, whichcould materially affect our cash flows and results of operations.*

 

Volatilityin the oil and gas commodities sector for an extended period of time or intensevolatility in the near term could cause counterparty defaults on our commodityand financial derivative contracts. This could impair our ability to procureproduct or procure it at prices reasonable to us.

 

*Hurricanes and other natural disasters could have a materialadverse effect on our business, financial condition and results of operations.*

 

Hurricanesand other natural disasters can potentially destroy thousands of businessstructures and homes and, if occurring in the Gulf Coast region of the UnitedStates, could disrupt the supply chain for oil and gas products. Disruptions insupply could have a material adverse effect on our business, financialcondition, results of operations and cash flow. Damages and higher pricescaused by hurricanes and other natural disasters could have an adverse effecton our financial condition due to the impact on the financial condition of ourcustomers.

 

*The propane distribution business is highly competitive,which may negatively affect our sales volumes and/or our results of operations.*

 

Ourprofitability is affected by the competition for customers among all of theparticipants in the propane distribution business. We compete with a number oflarge national and regional firms and several thousand small independent firms.Because of the relatively low barriers to entry into the propane market, thereis the potential for small independent propane distributors, as well as othercompanies not previously engaged in propane distribution, to compete with us.Some rural electric cooperatives and fuel oil distributors have expanded theirbusinesses to include propane distribution. As a result, we are subject to therisk of additional competition in the future. Some of our competitors may havegreater financial resources than we do. Should a competitor attempt to increasemarket share by reducing prices, our operating margins and customer base may benegatively impacted. Generally, warmer-than-normal weather and increasing fuelprices further intensifies competition. We believe that our ability to competeeffectively depends on our service reliability, our responsiveness tocustomers, and our ability to maintain competitive propane prices and controlour operating expenses.

 

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*The propane distribution industry is a mature one, which maylimit our growth.*

 

Thepropane distribution industry is a mature one. We foresee only limited growthin total national demand for propane in the near future. Year-to-year industryvolumes are primarily impacted by fluctuations in temperatures and economicconditions. Our ability to grow our sales volumes within the propanedistribution industry is primarily dependent upon our ability to acquire otherpropane distributors, to integrate those acquisitions into our operations, andupon the success of our marketing efforts to acquire new customers. If we areunable to compete effectively in the propane distribution business, we may loseexisting customers or fail to acquire new customers.

 

*The propane distribution business faces competition fromother energy sources, which may reduce the existing demand for our propane.*

 

Propanecompetes with other sources of energy, some of which can be less costly forequivalent energy value. We compete for customers against suppliers ofelectricity, natural gas and fuel oil. Electricity is a major competitor ofpropane, but propane has historically enjoyed a competitive price advantageover electricity. Except for some industrial and commercial applications, propaneis generally not competitive with natural gas in areas where natural gaspipelines already exist because such pipelines generally make it possible forthe delivered cost of natural gas to be less expensive than the bulk deliveryof propane. The expansion of natural gas into traditional propane markets hashistorically been inhibited by the capital cost required to expand distributionand pipeline systems, however, the gradual expansion of the nation’s naturalgas distribution systems has resulted in the availability of natural gas inareas that were previously dependent upon propane. Although propane is similarto fuel oil in some applications and market demand, propane and fuel oilcompete to a lesser extent primarily because of the cost of converting from oneto the other and due to the fact that both fuel oil and propane have generallydeveloped their own distinct geographic markets. We cannot predict the effectthat the development of alternative energy sources might have on our financialposition or results of operations.

 

*Energy efficiency and technology advances may affect demandfor propane; increases in propane prices may cause our residential customers toincrease their conservation efforts.*

 

Thenational trend toward increased conservation and technological advances,including installation of improved insulation and the development of moreefficient furnaces and other heating devices, has reduced the demand forpropane in our industry. We cannot predict the materiality of the effect offuture conservation measures or the effect that any technological advances inheating, conservation, energy generation or other devices might have on ouroperations. As the price of propane increases, some of our customers tend toincrease their conservation efforts and thereby decrease their consumption ofpropane.

 

*If the world-wide financial crisis continues for anextended period of time or intensifies in the near term, potential disruptionsin the capital and credit markets may adversely affect our business, includingthe availability and cost of debt and equity issuances for liquidityrequirements, our ability to meet long-term commitments and our ability tohedge effectively; each could adversely affect our results of operations, cashflows and financial condition.*

 

We rely on our ability toaccess the capital and credit markets at rates and terms reasonable to us. Ifthe worldwide financial crisis continues for an extended period of time orintensifies in the near term, our ability to access capital and credit marketsat rates and terms reasonable to us may be significantly impaired. This couldlimit our ability to access capital or credit markets for working capitalneeds, risk management activities and long-term debt maturities, or could forceus to access capital and credit markets at rates or terms normally consideredto be unreasonable or force us to take other aggressive actions including thesuspension of our quarterly distribution.

 

*Current economic and political conditions may harm theenergy business disproportionately to other industries.*

 

Deterioratingregional and global economic conditions and the effects of ongoing militaryactions may cause significant disruptions to commerce throughout the world. Ifthose disruptions occur in areas of the

 

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worldwhich are tied to the energy industry, such as the Middle East, it is mostlikely that our industry will be either affected first or affected to a greaterextent than other industries. These conditions or disruptions may:

 

·                  impair our ability to effectively market oracquire propane; or

·                  impair our ability to raiseequity or debt capital for acquisitions, capital expenditures or ongoingoperations.

 

*A significant increase in motor fuel prices may adverselyaffect our profits.*

 

Motorfuel is a significant operating expense for us in connection with the deliveryof propane to our customers. A significant increase in motor fuel prices willresult in increased transportation costs to us. The price and supply of motorfuel is unpredictable and fluctuates based on events we cannot control, such asgeopolitical developments, supply and demand for oil and gas, actions by oiland gas producers, war and unrest in oil producing countries and regions,regional production patterns and weather concerns. As a result, any increasesin these prices may adversely affect our profitability and competitiveness.

 

*Therevenues received from our portable tank exchange are concentrated with alimited number of retailers under non-exclusive arrangements that may beterminated at will.*

 

The propane gallons salesthat we generate from our delivery of propane by portable tank exchange areconcentrated with a limited number of retailers. If one or more of theseretailers were to materially reduce or terminate its business with us, theresults from our delivery of propane by portable tank exchange operations maydecline. For fiscal 2010, three retailers represented approximately 55% of ourportable tank exchange’s net revenues. None of our significant retail accountsassociated with our portable tank exchange operations are contractually boundto offer portable tank exchange service or products. Therefore, retailers candiscontinue our delivery of propane to them by portable tank exchange service,or sales of our propane related products, at any time and accept a competitor’sdelivery of propane by portable tank exchange, or its related propane productsor none at all. Continued relations with a retailer depend upon variousfactors, including price, customer service, consumer demand and competition. Inaddition, most of our significant retailers have multiple vendor policies andmay seek to accept a competitor’s delivery of propane by portable tankexchange, or accept products competitive with our propane related products, atnew or existing locations of these significant retailers. If any significantretailer materially reduces, terminates or requires price reductions or otheradverse modifications in our selling terms, our results from our delivery ofpropane by portable tank exchange operations may decline.

 

*If theindependently-owned distributors that some of our customers rely upon for thedelivery of propane by portable tank exchange do not perform up to theexpectations of such customers, if we encounter difficulties in managing theoperations of these distributors or if we or these distributors are not able tomanage growth effectively, our relationships with our customers may beadversely impacted and our delivery of propane by portable tank exchange may decline.*

 

We rely in part onindependently-owned distributors to deliver our propane for a retailer’sportable tank exchange service. Accordingly, our success depends on our abilityto maintain and manage distributor relationships and operations and on thedistributors’ ability to set up and adequately service accounts. We exerciseonly limited influence over the resources that the independently-owneddistributors devote to the delivery of propane by portable tank exchange.National retailers impose demanding service requirements on us, and we couldexperience a loss of consumer or retailer goodwill if our distributors do notadhere to our quality control and service guidelines or fail to ensure thetimely delivery of an adequate supply of propane by portable tank exchange atretail locations. The poor performance of a single distributor to a nationalretailer could jeopardize our entire relationship with that retailer and causeour delivery of propane by portable tank exchange to that particular retailer todecline. In addition, the number of retail locations accepting delivery of ourpropane by portable tank exchange and, subsequently, the retailer’scorresponding sales have historically grown significantly along with thecreation of our distributor network. Accordingly, our distributors must be ableto adequately service an increasing number of retail accounts. If we or ourindependent distributors fail to manage growth effectively, our financialresults from our delivery of propane by portable tank exchange may decline.

 

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*Potentialretail partners may not be able to obtain necessary permits or may besubstantially delayed in obtaining necessary permits, which may adverselyimpact our ability to increase our delivery of propane by portable tankexchange to new retail locations.*

 

Localordinances, which vary from jurisdiction to jurisdiction, generally requireretailers to obtain permits to store and sell propane tanks. These ordinancesinfluence retailers’ acceptance of propane by portable tank exchange,distribution methods, propane tank packaging and storage. The ability and timerequired to obtain permits varies by jurisdiction. Delays in obtaining permitshave from time to time significantly delayed the installation of new retaillocations. Some jurisdictions have refused to issue the necessary permits,which has prevented some installations. Some jurisdictions may also imposeadditional restrictions on our ability to market and our distributors’ abilityto transport propane tanks or otherwise maintain its portable tank exchangeservices.

 

Risks Inherent to OurBusiness

 

*Our substantial debt and other financial obligations couldimpair our financial condition and our ability to fulfill our obligations.*

 

Wehave substantial indebtedness and other financial obligations. As of July 31,2010:

 

·                  we had total indebtedness of approximately$1,180.6 million;

 

·                  Ferrellgas Partners had partners’ capital ofapproximately $82.2 million;

 

·                  we had availability underour credit facility of approximately $185.9 million; and

 

·                  we had aggregate futureminimum rental commitments under non-cancelable operating leases ofapproximately $71.8 million; provided, however, if we elect to purchase theunderlying assets at the end of the lease terms, such aggregate buyout would be$13.4 million.

 

Wehave long and short-term payment obligations with maturity dates ranging fromfiscal 2011 to 2020 that bear interest at rates ranging from 4.40% to 9.5%. Asof July 31, 2010, these obligations do not contain any sinking fund provisionsbut do require the following aggregate principal payments, without premium,during the following fiscal years:

 

·                  $2.3 million - 2011;

·                  $2.3 million - 2012;

·                  $2.2 million - 2013;

·                  $451.6 million - 2014;

·                  $1.7 million - 2015; and

·                  $682.0 million - thereafter.

 

DuringNovember 2009, we closed on a new secured credit facility that replaced ourprior unsecured credit facility. The credit facility provides for a $400.0million revolving credit facility with the entire amount available for loansand with a sublimit of $200.0 million for letters of credit. The obligationsunder such credit facility are secured by substantially all assets of theoperating partnership, the general partner and certain subsidiaries of theoperating partnership but specifically excluding (a) assets that are subject tothe operating partnership’s receivables securitization facility, (b) the generalpartner’s equity interest in Ferrellgas Partners, L.P. and (c) equity interestin certain unrestricted subsidiaries. Such obligations are also guaranteed bythe general partner and certain subsidiaries of the operating partnership. Thesecured revolving credit facility will mature in November 2012.

 

Allof the indebtedness and other obligations described above are obligations ofthe operating partnership except for $280.0 million of senior debt due 2020issued by Ferrellgas Partners and Ferrellgas Partners Finance Corp.

 

Subjectto the restrictions governing the operating partnership’s indebtedness andother financial obligations and the indenture governing Ferrellgas Partners’outstanding senior notes due 2020, we may 

 

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incursignificant additional indebtedness and other financial obligations, which maybe secured and/or structurally senior to any debt securities we may issue.

 

Oursubstantial indebtedness and other financial obligations could have importantconsequences to our security holders. For example, it could:

 

·                  make it more difficult for us to satisfy ourobligations with respect to our securities;

 

·                  impair our ability to obtain additionalfinancing in the future for working capital, capital expenditures,acquisitions, general corporate purposes or other purposes;

 

·                  result in higher interest expense in theevent of increases in interest rates since some of our debt is, and willcontinue to be, at variable rates of interest;

 

·                  impair our operating capacity and cash flowsif we fail to comply with financial and restrictive covenants in our debtagreements and an event of default occurs as a result of that failure that isnot cured or waived;

 

·                  require us to dedicate a substantial portionof our cash flow to payments on our indebtedness and other financialobligations, thereby reducing the availability of our cash flow to funddistributions, working capital, capital expenditures and other generalpartnership requirements;

 

·                  limit our flexibility in planning for, orreacting to, changes in our business and the industry in which we operate; and

 

·                  place us at a competitive disadvantagecompared to our competitors that have proportionately less debt.

 

*Ferrellgas Partners or the operating partnership may beunable to refinance their indebtedness or pay that indebtedness if it becomesdue earlier than scheduled.*

 

IfFerrellgas Partners or the operating partnership is unable to meet their debtservice obligations or other financial obligations, they could be forced to:

 

·                  restructure or refinance their indebtedness;

·                  enter into other necessary financialtransactions;

·                  seek additional equity capital; or

·                  sell their assets.

 

Theymay then be unable to obtain such financing or capital or sell their assets onsatisfactory terms, if at all. Their failure to make payments, whether afteracceleration of the due date of that indebtedness or otherwise, or our failureto refinance the indebtedness would impair their operating capacity and cashflows.

 

*Restrictive covenants in the agreements governing ourindebtedness and other financial obligations may reduce our operatingflexibility.*

 

Theindenture governing the outstanding notes of Ferrellgas Partners and theagreements governing the operating partnership’s indebtedness and otherfinancial obligations contain, and any indenture that will govern debtsecurities issued by Ferrellgas Partners or the operating partnership maycontain, various covenants that limit our ability and the ability of specifiedsubsidiaries of ours to, among other things:

 

·                  incur additional indebtedness;

 

·                  make distributions to our unitholders;

 

·                  purchase or redeem our outstanding equityinterests or subordinated debt;

 

·                  make specified investments;

 

·                  create or incur liens;

 

·                  sell assets;

 

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·                  engage in specified transactions withaffiliates;

 

·                  restrict the ability of our subsidiaries tomake specified payments, loans, guarantees and transfers of assets or interestsin assets;

 

·                  engage in sale-leaseback transactions;

 

·                  effect a merger or consolidation with or intoother companies or a sale of all or substantially all of our properties orassets; and

 

·                  engage in other lines of business.

 

Theserestrictions could limit the ability of Ferrellgas Partners, the operatingpartnership and our other subsidiaries:

 

·                  to obtain future financings;

·                  to make needed capital expenditures;

·                  to withstand a future downturn in ourbusiness or the economy in general; or

·                  to conduct operations or otherwise takeadvantage of business opportunities that may arise.

 

Someof the agreements governing our indebtedness and other financial obligationsalso require the maintenance of specified financial ratios and the satisfactionof other financial conditions. Our ability to meet those financial ratios andconditions can be affected by unexpected downturns in business operationsbeyond our control, such as significantly warmer than normal weather, a volatileenergy commodity cost environment or an economic downturn. Accordingly, we maybe unable to meet these ratios and conditions. This failure could impair ouroperating capacity and cash flows and could restrict our ability to incur debtor to make cash distributions, even if sufficient funds were available.

 

Ourbreach of any of these covenants or the operating partnership’s failure to meetany of these ratios or conditions could result in a default under the terms ofthe relevant indebtedness, which could cause such indebtedness or otherfinancial obligations, and by reason of cross-default provisions, any ofFerrellgas Partners’ or the operating partnership’s other outstanding notes orfuture debt securities, to become immediately due and payable. If we wereunable to repay those amounts, the lenders could initiate a bankruptcyproceeding or liquidation proceeding or proceed against the collateral, if any.If the lenders of the operating partnership’s indebtedness or other financialobligations accelerate the repayment of borrowings or other amounts owed, wemay not have sufficient assets to repay our indebtedness or other financialobligations, including our outstanding notes and any future debt securities.

 

*Our results of operations and our ability to makedistributions or pay interest or principal on debt securities could benegatively impacted by price and inventory risk and management of these risks.*

 

Theamount of gross profit we make depends significantly on the excess of the salesprice over our costs to purchase and distribute propane. Consequently, ourprofitability is sensitive to changes in energy prices, in particular, changesin wholesale propane prices. Propane is a commodity whose market price canfluctuate significantly based on changes in supply, changes in other energyprices or other market conditions. We have no control over these marketconditions. In general, product supply contracts permit suppliers to chargeposted prices plus transportation costs at the time of delivery or the currentprices established at major delivery points. Any increase in the price ofproduct could reduce our gross profit because we may not be able to immediatelypass rapid increases in such costs, or costs to distribute product, on to ourcustomers.

 

Whilewe generally attempt to minimize our inventory risk by purchasing product on ashort-term basis, we may purchase and store propane or other natural gasliquids depending on inventory and price outlooks. We may purchase largevolumes of propane at the then current market price during periods of lowdemand and low prices, which generally occurs during the summer months. Themarket price for propane could fall below the price at which we made thepurchases, which would adversely affect our profits or cause sales from thatinventory to be unprofitable. A portion of our inventory is purchased undersupply contracts that typically have a one-year term and at a price thatfluctuates based on the prevailing market prices. Our contracts with ourindependent portable tank exchange distributors provide for a 

 

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portionof our payment to the distributor to be based upon a price that fluctuatesbased on the prevailing propane market prices. To limit our overall price risk,we may purchase and store physical product and enter into fixed priceover-the-counter energy commodity forward contracts, swaps and options thathave terms of up to 24 months. This strategy may not be effective in limitingour price risk if, for example, weather conditions significantly reducecustomer demand, or market or weather conditions prevent the delivery ofphysical product during periods of peak demand, resulting in excess physicalproduct after the end of the winter heating season and the expiration ofrelated forward or option contracts.

 

Someof our sales are pursuant to commitments at contracted price agreements. Tomanage these commitments, we may purchase and store physical product and/orenter into fixed price-over-the-counter energy commodity forward contracts,swaps and options. We may enter into these agreements at volume levels that webelieve are necessary to mitigate the price risk related to our anticipatedsales volumes under the commitments. If the price of propane declines and ourcustomers purchase less propane than we have purchased from our suppliers, wecould incur losses when we sell the excess volumes. If the price of propaneincreases and our customers purchase more propane than we have purchased fromour suppliers, we could incur losses when we are required to purchaseadditional propane to fulfill our customers’ orders. The risk management of ourinventory and contracts for the future purchase of product could impair ourprofitability if the price of product changes in ways we do not anticipate.

 

TheBoard of Directors of our general partner has adopted a commodity riskmanagement policy which places specified restrictions on all of our commodityrisk management activities such as limits on the types of commodities, losslimits, time limits on contracts and limitations on our ability to enter intoderivative contracts. The policy also requires the establishment of a riskmanagement committee of senior executives. This committee is responsible formonitoring commodity risk management activities, establishing and maintainingtimely reporting and establishing and monitoring specific limits on the variouscommodity risk management activities. These limits may be waived on acase-by-case basis by a majority vote of the risk management committee and/orBoard of Directors, depending on the specific limit being waived. From time totime, for valid business reasons based on the facts and circumstances,authorization has been granted to allow specific commodity risk managementpositions to exceed established limits. If we sustain material losses from ourrisk management activities due to our failure to anticipate future events, afailure of the policy, incorrect waivers or otherwise, our ability to makedistributions to our unitholders or pay interest or principal of any debtsecurities may be negatively impacted as a result of such loss.

 

*We are dependent on our principal suppliers, which increasesthe risks from an interruption in supply and transportation.*

 

Throughour supply procurement activities, we purchased approximately 55% of ourpropane from six suppliers during fiscal 2010. In addition, during extendedperiods of colder-than-normal weather, suppliers may temporarily run out ofpropane necessitating the transportation of propane by truck, rail car or othermeans from other areas. If supplies from these sources were interrupted ordifficulties in alternative transportation were to arise, the cost of procuringreplacement supplies and transporting those supplies from alternative locationsmight be materially higher and, at least on a short-term basis, our marginscould be reduced.

 

*The availability of cash from our credit facility may beimpacted by many factors beyond our control.*

 

Wetypically borrow on the operating partnership’s credit facility or sellaccounts receivable under its accounts receivable securitization facility tofund our working capital requirements. We may also borrow on the operatingpartnership’s credit facility to fund debt service payments, distributions toour unitholders, acquisition and capital expenditures. We purchase product fromsuppliers and make payments with terms that are typically within five to tendays of delivery. We believe that the availability of cash from the operatingpartnership’s credit facility and the accounts receivable securitizationfacility will be sufficient to meet our future working capital needs. However,if we were to experience an unexpected significant increase in working capitalrequirements or have insufficient funds to fund distributions, this need couldexceed our immediately available resources. Events that could cause increasesin working capital borrowings or letter of credit requirements may include:

 

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·                  a significant increase inthe wholesale cost of propane;

·                  a significant delay in thecollections of accounts receivable;

·                  increased volatility inenergy commodity prices related to risk management activities;

·                  increased liquidityrequirements imposed by insurance providers;

·                  a significant downgrade inour credit rating leading to decreased trade credit; or

·                  a significant acquisition.

 

Asis typical in our industry, our retail customers generally do not pay uponreceipt, but pay between 30 and 60 days after delivery. During the winterheating season, we experience significant increases in accounts receivable andinventory levels and thus a significant decline in working capitalavailability. Although we have the ability to fund working capital with borrowingsfrom the operating partnership’s credit facility and sales of accountsreceivable under its accounts receivable securitization facility, we cannotpredict the effect that increases in propane prices and colder-than-normalwinter weather may have on future working capital availability.

 

*We may not be successful in making acquisitions and anyacquisitions we make may not result in our anticipated results; in either case,this would potentially limit our growth, limit our ability to compete andimpair our results of operations.*

 

Wehave historically expanded our business through acquisitions. We regularlyconsider and evaluate opportunities to acquire local, regional and nationalpropane distributors. We may choose to finance these acquisitions through internalcash flow, external borrowings or the issuance of additional common units orother securities. We have substantial competition for acquisitions of propanecompanies. Although we believe there are numerous potential large and smallacquisition candidates in our industry, there can be no assurance that:

 

·                  we will be able to acquireany of these candidates on economically acceptable terms;

 

·                  we will be able tosuccessfully integrate acquired operations with any expected cost savings;

 

·                  any acquisitions made willnot be dilutive to our earnings and distributions;

 

·                  any additional equity weissue as consideration for an acquisition will not be dilutive to ourunitholders; or

 

·                  any additional debt we incurto finance an acquisition will not affect the operating partnership’s abilityto make distributions to Ferrellgas Partners or service the operatingpartnership’s existing debt.

 

*We are subject to operating and litigation risks, which maynot be covered by insurance.*

 

Ouroperations are subject to all operating hazards and risks normally incidentalto 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 legalproceedings arising in the ordinary course of business. We will maintaininsurance policies with insurers in such amounts and with such coverages anddeductibles as we believe are reasonable and prudent. However, we cannotguarantee that such insurance will be adequate to protect us from all materialexpenses related to potential future claims for personal injury and propertydamage or that such levels of insurance will be available in the future ateconomical prices.

 

*We dependon particular management information systems to effectively manage all aspectsof our delivery of propane.*

 

We depend on our managementinformation systems to process orders, manage inventory and accounts receivablecollections, maintain distributor and customer information, maintaincost-efficient operations and assist in delivering propane on a timely basis. Inaddition, our staff of management information systems professionals reliesheavily on the support of several key personnel and vendors. Any disruption inthe operation of those management information systems, loss of employeesknowledgeable about such systems, termination of our relationship with one ormore of these key vendors or failure to continue to modify such systemseffectively as our business expands could negatively affect our business.

 

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Risks Inherent to an Investment in Our DebtSecurities

 

*Ferrellgas Partners and the operating partnership arerequired to distribute all of their available cash to their equity holders andFerrellgas Partners and the operating partnership are not required toaccumulate cash for the purpose of meeting their future obligations to holdersof their debt securities, which may limit the cash available to service those debtsecurities.*

 

Subjectto the limitations on restricted payments contained in the indenture thatgoverns Ferrellgas Partners’ outstanding notes, the instruments governing theoutstanding indebtedness of the operating partnership and any applicableindenture that will govern any debt securities Ferrellgas Partners or theoperating partnership may issue, the partnership agreements of both FerrellgasPartners and the operating partnership require us to distribute all of ouravailable cash each fiscal quarter to our limited partners and our generalpartner and do not require us to accumulate cash for the purpose of meetingobligations to holders of any debt securities of Ferrellgas Partners or theoperating partnership. Available cash is generally all of our cash receipts,less cash disbursements and adjustments for net changes in reserves. As aresult of these distribution requirements, we do not expect either FerrellgasPartners or the operating partnership to accumulate significant amounts ofcash. Depending on the timing and amount of our cash distributions and becausewe are not required to accumulate cash for the purpose of meeting obligationsto holders of any debt securities of Ferrellgas Partners or the operatingpartnership, such distributions could significantly reduce the cash availableto us in subsequent periods to make payments on any debt securities ofFerrellgas Partners or the operating partnership.

 

*Debt securities of Ferrellgas Partners will be structurallysubordinated to all indebtedness and other liabilities of the operatingpartnership and its subsidiaries.*

 

Debtsecurities of Ferrellgas Partners will be effectively subordinated to allexisting and future claims of creditors of the operating partnership and itssubsidiaries, including:

 

·                  the lenders under the operating partnership’sindebtedness;

·                  the claims of lessors under the operatingpartnership’s operating leases;

·                  the claims of the lenders and theiraffiliates under the operating partnership’s accounts receivable securitizationfacility;

·                  debt securities, including any subordinateddebt securities, issued by the operating partnership; and

·                  all other possible future creditors of theoperating partnership and its subsidiaries.

 

Thissubordination is due to these creditors’ priority as to the assets of theoperating partnership and its subsidiaries over Ferrellgas Partners’ claims asan equity holder in the operating partnership and, thereby, indirectly, theclaims of holders of Ferrellgas Partners’ debt securities. As a result, upon anydistribution to these creditors in a bankruptcy, liquidation or reorganizationor similar proceeding relating to Ferrellgas Partners or its property, theoperating partnership’s creditors will be entitled to be paid in full beforeany payment may be made with respect to Ferrellgas Partners’ debt securities.Thereafter, the holders of Ferrellgas Partners’ debt securities willparticipate with its trade creditors and all other holders of its indebtednessin the assets remaining, if any. In any of these cases, Ferrellgas Partners mayhave insufficient funds to pay all of its creditors, and holders of its debtsecurities may therefore receive less, ratably, than creditors of the operatingpartnership and its subsidiaries. As of July 31, 2010, the operating partnershiphad approximately $900.6 million of outstanding indebtedness and otherliabilities to which any of the debt securities of Ferrellgas Partners willeffectively rank junior.

 

*All payments on any subordinated debt securities that we mayissue will be subordinated to the payments of any amounts due on any seniorindebtedness that we may have issued or incurred.*

 

Theright of the holders of subordinated debt securities to receive payment of anyamounts due to them, whether interest, premium or principal, will besubordinated to the right of all of the holders of our senior indebtedness, assuch term will be defined in the applicable subordinated debt indenture, toreceive payments of all amounts due to them. If an event of default on any ofour senior indebtedness occurs, then until such event of default has beencured, we may be unable to make payments of any amounts due to the holders ofour subordinated debt securities. Accordingly, in the event of insolvency,creditors who 

 

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areholders of our senior indebtedness may recover more, ratably, than the holdersof our subordinated debt securities.

 

*Debt securities of Ferrellgas Partners are expected to benon-recourse to the operating partnership, which will limit remedies of theholders of Ferrellgas Partners’ debt securities.*

 

FerrellgasPartners’ obligations under any debt securities are expected to be non-recourseto the operating partnership. Therefore, if Ferrellgas Partners should fail topay the interest or principal on the notes or breach any of its otherobligations under its debt securities or any applicable indenture, holders ofdebt securities of Ferrellgas Partners will not be able to obtain any suchpayments or obtain any other remedy from the operating partnership or itssubsidiaries. The operating partnership and its subsidiaries will not be liablefor any of Ferrellgas Partners’ obligations under its debt securities or theapplicable indenture.

 

*Ferrellgas Partners or the operating partnership may beunable to repurchase debt securities upon a change of control; it may bedifficult to determine if a change of control has occurred.*

 

Uponthe occurrence of “change of control” events as may be described from time totime in our filings with the SEC and related to the issuance by FerrellgasPartners or the operating partnership of debt securities, the applicable issueror a third party may be required to make a change of control offer torepurchase those debt securities at a premium to their principal amount, plusaccrued and unpaid interest. The applicable issuer may not have the financialresources to purchase its debt securities in that circumstance, particularly ifa change of control event triggers a similar repurchase requirement for, orresults in the acceleration of, other indebtedness. The indenture governingFerrellgas Partners’ outstanding notes contains such a repurchase requirement.Some of the agreements governing the operating partnership’s indebtednesscurrently provide that specified change of control events will result in theacceleration of the indebtedness under those agreements. Future debt agreementsof Ferrellgas Partners or the operating partnership may also contain similarprovisions. The obligation to repay any accelerated indebtedness of theoperating partnership will be structurally senior to Ferrellgas Partners’obligations to repurchase its debt securities upon a change of control. Inaddition, future debt agreements of Ferrellgas Partners or the operatingpartnership may contain other restrictions on the ability of FerrellgasPartners or the operating partnership to repurchase its debt securities upon achange of control. These restrictions could prevent the applicable issuer fromsatisfying its obligations to purchase its debt securities unless it is able torefinance or obtain waivers under any indebtedness of Ferrellgas Partners or ofthe operating partnership containing these restrictions. The applicable issuer’sfailure to make or consummate a change of control repurchase offer or pay thechange of control purchase price when due may give the trustee and the holdersof the debt securities particular rights as may be described from time to timein our filings with the SEC.

 

Inaddition, one of the events that may constitute a change of control is a saleof all or substantially all of the applicable issuer’s assets. The meaning of “substantiallyall” varies according to the facts and circumstances of the subject transactionand has no clearly established meaning under New York law, which is the lawthat will likely govern any indenture for the debt securities. This ambiguityas to when a sale of substantially all of the applicable issuer’s assets hasoccurred may make it difficult for holders of debt securities to determinewhether the applicable issuer has properly identified, or failed to identify, achange of control.

 

*There may be no active trading market for our debt securities,which may limit a holder’s ability to sell our debt securities.*

 

Wedo not intend to list the debt securities we may issue from time to time on anysecurities exchange or to seek approval for quotations through any automatedquotation system. An established market for the debt securities may notdevelop, or if one does develop, it may not be maintained. Althoughunderwriters may advise us that they intend to make a market in the debtsecurities, they are not expected to be obligated to do so and may discontinuesuch market making activity at any time without notice. In addition,market-making activity will be subject to the limits imposed by the SecuritiesAct and the Exchange Act. For these reasons, we cannot assure a debt holderthat:

 

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·                  a liquid market for the debtsecurities will develop;

·                  a debt holder will be ableto sell its debt securities; or

·                  a debt holder will receiveany specific price upon any sale of its debt securities.

 

Ifa public market for the debt securities did develop, the debt securities couldtrade at prices that may be higher or lower than their principal amount orpurchase price, depending on many factors, including prevailing interest rates,the market for similar debt securities and our financial performance. Historically,the market for non-investment grade debt, such as our debt securities, has beensubject to disruptions that have caused substantial fluctuations in the pricesof these securities.

 

Risks Inherent to an Investment in FerrellgasPartners’ Equity

 

*Ferrellgas Partners may sell additional limited partnerinterests, diluting existing interests of unitholders.*

 

Thepartnership agreement of Ferrellgas Partners generally allows FerrellgasPartners to issue additional limited partner interests and other equitysecurities. When Ferrellgas Partners issues additional equity securities, aunitholder’s proportionate partnership interest will decrease. Such an issuancecould negatively affect the amount of cash distributed to unitholders and themarket price of common units. The issuance of additional common units will alsodiminish the relative voting strength of the previously outstanding commonunits.

 

*Cash distributions are not guaranteed and may fluctuate withour performance and other external factors.*

 

Althoughwe are required to distribute all of our “available cash,” we cannot guaranteethe amounts of available cash that will be distributed to the holders of ourequity securities. Available cash is generally all of our cash receipts, lesscash disbursements and adjustments for net changes in reserves. The actualamounts of available cash will depend upon numerous factors, including:

 

·                  cash flow generated byoperations;

 

·                  weather in our areas ofoperation;

 

·                  borrowing capacity under ourcredit facility;

 

·                  principal and interestpayments made on our debt;

 

·                  the costs of acquisitions,including related debt service payments;

 

·                  restrictions contained indebt instruments;

 

·                  issuances of debt and equitysecurities;

 

·                  fluctuations in workingcapital;

 

·                  capital expenditures;

 

·                  adjustments in reserves madeby our general partner in its discretion;

 

·                  prevailing economicconditions; and

 

·                  financial, business andother factors, a number of which will be beyond our control.

 

Cashdistributions are dependent primarily on cash flow, including from reservesand, subject to limitations, working capital borrowings. Cash distributions arenot dependent on profitability, which is affected by non-cash items. Therefore,cash distributions might be made during periods when we record losses and mightnot be made during periods when we record profits.

 

*Our general partner has broad discretion to determine theamount of “available cash” for distribution to holders of our equity securitiesthrough the establishment and maintenance of cash reserves, thereby potentiallylessening and limiting the amount of “available cash” eligible fordistribution.*

 

Our general partner determines the timing andamount of our distributions and has broad discretion in determining the amountof funds that will be recognized as “available cash.” Part of thisdiscretion comes 

 

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from the ability of our general partner toestablish and make additions to our reserves. Decisions as to amounts to beplaced in or released from reserves have a direct impact on the amount ofavailable cash for distributions because increases and decreases in reservesare taken into account in computing available cash. Funds within or added toour reserves are not considered to be “available cash” and are therefore notrequired to be distributed. Each fiscal quarter, our general partner may, inits reasonable discretion, determine the amounts to be placed in or releasedfrom 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 ouragreements or obligations, including the establishment of reserves to fund thepayment of interest and principal in the future of any debt securities ofFerrellgas Partners or the operating partnership;

 

·                  to provide for level distributions of cash notwithstandingthe seasonality of our business; and

 

·                  to provide for future capital expendituresand other payments deemed by our general partner to be necessary or advisable.

 

Thedecision by our general partner to establish, increase or decrease our reservesmay limit the amount of cash available for distribution to holders of ourequity securities. Holders of our equity securities will not receive paymentsrequired by such securities unless we are able to first satisfy our ownobligations and the establishment of any reserves. See the first risk factorunder “Risks Arising from Our Partnership Structure and Relationship with OurGeneral Partner.”

 

*The debt agreements of Ferrellgas Partners and the operatingpartnership may limit their ability to make distributions to holders of theirequity securities.*

 

Thedebt agreements governing Ferrellgas Partners’ and the operating partnership’soutstanding indebtedness contain restrictive covenants that may limit orprohibit distributions to holders of their equity securities under variouscircumstances. Ferrellgas Partners’ existing indenture generally prohibits itfrom:

 

·                  making any distributions to unitholders if anevent of default exists or would exist when such distribution is made;

 

·                  distributing amounts in excess of 100% ofavailable cash for the immediately preceding fiscal quarter if its consolidatedfixed charge coverage ratio as defined in the indenture is less than 1.75 to1.00;  or

 

·                  distributing amounts in excess of $25.0million less any restricted payments made for the prior sixteen fiscal quartersplus the aggregate cash contributions made to us during that period if itsconsolidated fixed charge coverage ratio as defined in the indenture is lessthan or equal to 1.75 to 1.00.

 

Seethe first risk factor under “Risks Arising from Our Partnership Structure andRelationship with Our General Partner” for a description of the restrictions onthe operating partnership’s ability to distribute cash to Ferrellgas Partners.Any indenture applicable to future issuances of debt securities by FerrellgasPartners or the operating partnership may contain restrictions that are thesame as or similar to those in their existing debt agreements.

 

*Persons owning 20% or more of Ferrellgas Partners’ commonunits cannot vote. This limitation does not apply to common units owned byFerrell Companies, our general partner and its affiliates.*

 

Allcommon 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 attemptingto remove our general partner or otherwise change management; and

·                  reduce the price at which our common unitswill trade under various circumstances.

 

Thislimitation does not apply to our general partner and its affiliates. FerrellCompanies, the parent of our general partner, beneficially owns all of theoutstanding capital stock of our general partner in addition to approximately29% of our common units.

 

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Risks Arising from Our Partnership Structure andRelationship with Our General Partner

 

*Ferrellgas Partners is a holding entity and has no materialoperations or assets. Accordingly, Ferrellgas Partners is dependent ondistributions from the operating partnership to service its obligations. Thesedistributions are not guaranteed and may be restricted.*

 

FerrellgasPartners is a holding entity for our subsidiaries, including the operatingpartnership. Ferrellgas Partners has no material operations and only limitedassets. Ferrellgas Partners Finance Corp. is Ferrellgas Partners’ wholly-ownedfinance subsidiary, serves as a co-obligor on any of its debt securities, conductsno business and has nominal assets. Accordingly, Ferrellgas Partners isdependent on cash distributions from the operating partnership and itssubsidiaries to service obligations of Ferrellgas Partners. The operatingpartnership is required to distribute all of its available cash each fiscalquarter, less the amount of cash reserves that our general partner determinesis necessary or appropriate in its reasonable discretion to provide for theproper conduct of our business, to provide funds for distributions over thenext four fiscal quarters or to comply with applicable law or with any of ourdebt or other agreements. This discretion may limit the amount of availablecash the operating partnership may distribute to Ferrellgas Partners eachfiscal quarter. Holders of Ferrellgas Partners’ securities will not receivepayments required by those securities unless the operating partnership is ableto make distributions to Ferrellgas Partners after the operating partnershipfirst satisfies its obligations under the terms of its own borrowingarrangements and reserves any necessary amounts to meet its own financialobligations.

 

Inaddition, the various agreements governing the operating partnership’sindebtedness and other financing transactions permit quarterly distributionsonly so long as each distribution does not exceed a specified amount, theoperating partnership meets a specified financial ratio and no default existsor would result from such distribution. Those agreements include the indenturesgoverning the operating partnership’s existing notes, credit facility and anaccounts receivable securitization facility. Each of these agreements containsvarious negative and affirmative covenants applicable to the operatingpartnership and some of these agreements require the operating partnership tomaintain specified financial ratios. If the operating partnership violates anyof these covenants or requirements, a default may result and distributionswould be limited. These covenants limit the operating partnership’s ability to,among other things:

 

·                  incur additional indebtedness;

·                  engage in transactions with affiliates;

·                  create or incur liens;

·                  sell assets;

·                  make restricted payments, loans andinvestments;

·                  enter into business combinations and assetsale transactions; and

·                  engage in other lines of business.

 

*Unitholders have limits on their voting rights; our generalpartner manages and operates us, thereby generally precluding the participationof our unitholders in operational decisions.*

 

Ourgeneral partner manages and operates us. Unlike the holders of common stock ina corporation, unitholders have only limited voting rights on matters affectingour business. Amendments to the agreement of limited partnership of FerrellgasPartners may be proposed only by or with the consent of our general partner.Proposed amendments must generally be approved by holders of at least amajority of our outstanding common units.

 

Unitholderswill have no right to elect our general partner, or any directors of ourgeneral partner on an annual or other continuing basis, nor will any proxies bereceived for such voting. Our general partner may not be removed exceptpursuant to:

 

·                  the vote of the holders of at least 66 2/3%of the outstanding units entitled to vote thereon, which includes the commonunits owned by our general partner and its affiliates; and

 

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·                  upon the election of a successor generalpartner by the vote of the holders of not less than a majority of theoutstanding common units entitled to vote.

 

BecauseFerrell Companies is the parent of our general partner and beneficially ownsapproximately 29% of our outstanding common units and James E. Ferrell,Executive Chairman and Chairman of the Board of Directors of our generalpartner, indirectly owns approximately 6% of our outstanding common units,amendments to the agreement of limited partnership of Ferrellgas Partners orthe removal of our general partner may not be made if neither Ferrell Companiesnor Mr. Ferrell consent to such action.

 

*Our general partner has a limited call right with respect tothe limited partner interests of Ferrellgas Partners.*

 

Ifat any time less than 20% of the then-issued and outstanding limited partnerinterests of any class of Ferrellgas Partners are held by persons other thanour 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 notless than all, of the remaining limited partner interests of such class held bysuch unaffiliated persons at a price generally equal to the then-current marketprice of limited partner interests of such class. As a consequence, aunitholder may be required to sell its common units at a time when theunitholder may not desire to sell them or at a price that is less than theprice desired to be received upon such sale.

 

*Unitholders may not have limited liability in specifiedcircumstances and may be liable for the return of distributions.*

 

Thelimitations on the liability of holders of limited partner interests for theobligations of a limited partnership have not been clearly established in somestates. If it were determined that we had been conducting business in any statewithout compliance with the applicable limited partnership statute, or that theright, or the exercise of the right by the limited partners as a group, to:

 

·                  remove or replace ourgeneral partner;

 

·                  make specified amendments toour partnership agreements; or

 

·                  take other action pursuantto our partnership agreements that constitutes participation in the “control”of our business,

 

thenthe limited partners could be held liable in some circumstances for ourobligations to the same extent as a general partner.

 

Inaddition, under some circumstances a unitholder may be liable to us for theamount of a distribution for a period of three years from the date of thedistribution. Unitholders will not be liable for assessments in addition totheir initial capital investment in our common units. Under Delaware GeneralCorporate Law, we may not make a distribution to our unitholders if thedistribution causes all our liabilities to exceed the fair value of our assets.Liabilities to partners on account of their partnership interests andliabilities for which recourse is limited to specific property are not countedfor purposes of determining whether a distribution is permitted. Delaware lawprovides that a limited partner who receives such a distribution and knew atthe time of the distribution that the distribution violated the Delaware lawwill be liable to the limited partnership for the distribution amount for threeyears from the distribution date. Under Delaware law, an assignee that becomesa substituted limited partner of a limited partnership is liable for theobligations of the assignor to make contributions to the partnership. However,such an assignee is not obligated for liabilities unknown to that assignee atthe time such assignee became a limited partner if the liabilities could not bedetermined from the partnership agreements.

 

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*Our general partner’s liability to us and our unitholdersmay be limited.*

 

Thepartnership agreements of Ferrellgas Partners and the operating partnershipcontain language limiting the liability of our general partner to us and to ourunitholders. For example, those partnership agreements provide that:

 

·                  the general partner does not breach any dutyto us or our unitholders by borrowing funds or approving any borrowing; ourgeneral partner is protected even if the purpose or effect of the borrowing isto increase incentive distributions to our general partner;

 

·                  our general partner does not breach any dutyto us or our unitholders by taking any actions consistent with the standards ofreasonable discretion outlined in the definitions of available cash and cashfrom operations contained in our partnership agreements; and

 

·                  our general partner does not breach anystandard of care or duty by resolving conflicts of interest unless our generalpartner acts in bad faith.

 

Themodifications of state law standards of fiduciary duty contained in ourpartnership agreements may significantly limit the ability of unitholders tosuccessfully challenge the actions of our general partner as being a breach ofwhat would otherwise have been a fiduciary duty. These standards include thehighest duties of good faith, fairness and loyalty to the limited partners.Such a duty of loyalty would generally prohibit a general partner of a Delawarelimited partnership from taking any action or engaging in any transaction forwhich it has a conflict of interest. Under our partnership agreements, ourgeneral partner may exercise its broad discretion and authority in ourmanagement and the conduct of our operations as long as our general partner’sactions are in our best interest.

 

*Our general partner and its affiliates may have conflictswith us.*

 

Thedirectors and officers of our general partner and its affiliates have fiduciaryduties to manage itself in a manner that is beneficial to its stockholder. Atthe same time, our general partner has fiduciary duties to manage us in amanner that is beneficial to us and our unitholders. Therefore, our generalpartner’s duties to us may conflict with the duties of its officers anddirectors to its stockholder.

 

Mattersin which, and reasons that, such conflicts of interest may arise include:

 

·                  decisions of our general partner with respectto the amount and timing of our cash expenditures, borrowings, acquisitions,issuances of additional securities and changes in reserves in any quarter mayaffect the amount of incentive distributions we are obligated to pay ourgeneral partner;

 

·                  borrowings do not constitute a breach of anyduty owed by our general partner to our unitholders even if these borrowingshave the purpose or effect of directly or indirectly enabling us to makedistributions to the holder of our incentive distribution rights, currently ourgeneral partner, or to hasten the expiration of the deferral period withrespect to the common units held by Ferrell Companies;

 

·                  we do not have any employees and rely solelyon employees of our general partner and its affiliates;

 

·                  under the terms of our partnershipagreements, we must reimburse our general partner and its affiliates for costsincurred in managing and operating us, including costs incurred in renderingcorporate staff and support services to us;

 

·                  our general partner is not restricted fromcausing us to pay it or its affiliates for any services rendered on terms thatare fair and reasonable to us or causing us to enter into additionalcontractual arrangements with any of such entities;

 

·                  neither our partnership agreements nor any ofthe 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 theresult of arms-length negotiations;

 

·                  whenever possible, our general partner limitsour liability under contractual arrangements to all or a portion of our assets,with the other party thereto having no recourse against our general partner orits assets;

 

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·                  our partnership agreements permit our generalpartner to make these limitations even if we could have obtained more favorableterms if our general partner had not limited its liability;

 

·                  any agreements between us and our generalpartner or its affiliates will not grant to our unitholders, separate and apartfrom us, the right to enforce the obligations of our general partner or suchaffiliates in favor of us; therefore, our general partner will be primarilyresponsible for enforcing those obligations;

 

·                  our general partner may exercise its right tocall for and purchase common units as provided in the partnership agreement ofFerrellgas Partners or assign that right to one of its affiliates or to us;

 

·                  our partnership agreements provide that itwill not constitute a breach of our general partner’s fiduciary duties to usfor its affiliates to engage in activities of the type conducted by us, otherthan retail propane sales to end users in the continental United States in themanner engaged in by our general partner immediately prior to our initialpublic offering, even if these activities are in direct competition with us;

 

·                  our general partner and its affiliates haveno obligation to present business opportunities to us;

 

·                  our general partner selects the attorneys,accountants and others who perform services for us. These persons may alsoperform services for our general partner and its affiliates. Our generalpartner is authorized to retain separate counsel for us or our unitholders,depending on the nature of the conflict that arises; and

 

·                  James E. Ferrell is the Executive Chairman ofour general partner and the Chairman of its Board of Directors. Mr. Ferrellalso owns other companies with whom we may, from time to time, conducttransactions within our ordinary course of business. Mr. Ferrell’sownership of these entities may conflict with his duties as an officer and directorof our general partner, including our relationship and conduct of business withany of Mr. Ferrell’s companies.

 

See“Conflicts of Interest” and “Fiduciary Responsibilities” below.

 

*Ferrell Companies may transfer the ownership of our generalpartner which could cause a change of our management and affect the decisionsmade by our general partner regarding resolutions of conflicts of interest.*

 

FerrellCompanies, the owner of our general partner, may transfer the capital stock ofour general partner without the consent of our unitholders. In such aninstance, our general partner will remain bound by our partnership agreements.If, however, through share ownership or otherwise, persons not now affiliatedwith our general partner were to acquire its general partner interest in us oreffective control of our general partner, our management and resolutions ofconflicts of interest, such as those described above, could changesubstantially.

 

*Our general partner may voluntarily withdraw or sell itsgeneral partner interest.*

 

Ourgeneral partner may withdraw as the general partner of Ferrellgas Partners andthe operating partnership without the approval of our unitholders. Our generalpartner may also sell its general partner interest in Ferrellgas Partners andthe operating partnership without the approval of our unitholders. Any suchwithdrawal or sale could have a material adverse effect on us and couldsubstantially change the management and resolutions of conflicts of interest,as described above.

 

*Our general partner can protect itself against dilution.*

 

Wheneverwe issue equity securities to any person other than our general partner and itsaffiliates, our general partner has the right to purchase additional limitedpartner interests on the same terms. This allows our general partner tomaintain its partnership interest in us. No other unitholder has a similarright. Therefore, only our general partner may protect itself against dilutioncaused by our issuance of additional equity securities.

 

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Tax Risks

 

*The IRS could treat us as a corporation for tax purposes orchanges in federal or state laws could subject us to entity level taxation,which would substantially reduce the cash available for distribution to ourunitholders.*

 

Theanticipated after-tax economic benefit of an investment in us depends largelyon our being treated as a partnership for federal income tax purposes. Webelieve that, under current law, we have been and will continue to beclassified as a partnership for federal income tax purposes. One of therequirements for such classification is that at least 90% of our gross incomefor each taxable year has been and will be “qualifying income” within themeaning of Section 7704 of the Internal Revenue Code. Whether we willcontinue to be classified as a partnership in part depends on our ability tomeet this qualifying income test in the future.

 

Ifwe were classified as a corporation for federal income tax purposes, we wouldpay 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 corporatedistributions and no income, gains, losses or deductions would flow through toour unitholders. Because a tax would be imposed upon us as a corporation, thecash available for distribution to our unitholders would be substantiallyreduced. Therefore, treatment of us as a corporation would result in a materialreduction in the anticipated cash flow and after-tax return to our unitholdersand thus would likely result in a substantial reduction in the value of ourcommon units.

 

Achange in current law or a change in our business could cause us to be treatedas a corporation for federal income tax purposes or otherwise subject us toentity-level taxation. Our partnership agreements provide that if a law isenacted or existing law is modified or interpreted in a manner that subjects usto taxation as a corporation or otherwise subjects us to entity-level taxationfor federal, state or local income tax purposes, provisions of our partnershipagreements will be subject to change. These changes would include a decrease inthe minimum quarterly distribution and the target distribution levels toreflect the impact of such law on us.

 

*A successful IRS contest of the federal income tax positionswe take may reduce the market value of our common units and the costs of anycontest will be borne by us and therefore indirectly by our unitholders and ourgeneral partner.*

 

TheIRS may adopt positions that differ from those expressed herein or from thepositions we take. It may be necessary to resort to administrative or courtproceedings in an effort to sustain some or all of the positions we take, andsome or all of these positions ultimately may not be sustained. Any contestwith the IRS may materially reduce the market value of our common units and theprices at which our common units trade. In addition, our costs of any contestwith the IRS will be borne by us and therefore indirectly by our unitholdersand our general partner.

 

*Unitholders may be required to pay taxes on income from useven if unitholders do not receive any cash distributions from us.*

 

Aunitholder 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 itdoes not receive cash distributions from us. A unitholder may not receive cashdistributions equal to its share of our taxable income or even the taxliability that results from that income. Further, a unitholder may incur a taxliability in excess of the amount of cash it receives upon the sale of itsunits.

 

*The ratio of taxable income to cash distributions could behigher or lower than our estimates, which could result in a material reductionof the market value of our common units*.

 

Weestimate that a person who acquires common units in the 2010 calendar year andowns those common units through the record dates for all cash distributionspayable for all periods within the 2010 calendar year will be allocated, on acumulative basis, an amount of federal taxable income that will be less than10% of the cumulative cash distributed to such person for those periods. Thetaxable income 

 

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allocableto a unitholder for subsequent periods may constitute an increasing percentageof distributable cash. These estimates are based on several assumptions andestimates that are subject to factors beyond our control. Accordingly, theactual percentage of distributions that will constitute taxable income could behigher or lower and any differences could result in a material reduction in themarket value of our common units.

 

*There are limits on the deductibility of losses.*

 

In the case of unitholders subject to the passiveloss rules (generally, individuals, closely held corporations andregulated investment companies), any losses generated by us will only beavailable to offset our future income and cannot be used to offset income fromother activities, including passive activities or investments. Unused lossesmay be deducted when the unitholder disposes of its entire investment in us ina fully taxable transaction with an unrelated party. A unitholder’s share ofour net passive income may be offset by unused losses carried over from prioryears, but not by losses from other passive activities, including losses fromother publicly-traded partnerships.

 

*Tax gain or loss on the disposition of our common unitscould be different than expected.*

 

Ifa unitholder sells their common units, the unitholder will recognize a gain orloss equal to the difference between the amount realized and its tax basis inthose common units. Prior distributions in excess of the total net taxableincome the unitholder was allocated for a common unit, which decreased its taxbasis in that common unit, will, in effect, become taxable income to theunitholder if the common unit is sold at a price greater than its tax basis inthat common unit, even if the price received is less than its original cost. Asubstantial portion of the amount realized, whether or not representing a gain,will likely be ordinary income to that unitholder. Should the IRS successfullycontest some positions we take, a selling unitholder could recognize more gainon the sale of units than would be the case under those positions, without thebenefit of decreased income in prior years. In addition, if a unitholder sellsits units, the unitholder may incur a tax liability in excess of the amount ofcash that unitholder receives from the sale.

 

*Tax-exempt entities, regulated investment companies, andforeign persons face unique tax issues from owning common units that may resultin additional tax liability or reporting requirements for them.*

 

Aninvestment in common units by tax-exempt entities, such as employee benefitplans, individual retirement accounts, regulated investment companies,generally known as mutual funds, and non-U.S. persons, raises issues unique tothem. For example, virtually all of our income allocated to organizationsexempt from federal income tax, including individual retirement accounts andother retirement plans, will be unrelated business taxable income and thus willbe taxable to them. Net income from a “qualified publicly-traded partnership”is qualifying income for a regulated investment company, or mutual fund.However, no more than 25% of the value of a regulated investment company’stotal assets may be invested in the securities of one or more qualifiedpublicly-traded partnerships. We expect to be treated as a qualified publicly-tradedpartnership. Distributions to non-U.S. persons will be reduced by withholdingtaxes, at the highest effective tax rate applicable to individuals, andnon-U.S. persons will be required to file federal income tax returns andgenerally pay tax on their share of our taxable income.

 

*Certaininformation relating to a unitholder’s investment may be subject to special IRSreporting requirements.*

 

Treasuryregulations require taxpayers to report particular information on Form 8886if they participate in a “reportable transaction.” Unitholders may be requiredto file this form with the IRS. A transaction may be a reportable transactionbased upon any of several factors. The IRS may impose significant penalties ona unitholder for failure to comply with these disclosure requirements.Disclosure and information maintenance obligations are also imposed on “materialadvisors” that organize, manage or sell interests in reportable transactions,which may require us or our material advisors to maintain and disclose to theIRS certain information relating to unitholders.

 

*An audit of us may result in an adjustment or an audit of aunitholder’s own tax return.*

 

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Wemay be audited by the IRS and tax adjustments could be made. The rights of aunitholder owning less than a 1% interest in us to participate in the incometax audit process are very limited. Further, any adjustments in our tax returnswill lead to adjustments in the unitholders’ tax returns and may lead to auditsof unitholders’ tax returns and adjustments of items unrelated to us. Aunitholder will bear the cost of any expenses incurred in connection with anexamination of its personal tax return.

 

*Reporting of partnership tax information is complicated andsubject to audits; we cannot guarantee conformity to IRS requirements.*

 

Wewill furnish each unitholder with a Schedule K-1 that sets forth thatunitholder’s allocable share of income, gains, losses and deductions. Inpreparing these schedules, we will use various accounting and reportingconventions and adopt various depreciation and amortization methods. We cannotguarantee that these schedules will yield a result that conforms to statutoryor regulatory requirements or to administrative pronouncements of the IRS. Ifany of the information on these schedules is successfully challenged by theIRS, the character and amount of items of income, gain, loss or deduction previouslyreported by unitholders might change, and unitholders might be required toadjust their tax liability for prior years and incur interest and penaltieswith respect to those adjustments.

 

*Unitholders may lose tax benefits as a result of nonconformingdepreciation conventions.*

 

Becausewe cannot match transferors and transferees of common units, uniformity of theeconomic and tax characteristics of our common units to a purchaser of commonunits of the same class must be maintained. To maintain uniformity and forother reasons, we have adopted certain depreciation and amortizationconventions which we believe conform to Treasury Regulations under 743(b) ofthe Internal Revenue Code. A successful IRS challenge to those positions couldreduce the amount of tax benefits available to our unitholders. A successfulchallenge could also affect the timing of these tax benefits or the amount ofgain from the sale of common units and could have a negative impact on thevalue of our common units or result in audit adjustments to a unitholder’s taxreturns.

 

*As a result of investing in our common units, a unitholderwill likely be subject to state and local taxes and return filing requirementsin jurisdictions where it does not live.*

 

Inaddition to federal income taxes, unitholders will likely be subject to othertaxes, such as state and local taxes, unincorporated business taxes and estate,inheritance or intangible taxes that are imposed by the various jurisdictionsin which we do business or own property. A unitholder will likely be requiredto file state and local income tax returns and pay state and local income taxesin some or all of the various jurisdictions in which we do business or ownproperty and may be subject to penalties for failure to comply with thoserequirements. We currently conduct business in all 50 states, the District ofColumbia and Puerto Rico. It is a unitholder’s responsibility to file allrequired United States federal, state and local tax returns.

 

*States may subject partnerships to entity-level taxation inthe future; thereby decreasing the amount of cash available to us fordistributions and potentially causing a decrease in our distribution levels,including a decrease in the minimum quarterly distribution.*

 

Severalstates have enacted or are evaluating ways to subject partnerships toentity-level taxation through the imposition of state income, franchise orother forms of taxation. If additional states were to impose a tax upon us asan entity, the cash available for distribution to unitholders would be reduced.The partnership agreements of Ferrellgas Partners and the operating partnershipeach provide that if a law is enacted or existing law is modified orinterpreted in a manner that subjects one or both partnerships to taxation as acorporation or otherwise subjects one or both partnerships to entity-leveltaxation for federal, state or local income tax purposes, provisions of one orboth partnership agreements will be subject to change. These changes wouldinclude a decrease in the minimum quarterly distribution and the targetdistribution levels to reflect the impact of those taxes.

 

*Unitholdersmay have negative tax consequences if we default on our debt or sell assets.*

 

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If we default on any of our debt, the lenders willhave the right to sue us for non-payment. That action could cause an investmentloss and negative tax consequences for our unitholders through the realizationof taxable income by unitholders without a corresponding cash distribution.Likewise, if we were to dispose of assets and realize a taxable gain whilethere is substantial debt outstanding and proceeds of the sale were applied tothe debt, our unitholders could have increased taxable income without acorresponding cash distribution.

 

**Conflicts of Interest**

 

Conflicts of interest could arise as a result of the relationshipsbetween us, on the one hand, and our general partner and its affiliates, on theother. The directors and officers of our general partner have fiduciary dutiesto manage our general partner in a manner beneficial to its stockholder. At thesame time, our general partner has fiduciary duties to manage us in a mannerbeneficial to us and our unitholders. The duties of our general partner to usand our unitholders, therefore, may conflict with the duties of the directorsand officers of our general partner to its stockholder.

 

Matters in which, and reasons that, such conflictsof interest may arise include:

 

·                  decisions of our general partner with respectto the amount and timing of our cash expenditures, borrowings, acquisitions,issuances of additional securities and changes in reserves in any quarter mayaffect the amount of incentive distributions we are obligated to pay ourgeneral partner;

 

·                  borrowings do not constitute a breach of anyduty owed by our general partner to our unitholders even if these borrowingshave the purpose or effect of directly or indirectly enabling us to makedistributions to the holder of our incentive distribution rights, currently ourgeneral partner;

 

·                  we do not have any employees and rely solelyon employees of our general partner and its affiliates;

 

·                  under the termsof our partnership agreements, we must reimburse our general partner and itsaffiliates for costs incurred in managing and operating us, including costsincurred in rendering corporate staff and support services to us;

 

·                  our general partner is not restricted fromcausing us to pay it or its affiliates for any services rendered on terms thatare fair and reasonable to us or causing us to enter into additionalcontractual arrangements with any of such entities;

 

·                  neither our partnership agreements nor any ofthe 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 theresult of arms-length negotiations;

 

·                  whenever possible, our general partner limitsour liability under contractual arrangements to all or a portion of our assets,with the other party thereto having no recourse against our general partner orits assets;

 

·                  our partnership agreements permit our generalpartner to make these limitations even if we could have obtained more favorableterms if our general partner had not limited its liability;

 

·                  any agreements between us and our generalpartner or its affiliates will not grant to our unitholders, separate and apartfrom us, the right to enforce the obligations of our general partner or suchaffiliates in favor of us; therefore, our general partner will be primarilyresponsible for enforcing those obligations;

 

·                  our general partner may exercise its right tocall for and purchase common units as provided in the partnership agreement ofFerrellgas Partners or assign that right to one of its affiliates or to us;

 

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·                  our partnership agreements provide that itwill not constitute a breach of our general partner’s fiduciary duties to usfor its affiliates to engage in activities of the type conducted by us, otherthan retail propane sales to end users in the continental United States in themanner engaged in by our general partner immediately prior to our initialpublic offering, even if these activities are in direct competition with us;

 

·                  our general partner and its affiliates haveno obligation to present business opportunities to us;

 

·                  our general partner selects the attorneys,accountants and others who perform services for us. These persons may alsoperform services for our general partner and its affiliates. Our generalpartner is authorized to retain separate counsel for us or our unitholders,depending on the nature of the conflict that arises; and

 

·                  James E. Ferrell is the Executive Chairman ofour general partner and the Chairman of its Board of Directors. Mr. Ferrellalso owns other companies with whom we may, from time to time, conducttransactions within our ordinary course of business. Mr. Ferrell’sownership of these entities may conflict with his duties as an officer and directorof our general partner, including our relationship and conduct of business withany of Mr. Ferrell’s companies.

 

**FiduciaryResponsibilities**

 

Unless otherwise provided for in apartnership agreement, Delaware law generally requires a general partner of aDelaware limited partnership to adhere to fiduciary duty standards under whichit owes its limited partners the highest duties of good faith, fairness andloyalty and which generally prohibit the general partner from taking any actionor engaging in any transaction as to which it has a conflict of interest. Ourpartnership agreements expressly permit our general partner to resolveconflicts of interest between itself or its affiliates, on the one hand, and usor our unitholders, on the other, and to consider, in resolving such conflictsof interest, the interests of other parties in addition to the interests of ourunitholders. In addition, the partnership agreement of Ferrellgas Partnersprovides that a purchaser of common units is deemed to have consented tospecified conflicts of interest and actions of our general partner and itsaffiliates that might otherwise be prohibited, including those described above,and to have agreed that such conflicts of interest and actions do notconstitute a breach by our general partner of any duty stated or implied by lawor equity. Our general partner will not be in breach of its obligations underour partnership agreements or its duties to us or our unitholders if theresolution of such conflict is fair and reasonable to us. Any resolution of aconflict approved by the audit committee of our general partner is conclusivelydeemed fair and reasonable to us. The latitude given in our partnershipagreements to our general partner in resolving conflicts of interest may significantlylimit the ability of a unitholder to challenge what might otherwise be a breachof fiduciary duty.

 

The partnership agreements ofFerrellgas Partners and the operating partnership expressly limit the liabilityof our general partner by providing that our general partner, its affiliatesand their respective officers and directors will not be liable for monetarydamages to us, our unitholders or assignees thereof for errors of judgment orfor any acts or omissions if our general partner and such other persons actedin good faith. In addition, we are required to indemnify our general partner,its affiliates and their respective officers, directors, employees, agents andtrustees to the fullest extent permitted by law against liabilities, costs and expensesincurred by our general partner or such other persons if our general partner orsuch persons acted in good faith and in a manner it or they reasonably believedto be in, or (in the case of a person other than our general partner) notopposed to, the best interests of us and, with respect to any criminalproceedings, had no reasonable cause to believe the conduct was unlawful.

 

**ITEM 1B.****              ****UNRESOLVEDSTAFF COMMENTS.**

 

None.

 

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**ITEM 2.****                       ****PROPERTIES.**

 

We own or lease the following transportation equipment that is utilizedprimarily in propane distribution operations:

** **
| ** **                               | ** ** | **Owned** | ** ** | **Leased** | ** ** | **Total** | ** ** |
|------------------------------------------|------------|-----------|------------|------------|------------|-----------|------------|
| Truck tractors                           |       | 122       |       | 61         |       | 183       |       |
| Propane transport trailers               |       | 275       |       | 30         |       | 305       |       |
| Portable tank delivery trucks            |       | 310       |       | 217        |       | 527       |       |
| Portable tank exchange delivery trailers |       | 170       |       | 117        |       | 287       |       |
| Bulk propane delivery trucks             |       | 1,151     |       | 592        |       | 1,743     |       |
| Pickup and service trucks                |       | 1,044     |       | 368        |       | 1,412     |       |
| Railroad tank cars                       |       | —    |       | 97         |       | 97        |       |

 

The propane transport trailers have an average capacity ofapproximately 10,000 gallons. The bulk propane delivery trucks are generallyfitted with 3,000 gallon tanks. Each railroad tank car has a capacity ofapproximately 30,000 gallons.

 

We typically manage our retail propane distribution locations using astructure where one location, referred to as a service center, is staffed toprovide oversight and management to multiple distribution locations, referredto as service units. Our retail propane distribution locations are comprised of154 service centers and 862 service units. The service unit locations utilizehand-held computers and satellite technology to communicate with managementtypically located in the associated service center. We believe this structuretogether with our technology platform allows us to more efficiently route andschedule customer deliveries and significantly reduces the need for dailyon-site management.

 

In addition to our retail propane distribution locations, we alsodistribute propane for our portable tank exchange operations from 22partnership-owned propane distribution locations and 18 independently-owneddistributors.

 

We own approximately 49.1 million gallons of propane storage capacityat our propane distribution locations. We own our land and buildings in thelocal markets of approximately half of our operating locations and lease theremaining facilities on terms customary in the industry.

 

We own approximately 1.0 million propane tanks, most of which arelocated on customer property and rented to those customers. We also ownapproximately 3.4 million portable propane tanks, most of which are used by usto deliver propane to our portable tank exchange customers and to deliverpropane to our industrial/commercial customers.

 

Welease approximately 48.8 million gallons of propane storage capacity located atunderground storage facilities and pipelines at various locations around theUnited States.

 

We lease 103,895 square feet of office space at separate locations thatcomprise our corporate headquarters in the Kansas City metropolitan area. Wealso lease 64,219 square feet of office and warehouse space in Winston-Salem,North Carolina in connection with our portable tank exchange operations.

 

We believe that we have satisfactory title to or valid rights to useall of our material properties. Although some of those properties may besubject to liabilities and leases, liens for taxes not yet currently due andpayable and immaterial encumbrances, easements and restrictions, we do notbelieve that any such burdens will materially interfere with the continued useof such properties in our business. We believe that we have obtained, or are inthe process of obtaining, all required material approvals. These approvalsinclude authorizations, orders, licenses, permits, franchises, consents of,registrations, qualifications and filings with, the various state and localgovernmental and regulatory authorities which relate to our ownership ofproperties or to our operations.

 

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**ITEM 3.****                       ****LEGALPROCEEDINGS.**

 

Our operations are subject to all operating hazards and risks normallyincidental to handling, storing, transporting and otherwise providing for useby consumers of combustible liquids such as propane. As a result, at any giventime, we are threatened with or named as a defendant in various lawsuitsarising in the ordinary course of business. Currently, we are not a party toany legal proceedings other than various claims and lawsuits arising in theordinary course of business. It is not possible to determine the ultimatedisposition of these matters; however, management is of the opinion that thereare no known claims or contingent claims that are reasonably expected to have amaterial adverse effect on our financial condition, results of operations andcash flows.

 

Wehave been named as a defendant in lawsuits filed in multiple federal and statecourts that seek to certify nationwide or statewide classes related to our BlueRhino branded propane tank exchange activities. The plaintiffs in each casegenerally allege that we failed to inform consumers of the amount of propanecontained in propane tanks they purchased and that we violated anti-trust lawsby allegedly conspiring with a competitor. The federal cases havebeen coordinated for multidistrict treatment in the United StatesDistrict Court for the Western District of Missouri. Based on our business andconsumer notification practices in our Blue Rhino tank exchange operations, webelieve that all of these claims are without merit and intend to defend theclaims vigorously.

 

**ITEM 4.****                       ****(REMOVEDAND RESERVED).**

 

**PART II**

 

**ITEM 5.****       ****MARKETFOR REGISTRANTS’ COMMON EQUITY, RELATED UNITHOLDER AND STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES.**

 

**Common Units of Ferrellgas Partners**

 

Our common units represent limited partner interests in FerrellgasPartners and are listed and traded on the New York Stock Exchange under thesymbol “FGP.” As of August 31, 2010, we had 874 common unitholders ofrecord. The following table sets forth the high and low sales prices for ourcommon units on the New York Stock Exchange and the cash distributions declaredper common unit for our fiscal periods indicated.

 
| ** **     | ** ** | **Common Unit Price Range** | ** ** | **Distributions** | ** ** |
|----------------|------------|--------------------------------------------|------------|-------------------|------------|
| ** **     | ** ** | **High**                                   | ** ** | **Low**           | ** ** | **Declared Per Unit** | ** ** |
| 2009           |       |                                       |       |              |       |   |   |
| First Quarter  |       | $                                          | 20.78      |              | $          | 11.27 |   | $ | 0.50 |   |
| Second Quarter |       | 16.95                                      |       | 11.23             |       | 0.50 |   |
| Third Quarter  |       | 15.57                                      |       | 11.30             |       | 0.50 |   |
| Fourth Quarter |       | 18.37                                      |       | 14.61             |       | 0.50 |   |
|           |       |                                       |       |              |       |   |   |
| 2010           |       |                                       |       |              |       |   |   |
| First Quarter  |       | $                                          | 20.92      |              | $          | 18.73 |   | $ | 0.50 |   |
| Second Quarter |       | 22.80                                      |       | 20.08             |       | 0.50 |   |
| Third Quarter  |       | 23.65                                      |       | 21.25             |       | 0.50 |   |
| Fourth Quarter |       | 24.18                                      |       | 21.17             |       | 0.50 |   |

 

We make quarterly cash distributions of our available cash. Availablecash is defined in our 

 

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partnership agreement as, generally, the sum of our consolidated cashreceipts less consolidated cash disbursements and changes in cash reservesestablished by our general partner for future requirements. To the extentnecessary and due to the seasonal nature of our operations, we will generallyreserve cash inflows from our second and third fiscal quarters fordistributions during our first and fourth fiscal quarters. Based upon ourcurrent financial condition and results of operations, our general partnercurrently believes that during fiscal 2011 we will be able to make quarterlycash distributions per common unit comparable to those quarterly distributionsmade during our last two fiscal years; however, no assurances can be given thatsuch distributions will be made or the amount of such distributions. See Item7. “Management’s Discussion and Analysis of Financial Condition and Results ofOperations - Liquidity and Capital Resources” for a discussion of the financialtests and covenants which place limits on the amount of cash that we can use topay distributions.

 

**Recent Sales of Unregistered Securities**

 

On August 4, 2008, the operating partnership issued $200.0 millionin aggregate principal amount of its 6.75% senior notes due 2014 at an offeringprice equal to 85% of par. The net proceeds after commissions and fees of$166.4 million were used to reduce outstanding indebtedness under our unsecuredcredit facility due April 2010. The notes were not registered and wereoffered and sold only to qualified institutional buyers as defined in Rule 144Aunder the Securities Act.

 

OnSeptember 14, 2009, the operating partnership issued $300.0 million inaggregate principal amount of its 9.125% senior notes due 2017 at an offeringprice equal to 98.6% of par. The net proceeds after commissions and fees of$289.0 million were used to redeem $152.0 million of existing senior notes andrelated prepayment premiums and to reduce borrowings on our unsecured creditfacility due April 2010. The notes were not registered and were offeredand sold only to qualified institutional buyers as defined in Rule 144Aunder the Securities Act. During July 2010,the operating partnership completed an offer to exchange $300.0 millionprincipal amount of 9.125% senior notes due 2017, which have been registeredunder the Securities Act of 1933, as amended, for a like principal amount oftheir outstanding and unregistered notes which were issued on September 14,2009.

 

**Ferrellgas Partners Tax Matters**

 

Ferrellgas Partners is a master limited partnership and thus notsubject to federal income taxes. Instead, our common unitholders are requiredto report for income tax purposes their allocable share of our income, gains,losses, deductions and credits, regardless of whether we make distributions toour common unitholders. Accordingly, each common unitholder should consult its owntax advisor in analyzing the federal, state, and local tax consequencesapplicable to its ownership or disposition of our common units. FerrellgasPartners reports its tax information on a calendar year basis, while financialreporting is based on a fiscal year ending July 31.

 

**CommonEquity of Other Registrants**

 

There is no established public trading market for the common equity ofthe operating partnership, Ferrellgas Partners Finance Corp. or FerrellgasFinance Corp. All of the common equity of the operating partnership andFerrellgas Partners Finance Corp. is held by Ferrellgas Partners and all of thecommon equity of Ferrellgas Finance Corp. is held by the operating partnership.There are no equity securities of the operating partnership, FerrellgasPartners Finance Corp. or Ferrellgas Finance Corp. authorized for issuanceunder any equity compensation plan. During fiscal 2010, there were no issuancesof securities of the operating partnership, Ferrellgas Partners Finance Corp.or Ferrellgas Finance Corp.

 

Neither Ferrellgas Partners Finance Corp. nor Ferrellgas Finance Corp.declared or paid any cash dividends on its common equity during fiscal 2009 or2010. The operating partnership distributes cash declared on its common equityfour times per fiscal year. See Item 7. “Management’s Discussion and Analysisof Financial Condition and Results of Operations - Liquidity and CapitalResources — Financing Activities — Distributions paid by the operatingpartnership” for a discussion of its distributions during fiscal 

 

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2010. See Item 7. “Management’s Discussion and Analysis of FinancialCondition and Results of Operations - Liquidity and Capital Resources” for adiscussion of the financial tests and covenants which place limits on theamount of cash that the operating partnership can use to pay distributions.

 

**EquityCompensation Plan Information**

 

See****Item 12. “Security Ownership ofCertain Beneficial Owners and Management and Related Unitholder Matters —Securities Authorized for Issuance Under Equity Compensation Plans.”

 

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**ITEM 6.****                       ****SELECTEDFINANCIAL DATA.**

 

The following tables presentselected consolidated historical financial and operating data for FerrellgasPartners and the operating partnership.

 

(inthousands, except per unit data)

 
| ** **                                                               | ** ** | **Ferrellgas Partners, L.P.** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                               | ** ** | **Year Ended July 31,**  | ** ** |
| ** **                                                               | ** ** | **2010**                                | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Income Statement Data:**                                               |       |                                    |       |   |   |   |   |   |   |   |   |
| Total revenues                                                           |       | $                                       | 2,099,060  |   | $ | 2,069,522 |   | $ | 2,290,689 |   | $ | 1,992,440 |   | $ | 1,895,470 |   |
| Interest expense                                                         |       | 101,284                                 |       | 89,519 |   | 86,712 |   | 87,953 |   | 84,235 |   |
| Net earnings attributable to Ferrellgas Partners,  L.P.                  |       | 32,709                                  |       | 52,572 |   | 24,689 |   | 34,800 |   | 25,009 |   |
| Basic and diluted net earnings per common  unitholders’ interest    |       | $                                       | 0.47       |   | $ | 0.79 |   | $ | 0.39 |   | $ | 0.55 |   | $ | 0.41 |   |
| Cash distributions declared per common unit                              |       | $                                       | 2.00       |   | $ | 2.00 |   | $ | 2.00 |   | $ | 2.00 |   | $ | 2.00 |   |
|                                                                     |       |                                    |       |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                                                  |       |                                    |       |   |   |   |   |   |   |   |   |
| Working capital (1)                                                      |       | $                                       | 57,473     |   | $ | 34,556 |   | $ | 46,075 |   | $ | 42,503 |   | $ | 27,244 |   |
| Total assets                                                             |       | 1,442,351                               |       | 1,404,977 |   | 1,529,231 |   | 1,503,403 |   | 1,549,500 |   |
| Long-term debt                                                           |       | 1,111,088                               |       | 1,010,073 |   | 1,034,719 |   | 1,011,751 |   | 983,545 |   |
| Partners’ capital                                                   |       | 85,902                                  |       | 151,345 |   | 166,344 |   | 241,776 |   | 271,180 |   |
|                                                                     |       |                                    |       |   |   |   |   |   |   |   |   |
| **Operating Data:**                                                      |       |                                    |       |   |   |   |   |   |   |   |   |
| Propane sales volumes (in thousands of gallons)                          |       | 922,524                                 |       | 874,826 |   | 838,847 |   | 891,888 |   | 910,755 |   |
|                                                                     |       |                                    |       |   |   |   |   |   |   |   |   |
| **Capital  expenditures :**                                         |       |                                    |       |   |   |   |   |   |   |   |   |
| Maintenance                                                              |       | $                                       | 19,908     |   | $ | 21,082 |   | $ | 21,139 |   | $ | 16,935 |   | $ | 13,003 |   |
| Growth                                                                   |       | 24,861                                  |       | 32,046 |   | 23,407 |   | 29,732 |   | 29,448 |   |
| Technology initiative                                                    |       | —                                  |       | — |   | — |   | — |   | 915 |   |
| Acquisition                                                              |       | 49,500                                  |       | 9,944 |   | 191 |   | 35,466 |   | 38,057 |   |
| Total                                                                    |       | $                                       | 94,269     |   | $ | 63,072 |   | $ | 44,737 |   | $ | 82,133 |   | $ | 81,423 |   |
|                                                                     |       |                                    |       |   |   |   |   |   |   |   |   |
| **Supplemental  data :**                                            |       |                                    |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA                                                          |       | $                                       | 266,492    |   | $ | 251,090 |   | $ | 221,941 |   | $ | 237,087 |   | $ | 215,854 |   |
|                                                                     |       |                                    |       |   |   |   |   |   |   |   |   |
| **Reconciliation of Net Earnings  to EBITDA and Adjusted EBITDA :** |       |                                    |       |   |   |   |   |   |   |   |   |
| Net earnings attributable to Ferrellgas Partners,  L.P.                  |       | $                                       | 32,709     |   | $ | 52,572 |   | $ | 24,689 |   | $ | 34,800 |   | $ | 25,009 |   |
| Income tax expense                                                       |       | 1,916                                   |       | 2,292 |   | 82 |   | 6,560 |   | 3,524 |   |
| Interest expense                                                         |       | 101,284                                 |       | 89,519 |   | 86,712 |   | 87,953 |   | 84,235 |   |
| Debt prepayment  premiums                                                |       | 20,716                                  |       | — |   | — |   | — |   | — |   |
| Depreciation and  amortization expense                                   |       | 82,491                                  |       | 82,494 |   | 85,521 |   | 87,383 |   | 84,953 |   |
| EBITDA                                                                   |       | 239,116                                 |       | 226,877 |   | 197,004 |   | 216,696 |   | 197,721 |   |
| Employee stock ownership plan compensation charge                        |       | 9,322                                   |       | 6,755 |   | 12,413 |   | 11,225 |   | 10,277 |   |
| Unit and stock-based compensation charge                                 |       | 7,831                                   |       | 2,312 |   | 1,816 |   | 889 |   | 1,863 |   |
| Loss on disposal of assets and other                                     |       | 8,485                                   |       | 13,042 |   | 11,250 |   | 10,822 |   | 7,539 |   |
| Other income  (expense), net                                             |       | 1,108                                   |       | 1,321 |   | (1,039 | ) | (3,145 | ) | (2,046 | ) |
| Net earnings attributable to noncontrolling  interest                    |       | 630                                     |       | 783 |   | 497 |   | 600 |   | 500 |   |
| Adjusted EBITDA                                                          |       | $                                       | 266,492    |   | $ | 251,090 |   | $ | 221,941 |   | $ | 237,087 |   | $ | 215,854 |   |

 

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(1)         Working capital is the sumof current assets less current liabilities.

 

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| ** **                                                               | ** ** | **Ferrellgas, L.P.**              | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                               | ** ** | **Year Ended July 31,** | ** ** |
| ** **                                                               | ** ** | **2010**                               | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Income Statement Data:**                                               |       |                                   |       |   |   |   |   |   |   |   |   |
| Total revenues                                                           |       | $                                      | 2,099,060  |   | $ | 2,069,522 |   | $ | 2,290,689 |   | $ | 1,992,440 |   | $ | 1,895,470 |   |
| Interest expense                                                         |       | 76,786                                 |       | 65,785 |   | 63,001 |   | 64,201 |   | 60,537 |   |
| Net  earnings                                                            |       | 62,361                                 |       | 77,501 |   | 49,232 |   | 59,427 |   | 49,465 |   |
|                                                                     |       |                                   |       |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                                                  |       |                                   |       |   |   |   |   |   |   |   |   |
| Working capital (1)                                                      |       | $                                      | 60,770     |   | $ | 36,967 |   | $ | 48,397 |   | $ | 44,737 |   | $ | 28,874 |   |
| Total assets                                                             |       | 1,436,177                              |       | 1,403,049 |   | 1,526,621 |   | 1,499,951 |   | 1,544,051 |   |
| Long-term debt                                                           |       | 831,088                                |       | 740,982 |   | 765,248 |   | 741,900 |   | 713,316 |   |
| Partners’ capital                                                   |       | 363,047                                |       | 421,610 |   | 436,269 |   | 511,356 |   | 539,910 |   |
|                                                                     |       |                                   |       |   |   |   |   |   |   |   |   |
| **Operating Data:**                                                      |       |                                   |       |   |   |   |   |   |   |   |   |
| Propane sales volumes (in thousands of gallons)                          |       | 922,524                                |       | 874,826 |   | 838,847 |   | 891,888 |   | 910,755 |   |
|                                                                     |       |                                   |       |   |   |   |   |   |   |   |   |
| **Capital  expenditures:**                                               |       |                                   |       |   |   |   |   |   |   |   |   |
| Maintenance                                                              |       | $                                      | 19,908     |   | $ | 21,082 |   | $ | 21,139 |   | $ | 16,935 |   | $ | 13,003 |   |
| Growth                                                                   |       | 24,861                                 |       | 32,046 |   | 23,407 |   | 29,732 |   | 29,448 |   |
| Technology initiative                                                    |       | —                                 |       | — |   | — |   | — |   | 915 |   |
| Acquisition                                                              |       | 49,500                                 |       | 9,944 |   | 191 |   | 35,466 |   | 38,057 |   |
| Total                                                                    |       | $                                      | 94,269     |   | $ | 63,072 |   | $ | 44,737 |   | $ | 82,133 |   | $ | 81,423 |   |
|                                                                     |       |                                   |       |   |   |   |   |   |   |   |   |
| **Supplemental  data :**                                            |       |                                   |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA                                                          |       | $                                      | 266,916    |   | $ | 251,418 |   | $ | 222,200 |   | $ | 237,362 |   | $ | 216,112 |   |
|                                                                     |       |                                   |       |   |   |   |   |   |   |   |   |
| **Reconciliation of Net Earnings  to EBITDA and Adjusted EBITDA :** |       |                                   |       |   |   |   |   |   |   |   |   |
| Net earnings                                                             |       | $                                      | 62,361     |   | $ | 77,501 |   | $ | 49,232 |   | $ | 59,427 |   | $ | 49,465 |   |
| Income tax expense                                                       |       | 1,890                                  |       | 2,208 |   | 6 |   | 6,560 |   | 3,524 |   |
| Interest expense                                                         |       | 76,786                                 |       | 65,785 |   | 63,001 |   | 64,201 |   | 60,537 |   |
| Debt prepayment  premiums                                                |       | 17,308                                 |       | — |   | — |   | — |   | — |   |
| Depreciation and  amortization expense                                   |       | 82,491                                 |       | 82,494 |   | 85,521 |   | 87,383 |   | 84,953 |   |
| EBITDA                                                                   |       | 240,836                                |       | 227,988 |   | 197,760 |   | 217,571 |   | 198,479 |   |
| Employee stock ownership plan compensation charge                        |       | 9,322                                  |       | 6,755 |   | 12,413 |   | 11,225 |   | 10,277 |   |
| Unit and stock-based compensation charge                                 |       | 7,831                                  |       | 2,312 |   | 1,816 |   | 889 |   | 1,863 |   |
| Loss on disposal of assets and other                                     |       | 8,485                                  |       | 13,042 |   | 11,250 |   | 10,822 |   | 7,539 |   |
| Other income  (expense), net                                             |       | 442                                    |       | 1,321 |   | (1,039 | ) | (3,145 | ) | (2,046 | ) |
| Adjusted EBITDA                                                          |       | $                                      | 266,916    |   | $ | 251,418 |   | $ | 222,200 |   | $ | 237,362 |   | $ | 216,112 |   |

 

----

(1)         Working capitalis the sum of current assets less current liabilities.

 

Our capital expenditures fall generally into four categories:

 

·                  maintenance capitalexpenditures, which include capitalized expenditures for betterment andreplacement of property, plant and equipment;

·                  growth capital expenditures,which include expenditures for purchases of both bulk and portable propanetanks and other equipment to facilitate expansion of our customer base andoperating capacity;

·                  technology initiativecapital expenditures, which include expenditures for purchases of computerhardware and software for the development of new software; and

·                  acquisition capitalexpenditures, which include expenditures related to the acquisition of retaildistribution propane operations; acquisition capital expenditures represent thetotal cost of acquisitions less working capital acquired.

 

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**ITEM 7.****       ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

Our management’s discussion and analysis of financial condition andresults of operations relates to Ferrellgas Partners and the operatingpartnership.

 

Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. havenominal assets, do not conduct any operations and have no employees other thanofficers. Ferrellgas Partners Finance Corp. serves as co-issuer and co-obligorfor debt securities of Ferrellgas Partners and Ferrellgas Finance Corp. servesas co-issuer and co-obligor for debt securities of the operating partnership.Accordingly, and due to the reduced disclosure format, a discussion of theresults of operations, liquidity and capital resources of Ferrellgas PartnersFinance Corp. and Ferrellgas Finance Corp. is not presented in this section.

 

The following is a discussion of our historical financial condition andresults of operations and should be read in conjunction with our historicalconsolidated financial statements and accompanying Notes thereto includedelsewhere in this Annual Report on Form 10-K.

 

The discussions set forth in the “Results of Operations” and “Liquidityand Capital Resources” sections generally refer to Ferrellgas Partners and itsconsolidated subsidiaries. However, in these discussions there exist twomaterial differences between Ferrellgas Partners and the operating partnership.Those material differences are:

 

·                  because Ferrellgas Partners has outstanding$280.0 million in aggregate principal amount of 8.625% senior notes due fiscal2020, the two partnerships incur different amounts of interest expense on theiroutstanding indebtedness; see “Results of Operations — Interest expense” and “Liquidityand Capital Resources — Financing Activities;” and

 

·                  Ferrellgas Partners issued common unitsduring both fiscal 2009 and 2010. See “Liquidity and Capital Resources —Financing Activities” for a discussion of these material differences.

 

**Overview**

 

Weare a leading distributor of propane and related equipment and supplies tocustomers primarily in the United States and conduct our business as a singlereportable operating segment. We believe that we are the second largest retailmarketer of propane in the United States as measured by the volume of ourretail sales in fiscal 2010, and the largest national provider of propane byportable tank exchange.

 

Weserve approximately one million residential, industrial/commercial, portabletank exchange, agricultural, wholesale and other customers in all 50 states,the District of Columbia and Puerto Rico. Our operations primarily include thedistribution and sale of propane and related equipment and supplies withconcentrations in the Midwest, Southeast, Southwest and Northwest regions ofthe United States. Our propane distribution business consists principally oftransporting propane purchased from third parties to propane distributionlocations and then to tanks on customers’ premises or to portable propane tanksdelivered to nationwide and local retailers. Our portable tank exchangeoperations, nationally branded under the name Blue Rhino, are conducted througha network of independent and partnership-owned distribution outlets. Our marketareas for our residential and agricultural customers are generally rural, butalso include urban areas for industrial applications. Our market area for ourindustrial/commercial and portable tank exchange customers is generally urban.

 

Inthe residential and industrial/commercial markets, propane is primarily usedfor space heating, water heating, cooking and other propane fueled appliances.In the portable tank exchange market, propane is used primarily for outdoorcooking using gas grills. In the agricultural market, propane is primarily usedfor crop drying, space heating, irrigation and weed control. In addition,propane is used for a variety of industrial applications, including as anengine fuel which is burned in internal combustion engines that power vehiclesand forklifts, and as a heating or energy source in manufacturing and drying 

 

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processes.

 

Themarket for propane is seasonal because of increased demand during the months ofNovember through March (the “winter heating season”) primarily forthe purpose of providing heating in residential and commercial buildings.Consequently, sales and operating profits are concentrated in our second andthird fiscal quarters, which are during the winter heating season. However, ourpropane by portable tank exchanges sales volume provides us increased operatingprofits during our first and fourth fiscal quarters due to its counter-seasonalbusiness activities. These sales also provide us the ability to better utilizeour seasonal resources at our propane distribution locations. Other factorsaffecting our results of operations include competitive conditions, volatilityin energy commodity prices, demand for propane, timing of acquisitions andgeneral economic conditions in the United States.

 

Weuse information on temperatures to understand how our results of operations areaffected by temperatures that are warmer or colder than normal. We use thedefinition of “normal” temperatures based on information published by theNational Oceanic and Atmospheric Administration (“NOAA”). Based on thisinformation we calculate a ratio of actual heating degree days to normal heatingdegree days. Heating degree days are a general indicator of weather impactingpropane usage.

 

Weatherconditions have a significant impact on demand for propane for heating purposesduring the winter heating season. Accordingly, the volume of propane used byour customers for this purpose is directly affected by the severity of thewinter weather in the regions we serve and can vary substantially from year toyear. In any given region, sustained warmer-than-normal temperatures will tendto result in reduced propane usage, while sustained colder-than-normaltemperatures will tend to result in greater usage. Although there is a directcorrelation between weather and customer usage, there is a natural time lagbetween the onset of cold weather and increased sales to customers. If theUnited States were to experience a cooling trend we could expect nationwidedemand for propane to increase which could lead to greater sales, income andliquidity availability. Conversely, if the United States were to experience awarming trend we could expect nationwide demand for propane to decrease whichcould lead to a reduction in our sales, income and liquidity availability.

 

Ourgross margin from the retail distribution of propane is primarily based on thecents-per-gallon difference between the sale price we charge our customers andour costs to purchase and deliver propane to our propane distributionlocations. Our residential customers and portable tank exchange customerstypically provide us a greater cents-per-gallon margin than ourindustrial/commercial, agricultural, wholesale and other customers. We track “Propanesales volumes,” “Revenues — Propane and other gas liquids sales” and “Grossmargin — Propane and other gas liquids sales” by customer; however, we are notable to specifically allocate operating and other costs in a manner that woulddetermine their specific profitability with a high degree of accuracy. Thewholesale propane price per gallon is subject to various market conditions,including inflation, and may fluctuate based on changes in demand, supply andother energy commodity prices, primarily crude oil and natural gas, as propaneprices tend to correlate with the fluctuations of these underlying commodities.

 

Weemploy risk management activities that attempt to mitigate price risks relatedto the purchase, storage, transport and sale of propane. We enter into propanesales commitments with a portion of our customers that provide for a contractedprice agreement for a specified period of time. These commitments can expose usto product price risk if not immediately hedged with an offsetting propanepurchase commitment.

 

Ouropen financial derivative purchase commitments are designated as hedgesprimarily for fiscal 2011 sales commitments and, as of July 31, 2010, haveexperienced a net mark to market loss of approximately $0.1 million. Becausethese financial derivative purchase commitments qualify for hedge accountingtreatment, the resulting asset, liability and related net mark to market lossesare recorded on the balance sheet as “Prepaid expenses and other currentassets,” “Other current liabilities” and “Accumulated other comprehensiveincome (loss),” respectively, until settled. Upon settlement, realized gains orlosses on these contracts will be reclassified to “Cost of product sold-propaneand other gas liquid sales” in the consolidated statements of earnings. Thesefinancial derivative purchase commitment 

 

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netlosses are expected to be offset by improved margins on propane salescommitments that qualify for the normal purchase normal sale exception. At July 31,2010 we estimate 80% of currently open financial derivative purchasecommitments, the related propane sales commitments, and the resulting grossmargin will be realized into earnings during fiscal 2011.

 

Ourbusiness strategy is to:

 

·                  expand ouroperations through disciplined acquisitions and internal growth;

·                  capitalize onour national presence and economies of scale;

·                  maximizeoperating efficiencies through utilization of our technology platform; and

·                  align employeeinterests with our investors through significant employee ownership.

 

“Netearnings attributable to Ferrellgas Partners, L.P.” in fiscal 2010 were $32.7million as compared to $52.6 million in fiscal 2009. This decrease of $19.9million was primarily due to the incurrence of “Debt prepayment premiums” of$20.7 million and an increase in “Interest expense” of $11.8 million primarilydue to higher interest rates on debt refinancings, and increased “General andadministrative expense” of $10.4 million primarily due to increases in both “Unitand stock based compensation charge” and performance based incentive expense.These increases were partially offset by gross margin — propane and other gasliquids sales increasing $20.5 million primarily due to an increase in thegross margin from wholesale sales.

 

**Forward-looking Statements**

 

Statements included in this report include forward-looking statements.These forward-looking statements are identified as any statement that does notrelate strictly to historical or current facts. These statements often usewords such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,”“strategy,” “position,” “continue,” “estimate,” “expect,” “may,” “will,” or thenegative of those terms or other variations of them or comparable terminology.These statements often discuss plans, strategies, events or developments thatwe expect or anticipate will or may occur in the future and are based upon thebeliefs and assumptions of our management and on the information currentlyavailable to them. In particular, statements, express or implied, concerningour future operating results or our ability to generate sales, income or cashflow are forward-looking statements.

 

Forward-looking statements are not guarantees of performance. Youshould not put undue reliance on any forward-looking statements. Allforward-looking statements are subject to risks, uncertainties and assumptionsthat could cause our actual results to differ materially from those expressedin or implied by these forward-looking statements. Many of the factors thatwill 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, willhave sufficient funds to meet its obligations, including its obligations underits debt securities, and to enable it to distribute to Ferrellgas Partnerssufficient funds to permit Ferrellgas Partners to meet its obligations withrespect to its existing debt and equity securities;

 

·                  whether Ferrellgas Partners and the operatingpartnership will continue to meet all of the quarterly financial tests requiredby the agreements governing their indebtedness; and

 

·                  our expectation that “Netearnings” will be greater in fiscal 2011 compared to fiscal 2010 primarily dueto our expectation that debt prepayment premiums will be lower.

 

When considering any forward-looking statement, you should also keep inmind the risk factors set forth in “Item 1A. Risk Factors.” Any of these riskscould impair our business, financial condition or results of operations. Anysuch impairment may affect our ability to make distributions to our unitholdersor pay interest on the principal of any of our debt securities. In addition,the trading price, if any, of our securities 

 

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coulddecline as a result of any such impairment.

 

Exceptfor our ongoing obligations to disclose material information as required byfederal securities laws, we undertake no obligation to update anyforward-looking statements or risk factors after the date of this Annual Reporton Form 10-K.

 

Inaddition, the classification of Ferrellgas Partners and the operatingpartnership as partnerships for federal income tax purposes means that we donot generally pay federal income taxes. We do, however, pay taxes on the incomeof our subsidiaries that are corporations. We rely on a legal opinion from ourcounsel, and not a ruling from the Internal Revenue Service, as to our properclassification for federal income tax purposes. See the section entitled “Item1A. Risk Factors — Tax Risks.” The IRS could treat us as a corporation for taxpurposes or changes in federal or state laws could subject us to entity-leveltaxation, which would substantially reduce the cash available for distributionto our unitholders.

 

**Results of Operations**

 

**Fiscal Year Ended July 31, 2010 compared to July 31,2009**

 
| **(amounts in thousands)  Fiscal year ended July 31, ** | ** ** | **2010** | ** ** | **2009** | ** ** | **Favorable  (unfavorable)  Variance** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------------------------------------|------------|
| Propane sales volumes (gallons):                                                           |       |     |       |     |       |                                   |       |   |   |
| Retail — Sales to End Users                                                           |       | 680,963  |       | 652,788  |       | 28,175                                 |       | 4 | % |
| Wholesale — Sales to Resellers                                                        |       | 241,561  |       | 222,038  |       | 19,523                                 |       | 9 | % |
|                                                                                       |       | 922,524  |       | 874,826  |       | 47,698                                 |       | 5 | % |
|                                                                                       |       |     |       |     |       |                                   |       |   |   |
| Revenues - Propane and other gas liquids sales:                                            |       |     |       |     |       |                                   |       |   |   |
| Retail — Sales to End Users                                                           |       | $        | 1,246,167  |     | $          | 1,297,472                              |       | $ | (51,305 | ) | (4 | )% |
| Wholesale — Sales to Resellers                                                        |       | 495,845  |       | 484,109  |       | 11,736                                 |       | 2 | % |
| Other Gas Sales                                                                            |       | 158,306  |       | 48,072   |       | 110,234                                |       | 229 | % |
|                                                                                       |       | $        | 1,900,318  |     | $          | 1,829,653                              |       | $ | 70,665 |   | 4 | % |
|                                                                                       |       |     |       |     |       |                                   |       |   |   |
| Gross margin —   Propane and other gas liquids sales: (a)                        |       |     |       |     |       |                                   |       |   |   |
| Retail — Sales to End Users                                                           |       | $        | 450,139    |     | $          | 469,076                                |       | $ | (18,937 | ) | (4 | )% |
| Wholesale — Sales to Resellers                                                        |       | 182,744  |       | 154,395  |       | 28,349                                 |       | 18 | % |
| Other Gas Sales                                                                            |       | 9,901    |       | (1,186   | )          | 11,087                                 |       | NM |   |
|                                                                                       |       | $        | 642,784    |     | $          | 622,285                                |       | $ | 20,499 |   | 3 | % |
|                                                                                       |       |     |       |     |       |                                   |       |   |   |
| Gross margin - Other                                                                       |       | $        | 90,104     |     | $          | 87,016                                 |       | $ | 3,088 |   | 4 | % |
| Adjusted EBITDA (b)                                                                        |       | 266,492  |       | 251,090  |       | 15,402                                 |       | 6 | % |
| Operating income                                                                           |       | 158,363  |       | 146,487  |       | 11,876                                 |       | 8 | % |
| Interest expense                                                                           |       | 101,284  |       | 89,519   |       | (11,765                                | )          | (13 | )% |
| Interest expense - operating partnership                                                   |       | 76,786   |       | 65,785   |       | (11,001                                | )          | (17 | )% |
| Debt prepayment premiums                                                                   |       | 20,716   |       | —   |       | (20,716                                | )          | NM |   |

 

----

NM- Not meaningful

 

(a) Gross margin from propane and other gas liquids salesrepresents “Revenues - Propane and other gas liquids sales” less “Cost ofproduct sold — propane and other gas liquids sales.”

 

(b) Management considers Adjusted EBITDA to be a chief measurementof the partnership’s overall economic performance. Adjusted EBITDA iscalculated as earnings before income tax expense, interest expense, debtprepayment premiums, depreciation and amortization expense, employee stockownership 

 

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plan compensation charge, unit and stock-based compensation charge,loss on disposal of assets and other, other income (expense), net and netearnings attributable to noncontrolling interest. Management believes thepresentation of this measure is relevant and useful because it allows investorsto view the partnership’s performance in a manner similar to the methodmanagement uses, adjusted for items management believes makes it easier tocompare its results with other companies that have different financing andcapital structures. This method of calculating Adjusted EBITDA may not beconsistent with that of other companies and should be viewed in conjunctionwith measurements that are computed in accordance with GAAP.

 

The following table summarizes EBITDA and Adjusted EBITDA for thefiscal year ended July 31, 2010 and 2009, respectively:

 
| **(amounts in thousands)**                    | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
| Net earnings attributable to Ferrellgas Partners,  L.P. |       | $        | 32,709     |     | $          | 52,572 |   |
| Income tax expense                                      |       | 1,916    |       | 2,292    |       |
| Interest expense                                        |       | 101,284  |       | 89,519   |       |
| Debt prepayment premiums                                |       | 20,716   |       | —   |       |
| Depreciation and amortization expense                   |       | 82,491   |       | 82,494   |       |
| EBITDA                                                  |       | $        | 239,116    |     | $          | 226,877 |   |
| Employee stock ownership plan compensation charge       |       | 9,322    |       | 6,755    |       |
| Unit and stock-based compensation charge                |       | 7,831    |       | 2,312    |       |
| Loss on disposal of assets and other                    |       | 8,485    |       | 13,042   |       |
| Other income (expense), net                             |       | 1,108    |       | 1,321    |       |
| Net earnings attributable to noncontrolling  interest   |       | 630      |       | 783      |       |
| Adjusted EBITDA                                         |       | $        | 266,492    |     | $          | 251,090 |   |

 

Propane sales volumes during fiscal 2010 increased 47.7 million gallonsfrom that of the prior year period due to 28.2 million of increased gallonsales to our retail customers and 19.5 million of increased gallon sales to ourwholesale customers.

 

Retail sales volumes increased primarily due to 22.9 million gallonsthrough acquisitions completed during the last twelve months and also due togallons gained from our focus on expanding our operations through an internalgrowth strategy. These gallon gains were somewhat offset by the impact ofweather in the more highly concentrated geographic areas we serve that was 2%warmer than that of the prior year period.

 

We believe wholesale sales volumes increased due to our emphasis onexpanding this portion of our business.

 

The wholesale market price at one of the major supply points, Mt.Belvieu, Texas, during fiscal 2010 averaged 24% more than the prior yearperiod. The wholesale market price averaged $1.09 and $0.88 per gallon duringfiscal 2010 and 2009, respectively. Although the average wholesale market priceincreased significantly between the two periods, a competitive pricingenvironment did not allow us to increase our sales price as the wholesalemarket price increased. Additionally, volatility in the wholesale market priceof propane during the first six months of fiscal 2010 and 2009 caused themovement in prices within those periods to be different. The wholesale marketprice at Mt. Belvieu averaged $1.40 during the three months ended October 31,2008 and $0.69 during the three months ended January 31, 2009. During thatsix month period, we decreased our sales price at a slower rate than thewholesale market price resulting in gross margin expansion. Conversely, thewholesale market price at Mt. Belvieu averaged $0.95 during the three monthsended October 31, 2009 and $1.20 during the three months ended January 31,2010. During this six month period the competitive pricing environmentdiscussed above did not allow us to increase our sales price at a similar rateas the wholesale market price increased resulting in gross margin reduction.

 

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*Revenues - Propane and other gas liquids sales*

 

Retail sales decreased $51.3 million compared to the prior year period.This decrease resulted primarily from a $102.9 million decrease in sales priceper gallon primarily due to a decline in the wholesale market price of propane,a competitive pricing environment and decreased volumes due to warmer weather,each as discussed above. These decreases were partially offset by a $36.7million increase from gallons gained through acquisitions as well as increasesfrom greater propane sales volumes due to the internal growth strategy.

 

Wholesale sales increased $11.7 million compared to the prior yearperiod. This increase resulted from a $40.0 million increase due to greaterpropane sales volumes due to our emphasis on expanding this portion of ourbusiness, as discussed above, offset by a $28.3 million decrease in sales priceper gallon, due to a decline in the wholesale market price of propane and acompetitive pricing environment, as discussed above.

 

Other gas sales increased $110.2 million compared to the prior yearperiod primarily due to a $96.9 million increase in propane sales volumes and a$13.9 million increase in sales price per gallon.

 

*Gross margin - Propane and other gas liquids sales*

 

Retail sales gross margin decreased $18.9 million compared to the prioryear period. This decrease resulted primarily from a $37.6 million decrease ingross margin per gallon primarily due to a competitive pricing environment,volatility experienced in the wholesale market price of propane and decreasedvolumes due to warmer weather, each as discussed above. These decreases werepartially offset by $11.3 million from gallons gained through acquisitions,each as discussed above.

 

Wholesale sales gross margin increased $28.3 million compared to theprior year period. This increase resulted from both a $14.8 million increasedue to greater propane sales volumes as discussed above and a $13.5 millionincrease in gross margin per gallon due to improved margins from fixed pricesales.

 

Other gas sales gross margin increased $11.1 million compared to theprior year period due to sales of excess inventory to other third-partycustomers.

 

*Gross margin — other*

 

Gross margin — Other increased primarily due to an increase of $6.7million of miscellaneous fees billed to customers partially offset by adecrease of $3.5 million of appliance sales.

 

*Adjusted EBITDA*

 

Adjusted EBITDA increased $15.4 million compared to the prior yearperiod primarily due to a $20.5 million increase in gross margin from “Grossmargin - Propane and other gas liquids sales” as discussed above, a $5.0million decrease in “Equipment lease expense” and a $3.1 million increase in “Grossmargin - Other” as discussed above, which were somewhat offset by a $7.0million increase in operating expense and a $6.2 million increase in generaland administrative expense. Equipment lease expense decreased primarily due toa $3.6 million decrease in computer related lease expense. Operating expenseincreased primarily due to $6.9 million of operating costs associated withacquisitions. General and administrative expense increased primarily due to$5.2 million of increased performance based incentive expense.

 

*Operating income*

 

Operating income increased $11.9 million compared to the prior yearperiod primarily due to the $15.4 million increase in Adjusted EBITDA asdiscussed above and a $4.6 million decrease in “Loss on disposal of assets andother,” which was somewhat offset by a $5.5 million increase in “Unit and stockbased compensation charge” due to an increase in non-cash stock option issuanceexpense allocated from Ferrell Companies and a $2.6 million increase in “Employeestock ownership plan compensation charge” 

 

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due to the effect of higher Ferrellgas common unit prices during thecurrent year period. Loss on disposal of assets and other decreased primarilydue to a $5.6 million decrease in “Loss on transfer of accounts receivablerelated to the accounts receivable securitization” primarily due to a one-timeloss on the sale of certain receivables during the prior year that was notrepeated in the current year.

 

*Interest expense - consolidated*

 

Interest expense increased $11.8 million primarily due to a $4.8million increase due to the issuance of new senior debt at higher interestrates than the debt retired and higher interest rates on borrowings on oursecured credit facility, $3.6 million due to increased borrowings and a $3.7million increase due to the amortization of capitalized debt costs.

 

*Interest expense - operating partnership*

 

Interest expense increased $11.0 million primarily due to a $5.3million increase due to the issuance of new senior debt at higher interestrates than the debt retired and higher interest rates on borrowings on oursecured credit facility, $2.7 million due to increased borrowings and a $3.6million increase due to the amortization of capitalized debt costs.

 

*Debt prepayment premiums*

 

We prepaid the outstanding principal amount on our $82.0 million 7.24%series D notes due August 1, 2010 and our $70.0 million 7.42% series Enotes due August 1, 2013, and the related prepayment premiums of $17.3million.

 

We prepaid our $268.0 million 8.75% senior notes due 2012 and therelated prepayment premium of $3.4 million.

 

*Forward looking statements*

 

We expect “Net earnings” to be greater in fiscal 2011 compared tofiscal 2010 primarily due to our expectation that debt prepayment premiums willbe lower.

 

**Fiscal Year Ended July 31, 2009 compared to July 31,2008**

 
| **(amounts in thousands)  Fiscal year ended July 31, ** | ** ** | **2009** | ** ** | **2008** | ** ** | **Favorable  (unfavorable)  Variance** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------------------------------------|------------|
| Propane sales volumes (gallons):                                                           |       |     |       |     |       |                                   |       |   |   |
| Retail — Sales to End Users                                                           |       | 652,788  |       | 656,832  |       | (4,044                                 | )          | (1 | )% |
| Wholesale — Sales to Resellers                                                        |       | 222,038  |       | 182,015  |       | 40,023                                 |       | 22 | % |
|                                                                                       |       | 874,826  |       | 838,847  |       | 35,979                                 |       | 4 | % |
|                                                                                       |       |     |       |     |       |                                   |       |   |   |
| Revenues -                                                                                 |       |     |       |     |       |                                   |       |   |   |
| Propane and other gas liquids sales:                                                       |       |     |       |     |       |                                   |       |   |   |
| Retail — Sales to End Users                                                           |       | $        | 1,297,472  |     | $          | 1,451,054                              |       | $ | (153,582 | ) | (11 | )% |
| Wholesale — Sales to Resellers                                                        |       | 484,109  |       | 455,794  |       | 28,315                                 |       | 6 | % |
| Other Gas Sales                                                                            |       | 48,072   |       | 148,433  |       | (100,361                               | )          | (68 | )% |
|                                                                                       |       | $        | 1,829,653  |     | $          | 2,055,281                              |       | $ | (225,628 | ) | (11 | )% |
|                                                                                       |       |     |       |     |       |                                   |       |   |   |
| Gross margin —                                                                        |       |     |       |     |       |                                   |       |   |   |
| Propane and other gas liquids sales: (a)                                                   |       |     |       |     |       |                                   |       |   |   |
| Retail — Sales to End Users                                                           |       | $        | 469,076    |     | $          | 427,701                                |       | $ | 41,375 |   | 10 | % |
| Wholesale — Sales to Resellers                                                        |       | 154,395  |       | 132,858  |       | 21,537                                 |       | 16 | % |
| Other Gas Sales                                                                            |       | (1,186   | )          | 2,804    |       | (3,990                                 | )          | NM |   |
|                                                                                       |       | $        | 622,285    |     | $          | 563,363                                |       | $ | 58,922 |   | 10 | % |
|                                                                                       |       |     |       |     |       |                                   |       |   |   |
| Gross margin - Other                                                                       |       | $        | 87,016     |     | $          | 98,930                                 |       | $ | (11,914 | ) | (12 | )% |
| Adjusted EBITDA (b)                                                                        |       | 251,090  |       | 221,941  |       | 29,149                                 |       | 13 | % |
| Operating income                                                                           |       | 146,487  |       | 110,941  |       | 35,546                                 |       | 32 | % |
| Interest expense                                                                           |       | 89,519   |       | 86,712   |       | (2,807                                 | )          | (3 | )% |
| Interest expense - operating partnership                                                   |       | 65,785   |       | 63,001   |       | (2,784                                 | )          | (4 | )% |

 

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----

NM- Not meaningful

 

(a)         Gross margin from propaneand other gas liquids sales represents “Revenues - Propane and other gasliquids sales” less “Cost of product sold — propane and other gas liquidssales.”

 

(b)         Management considersAdjusted EBITDA to be a chief measurement of the partnership’s overall economicperformance. Adjusted EBITDA is calculated as earnings before income taxexpense, interest expense, depreciation and amortization expense, employeestock ownership plan compensation charge, unit and stock-based compensationcharge, loss on disposal of assets and other, other income (expense), net andnet earnings attributable to noncontrolling interest. Management believes thepresentation of this measure is relevant and useful because it allows investorsto view the partnership’s performance in a manner similar to the methodmanagement uses, adjusted for items management believes makes it easier tocompare its results with other companies that have different financing andcapital structures. This method of calculating Adjusted EBITDA may not beconsistent with that of other companies and should be viewed in conjunctionwith measurements that are computed in accordance with GAAP.

 

The following table summarizes EBITDA and Adjusted EBITDA for thefiscal year ended July 31, 2009 and 2008, respectively:

 
| **(amounts in thousands)**                    | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
| Net earnings attributable to Ferrellgas Partners,  L.P. |       | $        | 52,572     |     | $          | 24,689 |   |
| Income tax expense                                      |       | 2,292    |       | 82       |       |
| Interest expense                                        |       | 89,519   |       | 86,712   |       |
| Depreciation and amortization expense                   |       | 82,494   |       | 85,521   |       |
| EBITDA                                                  |       | $        | 226,877    |     | $          | 197,004 |   |
| Employee stock ownership plan compensation charge       |       | 6,755    |       | 12,413   |       |
| Unit and stock-based compensation charge                |       | 2,312    |       | 1,816    |       |
| Loss on disposal of assets and other                    |       | 13,042   |       | 11,250   |       |
| Other income (expense), net                             |       | 1,321    |       | (1,039   | )          |
| Net earnings attributable to noncontrolling  interest   |       | 783      |       | 497      |       |
| Adjusted EBITDA                                         |       | $        | 251,090    |     | $          | 221,941 |   |

 

Propane sales volumes during fiscal 2009 increased 36.0 million gallonsfrom that of the prior year period due primarily to 40.0 million of increasedgallon sales to our wholesale customers. This increase was partially offset bya 4.0 million decrease in gallon sales to our retail customers. Wholesale salevolumes increased due to our emphasis on expanding this portion of ourbusiness.

 

The wholesale market price at one of the major supply points, Mt.Belvieu, Texas, during fiscal 2009 averaged 42% less than the prior yearperiod. The wholesale market price averaged $0.88 and $1.53 per gallon duringfiscal 2009 and 2008, respectively.

 

*Revenues - Propane and other gas liquids sales*

 

Retail sales decreased $153.6 million compared to the prior yearperiod. This decrease resulted primarily from a $144.7 million decrease insales price per gallon as discussed above and an $8.9 million decrease due tolower propane sales volumes.

 

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Wholesale sales increased $28.3 million compared to the prior yearperiod. This increase resulted primarily from a $100.2 million increase due tohigher propane sales volumes. This increase was significantly offset by a $71.9million decrease in sales price per gallon, both as discussed above.

 

Other gas sales decreased $100.4 million compared to the prior yearperiod. This decrease resulted primarily from an $80.0 million decrease due tolower propane sales volumes and a $15.8 million decrease in sales price pergallon.

 

*Gross margin - Propane and other gas liquids sales*

 

Retail sales gross margin increased $41.4 million compared to the prioryear period. This increase resulted primarily from a $44.0 million increase ingross margin per gallon partially offset by a $2.6 million decrease in propanesales volumes.

 

Wholesale sales gross margin increased $21.5 million compared to theprior year period. This increase resulted primarily from a $29.2 millionincrease in propane sales volumes, partially offset by a $7.7 million decreasein gross margin per gallon.

 

*Gross margin - Other*

 

Gross margin — Other decreased $11.9 million compared to the prior yearperiod primarily due to $8.2 million of miscellaneous fees billed to customersin the prior year period that were not repeated during the current year.

 

*Adjusted EBITDA*

 

Adjusted EBITDA increased $29.1 million compared to the prior yearperiod primarily due to a $58.9 million increase in gross margin from “Grossmargin - Propane and other gas liquids sales” as discussed above, a $6.1million decrease in “Equipment lease expense” and a $4.2 million decrease in “Generaland administrative expense” which is somewhat offset by a $28.7 millionincrease in “Operating expense” and an $11.9 million decrease in gross marginfrom “Gross margin - other” as discussed above. Equipment lease expensedecreased primarily due to $3.7 million in computer related lease expense.General and administrative expense decreased primarily due to $2.4 million inother corporate overhead expenses incurred in fiscal 2008 that were notrepeated in fiscal 2009. Operating expense increased primarily due to $29.8million in personnel costs, $4.0 million in plant and office expenses, $3.0million in selling expenses and $2.2 million in vehicle repair costs, whichwere partially offset by a $4.4 million decrease in fuel costs and a $3.5million decrease in bad debt expense.

 

*Operating income*

 

Operating income increased $35.5 million compared to the prior yearperiod primarily due to the $29.9 million increase in Adjusted EBITDA asdiscussed above and a $5.7 million decrease in “Employee stock ownership planownership charges” primarily due to the effect of lower Ferrellgas common unitprices during the current year period.

 

*Interest expense - consolidated*

 

Interest expense increased $2.8 million primarily due to a $4.7 millionincrease in discount amortization on the debt issuance in August 2008 at85% of par, an increase of $2.4 million due to an increase in interest ratesprimarily from the debt issuance in August 2008 and a $2.1 millionincrease in letter of credit and related fees. These increases were partiallyoffset by a $6.4 million reduction in expense due to decreased borrowings onour unsecured credit facility.

 

*Interest expense - operating partnership*

 

Interest expense increased $2.8 million primarily due to a $4.7 millionincrease in discount 

 

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amortization on the debt issuance in August 2008 at 85% of par, anincrease of $2.4 million due to an increase in interest rates primarily fromthe debt issuance in August 2008 and a $2.1 million increase in letter ofcredit and related fees. These increases were partially offset by a $6.4million reduction in expense due to decreased borrowings on our unsecuredcredit facility.

 

**Liquidity and Capital Resources**

 

**General**

 

Ourliquidity and capital resources enable us to fund our working capitalrequirements, letter of credit requirements, debt service payments, acquisitionand capital expenditures and distributions to our unitholders. Our liquiditymay be affected by an inability to access the capital markets or by unforeseendemands on cash, or other events beyond our control, such as the general marketdisruption experienced during fiscal 2009. We believe a return of the generalmarket disruption discussed above could limit our future access to capitalmarkets or to access those markets at rates acceptable to us. Conversely, ifgeneral market conditions were to improve, we would expect our access tocapital markets and rates associated with those markets to return to normal aswell.

 

Duringfiscal 2010, we completed $580.0 million in debt offerings, made scheduledprincipal payments of $73.0 million on senior notes and prepaid $420.0 millionof senior notes. We also entered into a new accounts receivable securitization facilitywith capacity of up to $145.0 million that replaced our previous securitizationfacility and entered into a new secured credit facility that replaced ourunsecured credit facility and provides for a $400.0 million revolving creditcapacity with the entire amount available for loans and with a sublimit of$200.0 million for letters of credit. Additionally, we issued $20.0 million ofcommon units for which the proceeds were used to reduce borrowings on ourcredit facility. With these financings and the application of the proceeds, wewill have addressed all of our significant outstanding public debt maturitiesthrough 2014 and increased our liquidity to finance ongoing businessstrategies. Furthermore, our only interest rate sensitive financing will beborrowings on our $400.0 million revolving credit facility and our accountsreceivable securitization facility scheduled to expire in 2012 and 2013,respectively.

 

InJune 2009, the Financial Accounting Standards Board issued two amendmentsto existing GAAP, one of which eliminates the concept of a qualifyingspecial-purpose-entity (QSPEs). The second amends guidance applicable tovariable interest entities (VIEs).  Theprovisions of these amendments have eliminated our QSPE status and haverequired us to evaluate all VIE’s to determine whether they must beconsolidated effective August 1, 2010. As a result of the amendments, beginning August 1, 2010, FerrellgasReceivables was accounted for as a consolidated subsidiary and $108.9 millionof trade receivables and a corresponding short-term secured liability wererecorded on our consolidated balance sheets. Borrowings and repayments underthe facility were reported in the financing section of the statement of cashflows. Upon adoption there was no impact on our results of operations and theshort-term secured liability has no impact on any debt covenant agreements.

 

Currently, we believe we will continue to have sufficient access tocapital markets at yields acceptable to us to support our expected growthexpenditures and refinancing of debt maturities. Our disciplined approach tofund necessary capital spending and other partnership needs, combined withsufficient trade credit to operate our business efficiently and availablecredit under our secured credit facility and our accounts receivablesecuritization facility should provide us the means to meet our anticipatedliquidity and capital resource requirements.

 

During periods of high volatility our risk management activities exposeus to the risk of counterparty margin calls in amounts greater than we have thecapacity to fund. Likewise our counterparties may not be able to fulfill theirmargin calls from us or may default on the settlement of positions with us.

 

Our working capital requirements are subject to, among other things,the price of propane, delays in the collection of receivables, volatility inenergy commodity prices, liquidity imposed by insurance providers, downgradesin our credit ratings, decreased trade credit, significant acquisitions, theweather and other changes in the demand for propane. Relatively colder weatheror higher propane prices during the winter heating season are factors thatcould significantly increase our working capital requirements.

 

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Our ability to satisfy our obligations is dependent upon our futureperformance, which will be subject to prevailing economic, financial, businessand weather conditions and other factors, many of which are beyond our control.Due to the seasonality of the retail propane distribution business, asignificant portion of our cash flow from operations is generated during thewinter heating season. Our net cash provided by operating activities primarilyreflects earnings from our business activities adjusted for depreciation andamortization and changes in our working capital accounts. Historically, wegenerate significantly lower net cash from operating activities in our firstand fourth fiscal quarters as compared to the second and third fiscal quartersdue to the seasonality of our business. Subject to meeting the financial testsdiscussed below, our general partner believes that the operating partnershipwill have sufficient funds available to meet its obligations, and to distributeto Ferrellgas Partners sufficient funds to permit Ferrellgas Partners to meetits obligations in fiscal 2011.

 

Subject to the risk factors identified in “Item1A. Risk Factors,” our general partner believes the operating partnership willhave sufficient funds in fiscal 2011 available to distribute to FerrellgasPartners sufficient cash to pay the minimum quarterly distribution on all ofits common units. A quarterly distribution of $0.50 was paid on September 14,2010, to all common units that were outstanding on September 7, 2010. Thisrepresents the sixty-fourth consecutive minimum quarterly distribution paid toour common unitholders dating back to October 1994.

 

Our secured credit facility, public debt, private debt and accountsreceivable securitization facility contain several financial tests andcovenants restricting our ability to pay distributions, incur debt and engagein certain other business transactions. In general, these tests are based onour debt-to-cash flow ratio and cash flow-to-interest expense ratio.****Our general partner currently believes that the mostrestrictive of these tests are debt incurrence limitations under the terms ofour credit and accounts receivable securitization facilities and limitations onthe payment of distributions within our 8.625% senior notes due 2020. Thecredit and accounts receivable securitization facilities generally limit theoperating partnership’s ability to incur debt if it exceeds prescribed ratiosof either debt to cash flow or cash flow to interest expense. Our 8.625% seniornotes restrict payments if a minimum ratio of cash flow to interest expense isnot met, assuming certain exceptions to this ratio limit have previously beenexhausted. This restriction places limitations on our ability to makerestricted payments such as the payment of cash distributions to ourunitholders. The cash flow used to determine these financial tests generally isbased upon our most recent cash flow performance giving pro forma effect foracquisitions and divestitures made during the test period. Our secured creditfacility, public debt, private debt and accounts receivable securitizationfacility do not contain early repayment provisions related to a potentialdecline in our credit rating.

 

As of July 31, 2010, we met all of our required quarterlyfinancial tests and covenants. Based upon current estimates of our cash flow,our general partner believes that we will be able to continue to meet all ofour required quarterly financial tests and covenants in fiscal 2011. However,we may not meet the applicable financial tests in future quarters if we were toexperience:

 

·                  significantly warmer thannormal winter temperatures;

·                  a continued volatile energycommodity cost environment;

·                  an unexpected downturn inbusiness operations;

·                  a change in customerpurchasing patterns due to economic factors in the United States; or

·                  a material downturn in thecredit and/or equity markets.

 

Failure to meet applicable financial tests could have a materiallyadverse effect on our operating capacity and cash flows and could restrict ourability to incur debt or to make cash distributions to our unitholders, even ifsufficient funds were available. Depending on the circumstances, we mayconsider alternatives to permit the incurrence of debt or the continued paymentof the quarterly cash distribution to our unitholders. No assurances can begiven, however, that such alternatives can or will be implemented with respectto any given quarter.

 

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We expect our future capital expenditures and working capital needs tobe provided by a combination of cash generated from future operations, existingcash balances, the secured credit facility or the accounts receivablesecuritization facility. See additional information about the accountsreceivable securitization facility in “Operating Activities — Accountsreceivable securitization.” In order to reduce existing indebtedness, fundfuture acquisitions and expansive capital projects, we may obtain funds fromour facilities, we may issue additional debt to the extent permitted underexisting financing arrangements or we may issue additional equity securities,including, among others, common units.

 

Toward this purpose, the following registration statements were effectiveupon filing or declared effective by the SEC:

 

·                  a shelf registrationstatement for the periodic sale of up to $750.0 million in common units, debtsecurities and/or other securities; Ferrellgas Partners Finance Corp. may, atour election, be the co-issuer and co-obligor on any debt securities issued byFerrellgas Partners under this shelf registration statement; as of July 31,2010, we had $450.0 million available under this shelf registration statement;and

 

·                  an “acquisition” shelfregistration statement for the periodic sale of up to $250.0 million in commonunits to fund acquisitions; as of July 31, 2010, we had $231.5 millionavailable under this shelf agreement.

 

**Fiscal Year Ended July 31, 2010 compared to July 31,2009**

 

**Operating Activities**

 

Net cash provided by operating activities was $134.6 million for fiscal2010, compared to net cash provided by operating activities of $201.8 millionfor the prior year period. This decrease in cash provided by operatingactivities was primarily due to a $106.5 million increase in working capitalrequirements and a $9.2 million decrease in cash flow from operations whichwere partially offset by a $46.0 million increase in net funding from ouraccounts receivable securitization facility. The increase in working capitalrequirements was primarily due to $62.9 million from the impact of increasedsales volumes as well as the timing of billings and collections on accountsreceivable and $59.6 million from the decreased cost per gallon and timing ofinventory purchases. These increases in working capital requirements weresomewhat offset by $20.8 million due to the timing of accounts payabledisbursements. The decrease in cash flow from operations is primarily due to adecrease in net earnings resulting from the debt prepayment premiums of $20.7million on the early redemption of our series D and E senior notes and ourearly redemption of $268.0 million of our 8.75% senior notes, which wassomewhat offset by an $11.9 million increase in operating income. The $46.0 millionincrease in net funding from our accounts receivable securitization facility isprimarily due to an increase in accounts receivable sales to the facility tofund the working capital requirements discussed above.

 

*Accounts receivable securitization*

 

Cash flows from our accounts receivable securitization facilityincreased $46.0 million. We received net funding of $10.0 million from thisfacility during fiscal 2010 as compared to remitting net funding of $36.0million to this facility in the prior year period.

 

Our strategy is to maximize liquidity by utilizing the accountsreceivable securitization facility along with borrowings under the operatingpartnership’s secured credit facility. See additional discussion about theoperating partnership’s secured credit facility in “Financing Activities —Secured credit facility.” Our utilization of the accounts receivablesecuritization facility is limited by the amount of accounts receivable that weare permitted to transfer according to the facility agreement. During April 2010the operating partnership executed a new accounts receivable securitizationfacility with Wells Fargo Bank, N.A., Fifth Third Bank and BNP Paribas thatallows for the proceeds of up to $145.0 million from the sale of accountsreceivable, depending on the available undivided interests in our accountsreceivable from certain customers. This facility matures in April 2013 andreplaces the operating partnership’s previous 364-day 

 

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facility which was to expire in April 2010. At July 31, 2010,we had received cash proceeds of $47.0 million related to the transfer of ourtrade accounts receivable to the accounts receivable securitization facilitywith the ability to receive cash proceeds, at our option, of an additional$11.0 million. As our trade accounts receivable increase during the winterheating season, the securitization facility permits us to receive greaterproceeds as eligible trade accounts receivable increases, thereby providingadditional cash for working capital needs. Prior to August 1, 2010, thesetransactions were reflected in our consolidated financial statements as a saleof accounts receivable and a retained interest in transferred accountsreceivable.

 

The operating partnership

 

Net cash provided by operating activities was $162.5 million for fiscal2010, compared to net cash provided by operating activities of $225.6 millionfor the prior year period. This decrease in cash provided by operatingactivities was primarily due to a $106.8 million increase in working capitalrequirements and a $4.9 million decrease in cash flow from operations, whichwas partially offset by a $46.0 million increase in net funding from ouraccounts receivable securitization facility. The increase in working capitalrequirements was primarily due to $62.9 million from the impact of increasedsales volumes as well as the timing of billings and collections on accountsreceivable and a $59.6 million increase from the decreased cost per gallon andtiming of inventory purchases. These increases in working capital requirementswere somewhat offset by $20.8 million due to the timing of accounts payabledisbursements. The decrease in cash flow from operations is primarily due to adecrease in net earnings resulting from the debt prepayment premiums of $17.3million on the early redemption of our series D and E senior notes which wassomewhat offset by a $12.0 million increase in operating income. The $46.0million increase in net funding from our accounts receivable securitizationfacility is primarily due to an increase in accounts receivable sales to thefacility to fund the working capital requirements discussed above.

 

**Investing Activities**

 

Net cash used in investing activities was $81.3 million for fiscal2010, compared to net cash used in investing activities of $53.2 million forthe prior year period. This increase in net cash used in investing activitiesis primarily due to a $38.2 million increase in capital expenditures related tothe acquisition of propane distribution assets, which is somewhat offset by an$8.9 million decrease in growth and maintenance capital expenditures.

 

**Financing Activities**

 

Net cash used in financing activities was $49.0 million for fiscal2010, compared to net cash used in financing activities of $158.1 million forthe prior year period. The decrease in net cash used by financing activitieswas primarily due to a $123.2 million net increase in long-term borrowings anda $60.6 million decrease in repayments on short term borrowings. These cashincreases were somewhat offset by a $49.5 million reduction in proceeds fromequity offerings and an $18.2 million use of cash to fund transaction costsassociated with the issuance of new term debt, the accounts receivablesecuritization facility and secured credit facility.

 

*Distributions*

 

Ferrellgas Partners paid a $0.50 per unit quarterly distribution on allcommon units, as well as the related general partner distributions, totaling$139.8 million during fiscal 2010 in connection with the distributions declaredfor the three months ended July 31, 2009, October 31, 2009, January 31,2010 and April 30, 2010. The quarterly distribution on all common unitsand the related general partner distributions for the three months ended July 31,2010 of $0.4 million was paid on September 14, 2010 to holders of recordon September 7, 2010.

 

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**Fiscal Year Ended July 31, 2009 compared to July 31,2008**

 

**Operating Activities**

 

Net cash provided by operating activities was $201.8 million for fiscal2009, compared to net cash provided by operating activities of $70.9 millionfor the prior year period. This increase in cash provided by operatingactivities was primarily due to a $158.0 million decrease in working capitalrequirements and a $22.1 million increase in cash flow from operations. Theseincreases were partially offset by a $48.0 million decrease in net funding fromour accounts receivable securitization facility. The decrease in workingcapital requirements was primarily due to $114.1 million from the impact ofdecreased sales price per gallon of propane and the timing of billings andcollections on accounts receivable and $63.4 million from the timing anddecreased cost per gallon of inventory purchases, partially offset by a $29.6million increase due to the timing of accounts payable disbursements. Theincrease in cash flow from operations is primarily due to a $28.2 millionincrease in net earnings. The $48.0 million decrease in net funding from ouraccounts receivable securitization facility is primarily due to a decrease inworking capital requirements.

 

*Accounts receivable securitization*

 

Cash flows from our accounts receivable securitization facilitydecreased $48.0 million. We remitted net funding of $36.0 million to thisfacility during fiscal 2009 as compared to receiving net funding of $12.0million from this facility in the prior year period.

 

The operating partnership

 

Net cash provided by operating activities was $225.6 million for fiscal2009, compared to net cash provided by operating activities of $94.8 millionfor the prior year period. This increase in cash provided by operatingactivities was primarily due to a $157.8 million decrease in working capitalrequirements and a $22.2 million increase in cash flow from operations. Theseincreases were partially offset by a $48.0 million decrease in net funding fromour accounts receivable securitization facility. The decrease in workingcapital requirements was primarily due to $114.1 million from the impact ofdecreased sales price per gallon of propane and the timing of billings andcollections on accounts receivable and $63.4 million from the timing anddecreased cost per gallon of inventory purchases, partially offset by a $29.6million increase due to the timing accounts payable disbursements. The increasein cash flow from operations is primarily due to a $28.3 million increase innet income. The $48.0 million decrease in net funding from our accountsreceivable securitization facility is primarily due to a decrease in workingcapital requirements.

 

**Investing Activities**

 

Net cash used in investing activities was $53.2 million for fiscal2009, compared to net cash used in investing activities of $36.1 million forthe prior year period. This increase in net cash used in investing activitiesis primarily due to increased capital expenditures related to cylinder exchangeactivity.

 

*Capital expenditures*

 

We incurred $54.1 million in cash capital expenditures during fiscal2009 as compared to $43.8 million in the prior year period for maintenance andgrowth capital expenditures.

 

*Acquisition expenditures*

 

During fiscal 2009, we used $2.7 million in cash for costs associatedwith acquisitions as compared to $0.2 million in the prior year period.

 

**Financing Activities**

 

During fiscal 2009, net cash used in financing activities was $158.1million compared to net cash used in financing activities of $38.8 million forthe prior year period. The increase in net cash used in financing activitieswas primarily due to a $127.5 decrease in the need for short term borrowings tofund working 

 

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capital requirements and a $53.6 million reduction in long-termborrowings, which were somewhat offset by $69.4 million of proceeds from theissuance of common units.

 

*Distributions*

 

Ferrellgas Partners paid a $0.50 per unit quarterly distribution on allcommon units, as well as the related general partner distributions, totaling$132.6 million during fiscal 2009 in connection with the distributions declaredfor the three months ended July 31, 2008, October 31, 2008 January 31,2009 and April 30, 2009. The quarterly distribution on all common unitsand the related general partner distributions for the three months ended July 31,2009 of $34.5 million were paid on September 14, 2009 to holders of recordon September 7, 2009.

 

*Secured credit facility*

 

DuringNovember 2009, we closed on a new secured credit facility that provides$400.0 million in revolving credit for loans and has a $200.0 million sublimitfor letters of credit. This secured credit facility replaced our unsecuredcredit facility due April 2010 and will mature in November 2012.

 

The secured credit facility contains various affirmative and negativecovenants and default provisions, as well as requirements with respect to themaintenance of specified financial ratios and limitations on the making ofloans and investments.

 

As of July 31, 2010, we had total borrowingsoutstanding under this secured credit facility due November 2012 of $167.0million, of which $99.8 million was classified as long-term debt.

 

Borrowings under the secured credit facility had a weighted averageinterest rate of 4.40% at July 31, 2010. All borrowings under the secured creditfacility bear interest, at Ferrellgas, L.P.’s option, at a rate equal toeither:

 

·            forBase Rate Loans or Swing Line Loans, the Base Rate, which is defined as thehigher of i) the federal funds rate plus 0.50%, ii) Bank of America’sprime rate; or iii) the Eurodollar Rate plus 1%; plus a margin varyingfrom 2.50% to 3.25% (as of July 31, 2010, the margin was 2.75%); or

·            forEurodollar Rate Loans, the Eurodollar Rate, which is defined as the LIBOR Rateplus a margin varying from 3.50% to 4.25% (as of July 31, 2010, the marginwas 3.75%).

 

As of July 31, 2010, the federal funds rateand Bank of America’s prime rate were 0.18% and 3.25%, respectively. As of July 31,2010, the one-month and three-month Eurodollar Rates were 0.40% and 0.60%,respectively.

 

Letters of credit outstanding at July 31,2010 totaled $47.1 million and were used primarily to secure insurancearrangements and to a lesser extent, product purchases. At July 31, 2010,we had available letter of credit remaining capacity of $152.9 million.

 

All standby letter of credit commitments under our secured creditfacility bear a per annum rate varying from 3.5% to 4.25% (as of July 31,2010, the rate was 3.75%) times the daily maximum amount available to be drawnunder such letter of credit. Letter of credit fees are computed on a quarterlybasis in arrears.

 

An annual commitment fee is payable at a perannum rate of 0.50% times the actual daily amount by which the facility exceedsthe sum of (i) the outstanding amount of revolving credit loans and (ii) theoutstanding amount of letter of credit obligations.

 

The obligations under this secured credit facility are secured bysubstantially all assets of the operating partnership, the general partner andcertain subsidiaries of the operating partnership but specifically excluding (a) assetsthat are subject to the operating partnership’s accounts receivable 

 

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securitization facility, (b) the general partner’s equity interestin Ferrellgas Partners and (c) equity interest in certain unrestrictedsubsidiaries. Such obligations are also guaranteed by the general partner andcertain subsidiaries of the operating partnership.

 

*Common unit offering*

 

During October 2009, Ferrellgas Partners completed an offering of1.1 million common units representing limited partner interests. The netproceeds of $20.0 million were used to reduce borrowings under our unsecuredcredit facility. Ferrellgas also issued $3.1 million of common units inconnection with the acquisition of propane distribution assets.

 

*Debtissuances and repayments*

 

During August 2009, the operating partnership made scheduledprincipal payments of $73.0 million on the 8.87% Series C senior notes.

 

During September 2009, the operating partnership issued $300.0million in aggregate principal amount of new 9.125% senior notes due 2017 at anoffering price equal to 98.6% of par. The proceeds from this transaction wereused to fund the October 2009 note payments discussed below and to reducecredit facility borrowings.

 

During October 2009, the operating partnership prepaid theoutstanding principal amount on its $82.0 million 7.24% series D notes due August 1,2010 and its $70.0 million 7.42% series E notes due August 1, 2013 and therelated prepayment premiums of $17.3 million.

 

DuringApril 2010, Ferrellgas Partners and Ferrellgas Partners Finance Corp.completed a public offering of $280.0 million in aggregate principal amount ofnew 8.625% senior unsecured notes due 2020. Ferrellgas Partners applied the netproceeds of approximately $273.4 million to redeem its $268.0 million 8.75%senior notes due 2012.

 

We believe that the liquidity available from our secured creditfacility and the accounts receivable securitization facility will be sufficientto meet our capital expenditure, working capital and letter of creditrequirements in fiscal 2011. See “Operating Activities” for discussion aboutour accounts receivable securitization facility. However, if we were toexperience an unexpected significant increase in these requirements, our needscould exceed our immediately available resources. Events that could causeincreases in these requirements include, but are not limited to the following:

 

·                  a significant increase inthe wholesale cost of propane;

·                  a significant delay in thecollections of accounts receivable;

·                  increased volatility inenergy commodity prices related to risk management activities;

·                  increased liquidityrequirements imposed by insurance providers;

·                  a significant downgrade inour credit rating leading todecreased trade credit; or

·                  a significant acquisition.

 

If one or more of these or other events caused a significant use ofavailable funding, we may consider alternatives to provide increased liquidityand capital funding. No assurances can be given, however, that suchalternatives would be available, or, if available, could be implemented. Seediscussion of related risk factors in Item 1A. “Risk Factors.”

 

The operating partnership

 

The financing activities discussed above also apply to the operatingpartnership except for cash flows related to the redemption of $268.0 millionof our 8.75% senior notes and the issuance of $280.0 million 8.625% seniornotes and cash flows related to distributions and contributions received, asdiscussed below.

 

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*Distributions*

 

The operating partnership paid cash distributions of $193.8 millionduring fiscal 2010. The operating partnership paid cash distributions of $35.5 millionon September 14, 2010.

 

*Contributions received by the operating partnership*

 

During April 2010, the operating partnership received cashcontributions of $30.5 million and $0.3 million from Ferrellgas Partners andthe general partner, respectively, which were used to reduce borrowingsoutstanding under the secured credit facility.

 

During October 2009, the operating partnership received cashcontributions of $20.0 million and $0.2 million from Ferrellgas Partners andthe general partner, respectively. The proceeds were used to reduce borrowingsoutstanding under the unsecured credit facility.

 

**Disclosures about Effects of Transactions with Related Parties**

 

We have no employees and are managed and controlled by our generalpartner. Pursuant to our partnership agreement, our general partner is entitledto reimbursement for all direct and indirect expenses incurred or payments itmakes on our behalf, and all other necessary or appropriate expenses allocableto us or otherwise reasonably incurred by our general partner in connectionwith operating our business. These reimbursable costs, which totaled $249.6million for fiscal 2010, include operating expenses such as compensation andbenefits paid to employees of our general partner who perform services on ourbehalf, as well as related general and administrative expenses.

 

Related party common unitholder information consisted of the following:

 
| ** **                     | ** ** | **Common unit  ownership at  July 31, 2010** | ** ** | **Distributions paid during  the year ended  July 31, 2010** | ** ** |
|--------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| Ferrell Companies (1)          |       | 20,080,776                                                       |       | $                                                                                          | 40,160     |   |
| FCI Trading Corp. (2)          |       | 195,686                                                          |       | 392                                                                                        |       |
| Ferrell Propane, Inc. (3) |       | 51,204                                                           |       | 104                                                                                        |       |
| James E. Ferrell (4)           |       | 4,353,475                                                        |       | 8,708                                                                                      |       |
|                                |            |                                                                  |            |                                                                                            |            |  |

 

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(1)   Ferrell Companies is thesole shareholder of our general partner.

(2)   FCI Trading Corp. is anaffiliate of the general partner and is wholly-owned by Ferrell Companies.

(3)   Ferrell Propane, Inc.is wholly-owned by our general partner.

(4)   James E. Ferrell is theExecutive Chairman and Chairman of the Board of Directors of our generalpartner.

 

During fiscal 2010, Ferrellgas Partners and the operating partnershiptogether paid the general partner distributions of $3.4 million.

 

On September 14, 2010, Ferrellgas Partners paid distributions toFerrell Companies, FCI Trading Corp., Ferrell Propane, Inc., and James E.Ferrell (indirectly) of $10.0 million, $0.1 million, $26 thousand and $2.2million, respectively.

 

During fiscal 2010, we paid Fleishman-Hillard Inc. $0.2 million formarketing and communications services. Elizabeth Solberg, a member of our generalpartner’s Board of Directors, serves as the General Manager ofFleishman-Hillard Inc.

 

**Contractual Obligations**

 

In the performance of our operations, we are bound by certaincontractual obligations.

 

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The following table summarizes our contractual obligations at July 31,2010:

 
| ** **                                                   | ** ** | **Payment or settlement due by fiscal year** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| **(in thousands)**                                      | ** ** | **2011**                                                                   | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **2015** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Long-term debt, including current portion (1)                |       | $                                                                          | 2,340      |   | $ | 2,290 |   | $ | 2,179 |   | $ | 451,643 |   | $ | 1,655 |   | $ | 682,041 |   | $ | 1,142,148 |   |
| Fixed rate interest obligations (2)                          |       | 82,883                                                                     |       | 82,883 |   | 82,816 |   | 82,785 |   | 52,394 |   | 187,487 |   | 571,248 |   |
| Operating lease obligations (3)                              |       | 21,620                                                                     |       | 14,505 |   | 10,474 |   | 8,410 |   | 6,398 |   | 10,427 |   | 71,834 |   |
| Operating lease buyouts (4)                                  |       | 5,350                                                                      |       | 3,128 |   | 813 |   | 1,008 |   | 501 |   | 2,588 |   | 13,388 |   |
| Purchase obligations: (5)                                    |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product purchase commitments: (6)                       |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Estimated payment obligations                                |       | 1,102,756                                                                  |       | 264,729 |   | — |   | — |   | — |   | — |   | 1,367,485 |   |
| Employment agreements (7)                                    |       | —                                                                     |       | — |   | — |   | — |   | — |   | 1,088 |   | 1,088 |   |
| Total                                                        |       | $                                                                          | 1,214,949  |   | $ | 367,535 |   | $ | 96,282 |   | $ | 543,846 |   | $ | 60,948 |   | $ | 883,631 |   | $ | 3,167,191 |   |
| Underlying product purchase volume commitments (in  gallons) |       | 992,566                                                                    |       | 254,398 |   | — |   | — |   | — |   | — |   | 1,246,964 |   |

 

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| (1)    | We  have long and short-term payment obligations under agreements such as our  senior notes and our credit facility. Amounts shown in the table represent  our scheduled future maturities of long-term debt (including current  maturities thereof) for the periods indicated. For additional information  regarding our debt obligations, please see “Liquidity and Capital Resources —  Financing Activities.”                                                                                    |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (2)    | Fixed  rate interest obligations represent the amount of interest due on fixed rate  long-term debt. These amounts do not include interest on our credit facility,  a variable rate debt obligation. As of July 31, 2010, variable rate  interest on our outstanding balance of variable rate debt of $167.0 million  would be $7.3 million on an annual basis. Actual variable rate interest  amounts will differ due to changes in interest rates and actual seasonal  borrowings under our credit facility. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (3)    | We  lease certain property, plant and equipment under noncancelable and  cancelable operating leases. Amounts shown in the table represent minimum  lease payment obligations under our third-party operating leases for the  periods indicated.                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (4)    | Operating  lease buyouts represent the maximum amount we would pay if we were to  exercise our right to buyout the assets at the end of their lease term.  Historically, we have been successful in renewing certain leases that are  subject to buyouts. However, there is no assurance we will be successful in  the future.                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (5)    | We  define a purchase obligation as an agreement to purchase goods or services  that is enforceable and legally binding (unconditional) on us that specifies  all significant terms, including: fixed or minimum quantities to be  purchased; fixed, minimum or variable price provisions; and the approximate  timing of the transactions.                                                                                                                                                                         |

 

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| (6)    | We  have long and short-term product purchase obligations for propane and energy  commodities with third-party suppliers. These purchase obligations are  entered into at either variable or fixed prices. The purchase prices that we  are obligated to pay under variable price contracts approximate market prices  at the time we take delivery of the volumes. Our estimated future variable  price contract payment obligations are based on the July 31, 2010 market  price of the applicable commodity applied to future volume commitments.  Actual future payment obligations may vary depending on market prices at the  time of delivery.The purchase  prices that we are obligated to pay under fixed price contracts are  established at the inception of the contract. Our estimated future fixed  price contract payment obligations are based on the contracted fixed price  under each commodity contract. Quantities shown in the table represent our  volume commitments and estimated payment obligations under these contracts  for the periods indicated. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (7)    | We  have an incentive bonus payable to James E. Ferrell of $1.1 million upon his  termination of employment with us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

The operating partnership

 

The contractual obligation table above also applies to the operatingpartnership, except for long-term debt, including current portion and fixedrate interest obligations, which are summarized in the table below:

 
| ** **                                    | ** ** | **Payment or settlement due by fiscal year** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| **(in thousands)**                       | ** ** | **2011**                                                                   | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **2015** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Long-term debt, including current portion (1) |       | $                                                                          | 2,340      |   | $ | 2,290 |   | $ | 2,179 |   | $ | 451,643 |   | $ | 1,655 |   | $ | 402,041 |   | $ | 862,148 |   |
| Fixed rate interest obligations (2)           |       | 58,733                                                                     |       | 58,733 |   | 58,666 |   | 58,635 |   | 28,244 |   | 70,762 |   | 333,773 |   |
| Total                                         |       | $                                                                          | 61,073     |   | $ | 61,023 |   | $ | 60,845 |   | $ | 510,278 |   | $ | 29,899 |   | $ | 472,803 |   | $ | 1,195,921 |   |

 

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| (1)    | The  operating partnership has long and short-term payment obligations under  agreements such as the operating partnership’s senior notes and credit  facility. Amounts shown in the table represent the operating partnership’s  scheduled future maturities of long-term debt (including current maturities  thereof) for the periods indicated. For additional information regarding the  operating partnership’s debt obligations, please see “Liquidity and Capital  Resources — Financing Activities.” |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (2)    | Fixed  rate interest obligations represent the amount of interest due on fixed rate  long-term debt. These amounts do not include interest on our credit facility,  a variable rate debt obligation. As of July 31, 2010, variable rate  interest on our outstanding balance of variable rate debt of $167.0 million  would be $7.3 million on an annual basis. Actual variable rate interest  amounts will differ due to changes in interest rates and actual seasonal  borrowings under our credit facility.                        |

 

**Off-balance Sheet Financing Arrangements**

 

In this section we discuss our off-balance sheet arrangements that haveor are reasonably likely to have a current or future material effect on ourfinancial condition, changes in financial condition, revenues or expenses,results of operations, liquidity, capital expenditures or capital resources. Anoff-balance sheet arrangement is any transaction, agreement or othercontractual arrangement involving an unconsolidated entity under which acompany has:

 

·                  made guarantees;

·                  a retained or a contingent interestin transferred assets;

·                  an obligation underderivative instruments classified as equity; or

·                  any obligation arising outof a material variable interest in an unconsolidated entity that providesfinancing, liquidity, market risk or credit risk support to the company, orthat engages in leasing, 

 

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hedging or research and development arrangements with the company.

 

Our off-balance sheet arrangements include the leasing oftransportation equipment, property and computer equipment, letters of creditavailable under our secured credit facility and the sale of accounts receivableto our accounts receivable securitization facility.

 

The leasing of transportation equipment, property and computerequipment is accounted for as operating leases. We believe these arrangementsare a cost-effective method for financing our equipment needs. Theseoff-balance sheet arrangements enable us to lease equipment from third partiesrather than, among other options, purchasing the equipment using on-balancesheet financing.

 

Mostof the operating leases involving our transportation equipment contain residualvalue guarantees. These transportation equipment lease arrangements arescheduled to expire over the next seven years. Most of these arrangementsprovide that the fair value of the equipment will equal or exceed a guaranteedamount, or we will be required to pay the lessor the difference. Although thefair values at the end of the lease terms have historically exceeded theseguaranteed amounts, the maximum potential amount of aggregate future paymentswe could be required to make under these leasing arrangements, assuming the equipmentis worthless at the end of the lease term, was $8.5 million as of July 31,2010. We do not know of any event, demand, commitment, trend or uncertaintythat would result in a material change to these arrangements.

 

Seediscussion about our letters of credit available under our secured creditfacility and the sale of accounts receivable to our accounts receivablesecuritization facility both in “Liquidity and Capital Resources.”

 

**Adoption of New Accounting Standards**

 

Below is a listing of recently issued accounting pronouncements that wehave not yet adopted as of July 31, 2010. See “Liquidity and CapitalResources” for additional discussion of these pronouncements.

 
| **Title of Guidance** | ** ** | **Effective Date**                              | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|
| Transfers of Financial Assets   |       | Fiscal years beginning after November 15,  2009 |       |
| Variable Interest Entities      |       | Fiscal years beginning after November 15,  2009 |       |

 

**Critical Accounting Estimates**

 

The preparation of financial statements in conformity with GAAPrequires us to establish accounting policies and make estimates and assumptionsthat affect our reported amounts of assets and liabilities at the date of theconsolidated financial statements. These financial statements include someestimates and assumptions that are based on informed judgments and estimates ofmanagement. We evaluate our policies and estimates on an on-going basis anddiscuss the development, selection and disclosure of critical accountingpolicies with the Audit Committee of the Board of Directors of our generalpartner. Predicting future events is inherently an imprecise activity and assuch requires the use of judgment. Our consolidated financial statements maydiffer based upon different estimates and assumptions.

 

We discuss our significant accounting policies in Note B — Summary ofsignificant accounting policies — to our consolidated financial statements. Oursignificant accounting policies are subject to judgments and uncertainties thataffect the application of such policies. We believe these financial statementsinclude the most likely outcomes with regard to amounts that are based on ourjudgment and estimates. Our financial position and results of operations may bematerially different when reported under different conditions or when usingdifferent assumptions in the application of such policies. In the eventestimates or assumptions prove to be different from the actual amounts,adjustments are made in subsequent periods to reflect more current information.We believe the following accounting policies are critical to the preparation ofour consolidated financial statements due to the estimation process andbusiness judgment 

 

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involved in their application:

 

Depreciation of property, plant and equipment

 

We calculate depreciation on property, plant and equipment using thestraight-line method based on the estimated useful lives of the assets rangingfrom two to 30 years. Changes in the estimated useful lives of our property,plant and equipment could have a material effect on our results of operations.The estimates of the assets’ useful lives require our judgment regardingassumptions about the useful life of the assets being depreciated. When necessary,the depreciable lives are revised and the impact on depreciation is treated ona prospective basis. There were no such revisions to depreciable lives infiscal 2010, 2009 or 2008.

 

Residual value of customer and storage tanks

 

We use an estimated residual value when calculating depreciation forour customer and bulk storage tanks. Customer and bulk storage tanks areclassified as property, plant and equipment on our consolidated balance sheets.The depreciable basis of these tanks is calculated using the original cost lessthe residual value. Depreciation is calculated using straight-line method basedon the tanks’ estimated useful life of 30 years. Changes in the estimatedresidual value could have a material effect on our results of operations. Theestimates of the tanks’ residual value require our judgment of the value of thetanks at the end of their useful life or retirement. When necessary, the tanks’residual values are revised and the impact on depreciation is treated on aprospective basis. There were no such revisions to residual values in fiscal2010, 2009 or 2008.

 

Valuation methods, amortizationmethods and estimated useful lives of intangible assets

 

The specific, identifiableintangible assets of a business enterprise depend largely upon the nature ofits operations. Potential intangible assets include intellectual property suchas trademarks and trade names, customer lists and relationships, andnon-compete agreements, as well as other intangible assets. The approach to thevaluation of each intangible asset will vary depending upon the nature of theasset, the business in which it is utilized, and the economic returns it isgenerating or is expected to generate. During fiscal 2010, 2009 and 2008 we didnot find it necessary to adjust the valuation methods used for any acquiredintangible assets.

 

Our recorded intangible assetsprimarily include the estimated value assigned to certain customer-related andcontract-based assets representing the rights we own arising from theacquisition of propane distribution companies and related contractualagreements. A customer-related or contract-based intangible with a finiteuseful life is amortized over its estimated useful life, which is the periodover which the asset is expected to contribute directly or indirectly to thefuture cash flows of the entity. We believe that trademarks and trade nameshave an indefinite useful life due to our intention to utilize all acquiredtrademarks and trade names. When necessary, the intangible assets’ useful livesare revised and the impact on amortization will be reflected on a prospectivebasis. The determination of the fair market value of the intangible asset andthe estimated useful life are based on an analysis of all pertinent factorsincluding (1) the use of widely-accepted valuation approaches, the incomeapproach or the cost approach, (2) the expected use of the asset by theentity, (3) the expected useful life of related assets, (4) anylegal, regulatory or contractual provisions, including renewal or extensionperiods that would not cause substantial costs or modifications to existingagreements, (5) the effects of obsolescence, demand, competition, andother economic factors and (6) the level of maintenance required to obtainthe expected future cash flows.

 

If the underlying assumption(s) governingthe amortization of an intangible asset were later determined to havesignificantly changed (either favorably or unfavorably), then we may berequired to adjust the amortization period of such asset to reflect any newestimate of its useful life. Such a change would increase or decrease theannual amortization charge associated with the asset at that time. Duringfiscal 2010, 2009 and 2008 we did not find it necessary to adjust the valuationmethod, estimated useful life or amortization period of any of our intangibleassets.

 

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Should any of the underlyingassumptions indicate that the value of the intangible asset might be impaired,we may be required to reduce the carrying value and subsequent useful life ofthe asset. Any such write-down of the value and unfavorable change in theuseful life (i.e., amortization period) of an intangible asset would increaseoperating costs and expenses at that time.

 

As of July 31, 2010, 2009 and2008, the carrying value of our intangible asset portfolio was $221.1 millionand $212.0 million, respectively. We did not recognize any impairment lossesrelated to our intangible assets during fiscal 2010 or 2009. For additionalinformation regarding our intangible assets, see Note B - Summary ofsignificant accounting policies - and Note G - Goodwill and intangible assets,net - to our consolidated financial statements.

 

Fair value of derivative commodity contracts

 

We enter into commodity forward, futures, swaps and options contractsinvolving propane and related products to hedge exposures to price risk. Thesecontracts are accounted for using the fair value method. Under this valuationmethod, derivatives are carried in the consolidated balance sheets at fairvalue with changes in value recognized in cost of product sold in theconsolidated statements of earnings or in other comprehensive income in theconsolidated statement of partners’ capital. We utilize published settlementprices for exchange-traded contracts, quotes provided by brokers and estimatesof market prices based on daily contract activity to estimate the fair value ofthese contracts. Changes in the methods used to determine the fair value ofthese contracts could have a material effect on our consolidated balance sheetsand consolidated statements of earnings. For further discussion of derivativecommodity contracts, see Item 7A. “Quantitative and Qualitative Disclosuresabout Market Risk,” Note B — Summary of significant accounting policies — andNote J — Derivatives — to our consolidated financial statements. We do notanticipate future changes in the methods used to determine the fair value ofthese derivative contracts.

 

Unit and stock-based compensation

 

We utilize a binomial option valuation tool to compute an estimatedfair value of option awards at their grant date. This option valuation toolrequires a number of inputs, some of which require an estimate to be made bymanagement. Significant estimates include our computation of volatility, thenumber of groups of employees, the expected term of awards and the forfeiturerate of awards.

 

·                  Our stock-based awards plan grants stockawards out of Ferrell Companies. Ferrell Companies is not a publicly-tradedcompany and management does not believe it can be categorized within anycertain industry group. As a result, our volatility computation is highlysubjective. If a different volatility factor were used, it could significantlychange the fair value assigned to stock-based awards at their grant date.

 

·                  Management believes we have three groups ofemployees that participate in our unit and stock-based compensation plans. If adetermination were made that we have additional groups of employees, thatdetermination could significantly change the expected term and forfeiture rateassigned to our unit and stock-based awards.

 

·                  Our method for computing the expected term ofour unit and stock based awards utilizes historical exercise patterns. Thismethod could assign a term to our unit and stock-based awards that issignificantly different from their actual terms, which could result in asignificant difference in the fair value assigned to the awards at the grantdate.

 

·                  We utilize historical forfeiture rates toestimate the expected forfeiture rates on our unit and stock-based awards grantdates. If actual forfeiture rates were to differ significantly from ourestimates, it could result in significant differences between actual andreported compensation expense for our unit and stock-based awards.

 

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**ITEM7A.****              ****QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

We did not enter into any risk management trading activities duringfiscal 2010. Our remaining market risk sensitive instruments and positions havebeen determined to be “other than trading.”

 

*CommodityPrice Risk Management*

 

Our risk management activities primarily attempt to mitigate pricerisks related to the purchase, storage, transport and sale of propane generallyin the contract and spot markets from major domestic energy companies on ashort-term basis. We attempt to mitigate these price risks through the use offinancial derivative instruments and forward propane purchase and salescontracts.

 

Our risk management strategy involves taking positions in the forwardor financial markets that are equal and opposite to our positions in thephysical products market in order to minimize the risk of financial loss froman adverse price change. This risk management strategy is successful when ourgains or losses in the physical product markets are offset by our losses orgains in the forward or financial markets. These financial derivatives aredesignated as cash flow hedges.

 

Our risk management activities include the use of financial derivativeinstruments including, but not limited to, price swaps, options, futures andbasis swaps to seek protection from adverse price movements and to minimizepotential losses. We enter into these financial derivative instruments directlywith third parties in the over-the-counter market and with brokers who areclearing members with the New York Mercantile Exchange. We also enter intoforward propane purchase and sales contracts with counterparties. These forwardcontracts qualify for the normal purchase normal sales exception within GAAPguidance and are therefore not recorded prior to settlement on our financialstatements.

 

Market risks associated with energy commodities are monitored daily bysenior management for compliance with our commodity risk management policy.This policy includes an aggregate dollar loss limit and limits on the term ofvarious contracts. We also utilize volume limits for various energy commoditiesand review our positions daily where we remain exposed to market risk, so as tomanage exposures to changing market prices.

 

We have prepared asensitivity analysis to estimate the exposure to market risk of our energycommodity positions. Forward contracts, futures, swaps and options outstandingas of July 31, 2010 and 2009, that were used in our risk managementactivities were analyzed assuming a hypothetical 10% adverse change in pricesfor the delivery month for all energy commodities. The potential loss in futureearnings from these positions due to a 10% adverse movement in market prices ofthe underlying energy commodities was estimated at $7.8 million and $7.2million as of July 31, 2010 and 2009, respectively. The precedinghypothetical analysis is limited because changes in prices may or may not equal10%, thus actual results may differ.

 

Our sensitivity analysisincludes designated hedging and the anticipated transactions associated withthese hedging transactions. These hedging transactions are anticipated to be100% effective; therefore, there is no effect on our sensitivity analysis fromthese hedging transactions. To the extent option contracts are used as hedginginstruments for anticipated transactions we have included the offsetting effectof the anticipated transactions, only to the extent the option contracts are inthe money, or would become in the money as a result of the 10% hypotheticalmovement in prices. All other anticipated transactions for risk managementactivities have been excluded from our sensitivity analysis.

 

*Credit Risk*

 

We maintain credit policieswith regard to our counterparties for propane procurement that we believesignificantly minimize overall credit risk. These policies include anevaluation of counterparties’ financial condition (including credit ratings),and entering into agreements with counterparties that govern credit guidelines.

 

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These counterparties consistof major energy companies who are suppliers, wholesalers, retailers, end usersand financial institutions. The overall impact due to certain changes ineconomic, regulatory and other events may impact our overall exposure to creditrisk, either positively or negatively in that counterparties may be similarlyimpacted. Based on our policies, exposures, credit and other reserves,management does not anticipate a material adverse effect on financial positionor results of operations as a result of counterparty performance.

 

*InterestRate Risk*

 

AtJuly 31, 2010 and 2009, we had $167.0 million and $154.7 million,respectively, in variable rate credit facility borrowings. Thus, assuming a onepercent increase in our variable interest rate, our interest rate risk relatedto the borrowings on our variable rate credit facility would result in a lossin future earnings of $1.7 million for fiscal 2011. The preceding hypotheticalanalysis is limited because changes in interest rates may or may not equal onepercent, thus actual results may differ.

 
| **ITEM 8.** | **FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.** |
|-------------|--------------------------------------------------|

 

Our consolidated financial statements and the Independent RegisteredPublic Accounting Firm’s Reports thereon and the Supplementary FinancialInformation listed on the accompanying Index to Financial Statements andFinancial Statement Schedules are hereby incorporated by reference. See Note O —Quarterly data (unaudited) — to our consolidated financial statements forSelected Quarterly Financial Data.

 
| **ITEM 9.** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE.** |
|-------------|--------------------------------------------------------------------------------------------|

 

None.

 
| **ITEM 9A.** | **CONTROLS AND PROCEDURES.** |
|--------------|------------------------------|

 

Anevaluation was performed by the management of Ferrellgas Partners, L.P.,Ferrellgas Partners Finance Corp., Ferrellgas, L.P., and Ferrellgas FinanceCorp., with the participation of the principal executive officer and principalfinancial officer of our general partner, of the effectiveness of ourdisclosure controls and procedures. Based on that evaluation, our management,including our principal executive officer and principal financial officer,concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) or15d-15(e) under the Exchange Act, were effective.

 

The management of Ferrellgas Partners, L.P., Ferrellgas PartnersFinance Corp., Ferrellgas, L.P., and Ferrellgas Finance Corp. does not expectthat our disclosure controls and procedures will prevent all errors and allfraud. The design of a control system must reflect the fact that there areresource constraints, and the benefits of controls must be considered relativeto their costs. Based on the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issues andinstances of fraud, if any, within the above mentioned Partnerships andCorporations have been detected. These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple errors or mistakes. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the controls. The design of anysystem of controls also is based in part upon certain assumptions about thelikelihood of future events. Therefore, a control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met. Our disclosure controls andprocedures are designed to provide such reasonable assurances of achieving ourdesired control objectives, and the principal executive officer and principalfinancial officer of our general partner have concluded, as of July 31,2010, that our disclosure controls and procedures are effective in achievingthat level of reasonable assurance.

 

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**Management’s Report on Internal Control Over FinancialReporting**

 

The management of FerrellgasPartners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P. andFerrellgas Finance Corp. is responsible for establishing and maintainingadequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) or15d-15(f) of the Exchange Act. Under the supervision and with theparticipation of our management, including our principal executive officer andprincipal financial officer, we conducted an evaluation of the effectiveness ofour internal control over financial reporting based on the framework in *Internal Control — Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. Basedon our evaluation under the framework in *InternalControl — Integrated Framework*, our management concluded that ourinternal control over financial reporting was effective as of July 31,2010.

 

Theeffectiveness of our internal control over financial reporting for FerrellgasPartners, L.P. and Ferrellgas, L.P., as of July 31, 2010, has been auditedby Deloitte & Touche LLP, an independent registered public accountingfirm, as stated in their reports which are included herein.

 

Duringthe most recent fiscal quarter ended July 31, 2010, there have been nochanges in our internal control over financial reporting (as defined inRule 13a—15(f) or Rule 15d—15(f) of the Exchange Act) thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Partners ofFerrellgas Partners, L.P. and subsidiaries **Overland Park, Kansas

 

Wehave audited the internal control over financial reporting of FerrellgasPartners, L.P. and subsidiaries (the “Partnership”) as of July 31, 2010, based on criteria established in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. The Partnership’s management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control Over Financial Reporting.  Ourresponsibility is to express an opinion on the Partnership’s internal controlover financial reporting based on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects.  Our auditincluded obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based onthe assessed risk, and performing such other procedures as we considerednecessary in the circumstances.  We believe that our audit provides areasonable basis for our opinion.

 

A company’s internal control over financialreporting is a process designed by, or under the supervision of, the company’sprincipal executive and principal financial officers, or persons performingsimilar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparationof financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis.  Also,projections of any evaluation of the effectiveness of the internal control overfinancial reporting to future periods are subject to the risk that the controlsmay become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Inour opinion, the Partnership maintained, in all material respects, effectiveinternal control over financial reporting as of July 31, 2010, based onthe criteria established in *Internal Control— Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated financial statements and financial statement schedules as of andfor the year ended July 31, 2010 of the Partnership and our report dated September 28,2010 expressed an unqualified opinion on those financial statements and financial statement schedules.

 

/s/ DELOITTE & TOUCHE LLP

KansasCity, Missouri

September 28,2010

 

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Partners ofFerrellgas Partners Finance Corp. **Overland Park, Kansas

 

Wehave audited the internal control over financial reporting of FerrellgasPartners Finance Corp. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.,referred to herein as “the Company”) as of July 31, 2010, based on criteria established in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control Over Financial Reporting.  Ourresponsibility is to express an opinion on the Company’s internal control overfinancial reporting based on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects.  Our auditincluded obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based onthe assessed risk, and performing such other procedures as we considerednecessary in the circumstances.  We believe that our audit provides areasonable basis for our opinion.

 

A company’s internal control over financialreporting is a process designed by, or under the supervision of, the company’sprincipal executive and principal financial officers, or persons performingsimilar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis.  Also,projections of any evaluation of the effectiveness of the internal control overfinancial reporting to future periods are subject to the risk that the controlsmay become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Inour opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of July 31, 2010, based onthe criteria established in *Internal Control— Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), thefinancial statements as of and for the year ended July 31, 2010 of theCompany and our report dated September 28, 2010 expressed an unqualifiedopinion on those financial statements.

 

/s/ DELOITTE & TOUCHE LLP

Kansas City, Missouri

September 28,2010

 

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Partners ofFerrellgas, L.P. and subsidiaries **Overland Park, Kansas

 

Wehave audited the internal control over financial reporting of Ferrellgas, L.P.and subsidiaries (“Ferrellgas”) as of July 31, 2010, based on criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.  Ferrellgas’ management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting, included in the accompanying Management’s Report on Internal ControlOver Financial Reporting.  Our responsibility is to express anopinion on Ferrellgas’ internal control over financial reporting based on ouraudit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects.  Our auditincluded obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk, andperforming such other procedures as we considered necessary in thecircumstances.  We believe that our audit provides a reasonable basis forour opinions.

 

A company’s internal control over financialreporting is a process designed by, or under the supervision of, the company’sprincipal executive and principal financial officers, or persons performingsimilar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis.  Also,projections of any evaluation of the effectiveness of the internal control overfinancial reporting to future periods are subject to the risk that the controlsmay become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Inour opinion, Ferrellgas maintained, in all material respects, effectiveinternal control over financial reporting as of July 31, 2010, based onthe criteria established in *Internal Control— Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated financial statements and financial statement schedule as of andfor the year ended July 31, 2010 of Ferrellgas and our report dated September 28,2010 expressed an unqualified opinion on those financial statements and financial statement schedule.

 

/s/ DELOITTE & TOUCHE LLP

Kansas City, Missouri

September 28,2010

 

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Partners ofFerrellgas Finance Corp. **Overland Park, Kansas

 

Wehave audited the internal control over financial reporting of FerrellgasFinance Corp. (a wholly-owned subsidiary of Ferrellgas, L.P., referred toherein as “the Company”) as of July 31, 2010, based on criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.  The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting, included in the accompanying Management’s Report on Internal ControlOver Financial Reporting.  Our responsibility is to express anopinion on the Company’s internal control over financial reporting based on ouraudit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects.  Our auditincluded obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based onthe assessed risk, and performing such other procedures as we considerednecessary in the circumstances.  We believe that our audit provides areasonable basis for our opinion.

 

A company’s internal control over financialreporting is a process designed by, or under the supervision of, the company’sprincipal executive and principal financial officers, or persons performingsimilar functions, and effected by the company’s board of directors, management,and other personnel to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.  Acompany’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis.  Also,projections of any evaluation of the effectiveness of the internal control overfinancial reporting to future periods are subject to the risk that the controlsmay become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Inour opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of July 31, 2010, based onthe criteria established in *Internal Control— Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), thefinancial statements as of and for the year ended July 31, 2010 of theCompany and our report dated September 28, 2010 expressed an unqualifiedopinion on those financial statements.

 

/s/ DELOITTE & TOUCHE LLP

Kansas City, Missouri

September 28,2010

 

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**ITEM 9B.    OTHER INFORMATION.**

 

None.

 

**PART III**

 

**ITEM 10.       DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.**

 

**Directors and Executive Officersof our General Partner**

 

The following table sets forth certain information with respect to thedirectors and executive officers of our general partner as of September 24,2010. Officers are appointed to their respective office or offices eitherannually or as needed. Directors are appointed to their respective office oroffices annually.

 
| **Name**              | ** ** | **Age** | ** ** | **Director  Since** | ** ** | **Executive  Officer Since** | ** ** | **Position**                                                            |
|-----------------------|------------|---------|------------|---------------------|------------|-----------------------------------|------------|-------------------------------------------------------------------------|
| James E. Ferrell      |       | 70      |       | 1984                |       | 2000                              |       | Executive  Chairman and Chairman of the Board of Directors              |
| Stephen  L. Wambold   |       | 42      |       | 2009                |       | 2005                              |       | Chief  Executive Officer and President, Director                        |
| J.  Ryan VanWinkle    |       | 37      |       | N/A                 |       | 2008                              |       | Senior  Vice President and Chief Financial Officer; Treasurer           |
| Tod  D. Brown         |       | 47      |       | N/A                 |       | 2006                              |       | Senior  Vice President, Ferrellgas and President, Blue Rhino            |
| George  L. Koloroutis |       | 49      |       | N/A                 |       | 2006                              |       | Senior  Vice President, Ferrellgas and President, Ferrell North America |
| William  K. Hoskins   |       | 75      |       | 2003                |       | N/A                               |       | Director                                                                |
| A.  Andrew Levison    |       | 54      |       | 1994                |       | N/A                               |       | Director                                                                |
| John  R. Lowden       |       | 53      |       | 2003                |       | N/A                               |       | Director                                                                |
| Michael  F. Morrissey |       | 68      |       | 1999                |       | N/A                               |       | Director                                                                |
| Elizabeth  T. Solberg |       | 71      |       | 1998                |       | N/A                               |       | Director                                                                |

 

*JamesE. Ferrell*— Mr. Ferrellhas been with Ferrell Companies or its predecessors and its affiliates invarious executive capacities since 1965, including Chairman of the Board ofDirectors of Ferrellgas, Inc. Under his leadership, Ferrellgas has grownfrom a small, independently owned propane company to one of the nation’slargest propane retailers. An active member of the retail propane industry, Mr. Ferrellis a past President of the World LP Gas Association and a former Chairman ofthe Propane Vehicle Council.

 

*Stephen L. Wambold* —Mr. Wambold joined our general partner as a General Manager in 1997,became Region Vice President in 2003, became Senior Vice President ofOperations in 2005, became President and Chief Operating Officer in 2006 andbecame Chief Executive Officer and President and was appointed to the board ofdirectors in 2009. Mr. Wambold obtained his Bachelors degree from PurdueUniversity.

 

Mr. Wambold’s experience as a retailpropane operations manager brings to the Board a unique and well-developedunderstanding of our industry and the opportunities within the industry todrive unitholder value. Mr. Wambold contributes to the Board his strategicvision for growth, brand building experience and a consumer focus. Mr. Wamboldalso adds strong leadership capabilities, operating expertise, business 

 

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strategy expertise and strategic planningskills.

 

*J. Ryan VanWinkle* — Mr. VanWinkle joined our generalpartner in 1999, became Director of Finance and Treasury in 2004, became VicePresident, Finance and Corporate Development in 2007, became Chief FinancialOfficer, Vice President, Corporate Development and Treasurer in 2008 and becameSenior Vice President and Chief Financial Officer; Treasurer in 2009. Mr. VanWinklealso serves as a member of the Board of Directors for the Children’s Center forthe Visually Impaired in Kansas City, Missouri. Mr. VanWinkle obtained hisBachelor of Science degree in Accounting from the University of Missouri —Kansas City.

 

*Tod D. Brown*— Mr. Brown joined our general partner asSenior Director of Sales, Blue Rhino in 2004, became Vice President of Sales,Blue Rhino in 2005, became Vice President, Blue Rhino in 2006, became SeniorVice President, Sales and Marketing and President, Blue Rhino in 2008 andbecame Senior Vice President, Ferrellgas and President, Blue Rhino in 2010. Mr. Brownobtained his Bachelor of Arts degree from Ball State University.

 

*George L. Koloroutis* —**Mr. Koloroutisjoined our general partner in 1991 as Market Manager, became District Managerin 1995, became Area Manager in 1996, became Director of Wholesale and Supplyin 1998, became Vice President, Supply and Distribution Supply in 1999, becameVice President, Ferrell North America in 2005 and became Senior Vice President,Ferrellgas and President, Ferrell North America in 2009. Mr. Koloroutis isan active member of the propane industry, serving on the Board of Directors ofthe National Propane Gas Association (NPGA).

 

*William K. Hoskins*— Mr. Hoskins wasappointed to the Board of Directors in 2003. He chairs the Board’s CorporateGovernance and Nominating Committee, and also serves on its Audit Committee.For the past five years Mr. Hoskins has served as a Partner of ResolutionStrategies, LLP, a Portland, Oregon-based law firm and its predecessor ResolutionCounsel, LLP, and also as President of Hoskins & Associates, apharmaceutical and biotech consulting firm. Mr. Hoskins obtained his JurisDoctor degree from Harvard Law School and his Bachelor of Arts degree from YaleUniversity.

 

Mr. Hoskins was a founding partner of Resolution Strategies, LLP’spredecessor, Resolution Counsel, LLP, in 2002. Prior to that, Mr. Hoskinsgained 15 years of experience as Vice President and General Counsel with MarionLaboratories, Inc., and its successor companies, Marion Merrell Dow andHoechst Marion Roussel, Inc. (the pharmaceutical arm of Hoechst Chemical).While at Marion Laboratories, Inc. and its predecessor companies, Mr. Hoskinshelped create corporate partnerships with a variety of small and largepharmaceutical companies and organized the acquisition of equity interests in anumber of companies. Before joining Marion Laboratories, Inc., Mr. Hoskinsgained 14 years of experience with Bristol Myers Squibb, rising to the positionof Associate General Counsel. Mr. Hoskins has also served as Chairman of apublic real estate company headquartered in Kansas City, Missouri. Mr. Hoskinsbrings to the Board a wealth of experience in complex business matters,intellectual property issues and significant litigation.

 

*A. Andrew Levison*— Mr. Levison hasserved on the Board of Directors since 1994 and is a member of the Board’sCompensation Committee. For the past five years Mr. Levison has served asthe Managing Partner of Southfield Capital Advisors, LLC, a Greenwich,Connecticut-based, private merchant banking firm and serves on the Boards ofDirectors of Presidio Partners, LLC, and the Levison/Present Foundation atMount Sinai Hospital in New York City. Mr. Levison obtained his Bachelorof Science degree in Finance from Babson College.

 

Mr. Levison founded Levison & Co., the predecessor ofSouthfield Capital Advisors, LLC, in 2002. Prior to that, Mr. Levison wasthe Head of Leveraged Finance at Donaldson, Lufkin & Jenrette (“DLJ”),where he oversaw banking and origination activities for all of DLJ’s investmentbanking products for leveraged companies. In particular, Mr. Levisonfocused on high yield securities, leveraged bank loans, bridge loans andmezzanine/equity investments. Under Mr. Levison’s leadership, DLJ becamethe number one ranked firm for high yield underwriting throughout the 1990’s.While at DLJ, Mr. Levison also served as Co-Chairman of the CreditCommittee and as a member of the Management Committee of the 

 

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Investment Banking Division and the Banking Review Committee. Prior tojoining DLJ, Mr. Levison was a Managing Director of the Leveraged BuyoutGroup at Drexel Burnham Lambert and a Vice-President of the Special FinanceGroup at Manufacturers Hanover Trust.

 

While serving on the Board of Directors of our general partner, Mr. Levison’sfirm DLJ acted as an underwriter with regard to the initial public offering in1994 which coincided with the formation of our master limited partnership. Mr. Levisonbrings to the Board significant experience in capital markets, corporatefinance and investment banking. We consider Mr. Levison to be a financialexpert.

 

*John R. Lowden*— Mr. Lowden was appointed to the Boardof Directors in 2003 and is a member of the Board’s Audit, Compensation andCorporate Governance and Nominating Committees. For the past five years Mr. Lowdenhas served as the President of NewCastle Partners, LLC, a Greenwich,Connecticut-based private investment firm. Mr. Lowden also serves asChairman of World Dryer Corporation, Metpar Industries, Inc., and ApparelVentures Inc. and serves on the Board of Trustees of Wake Forest University. Mr. Lowdenobtained his Master’s degree in Business Administration and his Bachelor ofScience degree in Business from Wake Forest University.

 

Mr. Lowden was a founding partner of NewCastle Partners, LLC in2001. Prior to that, Mr. Lowden had served as a partner of The JordanCompany, a New York City-based private equity firm. Mr. Lowden wasresponsible for sourcing, structuring, negotiating and closing investments andmonitoring portfolio companies. Mr. Lowden was also an investment bankerwith Ferris & Company in Washington, DC where he was engaged inmergers and acquisitions, public offerings, private placements and venturecapital. During his 25 years in private equity, Mr. Lowden has been aprincipal investor and participated in the acquisitions of over 35manufacturing, retail and distribution businesses.

 

Mr. Lowden brings to the Board significant experience in capitalmarkets, corporate finance and investment banking. We consider Mr. Lowdento be a financial expert.

 

*Michael F. Morrissey*— Mr. Morrissey hasserved on the Board of Directors since 1999 and chairs the Board’s AuditCommittee. Mr. Morrissey has been selected as the presiding director fornon-management executive sessions of the Board. Mr. Morrissey retired asthe Managing Partner of Ernst & Young’s Kansas City, Missouri officein 1999. For the past five years Mr. Morrissey has served as a boardmember on the boards of directors of various companies, and currently serves onthe Board of Directors and as Audit Committee Chairman of Westar Energy, Inc.(since 2003), serves on the Board of Directors and Audit Committee of Waddell &Reed Financial, Inc., and the boards of several private companies andnot-for-profit organizations.

 

Mr. Morrissey served as a partner of Ernst & Young forseventeen years. Prior to that, Mr. Morrissey worked for twelve years fortwo major accounting firms, one of which was Ernst & Young (for sevenyears). Mr. Morrissey has been a Certified Public Accountant since 1972. Mr. Morrisseybrings to the Board substantial experience as the chairman of the auditcommittees of public companies, many years of experience as an audit partner ofa major accounting firm and extensive experience as a director of other largeprivate and public companies. We consider Mr. Morrissey to be anaccounting expert. Mr. Morrissey has a high level of understanding of theBoard’s role and responsibilities based on his service on other company boards.  Mr. Morrissey obtained his Bachelor ofBusiness Administration degree in Accounting from the University of Notre Dameand obtained his Master of Business Administration degree in Finance fromTemple University. 

 

*Elizabeth T. Solberg*— Ms. Solberg hasserved on the Board of Directors since 1998. She chairs the Board’sCompensation Committee and also serves on its Corporate Governance andNominating Committee. From 2005-2008, Ms. Solberg served as seniorcounselor and from 2009 to current, serves as General Manager atFleishman-Hillard, Inc., the largest public relations firm in NorthAmerica. Ms. Solberg joined Fleishman-Hillard, Inc. in 1976 and hasalso served as Executive Consultant, Managing Partner and Co-Chair of OperatingCommittee worldwide. From 2001 to 2008, Ms. Solberg served on the Board ofDirectors of Midwest Airlines. Ms. Solberg also serves on numerous civic organizations.Ms. Solberg obtained her Bachelor of Journalism degree from the Universityof Missouri.

 

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Ms. Solberg brings to the Board business leadership, corporatestrategy and operating expertise and brand building and innovation skills. Ms. Solbergalso has extensive experience in public relations and marketing.

 

**Corporate Governance**

 

The limited partnership agreements of Ferrellgas Partners and theoperating partnership provide for each partnership to be governed by a generalpartner rather than a board of directors. Through these partnership agreements,Ferrellgas, Inc. acts as the general partner of both Ferrellgas Partnersand the operating partnership and thereby manages and operates the activitiesof Ferrellgas Partners and the operating partnership. Ferrellgas, Inc.anticipates that its activities will be limited to the management and operationof the partnerships. Neither Ferrellgas Partners nor the operating partnershipdirectly employs any of the persons responsible for the management oroperations of the partnerships, rather, these individuals are employed by thegeneral partner.

 

The Board of Directors ofour general partner has adopted a set of Corporate Governance Guidelines forthe Board and charters for its Audit Committee, Corporate Governance andNominating Committee and Compensation Committee. A current copy of theseCorporate Governance Guidelines and charters, each of which were adopted andapproved by the entire Board, are available, free of charge, to our securityholders and other interested parties on our website at www.ferrellgas.com(under the caption “Corporate Governance” within “Investor Information”) andare also available in print to any unitholder or other interested parties whorequest it. Requests for print copies should be directed to:

 

Ferrellgas, Inc.

Attention: Investor Relations

7500 College Boulevard, Suite 1000

OverlandPark, Kansas 66210

913-661-1533

investors@ferrellgas.com.

 

Please note that the information andmaterials found on our website, except for SEC filings expressly incorporatedby reference into this report herein, are not part of this report and are notincorporated by reference into this report.

 

Additionally, the Board hasaffirmatively determined that Messrs. Hoskins, Levison, Lowden, Morrisseyand Ms. Solberg, who constitute a majority of its Directors, are “independent”as described by the New York Stock Exchange’s (“NYSE”) corporate governancerules. In conjunction with regular Board meetings, these five non-managementdirectors also meet in a regularly scheduled executive session without membersof management present. A non-management director presides over each executivesession of non-management directors. Mr. Morrissey has been selected asthe presiding director for non-management executive sessions. If Mr. Morrisseyis not present then the other non-management directors shall select thepresiding director. Additional executive sessions may be scheduled by amajority of the non-management directors in consultation with the presidingdirector and the Chairman of the Board.

 

The NYSE requires the ChiefExecutive Officer of each listed company to submit a certification indicatingthat the company is not in violation of the Corporate Governance listingstandards of the NYSE on an annual basis. The last CEO certification to theNYSE was submitted on October 20, 2009.

 

**Audit Committee**

 

TheBoard has a designated Audit Committee established in accordance with theExchange Act comprised of Messrs. Morrissey, Hoskins and Lowden. Mr. Morrisseyis the chairman of the Audit Committee and has been determined by the board tobe an “audit committee financial expert.” The Audit Committee charter, as wellas the rules of the New York Stock Exchange and the SEC, requires thatmembers of the Audit Committee satisfy “independence” requirements as set outby the New York Stock 

 

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Exchange. The Board hasdetermined that all of the members of the Audit Committee are independent asdescribed under the relevant standards.

 

TheAudit Committee charter requires the Audit Committee to pre-approve allengagements with any independent auditor, including all engagements regardingthe audit of the financial statements of each Ferrellgas Party and allpermissible non-audit engagements with the independent auditor.

 

**Limitation on Directors Participating on AuditCommittees**

 

The Board has adopted a policy limiting the number of public-companyaudit committees its directors may serve on to three at any point in time. If adirector desires to serve on more than three public-company audit committees,he or she must first obtain the written permission of the Board.

 

**Corporate Governance and Nominating Committee**

 

The Board has a designatedCorporate Governance and Nominating Committee, comprised of Messrs. Hoskins,Lowden and Ms. Solberg. Mr. Hoskins is the chairman of the CorporateGovernance and Nominating Committee. The Corporate Governance and NominatingCommittee charter requires that members of the Corporate Governance andNominating Committee satisfy particular “independence” requirements. The Boardhas determined that all of the members of the Corporate Governance andNominating Committee are “independent” as described under relevant standards.

 

**Compensation Committee**

 

The Board has a designatedCompensation Committee, comprised of Ms. Solberg and Messrs. Levisonand Lowden. Ms. Solberg is chair of the Compensation Committee. TheCompensation Committee charter requires that members of the CompensationCommittee satisfy particular “independence” requirements. The Board hasdetermined that all of the members of the Compensation Committee are “independent”as described under relevant standards. The Compensation Committee has theauthority to assist the Board of Directors in fulfilling its responsibility toeffectively compensate the senior management of the general partner in a mannerconsistent with the growth strategy of the general partner. Toward that end,the Compensation Committee oversees the review process of all compensation,equity and benefit plans of Ferrellgas. In discharging this oversight role, theCompensation Committee has full power to consult with, retain and compensateindependent legal, financial and/or other advisors as it deems necessary orappropriate.

 

**Disclosure about our SecurityHolders’ and Interested Parties’ Ability to Communicate with the Board ofDirectors of our General Partner**

 

TheBoard of Directors of our general partner has a process by which securityholders and interested parties can communicate with it. Security holders andinterested parties can send communications to the Board by contacting ourInvestor Relations department by mail, telephone or e-mail at:

 

Ferrellgas, Inc.

Attention: InvestorRelations

7500 CollegeBoulevard, Suite 1000

Overland Park, Kansas 66210

913-661-1533

investors@ferrellgas.com.

 

Anycommunications directed to the Board of Directors from employees or others thatconcern complaints regarding accounting, internal controls or auditing matterswill be handled in accordance with procedures adopted by the Audit Committee.All other communications directed to the Board of Directors are initiallyreviewed by the Investor Relations Department. The Chairman of the CorporateGovernance Committee is advised promptly of any such communication that allegesmisconduct on the part of management or raises legal, ethical or complianceconcerns about the policies or practices of the general 

 

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partner.On a periodic basis, the Chairman of the Corporate Governance Committeereceives updates on other communications that raise issues related to theaffairs of the Partnership but do not fall into the two prior categories. TheChairman of the Corporate Governance Committee determines which of thesecommunications require further review. The Corporate Secretary maintains a logof all such communications that is available for review for one year uponrequest of any member of the Board. Typically, the general partner does notforward to the Board of Directors communications from unitholders or otherparties which are of a personal nature or are not related to the duties andresponsibilities of the Board, including junk mail, customer complaints, jobinquiries, surveys and polls, and business solicitations.

 

**Code of Ethics for Principal Executive and FinancialOfficers and Code of Business Conduct and Ethics**

 

The Board has adopted a Codeof Ethics for our general partner’s principal executive officer, principalfinancial officer, principal accounting officer or those persons performingsimilar functions. Additionally, the Board has adopted a general Code ofBusiness Conduct and Ethics for all of our general partner’s directors,officers and employees. These codes, which were adopted and approved by theentire Board, are available to our security holders and other interestedparties at no charge on our website at www.ferrellgas.com (under the caption “CorporateGovernance” within “Investor Information”) and are also available in print toany security holder or other interested parties who requests it. Requests forprint copies should be directed to:

 

Ferrellgas, Inc.

Attention: Investor Relations

7500 College Boulevard, Suite 1000

OverlandPark, Kansas 66210

913-661-1533

investors@ferrellgas.com.

 

Please note that the information and materials found on our website,except for SEC filings expressly incorporated by reference into this reportherein, are not part of this report and are not incorporated by reference intothis report.

 

We intend to disclose, within four business days, any amendment to thecode of business conduct and the Code of Ethics on our website. Any waiversfrom the Code of Ethics will also be disclosed on our website.

 

**Compensation of our GeneralPartner**

 

Our general partner receives no management fee or similar compensationin connection with its management of our business and receives no remunerationother than:

 

·                  distributions on its combined approximate 2%general partner interest in Ferrellgas Partners and the operating partnership;and

 

·                  reimbursement for:

 

·                        all direct and indirectcosts and expenses incurred on our behalf;

·                        all selling, general andadministrative expenses incurred by our general partner on our behalf; and

·                        all other expenses necessaryor appropriate to the conduct of our business and allocable to us.

 

Theselling, general and administrative expenses reimbursed include specificemployee benefits and incentive plans for the benefit of the executive officersand employees of our general partner.

 

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**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Section 16(a) of the Exchange Act requires our generalpartner’s officers and directors, and persons who beneficially own more than10% of our common units, to file reports of beneficial ownership and changes inbeneficial ownership of our common units with the SEC. These persons are alsorequired by the rules and regulations promulgated by the SEC to furnishour general partner with copies of all Section 16(a) forms filed bythem. These forms include Forms 3, 4 and 5 and any amendments thereto.

 

Based solely on its review of the copies of such Section 16(a) formsreceived by our general partner and, to the extent applicable, writtenrepresentations from certain reporting persons that no Annual Statement ofBeneficial Ownership of Securities on Form 5 were required to be filed bythose persons, our general partner believes that during fiscal 2010 all Section 16(a) filingrequirements applicable to the officers, directors of our general partner andbeneficial owners of more than 10% of our common units were met in a timelymanner, except as set forth below:

 

·                  late filing of a Form 4 for onetransaction by Stephen L. Wambold;

 

·                  late filing of a Form 4 for onetransaction by J. Ryan VanWinkle;

 

·                  late filing of a Form 4 for onetransaction by Tod D. Brown;

 

·                  late filing of a Form 4 for onetransaction by George L. Koloroutis;

 

·                  late filing of a Form 4 for one transactionby Eugene D. Caresia; and

 

·                  late filing of a Form 4 for onetransaction by Jennifer A. Boren.

 

**ITEM11.      EXECUTIVE COMPENSATION.**

 

**Compensation Committee Report**

 

The Compensation Committeehas reviewed and discussed the following Compensation Discussion and Analysiswith management. Based on its review and discussion with management, thecompensation committee has determined that this Compensation Discussion andAnalysis should be included in this report.

 

Submitted by:

A. Andrew Levison

John R. Lowden

Elizabeth T. Solberg

 

**Compensation Committee Interlocks and Insider Participation**

 

The Compensation Committeeis comprised of Ms. Solberg and Messrs. Levison and Lowden. None ofthe members were officers or employees of the general partner or any of itssubsidiaries prior to or during fiscal 2010. None of the members has anyrelationship required to be disclosed under this caption under the rules ofthe Securities and Exchange Commission.

 

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**Compensation Discussion andAnalysis**

 

***Overview of Executive OfficerCompensation***

 

Throughout this section,each person who served as the Principal Executive Officer (“PEO”) during fiscal2010, each person who served as the Principal Financial Officer (“PFO”) duringfiscal 2010, the three most highly compensated executive officers other thanthe PEO and PFO serving at July 31, 2010 and up to two additionalindividuals for whom disclosure would have been provided but for the fact thatthe individual was not serving as an executive officer at July 31, 2010are referred to as the Named Executive Officers (“NEOs”). We do not directlyemploy our NEOs. Rather, we are managed by our general partner who serves asthe employer of our NEOs. We reimburse our general partner for all NEOcompensation.

 

***Compensation Objectives***

 

We believe an effectiveexecutive compensation package should link total compensation to overallfinancial performance and to the achievement of both short and long termstrategic, operational and financial goals. The elements of our compensationprogram are intended to provide a total reward package to our NEOs that (i) providescompetitive compensation opportunities, (ii) recognizes and rewardsindividual contribution, (iii) attracts, motivates and retainshighly-talented executives, and (iv) aligns executive performance towardthe creation of sustained unitholder value rather than the achievement ofshort-term goals that might be inconsistent with the creation of long-termunitholder value.

 

***Components of Named ExecutiveOfficer Compensation***

 

Stephen L. Wambold, with theassistance of J. Ryan VanWinkle, formulates preliminary compensationrecommendations for all NEOs, including themselves. These recommendations aresubject to review and approval by the Compensation Committee. To assist StephenL. Wambold and the Compensation Committee, J. Ryan VanWinkle utilizescompensation survey data provided by the consulting firm Mercer Human ResourcesConsulting to provide market data that is used to create benchmarks for overallNEO compensation.

 

We use the followingbenchmarking components in setting compensation levels, determining awardsunder our option plans and setting director compensation levels:

 

·                  companies in our industry orrelated industries (oil and gas, gas utilities, master limited partnerships);

·                  companies identified as ourpeer group of competitors;

·                  companies with similar totalsales;

·                  companies with similar netincome; and

·                  companies with similarmarket value.

 

Companies included in the above benchmarking groupsare as follows:

 

·                  Targa Resources, Inc.

·                  Enbridge Energy Partners

·                  Energy Transfer Partners

·                  UGI Corp.

·                  Sunoco Logistics Partners

·                  New Jersey Resources Corp.

·                  Amerigas Partners

·                  Copano Energy

·                  Suburban Propane Partners

·                  Laclede Group Inc.

·                  WGL Holdings Inc.

·                  Star Gas Partners

·                  Inergy L.P.

·                  South Jersey Industries Inc.

·                  Alliance Resource Partners

·                  Oneok Partners

 

During fiscal 2010, elementsof compensation for our NEOs consisted of the following:

 

·                  base salary;

·                  discretionary bonus;

·                  non-equity incentive plan;

·                  stock and unit option plans;

 

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·                  employee stock ownershipplan;

·                  deferred compensation plans;and

·                  employment andchange-in-control agreements.

 

***Base Salary***

 

Stephen L. Wambold, with theassistance of J. Ryan VanWinkle, formulates preliminary base salaryrecommendations for all NEOs, including themselves. These recommendations aresubject to review and approval by the Compensation Committee. To assist StephenL. Wambold and the Compensation Committee, J. Ryan VanWinkle utilizes compensationsurvey data provided by the consulting firm Mercer Human Resources Consultingto provide market data that is used to create benchmarks for each NEO’s basesalary. The amount of salary paid to each NEO during fiscal year 2010 isdisplayed in the “Salary” column of the Summary Compensation Table.

 

***Discretionary Bonus***

 

Stephen L. Wambold has theauthority to recommend for Compensation Committee review and approval,discretionary cash bonuses to any NEO, including himself. These awards aredesigned to reward performance by an NEO that Stephen L. Wambold believesexceeded expectations in operational or strategic objectives during the lastfiscal year. The amount of discretionary bonus paid to each NEO for fiscal 2010is displayed in the “Bonus” column of the Summary Compensation Table.

 

***Non-Equity Incentive Plan***

 

Each NEO, other than JamesE. Ferrell, participates in the general partner’s Corporate Incentive Plan. Thepurpose of this plan is to provide an incentive for NEOs to meet or exceedannual profitability targets that are consistent with the company’s overalllong term strategy to increase unitholder value. Our Compensation Committeeutilizes compensation survey data provided by the consulting firm Mercer HumanResources Consulting to assist in assigning an appropriate incentive target foreach NEO. The amount of corporate incentive plan paid to each NEO for fiscal2010 is displayed in the “Non-Equity Incentive Plan Compensation” column of theSummary Compensation Table.

 

This plan awards a cash paymentto the NEO if operating cash flow before incentive expense (“Incentive OCF”)targets are achieved for the fiscal year. Each NEO’s incentive target iscomputed as a percentage of their base salary. For fiscal 2010 this percentagewas as follows:

 
| **Named Executive Officer** | ** ** | **% of Salary  Incentive Target** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|
| Stephen L. Wambold                    |       | 100                                              | %          |
| J. Ryan VanWinkle                     |       | 100                                              | %          |
| George L. Koloroutis                  |       | 100                                              | %          |
| Tod D. Brown                          |       | 100                                              | %          |

 

For Stephen L. Wambold andJ. Ryan VanWinkle, awards under the plan are based on total company IncentiveOCF. Total company actual Incentive OCF as a percentage of total company targetIncentive OCF will result in incentive target potential payouts as provided inthe table below. No payout will be made if actual Incentive OCF is less than85% of targeted Incentive OCF.

 

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| **Percent of Planned  Incentive OCF Achieved** | ** ** | **Incentive Target  Potential** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------|------------|
| 85%                                                                |       | 12.5                                 | %          |
| 90%                                                                |       | 25.0                                 | %          |
| 95%                                                                |       | 50.0                                 | %          |
| 100%                                                               |       | 100.0                                | %          |
| 105%                                                               |       | 125.0                                | %          |
| 110%  and above                                                    |       | 150.0                                | %          |

 

For George L. Koloroutis,awards under the plan are based on Incentive OCF performance of the internaldepartments under his control. The internal departments’ actual Incentive OCFas a percentage of the internal departments’ target Incentive OCF will resultin incentive target potential payouts as provided in the table below. No payoutwill be made if actual Incentive OCF is less than 85% of targeted IncentiveOCF.

 
| **Percent of Planned  Incentive OCF Achieved** | ** ** | **Incentive Target  Potential** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------|------------|
| 85%                                                                |       | 12.5                                 | %          |
| 90%                                                                |       | 25.0                                 | %          |
| 95%                                                                |       | 50.0                                 | %          |
| 100%                                                               |       | 100.0                                | %          |
| 105%                                                               |       | 125.0                                | %          |
| 110%  and above                                                    |       | 150.0                                | %          |

 

For Tod D. Brown, awardsunder the plan are based on Incentive OCF performance of the internaldepartments under his control. The internal departments’ actual Incentive OCFas a percentage of the internal departments’ target Incentive OCF will resultin incentive target potential payouts as provided in the table below. No payoutwill be made if actual Incentive OCF is less than 85% of targeted IncentiveOCF.

 
| **Percent of Planned  Incentive OCF Achieved** | ** ** | **Incentive Target  Potential** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------|------------|
| 85%                                                                |       | 12.5                                 | %          |
| 90%                                                                |       | 25.0                                 | %          |
| 95%                                                                |       | 50.0                                 | %          |
| 100%                                                               |       | 100.0                                | %          |
| 105%                                                               |       | 125.0                                | %          |
| 110%  and above                                                    |       | 150.0                                | %          |

 

For fiscal 2010, the percentof targeted total company Incentive OCF achieved fell within the 100% range,resulting in a potential corporate incentive plan payout of 100% for Stephen L.Wambold and J. Ryan VanWinkle. For Incentive Plan purposes, total companyactual Incentive OCF was computed as follows:

 
| ** **                                         | ** ** | **(in thousands)** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|
| Net earnings                                       |       | $                       | 33,339     |   |
| Add:                                               |       |                    |       |
| Depreciation &  amortization expense      |       | 82,491                  |       |
| Interest expense                                   |       | 101,284                 |       |
| Debt prepayment premiums                           |       | 20,716                  |       |
| Other income (expense),  net                       |       | 1,108                   |       |
| Employee stock ownership  plan compensation charge |       | 9,322                   |       |
| Loss on disposal of assets  and other              |       | 8,485                   |       |
| Stock-based compensation  charge                   |       | 7,831                   |       |
| Income tax expense                                 |       | 1,916                   |       |
| Operating cash flow                                |       | 266,492                 |       |
| Incentive expense                                  |       | 15,278                  |       |
| Incentive OCF                                      |       | $                       | 281,770    |   |

 

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George L. Koloroutis’ internal departments’ percent of targetedIncentive OCF achieved was over 110% of plan, resulting in an incentive targetpotential of 150%

 

Tod D. Brown’s internal departments’ percent of targeted Incentive OCFachieved was over 110% of plan, resulting in an incentive target potential of150%.

 

Each NEO’s manager has the authority to withhold up to 50% of the NEO’sincentive payout at the manager’s sole discretion.

 

***Stock and Unit Option Plans***

 

We have two option plansavailable for participation by our NEOs, the “Ferrell Companies IncentiveCompensation Plan” and the “Ferrellgas Unit Option Plan.” The amount ofcompensation cost related to these plans incurred for each NEO during fiscal2010 is displayed in the “Option Awards” column of the Summary CompensationTable.

 

*Ferrell Companies IncentiveCompensation Plan (“ICP”)* — TheFerrell Companies, Inc. 1998 Incentive Compensation Plan was establishedby Ferrell Companies to allow upper-middle and senior level managers, includingNEOs, of our general partner toparticipate in the equity growth of Ferrell Companies. Pursuant to this ICP,eligible participants may be granted stock options to purchase shares of commonstock of Ferrell Companies. Neither Ferrellgas Partners nor theoperating partnership contributes, directly or indirectly, to the ICP. TheFerrell Companies stock options vest ratably over periods ranging from 0 to 12years or 100% upon a change of control of Ferrell Companies, or the death,disability or retirement at the age of 65 of the participant. Vested optionsare exercisable in increments, but in no event later than 10 or 20 years fromthe date of issuance.

 

The ICP options are grantedperiodically throughout the year at strike prices equal to the most recentlypublished semi-annual valuation that is performed on Ferrell Companies for thepurposes of the Employee Stock Ownership Plan, which is a privately heldcompany, by an independent third party valuation firm. All other terms ofoption awards including the quantity awarded, vesting life and expiration dateof awards are discretionary and must be approved by the ICP Option Committee,which consists of Stephen L. Wambold, J. Ryan VanWinkle, George L. Koloroutisand Tod D. Brown. Awards granted to NEOs must also be approved by theCompensation Committee of the Board of Directors. To assist the ICP OptionCommittee and the Compensation Committee of the Board of Directors indetermining the quantity of options to grant to an NEO, J. Ryan VanWinkleutilizes compensation survey data provided by the consulting firm Mercer HumanResources Consulting to provide market data that is used to create recommendedranges of current year ICP option grants by executive position.

 

*Ferrellgas Unit Option Plan (“UOP”)* —****TheSecond Amended and Restated Ferrellgas Unit Option Plan grants employees of ourgeneral partner unit options to purchase our common units.  The purpose of the UOP is to encouragecertain employees of our general partner to develop a proprietary interest inour growth and performance, to generate an increased incentive to contribute toour future success and prosperity, thereby enhancing our value for the benefitof our unitholders.

 

This plan is authorized toissue options in common units to employees of the general partner or itsaffiliates. The Board of Directors of the general partner in its solediscretion administers the authorization of grants and sets the unit optionprice and vesting terms. The options currently outstanding vest over a fiveyear period and expire on the tenth anniversary date of the grant.

 

***Employee Stock Ownership Plan (“ESOP”)***

 

On July 17, 1998, pursuant to the Ferrell Companies, Inc.Employee Stock Ownership Plan, an employee stock ownership trust purchased allof the outstanding common stock of Ferrell Companies. The purpose of the ESOPis to provide all employees of our general partner, including NEOs, anopportunity for ownership in Ferrell Companies, and indirectly, in us. FerrellCompanies makes 

 

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contributionsto the ESOP, which allows a portion of the shares of Ferrell Companies owned bythe ESOP to be allocated to employees’ accounts over time. The value of thetotal shares allocated to each NEO for fiscal 2010 is included in the “AllOther Compensation” column of the Summary Compensation Table.

 

Twice per year and in accordance with the ESOP, each NEO’s ESOP accountreceives an allocation of Ferrell Companies shares. This allocation, asdetermined by the ESOP, is based on the following:  a) the percentage of the NEO’s base salary,discretionary bonus, and corporate incentive plan paid during the period,subject to certain Section 415 IRS limitations, and b) shares owned fromprevious allocations. NEOs vest in their account balances as follows:

 
| **Number of Completed  Years of Service** | ** ** | **Vested Percent** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| Less than 3 years                                             |       | 0                       | %          |
| 3 years                                                       |       | 20                      | %          |
| 4 years                                                       |       | 40                      | %          |
| 5 years                                                       |       | 60                      | %          |
| 6 years                                                       |       | 80                      | %          |
| 7 years or more                                               |       | 100                     | %          |

 

NEOs are entitled to receive a distribution for thevested portion of their accounts at specified times in accordance with the ESOPfor normal or late retirement, disability, death, resignation, or dismissal.

 

***Deferred Compensation Plans***

 

Two deferred compensation plans are available for participation by ourNEOs, the “Defined Contribution Profit Sharing Plan” and the “SupplementalSavings Plan.” The amount of company match related to these plans paid to eachNEO during fiscal 2010 is included in the “All Other Compensation” column ofthe Summary Compensation Table.

 

*Defined Contribution Profit Sharing Plan (“401(k) Plan”) —* The FerrellCompanies, Inc. Profit Sharing and 401(k) Investment Plan is aqualified defined contribution plan, which includes both employee contributionsand employer matching contributions. All full-time employees including NEOs, orany of its direct or indirect wholly-owned subsidiaries are eligible toparticipate in this plan. This plan has a 401(k) feature allowing allfull-time employees to specify a portion of their pre-tax and/or after-taxcompensation to be contributed to this plan. This plan provides for matchingcontributions under a cash or deferred arrangement based upon participantsalaries and employee contributions to this plan.

 

Our contributions to theprofit sharing portion of this plan have been suspended since 1998, however,this plan also provides for matching contributions under a cash or deferredarrangement based upon the participant salary and employee contributions tothis plan. Due to Internal Revenue Code “Highly Compensated Employee” rules andregulations, NEOs may only contribute up to approximately 5% of their eligiblecompensation to this plan. We will provide a 50% matching contribution of thefirst 8% of all eligible contributions made to this plan and the SupplementalSavings Plan (see below) combined. Employee contributions are 100% vested,while the company’s matching contribution vests ratably over the first 5 yearsof employment. Employee and our matching contributions can be directed, at theemployee’s option, to be invested in a number of investment options that areoffered by this plan.

 

*Supplemental Savings Plan (“SSP”)* — The FerrellCompanies, Inc. Supplemental Savings Plan was established October 1,1994 in order to provide certain management or highly compensated employeeswith supplemental retirement income which is approximately equal in amount tothe retirement income that would have been provided to members of the selectgroup of employees under the terms of the 401(k) feature of the 401(k) Plan(see above) based on such members’ deferral elections thereunder, but whichcould not be provided under the 401(k) feature of the 401(k) Plan dueto the application of certain “Highly Compensated Employee” IRS rules andregulations.

 

This non-qualified plan isavailable to all employees who have been designated as “Highly Compensated” asdefined in the Internal Revenue Code. NEOs are allowed to make, subject toInternal 

 

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Revenue Code limitations, pre-tax contributions tothe SSP of up to 25% of their eligible compensation. We will provide a 50%matching contribution of the first 8% of all eligible contributions made tothis plan and the 401(k) Plan (see above) combined. Employee contributionsare 100% vested, while our matching contribution vests ratably over the first 5years of employment. Employee and our matching contributions can be directed,at the employee’s option, to be invested in a number of investment options thatare offered by the SSP.

 

***Employment and Change-in-ControlAgreements***

 

The independent members ofthe Board of Directors of our general partner have authorized the generalpartner to enter into an Employment, Confidentiality and Non-compete agreementand a Change-in-Control agreement with James E. Ferrell. The purpose forentering into these agreements is to secure James E. Ferrell’s employment andprotect the confidentiality of our proprietary information.

 

The independent members ofthe Board of Directors of our general partner have authorized the generalpartner to enter into Employment Agreements with each of our NEOs other thanJames E. Ferrell. The purpose for entering into these agreements is to (i) encourageand motivate NEOs to remain employed and focused on the business during apotential change in control, (ii) motivate NEOs to make business decisionsthat are in the best interest of the company, (iii) ensure that NEOsconduct appropriate due diligence and effectively integrate companies in theevent of an acquisition, and (iv) secure the long-term employment of theNEO. The initial term of these agreements ends on December 31, 2012.Thereafter, each agreement automatically renews for successive 12-monthperiods, unless one party to the agreement provides notice of non-renewal tothe other at least 180 days before the last day of then current agreement term.

 

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**Summary Compensation Table**

 

The following table sets forth the compensation for the last threefiscal years of our general partner’s NEOs:

 
| **Name and Principal  Position**       | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **(1)  Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **(2)  All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|--------------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------|------------|----------------|------------|
| Stephen L. Wambold                               |       | 2010     |       | 672,077         |       | 140,000        |       | 3,139,470                    |       | 700,000                                                |       | 25,497                                     |       | 4,677,044      |       |
| Chief  Executive Officer                         |       | 2009     |       | 500,019         |       | 100,000        |       | 253,958                      |       | 500,000                                                |       | 25,465                                     |       | 1,379,442      |       |
| and  President                                   |       | 2008     |       | 491,685         |       | 300,000        |       | 523,500                      |       | —                                                 |       | 42,159                                     |       | 1,357,344      |       |
|                                             |       |     |       |            |       |           |       |                         |       |                                                   |       |                                       |       |           |       |
| J. Ryan VanWinkle                                |       | 2010     |       | 343,763         |       | 50,000         |       | 1,550,874                    |       | 350,000                                                |       | 24,024                                     |       | 2,318,661      |       |
| Senior  Vice President                           |       | 2009     |       | 275,010         |       | 75,000         |       | 315,805                      |       | 275,000                                                |       | 25,507                                     |       | 966,322        |       |
| and  Chief Financial Officer; Treasurer          |       | 2008     |       | 227,492         |       | 100,000        |       | 392,766                      |       | —                                                 |       | 27,826                                     |       | 748,084        |       |
|                                             |       |     |       |            |       |           |       |                         |       |                                                   |       |                                       |       |           |       |
| James  E. Ferrell                                |       | 2010     |       | 653,102         | (3)        | 1,775,000      |       | 3,124,775                    |       | —                                                 |       | 12,534                                     |       | 5,565,411      |       |
| Executive Chairman and                           |       | 2009     |       | 825,032         | (3)        | —         |       | —                       |       | —                                                 |       | 12,548                                     |       | 837,580        |       |
| Chairman  of the Board of Directors              |       | 2008     |       | 810,448         | (3)        | —         |       | —                       |       | —                                                 |       | 5,500                                      |       | 815,948        |       |
|                                             |       |     |       |            |       |           |       |                         |       |                                                   |       |                                       |       |           |       |
| George L. Koloroutis                             |       | 2010     |       | 272,927         |       | 112,500        |       | 1,018,933                    |       | 412,500                                                |       | 52,858                                     |       | 1,869,718      |       |
| Senior  Vice President,                          |       | 2009     |       | 250,010         |       | 150,000        |       | 167,025                      |       | 375,000                                                |       | 28,027                                     |       | 970,062        |       |
| Ferrellgas  and President, Ferrell North America |       | 2008     |       | 248,426         |       | 100,000        |       | 436,250                      |       | —                                                 |       | 30,565                                     |       | 815,241        |       |
|                                             |       |     |       |            |       |           |       |                         |       |                                                   |       |                                       |       |           |       |
| Tod D. Brown                                     |       | 2010     |       | 270,000         |       | 145,000        |       | 871,050                      |       | 405,000                                                |       | 21,175                                     |       | 1,712,225      |       |
| Senior  Vice President,                          |       | 2009     |       | 270,404         |       | 87,500         |       | 167,025                      |       | 337,500                                                |       | 23,069                                     |       | 885,498        |       |
| Ferrellgas  and President, Blue Rhino            |       | 2008     |       | 242,115         |       | 125,000        |       | 436,250                      |       | —                                                 |       | 37,837                                     |       | 841,202        |       |

 

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(1)          See Note B — Summary ofsignificant accounting policies (16) Unit and stock-based compensation — to ourconsolidated financial statements for information concerning these awards. Thevalue reported represents the aggregate grant date fair value computed inaccordance with FASB ASC Topic 718.

 

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(2)          All Other Compensationconsisted of the following:

 
| **Name**             | ** ** | **Year** | ** ** | **ESOP Allocations  ($)** | ** ** | **401(k) Plan  Match  ($)** | ** ** | **SSP Match  ($)** | ** ** | **Other  ($)** | ** ** | **Total All Other  Compensation  ($)** | ** ** |
|----------------------|------------|----------|------------|--------------------------------|------------|----------------------------------|------------|-------------------------|------------|----------------|------------|--------------------------------------------------|------------|
| Stephen L. Wambold   |       | 2010     |       | 16,319                         |       | 7,250                            |       | 1,550                   |       | 378            | (4)        | 25,497                                           |       |
|                 |       | 2009     |       | 17,715                         |       | 7,750                            |       | —                  |       | —         |       | 25,465                                           |       |
|                 |       | 2008     |       | 25,075                         |       | 9,250                            |       | 7,834                   |       | —         |       | 42,159                                           |       |
|                 |       |     |       |                           |       |                             |       |                    |       |           |       |                                             |       |
| J. Ryan VanWinkle    |       | 2010     |       | 14,596                         |       | 7,437                            |       | 1,550                   |       | 441            | (4)        | 24,024                                           |       |
|                 |       | 2009     |       | 16,153                         |       | 8,323                            |       | 1,031                   |       | —         |       | 25,507                                           |       |
|                 |       | 2008     |       | 18,047                         |       | 6,112                            |       | 3,667                   |       | —         |       | 27,826                                           |       |
|                 |       |     |       |                           |       |                             |       |                    |       |           |       |                                             |       |
| James E. Ferrell     |       | 2010     |       | —                         |       | 10,984                           |       | 1,550                   |       | —         |       | 12,534                                           |       |
|                 |       | 2009     |       | —                         |       | 9,848                            |       | 2,700                   |       | —         |       | 12,548                                           |       |
|                 |       | 2008     |       | —                         |       | 5,500                            |       | —                  |       | —         |       | 5,500                                            |       |
|                 |       |     |       |                           |       |                             |       |                    |       |           |       |                                             |       |
| George L. Koloroutis |       | 2010     |       | 16,430                         |       | 8,292                            |       | 1,550                   |       | 26,586         | (5)        | 52,858                                           |       |
|                 |       | 2009     |       | 17,629                         |       | 9,919                            |       | 479                     |       | —         |       | 28,027                                           |       |
|                 |       | 2008     |       | 25,669                         |       | 3,646                            |       | 1,250                   |       | —         |       | 30,565                                           |       |
|                 |       |     |       |                           |       |                             |       |                    |       |           |       |                                             |       |
| Tod D. Brown         |       | 2010     |       | 14,146                         |       | 6,589                            |       | —                  |       | 440            | (4)        | 21,175                                           |       |
|                 |       | 2009     |       | 15,756                         |       | 7,313                            |       | —                  |       | —         |       | 23,069                                           |       |
|                 |       | 2008     |       | 22,666                         |       | 8,063                            |       | 7,108                   |       | —         |       | 37,837                                           |       |

 

(3)          Included in this amount is$120,000 of compensation for James E. Ferrell’s role as Chairman of the Boardof Directors.

(4)          This amount represents taxesrelated to a reimbursement of 401k forfeitures.

(5)          This amount primarilyincludes a payment for reimbursement of medical expenses of $18,350 and relatedtax gross-up of $7,586.

 

**Grants of Plan-Based Awards**

 

The following table lists information on our general partner’s NEOsgrants of plan based awards during the fiscal year ended July 31, 2010:

 

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**Ferrell Companies Incentive Compensation Plan**

 
| **Name**             | ** ** | **Grant  Date** | ** ** | **All Other  Option  Awards:  Number of  Securities  Underlying  Options  (#)** | ** ** | **Exercise or  Base Price  of Option  Awards  ($/Share)** | ** ** | **Grant Date Fair  Value of Award  ($)** | ** ** |
|----------------------|------------|-----------------|------------|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| Stephen L. Wambold   | (1)        | 9/1/2009        |       | 80,000                                                                                    |       | 14.95                                                                    |       | 252,800                                                      |       |
|                 | (2)        | 3/12/2010       |       | 400,000                                                                                   |       | 19.88                                                                    |       | 1,652,000                                                    |       |
|                 | (3)        | 7/19/2010       |       | 311,000                                                                                   |       | 19.88                                                                    |       | 1,234,670                                                    |       |
|                 |       |            |       |                                                                                      |       |                                                                     |       |                                                         |       |
| J. Ryan VanWinkle    | (1)        | 9/1/2009        |       | 75,000                                                                                    |       | 14.95                                                                    |       | 237,000                                                      |       |
|                 | (2)        | 3/12/2010       |       | 250,000                                                                                   |       | 19.88                                                                    |       | 1,032,500                                                    |       |
|                 | (4)        | 7/19/2010       |       | 70,875                                                                                    |       | 19.88                                                                    |       | 281,374                                                      |       |
|                 |       |            |       |                                                                                      |       |                                                                     |       |                                                         |       |
| James E. Ferrell     | (1)        | 9/1/2009        |       | 100,000                                                                                   |       | 14.95                                                                    |       | 316,000                                                      |       |
| *** ***         | (5)        | 7/19/2010       |       | 707,500                                                                                   |       | 19.88                                                                    |       | 2,808,775                                                    |       |
|                 |       |            |       |                                                                                      |       |                                                                     |       |                                                         |       |
| George L. Koloroutis | (1)        | 9/1/2009        |       | 60,000                                                                                    |       | 14.95                                                                    |       | 189,600                                                      |       |
|                 | (2)        | 3/12/2010       |       | 165,000                                                                                   |       | 19.88                                                                    |       | 681,450                                                      |       |
|                 | (6)        | 7/19/2010       |       | 37,250                                                                                    |       | 19.88                                                                    |       | 147,883                                                      |       |
|                 |       |            |       |                                                                                      |       |                                                                     |       |                                                         |       |
| Tod D. Brown         | (1)        | 9/1/2009        |       | 60,000                                                                                    |       | 14.95                                                                    |       | 189,600                                                      |       |
|                 | (2)        | 3/12/2010       |       | 165,000                                                                                   |       | 19.88                                                                    |       | 681,450                                                      |       |

 

----

 

(1)                      50% of grantvested immediately and 50% vests ratably over five years. All grants expire inten years.

(2)                      Grant vestsratably over three years and expires in ten years.

(3)                      46,250 of grantvested immediately and 264,750 vests ratably over five years. All grants expirein ten years.

(4)                      37,500 of grantvested immediately and 33,375 vests ratably over five years. All grants expirein ten years.

(5)                      100,000 ofgrant vested immediately and 607,500 vests ratably over five years. All grantsexpire in ten years.

(6)                      Grant vestsratably over five years and expires in ten years.

 

**Outstanding Equity Awards at Fiscal Year****End**

 

The following tables list information concerning our general partner’sNEOs outstanding equity awards as of July 31, 2010:

 

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**Ferrell CompaniesIncentive Compensation Plan**

 

**Option Awards**

 
| **Name**             | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#) Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#) Unexercisable** | ** ** | **Option  Exercise  Price ($)** | ** ** | **Option  Expiration Date** | ** ** |
|----------------------|------------|----------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|----------------------------------|------------|
| Stephen L. Wambold   |       | —                                                                                 |       | 2,625                                                                                    |       | 4.10                                 |       | 12/2/2013                        |       |
|                 |       | 500                                                                                    |       | 2,750                                                                                    |       | 8.02                                 |       | 1/31/2018                        |       |
|                 |       | 5,250                                                                                  |       | 34,125                                                                                   |       | 11.78                                |       | 5/1/2019                         |       |
|                 |       | —                                                                                 |       | 25,000                                                                                   |       | 12.80                                |       | 8/15/2015                        |       |
|                 |       | —                                                                                 |       | 80,000                                                                                   |       | 14.87                                |       | 9/15/2016                        |       |
|                 |       | 60,000                                                                                 |       | 90,000                                                                                   |       | 16.60                                |       | 9/1/2017                         |       |
|                 |       | —                                                                                 |       | 60,000                                                                                   |       | 14.95                                |       | 3/1/2019                         |       |
|                 |       | —                                                                                 |       | 40,000                                                                                   |       | 14.95                                |       | 9/1/2019                         |       |
|                 |       | —                                                                                 |       | 400,000                                                                                  |       | 19.88                                |       | 3/12/2020                        |       |
|                 |       | 46,250                                                                                 |       | 264,750                                                                                  |       | 19.88                                |       | 7/19/2020                        |       |
|                 |       |                                                                                   |       |                                                                                     |       |                                 |       |                             |       |
| J. Ryan VanWinkle    |       | —                                                                                 |       | 6,500                                                                                    |       | 8.02                                 |       | 3/12/2018                        |       |
|                 |       | —                                                                                 |       | 5,625                                                                                    |       | 11.78                                |       | 9/15/2019                        |       |
|                 |       | —                                                                                 |       | 2,000                                                                                    |       | 12.80                                |       | 8/15/2015                        |       |
|                 |       | —                                                                                 |       | 25,000                                                                                   |       | 16.60                                |       | 9/1/2017                         |       |
|                 |       | —                                                                                 |       | 100,000                                                                                  |       | 17.01                                |       | 3/1/2018                         |       |
|                 |       | —                                                                                 |       | 80,000                                                                                   |       | 14.95                                |       | 3/1/2019                         |       |
|                 |       | —                                                                                 |       | 37,500                                                                                   |       | 14.95                                |       | 9/1/2019                         |       |
|                 |       | —                                                                                 |       | 250,000                                                                                  |       | 19.88                                |       | 3/12/2020                        |       |
|                 |       | —                                                                                 |       | 70,875                                                                                   |       | 19.88                                |       | 7/19/2020                        |       |
|                 |       |                                                                                   |       |                                                                                     |       |                                 |       |                             |       |
| James E. Ferrell     |       | —                                                                                 |       | 262,500                                                                                  |       | 4.28                                 |       | 1/31/2020                        |       |
|                 |       | —                                                                                 |       | 30,000                                                                                   |       | 12.80                                |       | 8/15/2015                        |       |
|                 |       | —                                                                                 |       | 50,000                                                                                   |       | 14.95                                |       | 9/1/2019                         |       |
|                 |       | 100,000                                                                                |       | 607,500                                                                                  |       | 19.88                                |       | 7/19/2020                        |       |
|                 |       |                                                                                   |       |                                                                                     |       |                                 |       |                             |       |
| George L. Koloroutis |       | —                                                                                 |       | 5,250                                                                                    |       | 4.10                                 |       | 8/19/2013                        |       |
|                 |       | —                                                                                 |       | 2,500                                                                                    |       | 4.75                                 |       | 7/31/2014                        |       |
|                 |       | —                                                                                 |       | 25,000                                                                                   |       | 8.02                                 |       | 1/31/2018                        |       |
|                 |       | —                                                                                 |       | 55,000                                                                                   |       | 14.87                                |       | 9/15/2016                        |       |
|                 |       | —                                                                                 |       | 125,000                                                                                  |       | 16.60                                |       | 9/1/2017                         |       |
|                 |       | —                                                                                 |       | 50,000                                                                                   |       | 14.95                                |       | 3/1/2019                         |       |
|                 |       | —                                                                                 |       | 60,000                                                                                   |       | 14.95                                |       | 9/1/2019                         |       |
|                 |       | —                                                                                 |       | 165,000                                                                                  |       | 19.88                                |       | 3/12/2020                        |       |
|                 |       | —                                                                                 |       | 37,250                                                                                   |       | 19.88                                |       | 7/19/2020                        |       |
|                 |       |                                                                                   |       |                                                                                     |       |                                 |       |                             |       |
| Tod D. Brown         |       | 4,000                                                                                  |       | —                                                                                   |       | 11.78                                |       | 9/15/2014                        |       |
|                 |       | 8,000                                                                                  |       | 2,000                                                                                    |       | 12.80                                |       | 8/15/2015                        |       |
|                 |       | 12,000                                                                                 |       | 3,000                                                                                    |       | 14.04                                |       | 4/15/2016                        |       |
|                 |       | 27,600                                                                                 |       | 18,400                                                                                   |       | 14.87                                |       | 9/15/2016                        |       |
|                 |       | 30,000                                                                                 |       | 20,000                                                                                   |       | 15.04                                |       | 2/1/2017                         |       |
|                 |       | 50,000                                                                                 |       | 75,000                                                                                   |       | 16.60                                |       | 9/1/2017                         |       |
|                 |       | 10,000                                                                                 |       | 40,000                                                                                   |       | 14.95                                |       | 3/1/2019                         |       |
|                 |       | 30,000                                                                                 |       | 30,000                                                                                   |       | 14.95                                |       | 9/1/2019                         |       |
|                 |       | —                                                                                 |       | 165,000                                                                                  |       | 19.88                                |       | 3/12/2020                        |       |

 

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| **Ferrellgas Unit Option Plan** |
|------------------------------------------------|
| ** **                                     |
| **Option Awards**                         |
| ** **                                     |
| **Name**                                       | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#) Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#) Unexercisable** | ** ** | **Option  Exercise  price ($)** | ** ** | **Option  Expiration Date** | ** ** |
| Steven L. Wambold                              |   | 15,000 |   | 60,000 |   | 11.63 |   | 2/20/2019 |   |
| J. Ryan VanWinkle                              |   | — |   | 40,000 |   | 11.63 |   | 2/20/2019 |   |
| George L. Koloroutis                           |   | 9,000 |   | 36,000 |   | 11.63 |   | 2/20/2019 |   |
| Tod D. Brown                                   |   | 4,500 |   | 36,000 |   | 11.63 |   | 2/20/2019 |   |

 

**Option Exercises**

** **
| **Ferrell Companies Incentive Compensation Plan** |
|-----------------------------------------------------------------------|
| ** **                                                            |
| **Option Awards**                                                |
| ** **                                                            |
| **Name**                                                              | ** ** | **Number of Shares  Acquired on  Exercise  (#)** | ** ** | **Value Realized on  Exercise  $** | ** ** |
| Steven  L. Wambold                                                    |   | 311,000 |   | 863,685 |   |
| J.  Ryan VanWinkle                                                    |   | 70,875 |   | 140,954 |   |
| James  E. Ferrell                                                     |   | 707,500 |   | 6,501,025 |   |
| George  L. Koloroutis                                                 |   | 37,250 |   | 448,458 |   |

 
| **Ferrellgas Unit Option Plan** |
|------------------------------------------------|
| ** **                                     |
| **Option Awards**                         |
| ** **                                     |
| **Name**                                       | ** ** | **Number of Shares  Acquired on  Exercise  (#)** | ** ** | **Value Realized on  Exercise  $** | ** ** |
| J.  Ryan VanWinkle                             |   | 10,000 |   | 112,300 |   |
| Tod  D. Brown                                  |   | 4,500 |   | 50,535 |   |

 

**Nonqualified Deferred Compensation**

 

The following table lists information concerning our general partner’sNEOs nonqualified SSP account activity during the fiscal year ended July 31,2010:

 
| **Name**             | ** ** | **Executive  Contributions  in Last FY  ($)** | ** ** | **Registrant  Contributions  in Last FY (1)  ($)** | ** ** | **Aggregate  Earnings  in Last FY  ($)** | ** ** | **Aggregate  Withdrawals/  Distributions  ($)** | ** ** | **Aggregate  Balance at  Last FYE  (2)  ($)** | ** ** |
|----------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------------------|------------|----------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------|------------|
| Stephen L. Wambold   |       | 30,967                                                  |       | 1,550                                                             |       | 9,392                                              |       | —                                          |       | 138,827                                                 |       |
| J. Ryan VanWinkle    |       | 39,647                                                  |       | 1,550                                                             |       | 4,461                                              |       | —                                          |       | 80,030                                                  |       |
| James E. Ferrell     |       | 194,248                                                 |       | 1,550                                                             |       | 585                                                |       | —                                          |       | 1,460,694                                               |       |
| George L. Koloroutis |       | 42,896                                                  |       | 1,550                                                             |       | 17,629                                             |       | —                                          |       | 207,151                                                 |       |
| Tod D. Brown         |       | 7,269                                                   |       | —                                                            |       | 5,669                                              |       | —                                          |       | 68,785                                                  |       |

 

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(1)         Amounts are included in theSummary Compensation Table above.

(2)         The portion of this amountrepresenting registrant contributions made in years prior was previouslyreported as compensation to the NEO in the Summary Compensation Table forprevious years.

 

**Other Potential Post-EmploymentPayments**

 

The independent members of the Board of Directors of our generalpartner have authorized our general partner to enter into an employmentagreement with James E. Ferrell. Pursuant to the employment agreement Mr. Ferrellis entitled to:

 

·                  his annual salary;

 

·                  an annual bonus, the amount to be determinedat the sole discretion of the independent members of the Board of Directors ofour general partner; and

 

·                  an incentive bonus equal to0.5% of the increase in the equity value of Ferrell Companies from July 31,1998 to July 31, 2005.

 

The incentive bonus is payable upon the termination of Mr. Ferrell’semployment agreement. The value of this bonus at July 31, 2010 was $1.1million.

 

In addition to the compensation described above, Mr. Ferrellparticipates in our various employee benefit plans, with the exception of theEmployee Stock Ownership Plan.

 

Pursuant to the terms of Mr. Ferrell’s employment agreement, inthe event of death, permanent disability, a termination without cause,resignation for cause or a change of control of Ferrell Companies or ourgeneral partner, Mr. Ferrell is entitled to health, accident and lifeinsurance benefits for a period of six months, a cash termination benefitpayable within 30 days equal to three times the greater of 125% of his currentbase salary or the average compensation paid to him for the prior three fiscalyears and is entitled to additional gross-up payments on any payment subject toexcise tax. The value of this termination benefit at July 31, 2010 wasapproximately $4.1 million.

 

Mr. Ferrell’s agreement also contains a non-compete provision forfive years following his termination of employment. The non-compete provisionprovides that he shall not directly or indirectly own, manage, control, orengage in any business with any person whose business is substantially similarto ours and that he shall not directly or indirectly attempt to induce anyemployee (subject to modifications made for certain employees in the Waiver toEmployment Confidentiality, and Non-Compete Agreement dated December 19,2006) of Ferrellgas to leave the employ of Ferrellgas or in any way interferewith the relationship between Ferrellgas and any employee.

 

The members of the Board of Directors Compensation Committee haveauthorized us and our general partner to enter into a Change-in-ControlAgreement with Mr. Ferrell. Pursuant to the terms of the agreement, achange in control is defined as:

 

(i)         any merger or consolidationof Ferrell Companies in which such entity is not the survivor;

(ii)      any sale of all orsubstantially all of the common stock of Ferrell Companies by the EmployeeStock Ownership Trust;

(iii)   a sale of all orsubstantially all of the common stock of Ferrellgas, Inc.;

(iv)  a replacement of Ferrellgas, Inc.as the general partner of Ferrellgas Partners, L.P.; or

(v)     a public sale of at least 51percent of the equity of Ferrell Companies.

 

Should a termination of employment occur resulting from a change incontrol, Mr. Ferrell will be entitled to:

 

(a)         a payment equal to two timeshis annual base salary in effect immediately prior to the change in control;this amount would be paid in substantially equal monthly installments over atwo year timeframe beginning within five days following the termination date;

 

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(b)         a payment equal to two timeshis target bonus, at his target bonus rate in effect immediately prior to thechange in control; this amount would be paid in substantially equal monthlyinstallments over a two year timeframe beginning within five days following thetermination date; and

 

(c)          COBRA reimbursements for twoyears following the termination.

 

The independent members of the Board of Directors of our generalpartner have authorized our general partner to enter into an Employment Agreementwith each of our NEOs other than James E. Ferrell. Pursuant to these employmentagreements, during the agreement term, while the NEO is employed by the generalpartner, each NEO is compensated for his services as follows:

 

(i)             the NEO receives base annualsalary in accordance with the regular payroll practices of the general partner;

 

(ii)          the NEO is eligible toparticipate in employee benefit plans and programs maintained from time to timeby our general partner for the benefit of similarly situated senior managementemployees, subject to the terms and conditions of such plans;

 

(iii)       the NEO is entitled tobonuses, the amount to be determined at the sole discretion of the independentmembers of the Board of Directors of our general partner; and

 

(iv)      the NEO is reimbursed by thegeneral partner, on terms and conditions that are substantially similar tothose that apply to other similarly situated senior management employees and inaccordance with the general partner’s expense reimbursement policy, forreasonable out-of-pocket expenses for entertainment, travel, meals, lodging andsimilar items which are consistent with the general partner’s expensereimbursement policy and actually incurred by the NEO in the promotion of thegeneral partner’s business.

 

Pursuant to the terms of the employment agreements, if the NEO’semployment is terminated for any reason, the NEO will be entitled to thefollowing payments:

 

(i)             the NEO’s earned but unpaidsalary for the period ending on the NEO’s termination date;

(ii)          the NEO’s accrued but unpaidvacation pay for the period ending on the NEO’s termination date;

(iii)       the NEO’s unreimbursedbusiness expenses; and

(iv)      any amounts payable to theNEO under the terms of any employee benefit plan.

 

Pursuant to the terms of the employment agreements, in the event ofdeath, disability, a termination for cause, voluntary resignation or mutualagreement, neither the NEO nor any other person will have any right to paymentsor benefits listed above for periods after the NEO’s termination date.

 

Pursuant to the terms of the employment agreements, the term “Cause”means:

 

(i)    the willful andcontinued failure by the NEO to substantially perform his duties for Ferrellgas, Inc.(other than any such failure resulting from the NEO’s being disabled) within areasonable period of time after a written demand for substantial performance isdelivered to the NEO by the Board of Ferrellgas, Inc., which demandspecifically identifies the manner in which the Board of Ferrellgas, Inc.believes that the NEO has not substantially performed his duties;

(ii)   the willfulengaging by the NEO in conduct which is demonstrably and materially injuriousto Ferrellgas, Inc., monetarily or otherwise;

(iii)  the engaging bythe NEO in egregious misconduct involving serious moral turpitude to the extentthat, in the reasonable judgment of the Board of Ferrellgas, Inc., the NEO’scredibility and reputation no longer conform to the standard of the Ferrellgas, Inc.’sexecutives; or

(iv)  the NEO’smaterial breach of a material term of this Agreement.

 

Pursuant to the terms of the employment agreements, the term “GoodReason” means any of the 

 

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following which occur after the effective date of the employmentagreement without the consent of the NEO:

 

(i)    A reduction inexcess of 10% in the NEO’s salary or target incentive potential as in effect asof the effective date of the employment agreement, as the same may be modifiedfrom time to time in accordance with the employment agreement;

(ii)   A materialdiminution in the NEO’s authority, duties or responsibilities as in effect asof the effective date of the employment agreement, as the same may be modifiedfrom time to time in accordance with the employment agreement;

(iii)  The relocationof the NEO’s principal office location to a location which is more than 50highway miles from the location of the NEO’s principal office location as ineffect on the effective date of the employment agreement (or such subsequentprincipal location agreed to by the NEO); or

(iv)  Ferrellgas, Inc.’smaterial breach of any material term of the employment agreement.

 

Should a termination of employment occur resulting from a terminationother than for cause or termination for good reason, each as defined above,each of our NEOs will be entitled to:

 

(i)             a payment equal to two timesthe NEO’s annual base salary in effect immediately prior to the terminationdate; this amount would be paid in substantially equal monthly installmentsover a two year timeframe beginning within five days following the terminationdate;

 

(ii)          a payment equal to two timesthe NEO’s target bonus, at his target bonus rate in effect immediately prior tothe termination date; this amount would be paid in substantially equal monthlyinstallments over a two year timeframe beginning within five days following thetermination date;

 

(iii)       receive continuing groupmedical coverage for himself and his dependents for two years following thetermination date; and

 

(iv)      a lump sum payment of$12,000 for professional outplacement services.

 

The value of payments for items (a) and (b) for Mr. Ferrelland items (i) and (ii) for all other NEO’s above at September 1,2010 would be:

 
| **NEO**              | ** ** | **Two times annual  base salary ($)** | ** ** | **Two times target  bonus ($)** | ** ** |
|----------------------|------------|-----------------------------------------------------------|------------|------------------------------------------------|------------|
| Stephen L. Wambold   |       | 1,400,000                                                 |       | 1,400,000                                      |       |
| J. Ryan VanWinkle    |       | 700,000                                                   |       | 700,000                                        |       |
| James E. Ferrell (1) |       | 1,000,000                                                 |       | 1,000,000                                      |       |
| George L. Koloroutis |       | 600,000                                                   |       | 600,000                                        |       |
| Tod D. Brown         |       | 600,000                                                   |       | 600,000                                        |       |

 

----

(1) As discussed above, James E. Ferrell’s employment agreementcontains a separate change-in-control provision which is currently valued at anadditional $4.1 million.

 

**Compensation of Directors**

 

We believe our director compensation package should compensate ourdirectors in a manner that is competitive within the marketplace. Ourcompensation package includes a combination of annual director fees and optionawards. Total compensation awarded to our directors varies depending upon theirlevel of activity within the Board. Participation in and chairing of committeeswithin the Board will increase the level of compensation paid to an individualboard member.

 

ICPoption awards for members of the Board of Directors are determined utilizingcompetitive compensation data that is gathered on an annual basis. Annually wecompare the compensation of our 

 

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Boardof Directors with the compensation levels and practices of companies that areof similar size and operate in similar industries. We utilize that data toanalyze the compensation of our Board of Directors and ensure that we arecompetitive in the marketplace for compensating our Board. ICP option awardsare one element of that compensation, and the actual awards that are grantedare determined on a discretionary basis.

 

With the assistance of J. Ryan VanWinkle, Stephen L. Wambold formulatespreliminary annual director fee and option awards recommendations for eachboard member. These recommendations are subject to review and approval by theCompensation Committee. To assist Stephen L. Wambold and the CompensationCommittee, J. Ryan VanWinkle utilizes publicly available board of directorcompensation data within our industry, as compiled by Mercer Human ResourcesConsulting, to provide market data that is used to create benchmarks for eachdirector’s annual director fee and total compensation package.

 

The following table sets forth the compensation for the last completedfiscal year of our general partner’s Board of Directors.

 
| **Name**             | ** ** | **Fees  Earned or  Paid in  Cash  ($)** | ** ** | **Option  Awards (4)  ($)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|----------------------|------------|---------------------------------------------------|------------|-----------------------------|------------|---------------------------------------|------------|----------------|------------|
| William K. Hoskins   | (1)        | 55,563                                            |       | 421,925                     |       | —                                |       | 477,488        |       |
| A. Andrew Levison    | (2)        | 46,500                                            |       | 376,350                     |       | —                                |       | 422,850        |       |
| John R. Lowden       | (2)        | 49,938                                            |       | 376,350                     |       | —                                |       | 426,288        |       |
| Michael F. Morrissey | (3)        | 60,250                                            |       | 467,500                     |       | —                                |       | 527,750        |       |
| Elizabeth T. Solberg | (1)        | 52,125                                            |       | 421,925                     |       | —                                |       | 474,050        |       |

 

----

(1)         At July 31, 2010 thisdirector had 90,000 ICP options outstanding.

(2)         At July 31, 2010 thisdirector had 80,000 ICP options outstanding.

(3)         At July 31, 2010 thisdirector had 100,000 ICP options outstanding.

(4)         See Note B — Summary ofsignificant accounting policies (16) Unit and stock-based compensation — to ourconsolidated financial statements for information concerning these awards. Thevalue reported represents the aggregate grant date fair value computed inaccordance with FASB ASC Topic 718.

 

**ITEM 12.****                ****SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDERMATTERS.**

 

The following table sets forth certain information as of August 31,2010, regarding the beneficial ownership of our common units by:

 

·        persons thatown more than 5% of our common units;

·        persons thatare directors, nominees or named executive officers of our general partner; and

·        all directorsand executive officers of our general partner as a group.

 

Other than those persons listed below, our general partner knows of noother person beneficially owning more than 5% of our common units.

 

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** **

**FerrellgasPartners, L.P.**

** **
| **Title of  class** | ** ** | **Name and address of beneficial owner** | ** ** | **Units  beneficially  owned** | ** ** | **Percentage  of class** | ** ** |
|--------------------------|------------|-------------------------------------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| **Common units**         |       | Ferrell  Companies, Inc. Employee Stock Ownership Trust      |       |                           |       |                          |       |
| ** **               |       | 125  S. LaSalle Street, 17th Floor                           |       |                           |       |                          |       |
| ** **               |       | Chicago, Ill.  60603                                         |       | 20,327,666                     |       | 29.2                          |       |
| ** **               |       |                                                              |       |                           |       |                          |       |
| ** **               |       | James E. Ferrell                                                  |       |                           |       |                          |       |
| ** **               |       | 7500 College Blvd. Suite 1000                                |       |                           |       |                          |       |
| ** **               |       | Overland Park, KS. 66210                                          |       | 4,353,475                      |       | 6.3                           |       |
| ** **               |       |                                                              |       |                           |       |                          |       |
| ** **               |       | J.  Ryan VanWinkle                                                |       | 10,000                         |       | *                             |       |
| ** **               |       | Stephen  L. Wambold                                               |       | 16,650                         |       | *                             |       |
| ** **               |       | Tod  D. Brown                                                     |       | 9,000                          |       | *                             |       |
| ** **               |       | George  L. Koloroutis                                             |       | 9,000                          |       | *                             |       |
| ** **               |       | William  K. Hoskins                                               |       | 26,000                         |       | *                             |       |
| ** **               |       | A.  Andrew Levison                                                |       | 39,300                         |       | *                             |       |
| ** **               |       | John  R. Lowden                                                   |       | 5,000                          |       | *                             |       |
| ** **               |       | Michael  F. Morrissey                                             |       | 3,000                          |       | *                             |       |
| ** **               |       | Elizabeth  T. Solberg                                             |       | 11,431                         |       | *                             |       |
|                     |       |                                                              |       |                           |       |                          |       |
| ** **               |       | All  Directors and Executive Officers as a Group                  |       | 4,482,856                      |       | 6.4                           |       |

 

----

*      Less than one percent

 

Beneficial ownership for the purposes of the foregoing table is definedby Rule 13d-3 under the Exchange Act. Under that rule, a person isgenerally considered to be the beneficial owner of a security if he has or sharesthe power to vote or direct the voting thereof, and/or to dispose or direct thedisposition thereof, or has the right to acquire either of those powers within60 days. See the “Executive Compensation — Outstanding Equity Awards at FiscalYear End — Ferrellgas Unit Option Plan” table above for the number of commonunits that could be acquired by each named executive officer through exercisingcommon unit options.

 

All common stock of Ferrell Companies, Inc. (“FCI shares”) held inthe Ferrell Companies, Inc. Employee Stock Ownership Trust (“Trust”) isultimately voted by the appointed trustee. The current independent trustee ofthe Trust is GreatBanc Trust Company. Each participant in the Ferrell Companies, Inc.Employee Stock Ownership Plan (“ESOP”) may be entitled to direct the Trustee asto the exercise of any voting rights attributable to FCI shares allocated totheir ESOP account, but only to the extent required by Sections 401(a)(22)and 409(e)(3) of the Internal Revenue Code and the regulations thereunder(the “Code”). The ESOP plan administrator shall direct the Trustee how to voteboth FCI shares not allocated to plan participants (i.e., held in a Trustsuspense account) and any allocated FCI shares in the Trust as to which novoting instructions have been received from participants. In all cases, theTrustee may vote the shares as it determines is necessary to fulfill itsfiduciary duties under ERISA.

 

As it relates to the Trust, the Code provides that an ESOP participantmay be entitled to direct the Trustee as to the exercise of any voting rightsattributable to FCI shares then allocated to their ESOP account with respect toany corporate matters which involves the voting of such shares with respect tothe approval or disapproval of any corporate merger or consolidation,recapitalization, reclassification, liquidation, dissolution, sale ofsubstantially all assets of a trade or business, or such similar transaction as

 

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theSecretary may prescribe in regulations.

 

The common units owned by the Employee Stock Ownership Trust at August 31,2010 includes 20,080,776 common units owned by Ferrell Companies which is 100%owned by the Employee Stock Ownership Trust, 195,686 common units owned by FCITrading Corp., a wholly-owned subsidiary of Ferrell Companies and 51,204 commonunits owned by Ferrell Propane, Inc., a wholly-owned subsidiary of ourgeneral partner.

 

**Securities Authorized for Issuance under Equity Compensation Plans**

 

The table below provides information about our Second Amended andRestated Ferrellgas Unit Option Plan as of July 31, 2010. This plan is ouronly equity compensation plan that grants equity of Ferrellgas Partners to itsparticipants. In addition to the information set forth below, see Note B —Summary of significant accounting policies (16) Unit and stock basedcompensation — to our consolidated financial statements for additional informationabout the plan.

 
| ** **                                                      | ** ** | **Number of common  units to be issued  upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding   options, warrants  and rights** | ** ** | **Number of common units  remaining available for future  issuance under equity  compensation plans  (excluding securities  reflected in the first column)** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by security  holders         |       | —                                                                                                                                                  |       | —                                                                                              |       | —                                                                                                                                                                                                                             |       |
|                                                            |       |                                                                                                                                                    |       |                                                                                                |       |                                                                                                                                                                                                                               |       |
| Equity compensation plans not approved by security  holders (1) |       | 260,500                                                                                                                                                 |       | $                                                                                                   | 11.63      |                                                                                                                                                                                                                               | 3,626      | (2) |
| Total                                                           |       | 260,500                                                                                                                                                 |       | $                                                                                                   | 11.63      |                                                                                                                                                                                                                               | 3,626      |   |

 

----

(1)            The Second Amended and Restated Ferrellgas UnitOption Plan did not require approval by the security holders.

(2)            This number may be increased upon the occurrence ofparticular events. See narrative below.

 

The Second Amended and Restated Ferrellgas Unit Option Plan wasinitially adopted by the Board of Directors of our general partner. The plan isintended to meet the requirements of the New York Stock Exchange equity holderapproval policy for option plans not approved by the equity holders of acompany, and thus approval of the plan by our common unitholders was notrequired.

 

The purpose of the plan is to encourage selectedemployees of our general partner to:

 

·                  develop a proprietary interest in our growthand performance;

·                  generate an increased incentive to contributeto our future success and prosperity, thereby enhancing our value for thebenefit of our common unitholders; and

·                  enhance our ability to attract and retain keyindividuals who are essential to our progress, growth and profitability, bygiving these individuals the opportunity to acquire our common units.

 

The plan is to be administered by the Compensation Committee of theBoard of our general partner. The Compensation Committee has designated anemployee committee to recommend to it at various times throughout the year thenumber of unit options to be granted and to whom such unit options should begranted. The Compensation Committee then votes upon such recommendations.

 

Subject to the terms of the plan and applicable law, the administratorof the plan has the sole power, authority and discretion to:

 

·                  designate the employees who are to beparticipants in the plan;

 

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·                  determine the number of unit options to begranted to an employee;

·                  determine the terms and conditions of anyunit option;

·                  interpret, construe and administer the planand any instrument or agreement relating to a unit option granted under theplan;

·                  establish, amend, suspend, or waive such rules andregulations and appoint such agents as it deems appropriate for the properadministration of the plan;

·                  make a determination as to the right of anyperson to receive payment of (or with respect to) a unit option; and

·                  make any other determinations and take anyother actions that the administrator deems necessary or desirable for theadministration of the plan.

 

Generally, all of the directors, officers, and other employees of ourgeneral partner, or an affiliate of our general partner, are eligible forparticipation in the plan. Grants to a member of the Board or the optioncommittee are permitted provided that the grantee recuses themselves from thevote relating to such unit option grant. Grants may be made to the sameemployee on more than one occasion and the terms and provisions of grants tothe same employee or to different employees need not be the same. The planallows for the granting of only non-qualified unit options and in no eventshall the term of any unit option exceed a period of ten years from the date ofits grant. Unit options, to the extent vested as of the date the holder thereofceases to be an employee of our general partner or one of its affiliates, willremain the property of the holder until the unit options are exercised orexpire. Unit options, to the extent not vested as of the date the holder ceasesto be an employee, are automatically canceled. Unit options or rightsthereunder are not assignable, alienable, saleable or transferable by a holderotherwise than by will or by the laws of descent and distribution. It isintended that the plan and any unit option granted to a person subject to Section 16of the Exchange Act meet all of the requirements of Rule 16b-3 of theExchange Act.

 

To comply with the rules of the New York Stock Exchange, no singleofficer or director of our general partner may acquire under the plan more than314,895 common units. In addition, all common units available for issuanceunder this plan, whether to directors or officers of our general partner or toany other persons, together with any common units available for issuance underany other employee benefit plan, of which there are currently none, may notexceed an aggregate total of 1,574,475 common units.

 

Although the number of unit options currently available for issuanceunder the plan is limited to 1,350,000, under particular circumstances thatwould result in a significant dilution of the rights of the participants in theplan, the administrator of the plan may make appropriate adjustments in themaximum number of common units issuable under the plan to reflect the effect ofsuch circumstance and may make appropriate adjustments to the number of commonunits subject to, and/or the exercise price of, each outstanding unit option.

 

The administrator of the plan has the discretion to cancel all or partof any outstanding unit options at any time. Upon any such cancellation we willpay to the holder with respect to each cancelled unit option an amount in cashequal to the excess, if any, of (i) the fair market value of a commonunit, at the effective date of such cancellation, over (ii) the unitoption exercise price. In addition, the administrator has the right to alter oramend the plan or any part thereof from time to time; provided, however, thatno change in any unit option already granted may be made which would impair therights of the holder thereof without the consent of the holder. Theadministrator may also in its discretion terminate the plan at any time withrespect to any common units for which a unit option has not yet been granted.There is currently no fixed termination date for the plan.****Ifa plan for our complete dissolution is adopted or our unitholders approve anagreement for our sale or disposition of all or substantially all of ourassets, then upon such adoption or approval all or a portion, in the solediscretion of the administrator, of a holder’s unit options outstanding as ofthe date of that adoption or approval shall be immediately and fully vested andexercisable and may be exercised within one year from the date of that adoptionor approval.

 

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** **

**ITEM 13.****                     ****CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.**

 

**RelatedParty Transactions**

 

Our written Code of Business Conduct and Ethics applies to ourdirectors, officers and employees. It deals with conflicts of interest,confidential information, use of company assets, business dealings, and othersimilar topics. The Code prohibits any transaction that raises questions ofpossible ethical or legal conflict between the interests of the company and anemployee’s personal interests.

 

The board of directorsmaintains an affiliate trading policy and other policies that govern specificrelated party transactions. Each of these policies contain guidelines on whatentities or natural persons are considered related parties or an affiliate andthe related procedures that are to be followed if transactions occur with theseparties. On a quarterly basis, or more frequently if required by the policies,management provides the board with a discussion of any related party oraffiliate trading transactions. Annually, these policies are reviewed by theboard’s Corporate Governance and Nominating Committee and considered forapproval by the board of directors.

 

Our directors and officers are required each year to respond to adetailed questionnaire. The questionnaire requires each director and officer toidentify every non-Company organization of any type of which they or theirfamily (as defined by the SEC) are a director, partner, member, trustee,officer, employee, representative, consultant or significant shareholder. Thequestionnaire also requires disclosure of any transaction, relationship orarrangement with the Company. The information obtained from thesequestionnaires is then evaluated to determine the nature and amount of anytransactions or relationships. If significant, the results are provided to theGovernance Committee and Board for their use in determining director andofficer independence and related party disclosure obligations.

 

We have no employees and are managed and controlled by our generalpartner. Pursuant to our partnership agreement, our general partner is entitledto reimbursement for all direct and indirect expenses incurred or payments itmakes on our behalf, and all other necessary or appropriate expenses allocableto us or otherwise reasonably incurred by our general partner in connectionwith operating our business. These reimbursable costs, which totaled $249.6million for fiscal 2010, include operating expenses such as compensation andbenefits paid to employees of our general partner who perform services on ourbehalf, as well as related general and administrative expenses.

 

Related party common unitholder information consisted of the following:

 
| ** **                     | ** ** | **Common unit  ownership at  July 31, 2010** | ** ** | **Distributions paid during   the year ended  July 31, 2010** | ** ** |
|--------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| Ferrell Companies (1)          |       | 20,080,776                                                       |       | $                                                                                                | 40,160     |   |
| FCI Trading Corp. (2)          |       | 195,686                                                          |       | 392                                                                                              |       |
| Ferrell Propane, Inc. (3) |       | 51,204                                                           |       | 104                                                                                              |       |
| James E. Ferrell (4)           |       | 4,353,475                                                        |       | 8,708                                                                                            |       |
|                                |            |                                                                  |            |                                                                                                  |            |  |

 

----

(1)          FerrellCompanies is the sole shareholder of our general partner.

(2)          FCI TradingCorp. is an affiliate of the general partner and is wholly-owned by FerrellCompanies.

(3)          Ferrell Propane, Inc.is wholly-owned by our general partner.

(4)          James E.Ferrell is the Executive Chairman and Chairman of the Board of Directors of ourgeneral partner.

 

During fiscal 2010, Ferrellgas Partners and the operating partnershiptogether paid the general partner distributions of $3.4 million.

 

On September 14, 2010, Ferrellgas Partners paid distributions toFerrell Companies, FCI Trading 

 

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Corp., Ferrell Propane, Inc., and James E. Ferrell (indirectly) of$10.0 million, $0.1 million, $26 thousand and $2.2 million, respectively.

 

During fiscal 2010, we paid Fleishman-Hillard Inc. $0.2 million formarketing and communications services. Elizabeth Solberg, a member of ourgeneral partner’s Board of Directors, serves as the General Manager ofFleishman-Hillard Inc.

 

**Certain Business Relationships**

 

None.

 

**Indebtedness of Management**

 

None.

 

**Transactions with Promoters**

 

None.

 

**ITEM14.       PRINCIPAL ACCOUNTING FEES ANDSERVICES.**

 

The following table presents fees billed for professional auditservices rendered by Deloitte & Touche LLP for the audit of our annualfinancial statements and for other services for fiscal 2010 and 2009.

 
| ** **             | ** ** | **2010**                | ** ** | **2009** | ** ** |
|------------------------|------------|-------------------------|------------|----------|------------|
| ** **             | ** ** | **(in thousands)** | ** ** |
| Audit fees (1)         |       | $                       | 1,561      |     | $          | 1,628 |   |
| Audit related fees (2) |       | 99                      |       | 45       |       |
| Tax fees (3)           |       | 318                     |       | 105      |       |
| All other fees (4)     |       | 9                       |       | 9        |       |
| Total                  |       | $                       | 1,987      |     | $          | 1,787 |   |

 

----

(1)          Audit fees consist of the aggregate fees billed for each of thelast two fiscal years for professional services rendered by Deloitte &Touche LLP in connection with the audit of our annual financial statements andthe review of financial statements included in our quarterly reports on Form 10-Q.In addition, these fees also covered those services that are normally providedby an accountant in connection with statutory and regulatory filings orengagements and services related to the audit of our internal controls overfinancial reporting.

 

(2)          Audit-related fees consist of the aggregate fees billed ineach of the last two fiscal years for assurance and related services byDeloitte & Touche LLP that we believe are reasonably related to theperformance of the audit or review of our financial statements and that wouldnot normally be reported under Item 9(e)(1) of Schedule 14A. These services generally consisted of comfortletters, consents, financial accounting and reporting consultations and benefitplans audits.

 

(3)          Tax fees consist of the aggregate fees billed in each of the lasttwo fiscal years for professional services rendered by Deloitte Tax forthe preparation of Schedule K-1’s for unitholders.

 

(4)          All other fees consist of the aggregate fees billed ineach of the last two fiscal years for products and services provided by Deloitte &Touche LLP, other than the services that would normally be reported in Items9(e)(1) through 9(e)(3) of Schedule 14A. These services consisted of subscription fees related to aweb-based research tool provided by Deloitte LLP.

 

The Audit Committee of our general partner reviewedand approved all audit and non-audit services provided to us by Deloitte &Touche LLP during fiscal 2010 and 2009 prior to the commencement of such 

 

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services.See “Item 10. Directors and Executive Officers of the Registrants—AuditCommittee” for a description of the Audit Committee’s pre-approval policies andprocedures related to the engagement by us of an independent accountant.

 

**PART IV**

 

**ITEM15.       EXHIBITS, FINANCIAL STATEMENTSCHEDULES.**

 
| **1.** | **Financial  Statements.**                                                          |
|--------|-------------------------------------------------------------------------------------|
|   | See  “Index to Financial Statements” set forth on page F-1.          |
| **2.** | **Financial  Statement Schedules.**                                                 |
|   | See  “Index to Financial Statement Schedules” set forth on page S-1. |
| **3.** | **Exhibits.**                                                                       |
|   | See  “Index to Exhibits” set forth on page E-1.                      |

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|   | FERRELLGAS  PARTNERS, L.P.                  |
|--------|---------------------------------------------|
|   |                                        |
|   | By  Ferrellgas, Inc. (General Partner) |
|   |                                        |
|   |                                        |
|   | By                                          | /s/  Stephen L. Wambold |
|   |                                        | Stephen  L. Wambold |
|   |                                        | Chief  Executive Officer and President |

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed by the following persons in the capacities and onthe dates indicated:

 
| **Signature**             | ** ** | **Title**                                                                                                   | ** ** | **Date**   |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|------------|
|                      |       |                                                                                                        |       |       |
| /s/  James E. Ferrell     |       | Executive  Chairman and Chairman of the Board of Directors                                                  |       |       |
| James  E. Ferrell         |       |                                                                                                        |       | 09/28/2010 |
|                      |       |                                                                                                        |       |       |
| /s/  William K. Hoskins   |       | Director                                                                                                    |       | 09/28/2010 |
| William  K. Hoskins       |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  A. Andrew Levison    |       | Director                                                                                                    |       | 09/28/2010 |
| A.  Andrew Levison        |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  John R. Lowden       |       | Director                                                                                                    |       | 09/28/2010 |
| John  R. Lowden           |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  Michael F. Morrissey |       | Director                                                                                                    |       | 09/28/2010 |
| Michael  F. Morrissey     |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  Elizabeth T. Solberg |       | Director                                                                                                    |       | 09/28/2010 |
| Elizabeth  T. Solberg     |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  Stephen L. Wambold   |       | Chief  Executive Officer and President (Principal Executive Officer) and Director                           |       | 09/28/2010 |
| Stephen  L. Wambold       |       |                                                                                                        |       |
|                      |       |                                                                                                        |       |       |
| /s/  J. Ryan VanWinkle    |       | Senior  Vice President and Chief Financial Officer; Treasurer (Principal Financial  and Accounting Officer) |       | 09/28/2010 |
| J.  Ryan VanWinkle        |       |                                                                                                        |       |

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|   |                               |
|--------|------------------------------------|
|   | FERRELLGAS  PARTNERS FINANCE CORP. |
|   |                               |
|   | By                                 | /s/  Stephen L. Wambold |
|   |                               | Stephen  L. Wambold |
|   |                               | Chief  Executive Officer and President |

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed by the following persons in the capacities and onthe dates indicated:

 
| **Signature**           | ** ** | **Title**                                                                                | ** ** | **Date**   |
|-------------------------|------------|------------------------------------------------------------------------------------------|------------|------------|
|                    |       |                                                                                     |       |       |
| /s/  Stephen L. Wambold |       | Chief  Executive Officer and President (Principal Executive Officer)                     |       | 09/28/2010 |
| Stephen  L. Wambold     |       |                                                                                     |       |
|                    |       |                                                                                     |       |       |
|                    |       |                                                                                     |       |       |
| /s/  J. Ryan VanWinkle  |       | Chief  Financial Officer and Sole Director (Principal Financial and Accounting  Officer) |       | 09/28/2010 |
| J.  Ryan VanWinkle      |       |                                                                                     |       |

 

**Supplemental Information to be Furnished With Reports Filed Pursuant toSection 15(d) of the Act by Registrants Which Have Not RegisteredSecurities Pursuant to Section 12 of the Act**

 

Ferrellgas PartnersFinance Corp. has not registered securities pursuant to Section 12 of theSecurities Act and files reports pursuant to Section 15(d) of theSecurities Act.  As of the date of filingof this Annual Report on Form 10-K, no annual report or proxy material hasbeen sent to the holders of the securities of Ferrellgas Partners FinanceCorp., however, a copy of this Annual Report will be furnished to the holdersof the securities of Ferrellgas Partners Finance Corp. subsequent to the dateof filing of this Annual Report.

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|   | FERRELLGAS,  L.P.                           |
|--------|---------------------------------------------|
|   |                                        |
|   | By  Ferrellgas, Inc. (General Partner) |
|   |                                        |
|   |                                        |
|   | By                                          | /s/  Stephen L. Wambold |
|   |                                        | Stephen  L. Wambold |
|   |                                        | Chief  Executive Officer and President |

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed by the following persons in the capacities and onthe dates indicated:

 
| **Signature**             | ** ** | **Title**                                                                                                   | ** ** | **Date**   |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|------------|
|                      |       |                                                                                                        |       |       |
| /s/  James E. Ferrell     |       | Executive  Chairman and Chairman of the Board of Directors                                                  |       |       |
| James  E. Ferrell         |       |                                                                                                        |       | 09/28/2010 |
|                      |       |                                                                                                        |       |       |
| /s/  William K. Hoskins   |       | Director                                                                                                    |       | 09/28/2010 |
| William  K. Hoskins       |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  A. Andrew Levison    |       | Director                                                                                                    |       | 09/28/2010 |
| A.  Andrew Levison        |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  John R. Lowden       |       | Director                                                                                                    |       | 09/28/2010 |
| John  R. Lowden           |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  Michael F. Morrissey |       | Director                                                                                                    |       | 09/28/2010 |
| Michael  F. Morrissey     |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  Elizabeth T. Solberg |       | Director                                                                                                    |       | 09/28/2010 |
| Elizabeth  T. Solberg     |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/  Stephen L. Wambold   |       | Chief  Executive Officer and President (Principal Executive Officer) and Director                           |       | 09/28/2010 |
| Stephen  L. Wambold       |       |                                                                                                        |       |
|                      |       |                                                                                                        |       |       |
| /s/  J. Ryan VanWinkle    |       | Senior  Vice President and Chief Financial Officer; Treasurer (Principal Financial  and Accounting Officer) |       | 09/28/2010 |
| J.  Ryan VanWinkle        |       |                                                                                                        |       |

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 

 
|   | FERRELLGAS  FINANCE CORP. |
|--------|---------------------------|
|   |                      |
|   | By                        | /s/  Stephen L. Wambold |
|   |                      | Stephen  L. Wambold |
|   |                      | Chief  Executive Officer and President |

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed by the following persons in the capacities and onthe dates indicated:

 
| **Signature**           | ** ** | **Title**                                                                                | ** ** | **Date**   |
|-------------------------|------------|------------------------------------------------------------------------------------------|------------|------------|
|                    |       |                                                                                     |       |       |
| /s/  Stephen L. Wambold |       | Chief  Executive Officer and President (Principal Executive Officer)                     |       | 09/28/2010 |
| Stephen  L. Wambold     |       |                                                                                     |       |
|                    |       |                                                                                     |       |       |
|                    |       |                                                                                     |       |       |
| /s/  J. Ryan VanWinkle  |       | Chief  Financial Officer and Sole Director (Principal Financial and Accounting  Officer) |       | 09/28/2010 |
| J.  Ryan VanWinkle      |       |                                                                                     |       |

 

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**INDEX TO FINANCIAL STATEMENTS**

** **
| ** **                                                                                         | **Page** |
|----------------------------------------------------------------------------------------------------|----------|
|                                                                                               |     |
| **Ferrellgas  Partners, L.P. and Subsidiaries**                                                    |     |
| Report of Independent Registered Public Accounting  Firm                                           | F-2      |
| Consolidated Balance Sheets - July 31, 2010 and  2009                                         | F-3      |
| Consolidated Statements of Earnings - Years ended  July 31, 2010, 2009 and 2008               | F-4      |
| Consolidated Statements of Partners’ Capital - Years  ended July 31, 2010, 2009 and 2008 | F-5      |
| Consolidated Statements of Cash Flows - Years ended July 31,  2010, 2009 and 2008             | F-6      |
| Notes to Consolidated Financial Statements                                                         | F-7      |
|                                                                                               |     |
| **Ferrellgas  Partners Finance Corp.**                                                             |     |
| Report of Independent Registered Public Accounting  Firm                                           | F-30     |
| Balance Sheets - July 31, 2010 and 2009                                                       | F-31     |
| Statements  of Earnings - Years ended July 31, 2010, 2009 and 2008                            | F-32     |
| Statements of Stockholder’s Equity - Years ended  July 31, 2010, 2009 and 2008           | F-33     |
| Statements  of Cash Flows - Years ended July 31, 2010, 2009 and 2008                          | F-34     |
| Notes to Financial Statements                                                                      | F-35     |
|                                                                                               |     |
| **Ferrellgas,  L.P. and Subsidiaries**                                                             |     |
| Report of Independent Registered Public Accounting  Firm                                           | F-36     |
| Consolidated Balance Sheets - July 31, 2010 and  2009                                         | F-37     |
| Consolidated Statements of Earnings - Years ended  July 31, 2010, 2009 and 2008               | F-38     |
| Consolidated Statements of Partners’ Capital - Years  ended July 31, 2010, 2009 and 2008 | F-39     |
| Consolidated Statements of Cash Flows - Years ended  July 31, 2010, 2009 and 2008             | F-40     |
| Notes to Consolidated Financial Statements                                                         | F-41     |
|                                                                                               |     |
| **Ferrellgas  Finance Corp.**                                                                      |     |
| Report of Independent Registered Public Accounting  Firm                                           | F-61     |
| Balance Sheets - July 31, 2010 and 2009                                                       | F-62     |
| Statements  of Earnings — Year ended July 31, 2010, 2009 and 2008                        | F-63     |
| Statements of Stockholder’s Equity - Year ended  July 31, 2010, 2009 and 2008            | F-64     |
| Statements  of Cash Flows - Year ended July 31, 2010, 2009 and 2008                           | F-65     |
| Notes to Financial Statements                                                                      | F-66     |

 

F-1

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** **

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

To the Partners of 

Ferrellgas Partners, L.P. and subsidiaries

Overland Park, Kansas

 

We have audited the accompanying consolidatedbalance sheets of Ferrellgas Partners, L.P. and subsidiaries (“Partnership”) asof July 31, 2010 and 2009, and the related consolidated statements ofearnings, partners’ capital, and cash flows for each of the three years in the periodended July 31, 2010.  Our audits also included the financialstatement schedules listed in the Index at Item 15.  These financialstatements and financial statement schedules are the responsibility of thePartnership’s management.  Our responsibility is to express an opinion onthe financial statements and financial statement schedules based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.  We believe that our audits provide a reasonablebasis for our opinion.

 

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofFerrellgas Partners, L.P. and subsidiaries as of July 31, 2010 and 2009,and the results of their operations and their cash flows for each of the threeyears in the period ended July 31, 2010, in conformity with accountingprinciples generally accepted in the United States of America.  Also, inour opinion, such financial statement schedules, when considered in relation tothe basic consolidated financial statements taken as a whole, present fairly,in all material respects, the information set forth therein.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), thePartnership’s internal control over financial reporting as of July 31,2010, based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated September 28,2010 expressed an unqualified opinion on the Partnership’s internal controlover financial reporting.

 

 

/s/ DELOITTE & TOUCHE LLP

Kansas City, Missouri

September 28, 2010

 

F-2

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**FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES**

** **

**CONSOLIDATEDBALANCE SHEETS**

**(in thousands, except unit data)**

 
| ** **                                                                                                                  | ** ** | **July 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                                  | ** ** | **2010**          | ** ** | **2009** | ** ** |
| **ASSETS**                                                                                                                  | ** ** | ** **        | ** ** |   | ** ** |
| **Current assets:**                                                                                                         |       |              |       |   |   |
| Cash and cash equivalents                                                                                                   |       | $                 | 11,401     |   | $ | 7,066 |   |
| Accounts and notes receivable (net of allowance  for doubtful accounts of $5,010 and $4,294 at 2010 and 2009, respectively) |       | 89,234            |       | 106,910 |   |
| Inventories                                                                                                                 |       | 166,911           |       | 129,808 |   |
| Prepaid expenses and other current assets                                                                                   |       | 13,842            |       | 15,031 |   |
| **Total current assets**                                                                                                    |       | 281,388           |       | 258,815 |   |
|                                                                                                                        |       |              |       |   |   |
| Property, plant and equipment, net                                                                                          |       | 652,768           |       | 666,535 |   |
| Goodwill                                                                                                                    |       | 248,939           |       | 248,939 |   |
| Intangible assets, net                                                                                                      |       | 221,057           |       | 212,037 |   |
| Other assets, net                                                                                                           |       | 38,199            |       | 18,651 |   |
| **Total assets**                                                                                                            |       | $                 | 1,442,351  |   | $ | 1,404,977 |   |
|                                                                                                                        |       |              |       |   |   |
| **LIABILITIES AND PARTNERS’ CAPITAL**                                                                                  | ** ** | ** **        | ** ** |   | ** ** |
| **Current liabilities:**                                                                                                    | ** ** | ** **        | ** ** |   | ** ** |
| Accounts payable                                                                                                            |       | $                 | 48,658     |   | $ | 49,337 |   |
| Short-term borrowings                                                                                                       |       | 67,203            |       | 66,159 |   |
| Other current liabilities                                                                                                   |       | 108,054           |       | 108,763 |   |
| **Total current liabilities**                                                                                               |       | 223,915           |       | 224,259 |   |
|                                                                                                                        |       |              |       |   |   |
| Long-term debt                                                                                                              |       | 1,111,088         |       | 1,010,073 |   |
| Other liabilities                                                                                                           |       | 21,446            |       | 19,300 |   |
| Contingencies and commitments (Note L)                                                                                      |       | —            |       | — |   |
|                                                                                                                        |       |              |       |   |   |
| **Partners’ capital:**                                                                                                 |       |              |       |   |   |
| Common unitholders (69,521,818 and 68,236,755  units outstanding at 2010 and 2009, respectively)                            |       | 141,281           |       | 206,255 |   |
| General partner unitholder (702,241 and 689,260  units outstanding at 2010 and 2009, respectively)                          |       | (58,644           | )          | (57,988 | ) |
| Accumulated other comprehensive loss                                                                                        |       | (415              | )          | (1,194 | ) |
| **Total Ferrellgas Partners, L.P.  partners’ capital**                                                                 |       | 82,222            |       | 147,073 |   |
| Noncontrolling interest                                                                                                     |       | 3,680             |       | 4,272 |   |
| **Total partners’ capital**                                                                                            |       | 85,902            |       | 151,345 |   |
| **Total liabilities and partners’  capital**                                                                           |       | $                 | 1,442,351  |   | $ | 1,404,977 |   |

 

See notes to consolidated financial statements.

 

F-3

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**FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF EARNINGS**

**(in thousands, except per unit data)**

 
| ** **                                                                | ** ** | **For the year ended July 31,** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                                | ** ** | ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                                             |       |                                                     |       |   |   |   |   |
| Propane and other gas liquids sales                                       |       | $                                                        | 1,900,318  |   | $ | 1,829,653 |   | $ | 2,055,281 |   |
| Other                                                                     |       | 198,742                                                  |       | 239,869 |   | 235,408 |   |
| **Total revenues**                                                        |       | 2,099,060                                                |       | 2,069,522 |   | 2,290,689 |   |
|                                                                      |       |                                                     |       |   |   |   |   |
| **Costs and expenses:**                                                   |       |                                                     |       |   |   |   |   |
| Cost of product sold - propane and other gas  liquids sales               |       | 1,257,534                                                |       | 1,207,368 |   | 1,491,918 |   |
| Cost of product sold - other                                              |       | 108,638                                                  |       | 152,853 |   | 136,478 |   |
| Operating expense                                                         |       | 409,014                                                  |       | 400,735 |   | 372,078 |   |
| Depreciation and amortization expense                                     |       | 82,491                                                   |       | 82,494 |   | 85,521 |   |
| General and administrative expense                                        |       | 51,772                                                   |       | 41,382 |   | 45,612 |   |
| Equipment lease expense                                                   |       | 13,441                                                   |       | 18,406 |   | 24,478 |   |
| Employee stock ownership plan compensation charge                         |       | 9,322                                                    |       | 6,755 |   | 12,413 |   |
| Loss on disposal of assets and other                                      |       | 8,485                                                    |       | 13,042 |   | 11,250 |   |
|                                                                      |       |                                                     |       |   |   |   |   |
| **Operating income**                                                      |       | 158,363                                                  |       | 146,487 |   | 110,941 |   |
|                                                                      |       |                                                     |       |   |   |   |   |
| Interest expense                                                          |       | (101,284                                                 | )          | (89,519 | ) | (86,712 | ) |
| Debt prepayment premiums                                                  |       | (20,716                                                  | )          | — |   | — |   |
| Other income (expense), net                                               |       | (1,108                                                   | )          | (1,321 | ) | 1,039 |   |
|                                                                      |       |                                                     |       |   |   |   |   |
| **Earnings before income taxes**                                          |       | 35,255                                                   |       | 55,647 |   | 25,268 |   |
|                                                                      |       |                                                     |       |   |   |   |   |
| Income tax expense                                                        |       | 1,916                                                    |       | 2,292 |   | 82 |   |
|                                                                      |       |                                                     |       |   |   |   |   |
| **Net earnings**                                                          |       | 33,339                                                   |       | 53,355 |   | 25,186 |   |
|                                                                      |       |                                                     |       |   |   |   |   |
| Net earnings attributable to noncontrolling  interest                     |       | 630                                                      |       | 783 |   | 497 |   |
|                                                                      |       |                                                     |       |   |   |   |   |
| Net earnings attributable to Ferrellgas Partners,  L.P.                   |       | 32,709                                                   |       | 52,572 |   | 24,689 |   |
| Less: General partner’s interest in net earnings                     |       | 327                                                      |       | 526 |   | 247 |   |
| **Common unitholders’ interest in  net earnings**                    |       | $                                                        | 32,382     |   | $ | 52,046 |   | $ | 24,442 |   |
|                                                                      |       |                                                     |       |   |   |   |   |
| **Basic and diluted net earnings  per common unitholders’ interest** |       | $                                                        | 0.47       |   | $ | 0.79 |   | $ | 0.39 |   |

 

See notes to consolidated financial statements.

 

F-4

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**FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF PARTNERS’ CAPITAL**

**(in thousands)**

 
| ** **                                                                                       | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **      | ** ** | ** **                  | ** ** | **Accumulated other** | ** ** | **Total**       | ** ** | ** **    | ** ** | ** **                    | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|----------------|------------|-----------------|------------|-----------------------------|------------|----------------------------|------------|-----------------|------------|---------------|------------|-------------------------------|------------|
| ** **                                                                                       | ** ** | **Number of units** | ** ** | ** **     | ** ** | ** **      | ** ** | **comprehensive loss** | ** ** | **Ferrellgas**             | ** ** | ** **      | ** ** | ** **    | ** ** |
| ** **                                                                                       | ** ** | ** **                    | ** ** | **General**    | ** ** | ** **      | ** ** | **General**                 | ** ** | ** **                 | ** ** | **Currency**    | ** ** | ** **    | ** ** | **Partners’, L.P.** | ** ** | **Non-** | ** ** | **Total** | ** ** |
| ** **                                                                                       | ** ** | **Common**                    | ** ** | **partner**    | ** ** | **Common**      | ** ** | **partner**                 | ** ** | **Risk**                   | ** ** | **translation** | ** ** | **Pension**   | ** ** | **partners’**            | ** ** | **controlling** | ** ** | **partners’** | ** ** |
| ** **                                                                                       | ** ** | **unitholders**               | ** ** | **unitholder** | ** ** | **unitholders** | ** ** | **unitholder**              | ** ** | **management**             | ** ** | **adjustments** | ** ** | **liability** | ** ** | **capital**                   | ** ** | **interest** | ** ** | **capital** | ** ** |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| **Balance at July 31, 2007**                                                                |       | 62,957.7                      |       | 635.9          |       | $               | 289,075    |                        | $          | (57,154                    | )          | $               | 5,055      |          | $          | 30                            |       | $ | (349 | ) | $ | 236,657 |   | $ | 5,119 |   | $ | 241,776 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Contribution  in connection with ESOP and unit and stock-based compensation charges              |       | —                        |       | —         |       | 13,945          |       | 141                         |       | —                     |       | —          |       | —        |       | 14,086                        |       | 143 |   | 14,229 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Distributions                                                                                    |       | —                        |       | —         |       | (125,919        | )          | (1,271                      | )          | —                     |       | —          |       | —        |       | (127,190                      | )          | (1,539 | ) | (128,729 | ) |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Common  unit options exercised                                                                   |       | 4.0                           |       | 0.1            |       | 75              |       | 1                           |       | —                     |       | —          |       | —        |       | 76                            |       | — |   | 76 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Comprehensive  income:                                                                           |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Net  earnings                                                                                    |       | —                        |       | —         |       | 24,442          |       | 247                         |       | —                     |       | —          |       | —        |       | 24,689                        |       | 497 |   | 25,186 |   |
| Other  comprehensive income (loss):                                                              |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Net  earnings on risk management derivatives                                                     |       | —                        |       | —         |       | —          |       | —                      |       | 18,749                     |       | —          |       | —        |       |                          |       | — |   |   |   |
| Reclassification  of derivatives to earnings                                                     |       | —                        |       | —         |       | —          |       | —                      |       | (5,055                     | )          | —          |       | —        |       |                          |       | — |   |   |   |
| Foreign  currency translation adjustment                                                         |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | (10             | )          | —        |       |                          |       |   |   |   |   |
| Tax  effect on foreign currency translation adjustment                                           |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | 6               |       | —        |       |                          |       |   |   |   |   |
| Pension  liability adjustment                                                                    |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | —          |       | 116           |       | 13,806                        |       |   |   | 13,806 |   |
| Comprehensive  income                                                                            |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       | 38,495                        |       | 497 |   | 38,992 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| **Balance at July 31, 2008**                                                                |       | 62,961.7                      |       | 636.0          |       | 201,618         |       | (58,036                     | )          | 18,749                     |       | 26              |       | (233          | )          | 162,124                       |       | 4,220 |   | 166,344 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Contribution  in connection with ESOP and unit and stock-based compensation charges              |       | —                        |       | —         |       | 8,885           |       | 90                          |       | —                     |       | —          |       | —        |       | 8,975                         |       | 92 |   | 9,067 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Distributions                                                                                    |       | —                        |       | —         |       | (131,256        | )          | (1,325                      | )          | —                     |       | —          |       | —        |       | (132,581                      | )          | (1,592 | ) | (134,173 | ) |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Common  units issued in offering                                                                 |       | 4,985.6                       |       | 50.4           |       | 69,447          |       | 702                         |       | —                     |       | —          |       | —        |       | 70,149                        |       | 713 |   | 70,862 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Common  units issued in connection with acquisitions, net of issuance costs                      |       | 289.5                         |       | 2.9            |       | 5,515           |       | 55                          |       | —                     |       | —          |       | —        |       | 5,570                         |       | 56 |   | 5,626 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Comprehensive  income:                                                                           |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Net  earnings                                                                                    |       | —                        |       | —         |       | 52,046          |       | 526                         |       | —                     |       | —          |       | —        |       | 52,572                        |       | 783 |   | 53,355 |   |
| Other  comprehensive income (loss):                                                              |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Net  loss on risk management derivatives                                                         |       | —                        |       | —         |       | —          |       | —                      |       | (186,449                   | )          | —          |       | —        |       |                          |       | — |   |   |   |
| Reclassification  of derivatives to earnings                                                     |       | —                        |       | —         |       | —          |       | —                      |       | 166,711                    |       | —          |       | —        |       |                          |       | — |   |   |   |
| Foreign  currency translation adjustment                                                         |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | (7              | )          | —        |       |                          |       |   |   |   |   |
| Tax  effect on foreign currency translation adjustment                                           |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | 3               |       | —        |       |                          |       |   |   |   |   |
| Pension  liability adjustment                                                                    |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | —          |       | 6             |       | (19,736                       | )          |   |   | (19,736 | ) |
| Comprehensive  income                                                                            |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       | 32,836                        |       | 783 |   | 33,619 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| **Balance at July 31, 2009**                                                                |       | 68,236.8                      |       | 689.3          |       | 206,255         |       | (57,988                     | )          | (989                       | )          | 22              |       | (227          | )          | 147,073                       |       | 4,272 |   | 151,345 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Contribution  in connection with ESOP and unit and stock-based compensation charges              |       | —                        |       | —         |       | 16,810          |       | 170                         |       | —                     |       | —          |       | —        |       | 16,980                        |       | 173 |   | 17,153 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Distributions                                                                                    |       | —                        |       | —         |       | (138,365        | )          | (1,398                      | )          | —                     |       | —          |       | —        |       | (139,763                      | )          | (1,958 | ) | (141,721 | ) |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Common  units issued in offering, net of issuance costs                                          |       | 1,058.4                       |       | 10.7           |       | 19,949          |       | 202                         |       | —                     |       | —          |       | —        |       | 20,151                        |       | 204 |   | 20,355 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Common  units issued in connection with acquisitions                                             |       | 155.1                         |       | 1.5            |       | 3,061           |       | 31                          |       | —                     |       | —          |       | —        |       | 3,092                         |       | 31 |   | 3,123 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Common  unit options exercised                                                                   |       | 71.5                          |       | 0.7            |       | 1,189           |       | 12                          |       | —                     |       | —          |       | —        |       | 1,201                         |       | 8 |   | 1,209 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| General  partner contribution in connection with cash contribution to Ferrellgas  Partners, L.P. |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | —          |       | —        |       | —                        |       | 311 |   | 311 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Comprehensive  income:                                                                           |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Net  earnings                                                                                    |       | —                        |       | —         |       | 32,382          |       | 327                         |       | —                     |       | —          |       | —        |       | 32,709                        |       | 630 |   | 33,339 |   |
| Other  comprehensive income (loss):                                                              |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| Net  earnings on risk management derivatives                                                     |       | —                        |       | —         |       | —          |       | —                      |       | 11,941                     |       | —          |       | —        |       |                          |       | 122 |   |   |   |
| Reclassification  of derivatives to earnings                                                     |       | —                        |       | —         |       | —          |       | —                      |       | (11,118                    | )          | —          |       | —        |       |                          |       | (113 | ) |   |   |
| Foreign  currency translation adjustment                                                         |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | 3               |       | —        |       |                          |       |   |   |   |   |
| Tax  effect on foreign currency translation adjustment                                           |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | (1              | )          | —        |       |                          |       |   |   |   |   |
| Pension  liability adjustment                                                                    |       | —                        |       | —         |       | —          |       | —                      |       | —                     |       | —          |       | (46           | )          | 779                           |       |   |   | 788 |   |
| Comprehensive  income                                                                            |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       | 33,488                        |       | 639 |   | 34,127 |   |
|                                                                                             |       |                          |       |           |       |            |       |                        |       |                       |       |            |       |          |       |                          |       |   |   |   |   |
| **Balance at July 31, 2010**                                                                |       | 69,521.8                      |       | 702.2          |       | $               | 141,281    |                        | $          | (58,644                    | )          | $               | (166       | )             | $          | 24                            |       | $ | (273 | ) | $ | 82,222 |   | $ | 3,680 |   | $ | 85,902 |   |

 

See notes to consolidated financial statements.

 

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**FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(in thousands)**

** **
| ** **                                                                                    | ** ** | **For the year ended July 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                          |       |                                                     |       |   |   |   |   |
| **Cash flows from operating  activities:**                                                    |       |                                                     |       |   |   |   |   |
| Net earnings                                                                                  |       | $                                                        | 33,339     |   | $ | 53,355 |   | $ | 25,186 |   |
| Reconciliation of net earnings to net cash  provided by operating activities:                 |       |                                                     |       |   |   |   |   |
| Depreciation and amortization expense                                                         |       | 82,491                                                   |       | 82,494 |   | 85,521 |   |
| Employee stock ownership plan compensation charge                                             |       | 9,322                                                    |       | 6,755 |   | 12,413 |   |
| Unit and stock-based compensation charge                                                      |       | 7,831                                                    |       | 2,312 |   | 1,816 |   |
| Loss on disposal of assets                                                                    |       | 7,296                                                    |       | 5,009 |   | 4,820 |   |
| Loss on transfer of accounts receivable related to  the accounts receivable securitization    |       | 6,566                                                    |       | 12,124 |   | 10,548 |   |
| Provision for doubtful accounts                                                               |       | 8,440                                                    |       | 5,317 |   | 8,830 |   |
| Deferred tax expense (benefit)                                                                |       | 439                                                      |       | 388 |   | (1,650 | ) |
| Other                                                                                         |       | 2,196                                                    |       | (603 | ) | (2,422 | ) |
| Changes in operating assets and liabilities, net  of effects from business acquisitions:      |       |                                                     |       |   |   |   |   |
| Accounts and notes receivable, net of  securitization                                         |       | 2,529                                                    |       | 65,466 |   | (48,606 | ) |
| Inventories                                                                                   |       | (37,103                                                  | )          | 22,493 |   | (40,920 | ) |
| Prepaid expenses and other current assets                                                     |       | (676                                                     | )          | (120 | ) | 751 |   |
| Accounts payable                                                                              |       | (263                                                     | )          | (21,054 | ) | 8,523 |   |
| Accrued interest expense                                                                      |       | 693                                                      |       | (156 | ) | (3,572 | ) |
| Other current liabilities                                                                     |       | (14                                                      | )          | 5,033 |   | (2,497 | ) |
| Other liabilities                                                                             |       | 1,544                                                    |       | (1,044 | ) | 151 |   |
| Accounts receivable securitization:                                                           |       |                                                     |       |   |   |   |   |
| Proceeds from new accounts receivable  securitizations                                        |       | 124,000                                                  |       | 109,000 |   | 103,000 |   |
| Proceeds from collections reinvested in revolving period  accounts receivable securitizations |       | 1,334,144                                                |       | 1,231,336 |   | 1,365,655 |   |
| Remittances of amounts collected as servicer of accounts  receivable securitizations          |       | (1,448,144                                               | )          | (1,376,336 | ) | (1,456,655 | ) |
| Net cash provided by operating activities                                                     |       | 134,630                                                  |       | 201,769 |   | 70,892 |   |
|                                                                                          |       |                                                     |       |   |   |   |   |
| **Cash flows from investing  activities:**                                                    |       |                                                     |       |   |   |   |   |
| Business acquisitions, net of cash acquired                                                   |       | (40,883                                                  | )          | (2,701 | ) | (191 | ) |
| Capital expenditures                                                                          |       | (45,185                                                  | )          | (54,085 | ) | (43,823 | ) |
| Proceeds from sale of assets                                                                  |       | 9,220                                                    |       | 8,199 |   | 10,874 |   |
| Other                                                                                         |       | (4,480                                                   | )          | (4,643 | ) | (2,991 | ) |
| Net cash used in investing activities                                                         |       | (81,328                                                  | )          | (53,230 | ) | (36,131 | ) |
|                                                                                          |       |                                                     |       |   |   |   |   |
| **Cash flows from financing  activities:**                                                    |       |                                                     |       |   |   |   |   |
| Distributions                                                                                 |       | (139,763                                                 | )          | (132,581 | ) | (127,190 | ) |
| Proceeds from equity offering, net of issuance  costs of $18 and $401, respectively           |       | 19,949                                                   |       | 69,447 |   | — |   |
| Proceeds from increase in long-term debt                                                      |       | 936,861                                                  |       | 208,259 |   | 115,249 |   |
| Reductions in long-term debt                                                                  |       | (844,955                                                 | )          | (239,555 | ) | (92,985 | ) |
| Net additions to (reductions in) short-term  borrowings                                       |       | 1,044                                                    |       | (59,570 | ) | 67,950 |   |
| Cash paid for financing costs                                                                 |       | (22,073                                                  | )          | (3,903 | ) | (383 | ) |
| Noncontrolling interest activity                                                              |       | (1,435                                                   | )          | (879 | ) | (1,539 | ) |
| Proceeds from exercise of common unit options                                                 |       | 1,189                                                    |       | — |   | 76 |   |
| Cash contribution from general partner in  connection with common unit issuances              |       | 214                                                      |       | 702 |   | — |   |
| Net cash used in financing activities                                                         |       | (48,969                                                  | )          | (158,080 | ) | (38,822 | ) |
|                                                                                          |       |                                                     |       |   |   |   |   |
| **Effect of exchange rate changes  on cash**                                                  |       | 2                                                        |       | (7 | ) | (10 | ) |
|                                                                                          |       |                                                     |       |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                                              |       | 4,335                                                    |       | (9,548 | ) | (4,071 | ) |
| Cash and cash equivalents - beginning of year                                                 |       | 7,066                                                    |       | 16,614 |   | 20,685 |   |
| **Cash and cash equivalents - end  of year**                                                  |       | $                                                        | 11,401     |   | $ | 7,066 |   | $ | 16,614 |   |

** **

See notes to consolidated financial statements.

 

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**FERRELLGASPARTNERS, L.P.**

**ANDSUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Dollarsin thousands, except per unit data, unless otherwise designated)**

 

**A.****      ****Partnershiporganization and formation**

 

Ferrellgas Partners, L.P. (“Ferrellgas Partners”) was formed on April 19,1994, and 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, collectively referred to as “Ferrellgas,”are both Delaware limited partnerships and are governed by their respectivepartnership agreements. Ferrellgas Partners was formed to acquire and hold alimited partner interest in the operating partnership. The operatingpartnership was formed to acquire, own and operate the propane business andassets of Ferrellgas, Inc. (the “general partner”), a wholly-ownedsubsidiary of Ferrell Companies, Inc. (“Ferrell Companies”). As of July 31,2010, Ferrell Companies beneficially owns 20.3 million of Ferrellgas Partners’outstanding common units. The general partner has retained a 1% general partnerinterest in Ferrellgas Partners and also holds an approximate 1% generalpartner 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.

 

Ferrellgas Partners owns a 100% equity interest in Ferrellgas PartnersFinance Corp., whose only business activity is to act as the co-issuer andco-obligor of any debt issued by Ferrellgas Partners.

 

Ferrell Companies is wholly-owned by a leveraged employee stockownership trust (“ESOT”) established pursuant to the Ferrell Companies EmployeeStock Ownership Plan (“ESOP”). The purpose of the ESOP is to provide employeesof the general partner an opportunity for ownership in Ferrell Companies andindirectly in Ferrellgas. As contributions are made by Ferrell Companies to theESOT in the future, shares of Ferrell Companies are allocated to the employees’ESOP accounts.

 

**B.****      ****Summaryof significant accounting policies**

 

**(1)     Nature of operations:**  Ferrellgas Partners is a holding entity thatconducts no operations and has two subsidiaries, Ferrellgas Partners FinanceCorp. and the operating partnership. The operating partnership is the onlyoperating subsidiary of Ferrellgas Partners.

 

The operating partnership is engaged primarily in the distribution ofpropane and related equipment and supplies in the United States. The propanedistribution market is seasonal because propane is used primarily for heatingin residential and commercial buildings. The operating partnership servesapproximately one million residential, industrial/commercial, portable tankexchange, agricultural, wholesale and other customers in all 50 states, theDistrict of Columbia, and Puerto Rico.

 

**(2)****              ****Accountingestimates:** The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of America (“GAAP”)requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosures of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reported period. Actual results could differfrom these estimates. Significant estimates impacting the consolidatedfinancial statements include accruals that have been established for contingentliabilities, pending claims and legal actions arising in the normal course ofbusiness, useful lives of property, plant and equipment assets, residual valuesof tanks, capitalization of customer tank installation costs, amortizationmethods of intangible assets, valuation methods used to value sales returns andallowances, allowance for doubtful accounts, financial derivative contracts andstock and unit-based compensation calculations.

 

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**(3)****              ****Principlesof consolidation:** Theaccompanying consolidated financial statements include Ferrellgas Partners’accounts and those of its wholly-owned subsidiary, Ferrellgas Partners FinanceCorp., and the operating partnership, its majority-owned subsidiary, afterelimination of all material intercompany accounts and transactions. Theaccounts of Ferrellgas Partners’ majority-owned subsidiary are included basedon the determination that Ferrellgas Partners will absorb a majority of theoperating partnership’s expected losses, receive a majority of the operatingpartnership’s expected residual returns and is the operating partnership’s primarybeneficiary. The operating partnership includes the accounts of itswholly-owned subsidiaries. The general partner’s approximate 1% general partnerinterest in the operating partnership is accounted for as a noncontrollinginterest. The wholly-owned unconsolidated subsidiary of the operatingpartnership, Ferrellgas Receivables, LLC (“Ferrellgas Receivables”), is aspecial purpose entity.

 

**(4)****              ****Cashand cash equivalents and non-cash activities:**For purposes of theconsolidated statements of cash flows, Ferrellgas considers cash equivalents toinclude all highly liquid debt instruments purchased with an original maturityof three months or less. Significant cash and non-cash activities are presentedbelow:

 
| ** **                                                | ** ** | **For the year ended July 31,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| CASH PAID FOR:                                            |       |                                                     |       |   |   |   |   |
| Interest                                                  |       | $                                                        | 90,305     |   | $ | 83,107 |   | $ | 88,380 |   |
| Income taxes                                              |       | $                                                        | 1,550      |   | $ | 1,512 |   | $ | 3,841 |   |
| NON-CASH INVESTING ACTIVITIES:                            |       |                                                     |       |   |   |   |   |
| Issuance of common units in connection with  acquisitions |       | $                                                        | 3,061      |   | $ | 5,465 |   | $ | — |   |
| Issuance of liabilities in connection with  acquisitions  |       | $                                                        | 5,494      |   | $ | 1,673 |   | $ | — |   |
| Property, plant and equipment additions                   |       | $                                                        | 593        |   | $ | 973 |   | $ | 1,970 |   |

 

(**5)****              ****Accountsreceivable securitization:** The operating partnershiphas agreements to transfer, on an ongoing basis, a portion of its tradeaccounts receivable through Ferrellgas Receivables, an entity that maintains anaccounts receivable securitization facility that is a wholly-ownedunconsolidated special purpose entity. The operating partnership retainsservicing responsibilities as well as a retained interest in the transferredreceivables. The operating partnership also holds a note receivable fromFerrellgas Receivables to the extent that expected cash proceeds from the salesof accounts receivable to Ferrellgas Receivables have not been received. Theoperating partnership has no other continuing involvement with the transferredreceivables, other than servicing the receivables. The related receivables aretransferred from the consolidated balance sheets and a retained interest and notereceivable are recorded for the amount of receivables sold in excess of cashreceived and a related loss on the transfer is recorded, which represents thediscount on the sale. The retained interest and note receivable are included in“Accounts and notes receivable, net” in the consolidated balance sheets. SeeNote B — Summary of significant accounting policies — (21) New accountingstandards — Transfers of financial assets and variable interest entities —below regarding a new accounting standard for financial asset transferseffective August 1, 2010.

 

The operating partnership determines the fair value of its retainedinterest and note receivable based on the present value of future expected cashflows using management’s best estimates of various factors, including creditloss experience and discount rates commensurate with the risks involved. Theseassumptions are updated periodically based on actual results; therefore, theestimated credit loss and discount rates utilized are materially consistent withhistorical performance. Due to the short-term nature of the operatingpartnership’s trade receivables, variations in the credit and discount

 

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assumptions would not significantly impact the fair value of theretained interests and note receivable. Costs associated with the sale ofreceivables are included in “Loss on disposal of assets and other” in theconsolidated statements of earnings. See Note F — Accounts and notesreceivable, net and accounts receivable securitization — for further discussionof these transactions.

 

**(6)****              ****Inventories: ** Inventories are stated at the lower of cost or market using weightedaverage cost and actual cost methods.

 

**(7)****              ****Property,plant and equipment: **Property, plantand equipment are stated at cost less accumulated depreciation. Expendituresfor maintenance and routine repairs are expensed as incurred. Ferrellgascapitalizes computer software, equipment replacement and bettermentexpenditures that upgrade, replace or completely rebuild major mechanicalcomponents and extend the original useful life of the equipment. Depreciationis calculated using the straight-line method based on the estimated usefullives of the assets ranging from two to 30 years. Ferrellgas, using its bestestimates based on reasonable and supportable assumptions and projections,reviews long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of its assets might not berecoverable. See Note E — Supplemental financial statement information — forfurther discussion of property, plant and equipment.

 

**(8)****              ****Goodwill:** Ferrellgasrecords goodwill as the excess of the cost of acquisitions over the fair valueof the related net assets at the date of acquisition. Goodwill is tested forimpairment annually on January 31, or more frequently if circumstancesdictate, and if impaired, written off against earnings at that time. Ferrellgashas not recognized any impairment losses as a result of these tests. Forpurposes of Ferrellgas’ goodwill impairment test, Ferrellgas has determinedthat it has one reporting unit. Ferrellgas assesses the carrying value ofgoodwill at its reporting unit based on an estimate of the fair value of thereporting unit. Fair value of the reporting unit is estimated using a marketvalue approach taking into consideration the quoted market price of Ferrellgas’common units.

 

**(9)****              ****Intangibleassets:**Intangible assets with finite useful lives,consisting primarily of customer lists, non-compete agreements and patentedtechnology, are stated at cost, net of accumulated amortization calculatedusing the straight-line method over periods ranging from two to 15 years. Tradenames and trademarks have indefinite lives, are not amortized, and are statedat cost. Ferrellgas tests finite-lived intangible assets for impairment whenevents or changes in circumstances indicate that the carrying amount of theseassets might not be recoverable. Ferrellgas tests indefinite-lived intangibleassets for impairment annually on January 31 or more frequently ifcircumstances dictate. Ferrellgas has not recognized impairment losses as aresult of these tests. When necessary, intangible assets’ useful lives arerevised and the impact on amortization reflected on a prospective basis. SeeNote G — Goodwill and intangible assets, net — for further discussion ofintangible assets.

 

**(10)   Derivatives and hedgingactivities:** Ferrellgas’ overall objective for entering intoderivative contracts, including commodity options and swaps, is to hedge aportion of its exposure to market fluctuations in propane prices. Thesefinancial instruments are formally designated and documented as a hedge of aspecific underlying exposure, as well as the risk management objectives andstrategies for undertaking the hedge transaction. Because of the high degree ofcorrelation between the hedging instrument and the underlying exposure beinghedged, fluctuations in the value of the derivative instrument are generallyoffset by changes in the anticipated cash flows of the underlying exposurebeing hedged. The fair value of these derivatives fluctuates over the length ofthe contracts. These fair value amounts should not be viewed in isolation, butrather in relation to the anticipated cash flows of the underlying hedgedtransaction and the overall reduction in our risk relating to adversefluctuations in propane prices. Ferrellgas formally assesses, both at inceptionand at least quarterly thereafter, whether the financial instruments that areused in hedging transactions are effective at offsetting changes in theanticipated cash flows of the related underlying exposures. Any ineffectiveportion of a

 

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financial instrument’s change in fair value is recognized in “Cost ofproduct sold - propane and other gas liquids sales” in the consolidatedstatements of earnings. Ferrellgas also enters into derivative contracts thatqualify for the normal purchase normal sales exception within GAAP guidance.Financial instruments formally designated and documented as a hedge of aspecific underlying exposure are recorded gross at fair value as either “Prepaidexpenses and other current assets” or “Other current liabilities” on theconsolidated balance sheets with changes in fair value reported in othercomprehensive income.

 

**(11)   Revenue recognition:** Revenues fromthe distribution of propane and other gas liquids, including revenues fromcustomer deposits and advances, are recognized by Ferrellgas at the timeproduct is delivered to its customers. Other revenues, which include revenuefrom the sale of propane appliances and equipment is recognized at the time ofdelivery or installation. Revenues from repairs and maintenance are recognizedupon completion of the service. Ferrellgas recognizes shipping and handlingrevenues and expenses for sales of propane, appliances and equipment at thetime of delivery or installation. Shipping and handling revenues are includedin the price of propane charged to customers, and are classified as revenue.Revenues from annually billed, non-refundable tank rentals are recognized on astraight-line basis over one year. Cooperative advertising program costs arerecorded as a reduction to our revenue.

** **

**(12)   Shipping and handlingexpenses:** Shipping and handling expenses related to deliverypersonnel, vehicle repair and maintenance and general liability expenses areclassified within “Operating expense” in the consolidated statements ofearnings. Depreciation expenses on delivery vehicles Ferrellgas owns areclassified within “Depreciation and amortization expense.” Delivery vehiclesand distribution technology leased by Ferrellgas are classified within “Equipmentlease expense.” See Note E — Supplemental financial statement information — forthe financial statement presentation of shipping and handling expenses.

** **

**(13) Cost of product sold:** “Cost of product sold —propane and other gas liquids sales” includes all costs to acquire propane andother gas liquids, the costs of storing and transporting inventory prior todelivery to Ferrellgas’ customers, the results from risk management activitiesto hedge related price risk and the costs of materials related to therefurbishment of Ferrellgas’ portable propane tanks. “Cost of product sold —other” primarily includes costs related to the sale of propane appliances andequipment.

** **

**(14)   Operating expenses:** “Operatingexpense” primarily includes the personnel, vehicle, delivery, handling, plant,office, selling, marketing, credit and collections and other expenses relatedto the retail distribution of propane and related equipment and supplies.

 

**(15)   General and administrativeexpenses: “**General and administrative expense” primarilyincludes personnel and incentive expense related to executives and employeesand other overhead expense related to centralized corporate functions.

 

**(16)****       ****Unitand stock-based compensation:**

 

**Ferrellgas Unit Option Plan (“UOP”)**

The UOP is authorized to issue options covering up to 1.35 millioncommon units to employees of the general partner or its affiliates. TheCompensation Committee of the Board of Directors of the general partneradministers the UOP, authorizes grants of unit options thereunder and sets theunit option price and vesting terms of unit options in accordance with theterms of the UOP. No single officer or director of the general partner mayacquire more than 314,895 common units under the UOP. The options currentlyoutstanding under the UOP vest over a five-year period, and expire on the tenthanniversary of the date of the grant. The fair value of each option award isestimated on the date of grant using a binomial option valuation model.Expected volatility is based on the historical volatility of Ferrellgas’

 

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publicly-traded common units. Historical information is used toestimate option exercise and employee termination behavior. Management believesthat there are three groups of employees eligible to participate in the UOP.The expected term of options granted is derived from historical exercisepatterns and represents the period of time that options are expected to beoutstanding. The risk free rate for periods within the contractual life of theoption is based on the U.S. Treasury yield curve in effect at the time ofgrant. During the years ended July 31, 2010 and 2009, the portion of thetotal non-cash compensation charge relating to the UOP was $23 thousand and $15thousand, respectively, and related to grants of unit options to acquire 0.3million common units. During the year ended July 31, 2008, no compensationcharge relating to the UOP was recognized as all options outstanding at thattime were fully vested.

 

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

TheICP is not a Ferrellgas stock-compensation plan; however, in accordance withFerrellgas’ partnership agreements, all employee-related costs incurred byFerrell Companies are allocated to Ferrellgas. As a result, Ferrellgas incurs anon-cash compensation charge from Ferrell Companies. During the years ended July 31,2010, 2009 and 2008, the portion of the total non-cash compensation chargerelating to the ICP was $7.8 million, $2.3 million and $1.8 million,respectively.

 

Ferrell Companies is authorized to issue options covering up to 9.25million shares of Ferrell Companies common stock under the ICP. The ICP wasestablished by Ferrell Companies to allow upper middle and senior levelmanagers as well as directors of the general partner to participate in theequity growth of Ferrell Companies. The shares underlying the stock options arecommon shares of Ferrell Companies; therefore, there is no earnings per sharedilution of Ferrellgas. The ICP stock options vest ratably over periods rangingfrom zero to 12 years or 100% upon a change of control of Ferrell Companies, orupon the death, disability or retirement at the age of 65 of the participant.Vested options are exercisable in increments, but in no event later than 10 or20 years from the date of issuance. The fair value of each option award isestimated on the date of grant using a binomial option valuation model.

 

**(17)   Income taxes:**FerrellgasPartners is a publicly-traded master limited partnership with one subsidiarythat is a taxable corporation. The operating partnership is a limitedpartnership with four subsidiaries that are taxable corporations. Partnershipsare generally not subject to federal income tax, although publicly-tradedpartnerships are treated as corporations for federal income tax purposes and thereforesubject to Federal income tax unless a qualifying income test is satisfied. Ifthis qualifying income test is satisfied, the publicly-traded partnership willbe treated as a partnership for Federal income tax purposes. Based onFerrellgas’ calculations, Ferrellgas Partners satisfies the qualifying incometest. As a result, except for the taxable corporations, Ferrellgas Partners’earnings or losses for Federal income tax purposes are included in the taxreturns of the individual partners, Ferrellgas Partners’ unitholders.Accordingly, the accompanying consolidated financial statements of FerrellgasPartners reflect federal income taxes related to the above mentioned taxablecorporations and certain states that allow for income taxation of partnerships.Net earnings for financial statement purposes may differ significantly fromtaxable income reportable to Ferrellgas Partners unitholders as a result ofdifferences between the tax basis and financial reporting basis of assets andliabilities, the taxable income allocation requirements under FerrellgasPartners’ partnership agreement and differences between Ferrellgas Partnersfinancial reporting year end and its calendar tax year end.

 

Income tax expense consisted of the following:

 
| ** **                 | ** ** | **For the year ended July 31,** | ** ** |
|----------------------------|------------|----------------------------------------------------------|------------|
| ** **                 | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Current expense            |       | $                                                        | 1,477      |   | $ | 1,904 |   | $ | 1,732 |   |
| Deferred expense (benefit) |       | 439                                                      |       | 388 |   | (1,650 | ) |
| Income tax expense         |       | $                                                        | 1,916      |   | $ | 2,292 |   | $ | 82 |   |

 

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** **

Deferredtaxes consisted of the following:

 
| ** **                 | ** ** | **2010** | ** ** | **2009** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets        |       | $        | 1,030      |     | $          | 877 |   |
| Deferred tax liabilities   |       | (2,481   | )          | (1,889   | )          |
| Net deferred tax liability |       | $        | (1,451     | )        | $          | (1,012 | ) |

 

Duringfiscal 2008, the Governor of the State of Michigan signed into law a one-timecredit for the Michigan Business Tax Act. The passing of this new tax lawcaused Ferrellgas to recognize a one time deferred tax benefit of $2.8 millionduring fiscal 2008.

 

**(18)****  ****Salestaxes:**Ferrellgas accounts for the collection and remittance of sales tax on anet tax basis. As a result, these amounts are not reflected in the consolidatedstatements of earnings.

 

**(19)**   **Netearnings per common unitholders’ interest:**Net earnings per commonunitholders’ interest is computed by dividing “Net earnings attributable toFerrellgas Partners, L.P.,” after deducting the general partner’s 1% interest,by the weighted average number of outstanding common units and the dilutiveeffect, if any, of outstanding unit options. See Note N — Net earnings percommon unitholders’ interest — for further discussion about these calculations.

 

**(20)**   **Segmentinformation:** Ferrellgas is a single reportable operating segmentengaging in the distribution of propane and related equipment and supplies tocustomers primarily in the United States.

 

**(21)****  ****Newaccounting standards:**

 

**Transfers of Financial Assets and Variable Interest Entities**

 

InJune 2009, the Financial Accounting Standards Board (“FASB”) issued twoamendments to existing GAAP, one of which eliminates the concept of aqualifying special-purpose-entity (QSPEs). The second amends guidanceapplicable to variable interest entities (VIEs). The provisions of these amendmentshave eliminated the QSPE status and have required Ferrellgas to evaluate allVIE’s to determine whether they must be consolidated effective August 1,2010. As a result of the amendments, beginning August 1, 2010, FerrellgasReceivables will be accounted for as a consolidated subsidiary and $108.9million of trade receivables and a corresponding short-term secured liabilitywill be recorded on Ferrellgas’ consolidated balance sheets. Borrowings andrepayments under the facility will be reported in the financing section of thestatement of cash flows. Upon adoption Ferrellgas does not expect an impact onits results of operations and does not expect an impact from the short-termsecured liability on any debt covenant agreements.

 

**FASB Codification**

 

InJune 2009, the FASB approved its Accounting Standards Codification (“Codification”)as the exclusive authoritative reference for U.S. GAAP for SEC registrants. TheCodification, which changes the referencing of accounting standards, iseffective for interim and annual reporting periods ending after September 15,2009. The adoption of the Codification effective August 1, 2009 did nothave a significant impact on Ferrellgas’ financial position, results ofoperations or cash flows.

** **

**Business Combinations**

 

InDecember 2007, the FASB issued guidance that establishes principles andrequirements for how the acquirer in a business combination recognizes andmeasures the identifiable assets acquired, the liabilities assumed, and anynoncontrolling interest in the acquiree, how the acquirer recognizes andmeasures goodwill or a gain from a bargain purchase (formerly negativegoodwill) and how the acquirer determines what information to disclose. Thisguidance is effective for business combinations for which the acquisition dateis on or after the beginning of the first annual reporting period beginning

 

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onor after December 15, 2008. The adoption of this guidance effective August 1,2009 did not have a significant impact on Ferrellgas’ financial position,results of operations or cash flows.

 

**Noncontrolling Interests in Consolidated Financial Statements**

 

InDecember 2007, the FASB issued guidance that establishes accounting andreporting standards for the noncontrolling interest (formerly minorityinterest) in a subsidiary and for the deconsolidation of a subsidiary and itclarifies that a noncontrolling interest in a subsidiary is an ownershipinterest in the consolidated entity that should be reported as equity. Thisguidance is effective for annual reporting periods, and interim reportingperiods within those annual reporting periods, beginning on or after December 15,2008. Ferrellgas adopted this guidance effective August 1, 2009 andupdated the consolidated financial statements accordingly, including aretrospective application to the prior period presentation of the consolidatedstatement of partners’ capital. This retrospective application did notmaterially affect Ferrellgas’ financial position, results of operations or cashflows.

 

**Application of the Two-Class Method to Master Limited Partnerships**

 

InMarch 2008, the FASB issued guidance that addresses the computation ofincentive distribution rights and the appropriate allocation of these rights tocurrent period earnings in the computation of earnings per share. This guidanceis effective for annual reporting periods beginning on or after December 15,2008 and interim reporting periods within those annual reporting periods. Theadoption of this guidance effective August 1, 2009 did not have asignificant impact on Ferrellgas’ financial position, results of operations orcash flows.

 

**C.****      ****Businesscombinations**

 

Businesscombinations are accounted for under the purchase method and the assetsacquired and liabilities assumed are recorded at their estimated fair marketvalues as of the acquisition dates. The results of operations are included inthe consolidated statements of earnings from the date of acquisition. The proforma effect of these transactions was not material to Ferrellgas’ results ofoperations.

 

During fiscal 2010, Ferrellgas acquired propane distribution assetswith an aggregate value of $45.1 million in the following transaction:

 

·        Vanson, LLC,based in Michigan, acquired September 2009.

 

This acquisition was funded by $36.5 million in cash payments, theissuances of $5.5 million of liabilities and other costs and considerations,and $3.1 million of common units, net of issuance costs.

 

Theaggregate fair value of this transaction was allocated as follows:

 
| Customer tanks, buildings, land and other |   | $      | 14,707 |   |
|-------------------------------------------|--------|--------|--------|--------|
| Non-compete agreements                    |   | 3,271  |   |
| Customer lists                            |   | 27,136 |   |
|                                      |   | $      | 45,114 |   |

 

Theestimated fair values and useful lives of assets acquired are based on apreliminary internal valuation and are subject to final valuation adjustments.Ferrellgas intends to continue its analysis of the net assets of thesetransactions to determine the final allocation of the total purchase price tothe various assets and liabilities acquired.

 

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During fiscal 2009, Ferrellgas acquired propane distribution assetswith an aggregate value of $10.0 million in the following four transactions:

 

·        LorensenPropane Gas, Inc., based in California, acquired September 2008;

·        HBH GasSystems, LLC — Austin’s Colony Phase 5, based in Texas, acquired September 2008;

·        OttawaCooperative, based in Kansas, acquired May 2009; and

·        Town &Country Propane, Inc, based in Missouri, acquired July 2009.

 

These acquisitions were funded by $2.7 million in cash payments, theissuances of $1.8 million of liabilities and other costs and considerations,and $5.5 million of common units, net of issuance costs.

 

The aggregate fair values of these four transactions were allocated asfollows:

 
| Customer tanks, buildings, land and other |   | $     | 3,031  |   |
|-------------------------------------------|--------|-------|--------|--------|
| Non-compete agreements                    |   | 1,438 |   |
| Customer lists                            |   | 5,475 |   |
| Working capital                           |   | 6     |   |
|                                      |   | $     | 9,950  |   |

 

Theestimated fair values and useful lives of assets acquired are based on aninternal valuation and included only minor adjustments during the 12 monthperiod after the date of acquisition.

 

During fiscal 2008, Ferrellgas had no acquisitions of propanedistribution assets.

 

**D.**** ****Quarterlydistributions of available cash**

 

Ferrellgas Partners makes quarterly cashdistributions of all of its “available cash.” Available cash is defined in thepartnership agreement of Ferrellgas Partners as, generally, the sum of itsconsolidated cash receipts less consolidated cash disbursements and net changesin reserves established by the general partner for future requirements.Reserves are retained in order to provide for the proper conduct of FerrellgasPartners’ business, or to provide funds for distributions with respect to anyone or more of the next four fiscal quarters. Distributions are made within 45days after the end of each fiscal quarter ending October, January, April andJuly to holders of record on the applicable record date.

 

Distributions by Ferrellgas Partners in an amountequal to 100% of its available cash, as defined in its partnership agreement,will be made to the common unitholders and the general partner. Additionally,the payment of incentive distributions to the holders of incentive distributionrights will be made to the extent that certain target levels of cashdistributions are achieved.

 

**E.****        ****Supplementalfinancial statement information**

 

Inventories consist of the following:

 
| ** **                       | ** ** | **2010** | ** ** | **2009** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Propane gas and related products |       | $        | 146,805    |     | $          | 109,606 |   |
| Appliances, parts and supplies   |       | 20,106   |       | 20,202   |       |
| Inventories                      |       | $        | 166,911    |     | $          | 129,808 |   |

 

Inaddition to inventories on hand, Ferrellgas enters into contracts primarily tobuy propane for supply procurement purposes. Most of these contracts have termsof less than one year and call for payment based on market prices at the dateof delivery. All supply procurement fixed price contracts have 

 

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termsof fewer than 24 months. As of July 31, 2010, Ferrellgas had committed,for supply procurement purposes, to take net delivery of approximately 72.3million gallons of propane at fixed prices.

 

Property, plant and equipment, net consist of the following:

 
| ** **                              | ** ** | **Estimated**         | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|------------|------------|------------|------------|
| ** **                              | ** ** | **useful lives** | ** ** | **2010**   | ** ** | **2009**   | ** ** |
| Land                                    |       | Indefinite            |       | $          | 30,566     |       | $          | 30,414 |   |
| Land improvements                       |       | 2-20                  |       | 11,108     |       | 10,858     |       |
| Buildings and improvements              |       | 20                    |       | 66,114     |       | 64,392     |       |
| Vehicles, including transport trailers  |       | 8-20                  |       | 99,246     |       | 92,914     |       |
| Bulk equipment and district facilities  |       | 5-30                  |       | 103,748    |       | 100,123    |       |
| Tanks, cylinders and customer equipment |       | 2-30                  |       | 770,865    |       | 767,682    |       |
| Computer and office equipment           |       | 2-5                   |       | 115,189    |       | 115,343    |       |
| Construction in progress                |       | n/a                   |       | 2,823      |       | 5,853      |       |
|                                    |       |                  |       | 1,199,659  |       | 1,187,579  |       |
| Less: accumulated depreciation          |       |                  |       | 546,891    |       | 521,044    |       |
| Property, plant and equipment, net      |       |                  |       | $          | 652,768    |       | $          | 666,535 |   |

 

Depreciationexpense totaled $61.3 million, $62.3 million, and $64.6 million for fiscal2010, 2009 and 2008, respectively.

 

Other current liabilities consist of the following:

 
| ** **                     | ** ** | **2010** | ** ** | **2009** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Accrued interest               |       | $        | 20,412     |     | $          | 19,719 |   |
| Accrued payroll                |       | 20,464   |       | 23,395   |       |
| Customer deposits and advances |       | 23,280   |       | 23,115   |       |
| Other                          |       | 43,898   |       | 42,534   |       |
| Other current liabilities      |       | $        | 108,054    |     | $          | 108,763 |   |

 

Loss on disposal of assets andother consist of the following:

 
| ** **                                                                                 | ** ** | **For the year ended July 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Loss on disposal of assets                                                                 |       | $                                                        | 7,296      |   | $ | 5,009 |   | $ | 4,820 |   |
| Loss on transfer of accounts receivable related to  the accounts receivable securitization |       | 6,566                                                    |       | 12,124 |   | 10,548 |   |
| Service  income related to the accounts receivable securitization                          |       | (5,377                                                   | )          | (4,091 | ) | (4,118 | ) |
| Loss on disposal of assets and other                                                       |       | $                                                        | 8,485      |   | $ | 13,042 |   | $ | 11,250 |   |

 

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

 
| ** **                            | ** ** | **For the year ended July 31,** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                            | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Operating expense                     |       | $                                                        | 183,612    |   | $ | 178,218 |   | $ | 171,938 |   |
| Depreciation and amortization expense |       | 5,601                                                    |       | 4,915 |   | 5,096 |   |
| Equipment lease expense               |       | 14,192                                                   |       | 17,541 |   | 22,703 |   |
|                                  |       | $                                                        | 203,405    |   | $ | 200,674 |   | $ | 199,737 |   |

 

**F.****   ****Accountsand notes receivable, net and accounts receivable securitization**

 

Accountsand notes receivable, net consist of the following:

 
| ** **                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Accounts receivable                         |       | $        | 33,725     |     | $          | 33,903 |   |
| Note receivable from Ferrellgas Receivables |       | 44,927   |       | 52,038   |       |
| Retained interest                           |       | 15,323   |       | 24,979   |       |
| Other                                       |       | 269      |       | 284      |       |
| Less: Allowance for doubtful accounts       |       | (5,010   | )          | (4,294   | )          |
| Accounts and notes receivable, net          |       | $        | 89,234     |     | $          | 106,910 |   |

 

During April 2010, the operating partnership executed a newaccounts receivable securitization facility with Wells Fargo Bank, N.A., FifthThird Bank and BNP Paribas. This new accounts receivable securitizationfacility has $145.0 million of capacity, matures on April 4, 2013 andreplaces the operating partnership’s previous 364-day facility which was toexpire on April 14, 2010. As part of this new facility, the operatingpartnership transfers a portion of its trade accounts receivable to FerrellgasReceivables, which finances its acquisition of the trade receivable assets byissuing beneficial interests in (securitizing) the receivables to a commercialpaper conduit for proceeds of up to $145.0 million. The operating partnershipdoes not provide any guarantee or similar support to the collectability ofthese receivables. The operating partnership structured the facility using awholly-owned, unconsolidated special purpose entity in order to facilitate thetransaction while complying with Ferrellgas’ various debt covenants. If thecovenants are compromised, funding from the facility could be restricted orsuspended, or its costs could increase. As a servicer, the operatingpartnership remits daily to this special purpose entity funds collected on thetrade receivables held by Ferrellgas Receivables.

 

The operating partnership transfers a portion of its trade accountsreceivable to Ferrellgas Receivables and retains an interest and a notereceivable related to these transferred receivables. As these transferredreceivables are subsequently collected, the funding from the accountsreceivable securitization facility is reduced. Ferrellgas Receivables recordedthe following on its balance sheet:

 
| ** **                                                            | ** ** | **2010** | ** ** | **2009** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Trade accounts receivable transferred from the  operating partnership |       | $        | 108,929    |     | $          | 118,982 |   |
|                                                                  |       |     |       |     |       |
| Note payable to the operating partnership                             |       | 44,927   |       | 52,038   |       |
|                                                                       |            |          |            |          |            |  |  |

 

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Theoperating partnership’s consolidated balance sheets do not include tradeaccounts receivables transferred, but do include a note receivable fromFerrellgas Receivables which represents expected cash proceeds from the sale ofaccounts receivable to Ferrellgas Receivables that have not yet been received.As of July 31, 2010, the operating partnership had received proceeds fromtrade accounts receivable sales of $47.0 million with the ability to receiveproceeds of an additional $11.0 million. See Note B — Summary of significantaccounting policies — “(21) New accounting standards” regarding a newaccounting standard for financial asset transfers effective August 1,2010.

 

Other accounts receivable securitization activityconsists of the following: 

 
| ** **             | ** ** | **For the year ended  July 31,** | ** ** |
|------------------------|------------|------------------------------------------------------|------------|
| ** **             | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| Net  non-cash activity |       | $                                                    | 1,189      |   | $ | 8,033 |   |
| Bad  debt expense      |       | (600                                                 | )          | 600 |   |
|                        |            |                                                      |            |  |  |  |  |

 

Thenet non-cash activity is reported in “Loss on disposal of assets and other” inthe consolidated statements of earnings. See details of the net non-cashactivity disclosed in Note E — Supplemental financial statement information — “Losson transfer of accounts receivable related to the accounts receivablesecuritization” and “Service income related to the accounts receivablesecuritization.” The weighted average discount rate used to value the retainedinterest in the transferred receivables was 3.4% and 3.6% as of July 31,2010 and 2009, respectively.

 

**G.****   ****Goodwilland intangible assets, net**

 

Goodwilland intangible assets, net consist of:

 
| ** **                        | ** ** | **July 31, 2010** | ** ** | **July 31, 2009**   | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                        | ** ** | **Gross  carrying  amount** | ** ** | **Accumulated  amortization** | ** ** | **Net** | ** ** | **Gross  carrying  amount** | ** ** | **Accumulated  amortization** | ** ** | **Net** | ** ** |
| Goodwill, net                     |       | $                           | 248,939    |                          | $          | — |   | $ | 248,939 |   | $ | 248,939 |   | $ | — |   | $ | 248,939 |   |
|                              |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Intangible Assets, net            |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Amortized intangible assets       |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Customer lists                    |       | $                           | 395,682    |                          | $          | (244,197 | ) | $ | 151,485 |   | $ | 368,716 |   | $ | (225,038 | ) | $ | 143,678 |   |
| Non-compete agreements            |       | 44,341                      |       | (35,203                       | )          | 9,138 |   | 44,481 |   | (36,957 | ) | 7,524 |   |
| Other                             |       | 3,507                       |       | (2,190                        | )          | 1,317 |   | 3,584 |   | (1,860 | ) | 1,724 |   |
|                              |       | 443,530                     |       | (281,590                      | )          | 161,940 |   | 416,781 |   | (263,855 | ) | 152,926 |   |
|                              |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Unamortized intangible assets     |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Trade names & trademarks |       | 59,117                      |       | —                        |       | 59,117 |   | 59,111 |   | — |   | 59,111 |   |
| Total intangible assets, net      |       | $                           | 502,647    |                          | $          | (281,590 | ) | $ | 221,057 |   | $ | 475,892 |   | $ | (263,855 | ) | $ | 212,037 |   |

 

Customer lists have estimated lives of 15 years, while non-competeagreements and other intangible assets have estimated lives ranging from two toten years. Ferrellgas intends to utilize all acquired trademarks and tradenames and does not believe there are any legal, regulatory, contractual,competitive, economical or other factors that would limit their useful lives.Therefore, trademarks and trade names have indefinite useful lives.

 

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Aggregate amortization expense:

 
| For the year ended July 31, |   |   |   |
|-----------------------------|--------|--------|--------|
|                        |   |   |   |
| 2010                        |   | $      | 21,180 |   |
| 2009                        |   | 20,166 |   |
| 2008                        |   | 20,970 |   |
|                             |        |        |        |  |

 

Estimated amortization expense:

 
| For the year ended July 31, |   |   |   |
|-----------------------------|--------|--------|--------|
|                        |   |   |   |
| 2011                        |   | $      | 21,277 |   |
| 2012                        |   | 20,829 |   |
| 2013                        |   | 20,278 |   |
| 2014                        |   | 17,010 |   |
| 2015                        |   | 14,183 |   |
|                             |        |        |        |  |

 

**H.****   ****Debt**

 

***Short-term borrowings***

 

Ferrellgasclassified a portion of its credit facility borrowings as short-term because itwas used to fund working capital needs that management had intended to pay downwithin the 12 month period following each balance sheet date. As of July 31,2010 and 2009, $67.2 million and $66.2 million, respectively, were classifiedas short-term borrowings. For further discussion see the secured creditfacility section below.

 

***Long-term debt***

 

Long-termdebt consists of the following:

 
| ** **                                                                                                                                                                                                             | ** ** | **2010**  | ** ** | **2009**  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Senior notes**                                                                                                                                                                                                       |       |      |       |      |       |
| Fixed rate, 6.75% due 2014, net of unamortized  discount of $21,974 and $26,458 at July 31, 2010 and 2009, respectively (1)                                                                                            |       | $         | 428,026    |      | $          | 423,542 |   |
| Fixed rate, 9.125%, due 2017, net of unamortized  discount of $3,870 (2)                                                                                                                                               |       | 296,130   |       | —    |       |
| Fixed rate, 8.625%, due 2020 (3)                                                                                                                                                                                       |       | 280,000   |       | —    |       |
| Fixed rate, 8.75%, due 2012, net of unamortized  premium of $1,091 at July 31, 2009                                                                                                                                    |       | —    |       | 269,091   |       |
| Fixed rate, Series D-E, ranging from 7.24% to  7.42% due 2010-2013                                                                                                                                                     |       | —    |       | 152,000   |       |
| Fixed rate, Series C, 8.87%, due 2009                                                                                                                                                                                  |       | —    |       | 73,000    |       |
|                                                                                                                                                                                                                   |       |      |       |      |       |
| **Credit facility**                                                                                                                                                                                                    |       |      |       |      |       |
| Secured, variable interest rate, expiring 2012  (net of $67.2 million classified as short-term borrowings)                                                                                                             |       | 99,797    |       | —    |       |
| Unsecured, variable interest rate, expiring 2010  (net of $66.2 million classified as short-term borrowings)                                                                                                           |       | —    |       | 88,541    |       |
|                                                                                                                                                                                                                   |       |      |       |      |       |
| **Notes payable**, 9.5% and  8.4% weighted average interest rate at July 31, 2010 and 2009, respectively,  due 2010 to 2016, net of unamortized discount of $2,876 and $1,301 at July  31, 2010 and 2009, respectively |       | 9,475     |       | 5,321     |       |
|                                                                                                                                                                                                                   |       | 1,113,428 |       | 1,011,495 |       |
| Less: current portion, included in other current  liabilities on the consolidated balance sheets                                                                                                                       |       | 2,340     |       | 1,422     |       |
| **Long-term debt**                                                                                                                                                                                                     |       | $         | 1,111,088  |      | $          | 1,010,073 |   |

 

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(1)               On April 20, 2004, the operating partnershipissued $250.0 million of its fixed rate senior notes with a debt discount of$0.9 million that will be amortized to interest expense through 2014. On August4, 2008, the operating partnership issued $200.0 million of its fixed ratesenior notes with a debt discount of $30.0 million that will be amortized tointerest expense through 2014. These notes are general unsecured obligations ofthe operating partnership and rank on an equal basis in right of payment withall senior indebtedness of the operating partnership and are senior to allsubordinated indebtedness of the operating partnership. The outstandingprincipal amount is due on May 1, 2014. The operating partnership wouldincur prepayment penalties if it were to repay the notes prior to 2012.

 

(2)               On September 14, 2009, the operatingpartnership issued $300.0 million of its fixed rate senior notes with a debtdiscount of $4.2 million that will be amortized to interest expense through2017. These notes are senior unsecured obligations of the operating partnershipand rank on an equal basis in right of payment with all senior indebtedness ofthe operating partnership, are senior to all subordinated indebtedness of theoperating partnership and are junior to all secured indebtedness of theoperating partnership. The outstanding principal amount is due on October 1,2017. The operating partnership would incur prepayment penalties if it were torepay the notes prior to 2015.

 

(3)               On April 13, 2010, Ferrellgas Partners issued$280.0 million of its fixed rate senior notes. The senior notes bear interestfrom the date of issuance, payable semi-annually in arrears on June 15 andDecember 15 of each year. Ferrellgas Partners would incur prepayment penaltiesif it were to repay the notes prior to 2018.

 

*Senior notes*

 

During August 2009, Ferrellgas made scheduled principal payments of$73.0 million on the 8.87% Series C senior notes.

 

During September 2009, Ferrellgas issued $300.0 million in aggregateprincipal amount of new 9.125% senior notes due 2017 at an offering price equalto 98.6% of par with the proceeds used to fund the October 2009 note paymentsdiscussed below and to reduce borrowings on the unsecured credit facility dueApril 2010.

 

During October 2009, Ferrellgas prepaid the outstanding principalamount on its $82.0 million 7.24% series D notes due August 1, 2010 and its$70.0 million 7.42% series E notes due August 1, 2013 and the relatedprepayment premiums of $17.3 million.

 

During April 2010, Ferrellgas Partners completed a public offering of$280.0 million in aggregate principal amount of new 8.625% senior unsecurednotes due 2020. Ferrellgas Partners used the net proceeds of approximately$273.4 million to redeem its $268.0 million 8.75% senior notes due 2012.

 

*Secured credit facility*

 

DuringNovember 2009, Ferrellgas closed on a new secured credit facility that provides$400.0 million in revolving credit for loans and has a $200.0 million sublimitfor letters of credit. This secured credit facility replaced Ferrellgas’unsecured credit facility due April 2010 and will mature in November 2012.

 

Thesecured credit facility contains various affirmative and negative covenants anddefault provisions, as well as requirements with respect to the maintenance ofspecified financial ratios and limitations on the making of loans andinvestments.

 

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Asof July 31, 2010, Ferrellgas had total borrowings outstanding under this securedcredit facility due November 2012 of $167.0 million, of which $99.8 million wasclassified as long-term debt. As of July 31, 2009, Ferrellgas had totalborrowings outstanding under its unsecured credit facility of $154.7 million,of which $88.5 million was classified as long-term debt.

 

Borrowingsunder the secured credit facility due November 2012 had a weighted averageinterest rate of 4.40% at July 31, 2010. All borrowings under the facility bearinterest, at Ferrellgas’ option, at a rate equal to either:

 

·            for Base RateLoans or Swing Line Loans, the Base Rate, which is defined as the higher ofi) the federal funds rate plus 0.50%, ii) Bank of America’s primerate; or iii) the Eurodollar Rate plus 1%; plus a margin varying from2.50% to 3.25% (as of July 31, 2010, the margin was 2.75%); or

·            for EurodollarRate Loans, the Eurodollar Rate, which is defined as the LIBOR Rate plus amargin varying from 3.50% to 4.25% (as of July 31, 2010, the margin was 3.75%).

 

Asof July 31, 2010, the federal funds rate and Bank of America’s prime rate were0.18% and 3.25%, respectively. As of July 31, 2010, the one-month andthree-month Eurodollar Rates were 0.40% and 0.60%, respectively.

 

In addition, an annual commitment fee is payable at a per annum rate of0.50% times the actual daily amount by which the facility exceeds the sum of(i) the outstanding amount of revolving credit loans and (ii) the outstandingamount of letter of credit obligations.

 

The obligations under this secured credit facility are secured bysubstantially all assets of the operating partnership, the general partner andcertain subsidiaries of the operating partnership but specifically excluding(a) assets that are subject to the operating partnership’s receivablessecuritization facility, (b) the general partner’s equity interest inFerrellgas Partners and (c) equity interest in certain unrestrictedsubsidiaries. Such obligations are also guaranteed by the general partner andcertain subsidiaries of the operating partnership.

 

Letters of credit outstanding at July 31, 2010 totaled $47.1 millionand were used primarily to secure insurance arrangements and to a lesserextent, product purchases. Letters of credit outstanding at July 31, 2009totaled $44.4 million and were used primarily to secure insurance arrangementsand to a lesser extent, product purchases. At July 31, 2010, Ferrellgas hadavailable letter of credit remaining capacity of $152.9 million. At July 31,2009, Ferrellgas had available letter of credit remaining capacity of $105.6million. Ferrellgas incurred commitment fees of $0.9 million, $0.9 million and$0.4 million in fiscal 2010, 2009 and 2008, respectively.

 

*Covenants*

 

The senior notes and the credit facility agreement contain variousrestrictive covenants applicable to Ferrellgas and its subsidiaries, the mostrestrictive relating to additional indebtedness. In addition, FerrellgasPartners is prohibited from making cash distributions of the minimum quarterlydistribution if a default or event of default exists or would exist upon makingsuch distribution, or if Ferrellgas fails to meet certain coverage tests. As ofJuly 31, 2010, Ferrellgas is in compliance with all requirements, tests,limitations and covenants related to these debt agreements.

 

The scheduled annual principal payments on long-term debt are asfollows:

 

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| **For the year ended July 31,** | ** ** | **Scheduled  annual principal  payments** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------|------------|
| 2011                                                     |       | $                                              | 2,340      |   |
| 2012                                                     |       | 2,290                                          |       |
| 2013                                                     |       | 2,179                                          |       |
| 2014                                                     |       | 451,643                                        |       |
| 2015                                                     |       | 1,655                                          |       |
| Thereafter                                               |       | 682,041                                        |       |
| Total                                                    |       | $                                              | 1,142,148  |   |

 

The carrying amount of short-term financialinstruments approximates fair value because of the short maturity of theseinstruments. The estimated fair value of Ferrellgas’ long-term debt was$1,231.8 million and $1,045.9 million as of July 31, 2010 and 2009,respectively. The fair value is estimated based on quoted market prices.

 

**I.**   **Partners’capital**

 

As of July 31, 2010 and 2009, limited partner units were beneficiallyowned by the following:

* *
| ** **                 | ** ** | **2010**   | ** ** | **2009**   | ** ** |
|----------------------------|------------|------------|------------|------------|------------|
| Third parties (1)          |       | 44,840,677 |       | 43,555,614 |       |
| Ferrell Companies (2)      |       | 20,080,776 |       | 20,080,776 |       |
| FCI Trading Corp. (3)      |       | 195,686    |       | 195,686    |       |
| Ferrell Propane, Inc.  (4) |       | 51,204     |       | 51,204     |       |
| James E. Ferrell (5)       |       | 4,353,475  |       | 4,353,475  |       |

 

----

(1)        These common units arelisted on the New York Stock Exchange under the symbol “FGP.”

(2)        Ferrell Companies is theowner of the general partner and a 29% beneficial owner of Ferrellgas’ commonunits and thus a related party.

(3)        FCI Trading Corp. (“FCITrading”) is an affiliate of the general partner and thus a related party.

(4)        Ferrell Propane, Inc. (“FerrellPropane”) is controlled by the general partner and thus a related party.

(5)        James E. Ferrell (“Mr.Ferrell”) is the Executive Chairman and Chairman of the Board of Directors ofthe general partner and thus a related party.

 

Together these limited partner units represent Ferrellgas Partner’slimited partners’ interest and an effective 98% economic interest in FerrellgasPartners, exclusive of the general partners’ incentive distribution rights. Thegeneral partner has an effective 2% interest in Ferrellgas Partners, excludingincentive distribution rights. Since ongoing distributions have not yet reachedthe levels required to commence payment of incentive distribution rights to thegeneral partner, distributions to the partners from operations or interimcapital transactions will generally be made in accordance with the abovepercentages. In liquidation, allocations and distributions will be made inaccordance with each common unitholder’s positive capital account.

 

The common units of Ferrellgas Partners represent limited partnerinterests in Ferrellgas Partners, which give the holders thereof the right toparticipate in distributions made by Ferrellgas Partners and to exercise theother rights or privileges available to such holders under the Fourth Amendedand Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P.dated February 18, 2003 (the “Partnership Agreement”). Under the terms of thePartnership Agreement, holders of common units have limited voting rights onmatters affecting the business of Ferrellgas Partners. Generally, personsowning 20% or more of Ferrellgas Partners’ outstanding common units cannotvote; however, this limitation does not apply to those common units owned bythe general partner or its “affiliates,” as such term is defined in thePartnership Agreement.

 

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Ferrellgasmaintains shelf registration statements for the issuance of common units, andother securities that may include deferred participation units, warrants anddebt securities. The Partnership Agreement allows the general partner to issuean unlimited number of additional Ferrellgas general and limited partnerinterests and other equity securities of Ferrellgas Partners for suchconsideration and on such terms and conditions as shall be established by thegeneral partner without the approval of any unitholders.

 

*Common unit and general partner distributions*

 

FerrellgasPartners has paid the following distributions:

 
| ** **        | ** ** | **For the year ended July 31,** | ** ** |
|-------------------|------------|----------------------------------------------------------|------------|
| ** **        | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Third parties     |       | $                                                        | 89,001     |   | $ | 81,922 |   | $ | 76,646 |   |
| Ferrell Companies |       | 40,160                                                   |       | 40,160 |   | 40,160 |   |
| FCI Trading       |       | 392                                                      |       | 392 |   | 392 |   |
| Ferrell Propane   |       | 104                                                      |       | 104 |   | 104 |   |
| Mr. Ferrell       |       | 8,708                                                    |       | 8,678 |   | 8,616 |   |
| General partner   |       | 1,398                                                    |       | 1,325 |   | 1,272 |   |
|              |       | $                                                        | 139,763    |   | $ | 132,581 |   | $ | 127,190 |   |

 

OnAugust 27, 2010, Ferrellgas declared a cash distribution of $0.50 per commonunit for the three months ended July 31, 2010, which was paid on September 14,2010. Included in this cash distribution were the following amounts paid torelated parties:

 
| Ferrell Companies |   | $     | 10,040 |   |   |   |   |   |
|-------------------|--------|-------|--------|--------|--------|--------|--------|--------|
| FCI Trading       |   | 98    |   |   |   |   |   |
| Ferrell Propane   |   | 26    |   |   |   |   |   |
| Mr. Ferrell       |   | 2,177 |   |   |   |   |   |
| General partner   |   | 351   |   |   |   |   |   |

 

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

 

*Common unit issuances*

 

In February 2009, Ferrellgas completed a registered public offering of5.0 million common units representing limited partner interests. Thistransaction was comprised of both an original offering of 4.5 million commonunits and an over allotment offering of 0.5 million common units. The netproceeds received from this offering of $69.4 million were used to reduce longterm borrowings under Ferrellgas’ unsecured credit facility.

 

During fiscal 2009, Ferrellgas issued 0.3million common units valued at $5.5million in connection with acquisitions.

 

In October 2009, Ferrellgas completed an offering of 1.1 million commonunits representing limited partner interests. The net proceeds of $20.0 millionwere used to reduce borrowings under Ferrellgas’ unsecured credit facility.

 

During fiscal 2010, Ferrellgas issued 0.2million common units valued at $3.1million in connection with acquisitions.

 

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*Other comprehensive income (“OCI”)*

 

See Note J — Derivatives — for details regarding changes in fair valueon risk management financial derivatives recorded within OCI for the yearsended July 31, 2010 and 2009.

 

**J.  Derivatives**

 

*Commodity Price Risk Management*

 

Ferrellgas’ risk management activities primarily attempt to mitigateprice risks related to the purchase, storage, transport and sale of propanegenerally in the contract and spot markets from major domestic energy companieson a short-term basis. Ferrellgas attempts to mitigate these price risksthrough the use of financial derivative instruments and forward propanepurchase and sales contracts.

 

Ferrellgas’ risk management strategy involves taking positions in theforward or financial markets that are equal and opposite to Ferrellgas’positions in the physical products market in order to minimize the risk offinancial loss from an adverse price change. This risk management strategy issuccessful when Ferrellgas’ gains or losses in the physical product markets areoffset by its losses or gains in the forward or financial markets. Thesefinancial derivatives are designated as cash flow hedges.

 

Ferrellgas’ risk management activities include the use of financial derivativeinstruments including, but not limited to, price swaps, options, futures andbasis swaps to seek protection from adverse price movements and to minimizepotential losses. Ferrellgas enters into these financial derivative instrumentsdirectly with third parties in the over-the-counter market and with brokers whoare clearing members with the New York Mercantile Exchange. Ferrellgas alsoenters into forward propane purchase and sales contracts with counterparties.These forward contracts qualify for the normal purchase normal sales exceptionwithin GAAP guidance and are therefore not recorded by Ferrellgas prior tosettlement.

 

*Cash Flow Hedging Activity*

 

Ferrellgas uses financial derivative instruments for risk managementpurposes to hedge a portion of its exposure to market fluctuations in propaneprices. These financial derivative instruments are designated as cash flowhedging instruments, thus the effective portions of changes in the fair valueof the financial derivatives are recorded in OCI prior to settlement and aresubsequently recognized in the consolidated statements of earnings in “Cost ofgoods sold — propane and other gas liquids sales” when the forward orforecasted propane sales transaction impacts earnings. The effectiveness ofcash flow hedges is evaluated at inception and on an on-going basis. Changes inthe fair value of cash flow hedges due to hedge ineffectiveness, if any, arerecognized in “Cost of product sold — propane and other gas liquids sales.”During the years ended July 31, 2010 and 2009, Ferrellgas did not recognize anygain or loss in earnings related to hedge ineffectiveness and did not excludeany component of the financial derivative contract gain or loss from theassessment of hedge effectiveness related to these cash flow hedges.

 

Thefair value of the financial derivative instruments below are included within “Prepaidexpenses and other current assets” and “Other current liabilities” on theconsolidated balance sheets:

** **
| ** **                                           | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|
| Derivatives — Price risk management assets      |       | $        | 1,882      |     | $          | 3,391 |   |
| Derivatives — Price risk management liabilities |       | 2,039    |       | 4,380    |       |
|                                                      |            |          |            |          |            |  |  |

 

Ferrellgashad the following cash flow hedge activity included in OCI in the consolidatedstatements of partners’ capital:

 

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| ** **                                                                                                                              | ** ** | **For the year ended  July 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| Fair value gain (loss) adjustment classified as  OCI with offset in Price risk management assets and Price risk management  liabilities |       | $                                                    | 12,063     |   | $ | (186,449 | ) |
|                                                                                                                                    |       |                                                 |       |   |   |
| Reclassification of net gains (losses) originally  recorded within OCI to Cost of product sold — propane and other gas liquids     |       | 11,231                                               |       | (166,711 | ) |
|                                                                                                                                         |            |                                                      |            |  |  |  |  |

 

Ferrellgas expects to reclassify net losses of approximately $0.1million to earnings during the next 12 months. These net losses are expected tobe offset by margins on propane sales commitments Ferrellgas has with itscustomers that qualify for the normal purchase normal sales exception.

 

During the years ended July 31, 2010 and 2009, Ferrellgas had noreclassifications to earnings resulting from discontinuance of any cash flowhedges arising from the probability of the original forecasted transactions notoccurring within the originally specified period of time defined within thehedging relationship.

 

As of July 31, 2010, Ferrellgas had financial derivative contractscovering 1.0 million barrels of propane that were entered into as cash flowhedges of forward and forecasted purchases of propane.

 

During the years ended July 31, 2010 and 2009, four counterpartiesrepresented 84% and 85%, respectively, of net settled cash flow hedgingpositions reported in “Cost of goods sold — propane and other gas liquidssales.” During the years ended July 31, 2010 and 2009, Ferrellgas neither heldnor entered into financial derivative contracts that contained credit riskrelated contingency features.

 

In accordance with GAAP, Ferrellgas determines the fair value of itsassets and liabilities subject to fair value measurement by using the highestpossible “Level” as defined within the GAAP hierarchy. The three levels definedby the GAAP hierarchy are as follows:

 

·                  Level 1 — Quoted pricesavailable in active markets for identical assets or liabilities.

·                  Level 2 — Pricing inputs notquoted in active markets but either directly or indirectly observable.

·                  Level 3 — Significant inputsto pricing that have little or no transparency with inputs requiringsignificant management judgment or estimation.

 

Ferrellgas considers over-the-counter derivative instruments enteredinto directly with third parties as Level 2 valuation since the values of thesederivatives are quoted by third party brokers and are on an exchange forsimilar transactions. The market prices used to value Ferrellgas’ derivativeshave been determined using independent third party prices, readily availablemarket information, broker quotes, and appropriate valuation techniques.

 

At July 31, 2010 and July 31, 2009, all derivative assets andliabilities qualified for classification as Level 2 - other observable inputsas defined by the GAAP hierarchy. All financial derivatives assets andliabilities were non-trading positions.

 

**K.****   ****Transactionswith related parties**

 

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

 

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| ** **                         | ** ** | **For the year ended July 31,** | ** ** |
|------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                         | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                               |       |                                                     |       |   |   |   |   |
| Operating expense                  |       | $                                                        | 224,974    |   | $ | 217,374 |   | $ | 185,576 |   |
|                               |       |                                                     |       |   |   |   |   |
| General and administrative expense |       | $                                                        | 24,620     |   | $ | 23,801 |   | $ | 27,203 |   |

 

During fiscal 2009, Ferrellgas received payments totaling $0.3 million for services provided to and subleaserevenue receipts from Samson Dental Practice Management, LLC, a companywholly-owned by Mr. Ferrell.

 

Elizabeth Solberg, a member of the general partner’s Board ofDirectors, serves as the General Manager of Fleishman-Hillard Inc. Duringfiscal 2010 and 2009, Ferrellgas paid Fleishman-Hillard Inc. $0.2 million and$0.2 million, respectively for marketing and communications services.

 

See additional discussions about transactions with related parties inNote I — Partners’ capital.

 

**L.****    ****Contingenciesand commitments**

 

*Litigation*

 

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

 

Ferrellgashas been named as a defendant in lawsuits filed in multiple federal and statecourts that seek to certify nationwide or statewide classes related to its BlueRhino branded propane tank exchange activities. The plaintiffs in each casegenerally allege that Ferrellgas failed to inform consumers of the amount ofpropane contained in propane tanks they purchased and that Ferrellgas violatedanti-trust laws by allegedly conspiring with a competitor. The federal caseshave been coordinated for multidistrict treatment in the United States DistrictCourt for the Western District of Missouri. Based on Ferrellgas’ business andconsumer notification practices in its Blue Rhino tank exchange operations,Ferrellgas believes that all of these claims are without merit and intends todefend the claims vigorously.

 

*Long-term debt-related commitments*

 

Ferrellgas has long and short-term payment obligations under agreementssuch as senior notes and its credit facility. See Note H — Debt — for adescription of these debt obligations and a schedule of future maturities.

 

*Operating lease commitments and buyouts*

 

Ferrellgas leases certain property, plant and equipment undernon-cancelable and cancelable operating leases. Amounts shown in the tablebelow represent minimum lease payment obligations under Ferrellgas’ third-partyleases with terms in excess of one year for the periods indicated. These 

 

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arrangements include the leasing of transportation equipment, property,computer equipment and propane tanks. Ferrellgas accounts for thesearrangements as operating leases.

 

Ferrellgas is required to recognize a liability for the fair value ofguarantees. The only material guarantees Ferrellgas has are associated withresidual value guarantees of operating leases. Most of the operating leasesinvolving Ferrellgas’ transportation equipment contain residual valueguarantees. These transportation equipment lease arrangements are scheduled toexpire over the next seven fiscal years. Most of these arrangements providethat the fair value of the equipment will equal or exceed a guaranteed amount,or Ferrellgas will be required to pay the lessor the difference. The fair valueof these residual value guarantees was $0.7 million as of July 31, 2010.Although the fair values of the underlying equipment at the end of the leaseterms have historically exceeded these guaranteed amounts, the maximumpotential amount of aggregate future payments Ferrellgas could be required tomake under these leasing arrangements, assuming the equipment is worthless atthe end of the lease term, was $8.5 million as of July 31, 2010.Ferrellgas does not know of any event, demand, commitment, trend or uncertaintythat would result in a material change to these arrangements.

 

Operating lease buyouts represent the maximum amount Ferrellgas wouldpay if it were to exercise its right to buyout the assets at the end of theirlease term.

 

The following table summarizes Ferrellgas’ contractual operating leasecommitments and buyout obligations as of July 31, 2010:

 
| ** **                  | ** ** | **Future minimum rental and buyout amounts by fiscal year** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **                  | ** ** | **2011**                                                                                            | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **2015** | ** ** | **Thereafter** | ** ** |
|                        |       |                                                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Operating lease obligations |       | $                                                                                                   | 21,620     |   | $ | 14,505 |   | $ | 10,474 |   | $ | 8,410 |   | $ | 6,398 |   | $ | 10,427 |   |
| Operating lease buyouts     |       | $                                                                                                   | 5,350      |   | $ | 3,128 |   | $ | 813 |   | $ | 1,008 |   | $ | 501 |   | $ | 2,588 |   |

 

Certain property and equipment is leased under non-cancelable operatingleases, which require fixed monthly rental payments and which expire at variousdates through 2024. Rental expense under these leases totaled $33.7 million,$38.6 million, and $44.3 million for fiscal 2010, 2009 and 2008, respectively.

 

**M.**** ****Employeebenefits**

 

Ferrellgas has no employees and is managed and controlled by itsgeneral partner. Ferrellgas assumes all liabilities, which include specificliabilities related to the following employee benefit plans for the benefit ofthe officers and employees of the general partner.

 

Ferrell Companies makes contributions to the ESOT, which causes aportion of the shares of Ferrell Companies owned by the ESOT to be allocated toemployees’ accounts over time. The allocation of Ferrell Companies’ shares toemployee accounts causes a non-cash compensation charge to be incurred byFerrellgas, equivalent to the fair value of such shares allocated. Thisnon-cash compensation charge is reported separately in Ferrellgas’ consolidatedstatements of earnings and thus excluded from operating and general andadministrative expenses. The non-cash compensation charges were $9.3 million,$6.8 million and $12.4 million during fiscal 2010, 2009 and 2008, respectively.Ferrellgas is not obligated to fund or make contributions to the ESOT.

 

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The general partner and its parent, Ferrell Companies, have a definedcontribution profit-sharing plan which includes both profit sharing andmatching contributions. The plan covers substantially all full time employees.With the establishment of the ESOP in July 1998, Ferrellgas suspendedfuture contributions to the profit sharing plan beginning with fiscal 1998. Theplan, which qualifies under section 401(k) of the Internal Revenue Code,also provides for matching contributions under a cash or deferred arrangementbased upon participant salaries and employee contributions to the plan.Matching contributions for fiscal 2010, 2009 and 2008 were $3.2 million, $2.7million, and $2.6 million, respectively.

 

The general partner has a defined benefit plan that providesparticipants who were covered under a previously terminated plan with aguaranteed retirement benefit at least equal to the benefit they would have receivedunder the terminated plan. Until July 31, 1999, benefits under theterminated plan were determined by years of credited service and salary levels.As of July 31, 1999, years of credited service and salary levels werefrozen. The general partner’s funding policy for this plan is to contributeamounts deductible for Federal income tax purposes and invest the plan assetsprimarily in corporate stocks and bonds, U.S. Treasury bonds and short-termcash investments. During fiscal 2010, 2009 and 2008 other comprehensive incomeand other liabilities were adjusted by $46 thousand, $(6.0) thousand and $(0.1)million, respectively.

 

**N**.    **Net****earnings per common unitholders’ interest**

 

Below is a calculation of the basic anddiluted net earnings available per common unitholders’ interest in theconsolidated statements of earnings for the periods indicated. In accordancewith guidance issued by the FASB regarding participating securities and thetwo-class method, Ferrellgas calculates net earnings per common unitholders’interest for each period presented according to distributions declared andparticipation rights in undistributed earnings, as if all of the earnings forthe period had been distributed. In periods with undistributed earnings abovecertain levels, the calculation according to the two-class method results in anincreased allocation of undistributed earnings to the general partner and adilution of the earnings to the limited partners. Due to the seasonality of thepropane business, the dilution effect of the guidance on the two-class methodtypically impacts only the three months ending January 31. There was not adilutive effect resulting from this guidance on basic and diluted net earningsper common unitholders’ interest for fiscal 2010, 2009 and 2008.

 
| ** **                                                            | ** ** | **For the year ended July 31,** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Common unitholders’ interest in net earnings                     |       | $                                                        | 32,382     |   | $ | 52,046 |   | $ | 24,442 |   |
|                                                                  |       |                                                     |       |   |   |   |   |
| Weighted average common units outstanding (in  thousands)             |       | 69,241.7                                                 |       | 65,540.7 |   | 62,959.5 |   |
|                                                                  |       |                                                     |       |   |   |   |   |
| Dilutive securities                                                   |       | 131.8                                                    |       | 72.7 |   | 11.0 |   |
|                                                                  |       |                                                     |       |   |   |   |   |
| Weighted average common units outstanding plus  dilutive securities   |       | 69,373.5                                                 |       | 65,613.4 |   | 62,970.5 |   |
|                                                                  |       |                                                     |       |   |   |   |   |
| Basic and diluted net earnings per common  unitholders’ interest |       | $                                                        | 0.47       |   | $ | 0.79 |   | $ | 0.39 |   |

 

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**O**.   **Quarterly data (unaudited)**

 

The following summarized unaudited quarterly data includes alladjustments (consisting only of normal recurring adjustments), which Ferrellgasconsiders necessary for a fair presentation. Due to the seasonality of thepropane distribution industry, first and fourth quarter Revenues, gross marginfrom propane and other gas liquids sales, Net earnings attributable toFerrellgas Partners, L.P. and Common unitholders’ interest in net earnings areconsistently less than the second and third quarter results. Other factorsaffecting the results of operations include competitive conditions, demand forproduct, timing of acquisitions, variations in the weather and fluctuations inpropane prices. The sum of Common unitholders’ interest in net earnings byquarter do not equal the total Common unitholders’ interest in net earnings forthe year due to the effect of guidance issued by the FASB regardingparticipating securities and the two-class method on quarterly computations ofCommon unitholders’ interest in net earnings in the second quarter of fiscal2010 and 2009. See Note N — Net earnings per common unitholders’ interest — forfurther discussion of this calculation. The sum of Net earnings (loss)attributable to Ferrellgas Partners, L.P. by quarter may not equal the Netearnings (loss) attributable to Ferrellgas Partners, L.P. for the year due tovariations in the weighted average units outstanding used in computing suchamounts.

 

**For theyear ended July 31, 2010**

 
| ** **                                                                   | ** ** | **First  quarter** | ** ** | **Second  quarter** | ** ** | **Third  quarter** | ** ** | **Fourth  quarter** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| Revenues                                                                     |       | $                  | 352,070    |                | $          | 777,852            |       | $                   | 615,290    |   | $ | 353,848 |   |
| Gross margin from propane and other gas liquids  sales (a)                   |       | 126,746            |       | 220,368             |       | 180,708            |       | 114,962             |       |
| Net earnings (loss)                                                          |       | (32,937            | )          | 77,858              |       | 29,264             |       | (40,846             | )          |
| Net earnings (loss) attributable to Ferrellgas  Partners, L.P.               |       | (32,665            | )          | 77,011              |       | 28,863             |       | (40,500             | )          |
| Common unitholders’ interest in net earnings                            |       | (32,338            | )          | 64,397              |       | 28,574             |       | (40,095             | )          |
|                                                                         |       |               |       |                |       |               |       |                |       |
| Basic and diluted net earnings (loss) per common  unitholders’ interest |       | $                  | (0.47      | )                   | $          | 0.93               |       | $                   | 0.41       |   | $ | (0.58 | ) |

 

**For theyear ended July 31, 2009**

 
| ** **                                                                   | ** ** | **First  quarter** | ** ** | **Second  quarter** | ** ** | **Third  quarter** | ** ** | **Fourth  quarter** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| Revenues                                                                     |       | $                  | 480,074    |                | $          | 715,625            |       | $                   | 561,133    |   | $ | 312,690 |   |
| Gross margin from propane and other gas liquids  sales (a)                   |       | 119,143            |       | 219,009             |       | 165,969            |       | 118,164             |       |
| Net earnings (loss)                                                          |       | (14,977            | )          | 70,424              |       | 33,261             |       | (35,353             | )          |
| Net earnings (loss) attributable to Ferrellgas  Partners, L.P.               |       | (14,887            | )          | 69,652              |       | 32,864             |       | (35,057             | )          |
| Common unitholders’ interest in net earnings                            |       | (14,738            | )          | 58,019              |       | 32,535             |       | (34,707             | )          |
|                                                                         |       |               |       |                |       |               |       |                |       |
| Basic and diluted net earnings (loss) per common  unitholders’ interest |       | $                  | (0.23      | )                   | $          | 0.92               |       | $                   | 0.48       |   | $ | (0.51 | ) |

 

----

(a) Gross margin from “Propane and other gas liquids sales”represents “Revenues - Propane and other gas liquids sales” less “Cost ofproduct sold — propane and other gas liquids sales.”

 

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** **

**P**. **Subsequent events**

 

Ferrellgas has evaluated events and transactions occurring after thebalance sheet date through the date Ferrellgas’ consolidated financial statementswere issued, and concluded that there were no events or transactions occurringduring this period that required recognition or disclosure in its financialstatements.

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Tothe Board of Directors ofFerrellgas Partners Finance Corp.**Overland Park, Kansas

 

Wehave audited the accompanying balance sheets of Ferrellgas Partners FinanceCorp. (a wholly-owned subsidiary of Ferrellgas Partners, L.P., referred toherein as “the Company”) as of July 31, 2010 and 2009, and the relatedstatements of earnings, stockholder’s equity, and cash flows for each of thethree years in the period ended July 31, 2010.  These financialstatements are the responsibility of the Company’s management.  Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, such financial statements presentfairly, in all material respects, the financial position of Ferrellgas PartnersFinance Corp. as of July 31, 2010 and 2009, and the results of itsoperations and its cash flows for each of the three years in the period ended July 31,2010, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theCompany’s internal control over financial reporting as of July 31, 2010,based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated September 28,2010 expressed an unqualified opinion on the Company’s internal control overfinancial reporting.

 

 

/s/ DELOITTE & TOUCHE LLP

Kansas City, MissouriSeptember 28, 2010

 

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**FERRELLGASPARTNERS FINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas Partners, L.P.)**

 

**BALANCE SHEETS**

 
| ** **                                                                                | ** ** | **July 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                | ** ** | **2010**          | ** ** | **2009** | ** ** |
| **ASSETS**                                                                                | ** ** | ** **        | ** ** |   | ** ** |
| ** **                                                                                | ** ** | ** **        | ** ** |   | ** ** |
| Cash                                                                                      |       | $                 | 969        |   | $ | 1,000 |   |
| **Total assets**                                                                          |       | $                 | 969        |   | $ | 1,000 |   |
|                                                                                      |       |              |       |   |   |
| **STOCKHOLDER’S EQUITY**                                                             |       |              |       |   |   |
|                                                                                      |       |              |       |   |   |
| Common stock, $1 par value; 2,000 shares authorized;  1,000 shares issued and outstanding |       | $                 | 1,000      |   | $ | 1,000 |   |
|                                                                                      |       |              |       |   |   |
| Additional paid in capital                                                                |       | 6,131             |       | 5,594 |   |
|                                                                                      |       |              |       |   |   |
| Accumulated deficit                                                                       |       | (6,162            | )          | (5,594 | ) |
| **Total stockholder’s equity**                                                       |       | $                 | 969        |   | $ | 1,000 |   |

 

See notes to financial statements.

 

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**FERRELLGASPARTNERS FINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas Partners, L.P.)**

 

**STATEMENTS OF EARNINGS**

 
| ** **                         | ** ** | **For the year ended July 31,** | ** ** |
|------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                         | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                               |       |                                                     |       |   |   |   |   |
| General and administrative expense |       | $                                                        | 568        |   | $ | 445 |   | $ | 992 |   |
|                               |       |                                                     |       |   |   |   |   |
| **Net loss**                       |       | $                                                        | (568       | ) | $ | (445 | ) | $ | (992 | ) |

 

See notes to financial statements.

 

F-32

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**FERRELLGASPARTNERS FINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas Partners, L.P.)**

 

**STATEMENTSOF STOCKHOLDER’S EQUITY**

 
| ** **             | ** ** | ** **            | ** ** | ** **       | ** ** | **Additional**  | ** ** | ** **             | ** ** | **Total**  | ** ** |
|------------------------|------------|-----------------------|------------|------------------|------------|-----------------|------------|------------------------|------------|------------|------------|
| ** **             | ** ** | **Common stock** | ** ** | **paid in** | ** ** | **Accumulated** | ** ** | **stockholder’s** | ** ** |
| ** **             | ** ** | **Shares**            | ** ** | **Dollars**      | ** ** | **capital**     | ** ** | **deficit**            | ** ** | **equity** | ** ** |
| ** **             | ** ** | ** **            | ** ** | ** **       | ** ** | ** **      | ** ** | ** **             | ** ** | ** ** | ** ** |
| **July 31, 2007** |       | 1,000                 |       | $                | 1,000      |            | $          | 4,157                  |       | $          | (4,157     | ) | $ | 1,000 |   |
| Capital contribution   |       | —                |       | —           |       | 992             |       | —                 |       | 992        |       |
| Net loss               |       | —                |       | —           |       | —          |       | (992                   | )          | (992       | )          |
| **July 31, 2008** |       | 1,000                 |       | 1,000            |       | 5,149           |       | (5,149                 | )          | 1,000      |       |
| Capital contribution   |       | —                |       | —           |       | 445             |       | —                 |       | 445        |       |
| Net loss               |       | —                |       | —           |       | —          |       | (445                   | )          | (445       | )          |
| **July 31, 2009** |       | 1,000                 |       | 1,000            |       | 5,594           |       | (5,594                 | )          | 1,000      |       |
| Capital contribution   |       | —                |       | —           |       | 537             |       | —                 |       | 537        |       |
| Net loss               |       | —                |       | —           |       | —          |       | (568                   | )          | (568       | )          |
| **July 31, 2010** |       | 1,000                 |       | $                | 1,000      |            | $          | 6,131                  |       | $          | (6,162     | ) | $ | 969 |   |

 

See notes to financial statements.

 

F-33

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**FERRELLGASPARTNERS FINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas Partners, L.P.)**

 

**STATEMENTSOF CASH FLOWS**

 
| ** **                                 | ** ** | **For the year ended July 31,** | ** ** |
|--------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                 | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Cash flows from operating  activities:** |       |                                                     |       |   |   |   |   |
| Net loss                                   |       | $                                                        | (568       | ) | $ | (445 | ) | $ | (992 | ) |
| Cash used in operating activities          |       | (568                                                     | )          | (445 | ) | (992 | ) |
|                                       |       |                                                     |       |   |   |   |   |
| **Cash flows from financing  activities:** |       |                                                     |       |   |   |   |   |
| Capital contribution                       |       | 537                                                      |       | 445 |   | 992 |   |
| Cash provided by financing activities      |       | 537                                                      |       | 445 |   | 992 |   |
|                                       |       |                                                     |       |   |   |   |   |
| Change in cash                             |       | (31                                                      | )          | — |   | — |   |
| Cash - beginning of year                   |       | 1,000                                                    |       | 1,000 |   | 1,000 |   |
| **Cash - end of year**                     |       | $                                                        | 969        |   | $ | 1,000 |   | $ | 1,000 |   |

 

See notes to financial statements.

 

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**FERRELLGAS PARTNERS FINANCE CORP.**

**(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)**

** **

**NOTES TO FINANCIAL STATEMENTS**

** **

 

**A.****                                   ****Formation**

 

FerrellgasPartners Finance Corp. (the “Finance Corp.”), a Delaware corporation, wasformed on March 28, 1996 and is a wholly-owned subsidiary of FerrellgasPartners, L.P. (the “Partnership”).

 

ThePartnership contributed $1,000 to the Finance Corp. on April 8, 1996 inexchange for 1,000 shares of common stock.

 

**B.****                                   ****Commitment**

 

DuringApril 2010, the Partnership completed a public offering of $280.0 millionin aggregate principal amount of new 8.625% senior unsecured notes due 2020.The Partnership may redeem some or all of the aggregate principal amount of thenotes at any time after June 15, 2015. The proceeds from these notes wereused to redeem the Partnership’s $268.0 million of 8 3⁄4% senior notes due 2012.

 

TheFinance Corp. has nominal assets, does not conduct any operations, has noemployees and serves as co-issuer and co-obligor for debt securities of thePartnership.

 

**C.**                                    **Incometaxes**

 

Incometaxes have been computed separately as the Finance Corp. files its own incometax return. Deferred income taxes are provided as a result of temporarydifferences between financial and tax reporting using the asset/liabilitymethod. Deferred income taxes are recognized for the tax consequences oftemporary differences between the financial statement carrying amounts and taxbasis of existing assets and liabilities.

 

Dueto the inability of the Finance Corp. to utilize the deferred tax benefit of$2,416 associated with the net operating loss carryforward of $6,210, whichexpire at various dates through July 31, 2030, a valuation allowance hasbeen provided on the full amount of the deferred tax asset. Accordingly, thereis no net deferred tax benefit for fiscal 2010, 2009 or 2008, and there is nonet deferred tax asset as of July 31, 2010 and 2009.

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

To the Partners of Ferrellgas, L.P. and subsidiaries**Overland Park, Kansas

 

We have audited the accompanying consolidatedbalance sheets of Ferrellgas, L.P. and subsidiaries (“Ferrellgas”) as of July 31,2010 and 2009, and the related consolidated statements of earnings, partners’capital, and cash flows for each of the three years in the period ended July 31,2010.  Our audits also included the financial statement schedule listed inthe Index at Item 15.  These financial statements and financial statementschedule are the responsibility of Ferrellgas’ management.  Ourresponsibility is to express an opinion on the financial statements andfinancial statement schedule based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofFerrellgas, L.P. and subsidiaries as of July 31, 2010 and 2009, and theresults of their operations and their cash flows for each of the three years inthe period ended July 31, 2010, in conformity with accounting principlesgenerally accepted in the United States of America.  Also, in our opinion,such financial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly, in allmaterial respects, the information set forth therein.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States),Ferrellgas’ internal control over financial reporting as of July 31, 2010,based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated September 28,2010 expressed an unqualified opinion on Ferrellgas’ internal control overfinancial reporting.

 

 

/s/ DELOITTE & TOUCHE LLP

Kansas City, MissouriSeptember 28, 2010

 

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**FERRELLGAS,L.P. AND SUBSIDIARIES**

** **

**CONSOLIDATED BALANCE SHEETS**

**(inthousands)**

 
| ** **                                                                                                                   | ** ** | **July 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                                   | ** ** | **2010**          | ** ** | **2009** | ** ** |
| **ASSETS**                                                                                                                   |       |              |       |   |   |
| ** **                                                                                                                   | ** ** | ** **        | ** ** |   | ** ** |
| **Current  assets:**                                                                                                         | ** ** | ** **        | ** ** |   | ** ** |
| Cash and cash  equivalents                                                                                                   |       | $                 | 11,389     |   | $ | 7,050 |   |
| Accounts and  notes receivable (net of allowance for doubtful accounts of $5,010 and $4,294  at 2010 and 2009, respectively) |       | 89,234            |       | 106,910 |   |
| Inventories                                                                                                                  |       | 166,911           |       | 129,808 |   |
| Prepaid expenses  and other current assets                                                                                   |       | 13,832            |       | 14,356 |   |
| **Total  current assets**                                                                                                    |       | 281,366           |       | 258,124 |   |
|                                                                                                                         |       |              |       |   |   |
| Property, plant  and equipment, net                                                                                          |       | 652,768           |       | 666,535 |   |
| Goodwill                                                                                                                     |       | 248,939           |       | 248,939 |   |
| Intangible  assets, net                                                                                                      |       | 221,057           |       | 212,037 |   |
| Other assets,  net                                                                                                           |       | 32,047            |       | 17,414 |   |
| **Total  assets**                                                                                                            |       | $                 | 1,436,177  |   | $ | 1,403,049 |   |
|                                                                                                                         |       |              |       |   |   |
| **LIABILITIES  AND PARTNERS' CAPITAL**                                                                                       | ** ** | ** **        | ** ** |   | ** ** |
|                                                                                                                         |       |              |       |   |   |
| **Current  liabilities:**                                                                                                    | ** ** | ** **        | ** ** |   | ** ** |
| Accounts payable                                                                                                             |       | $                 | 48,658     |   | $ | 49,337 |   |
| Short-term  borrowings                                                                                                       |       | 67,203            |       | 66,159 |   |
| Other current  liabilities                                                                                                   |       | 104,735           |       | 105,661 |   |
| **Total  current liabilities**                                                                                               |       | 220,596           |       | 221,157 |   |
|                                                                                                                         |       |              |       |   |   |
| Long-term debt                                                                                                               |       | 831,088           |       | 740,982 |   |
| Other  liabilities                                                                                                           |       | 21,446            |       | 19,300 |   |
| Contingencies  and commitments (Note L)                                                                                      |       | —            |       | — |   |
|                                                                                                                         |       |              |       |   |   |
| **Partners'  capital:**                                                                                                      |       |              |       |   |   |
| Limited partner                                                                                                              |       | 359,782           |       | 418,532 |   |
| General partner                                                                                                              |       | 3,671             |       | 4,272 |   |
| Accumulated  other comprehensive loss                                                                                        |       | (406              | )          | (1,194 | ) |
| **Total  partners' capital**                                                                                                 |       | 363,047           |       | 421,610 |   |
| **Total  liabilities and partners' capital**                                                                                 |       | $                 | 1,436,177  |   | $ | 1,403,049 |   |

 

See notes to consolidatedfinancial statements.

 

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**FERRELLGAS,L.P. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF EARNINGS**

**(inthousands)**

 
| ** **                                                  | ** ** | **For the year ended July 31,** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                        |       |                                                     |       |   |   |   |   |
| **Revenues:**                                               |       |                                                     |       |   |   |   |   |
| Propane and other gas liquids sales                         |       | $                                                        | 1,900,318  |   | $ | 1,829,653 |   | $ | 2,055,281 |   |
| Other                                                       |       | 198,742                                                  |       | 239,869 |   | 235,408 |   |
| **Total revenues**                                          |       | 2,099,060                                                |       | 2,069,522 |   | 2,290,689 |   |
|                                                        |       |                                                     |       |   |   |   |   |
| **Costs and expenses:**                                     |       |                                                     |       |   |   |   |   |
| Cost of product sold - propane and other gas  liquids sales |       | 1,257,534                                                |       | 1,207,368 |   | 1,491,918 |   |
| Cost of product sold - other                                |       | 108,638                                                  |       | 152,853 |   | 136,478 |   |
| Operating expense                                           |       | 408,590                                                  |       | 400,407 |   | 371,819 |   |
| Depreciation and amortization expense                       |       | 82,491                                                   |       | 82,494 |   | 85,521 |   |
| General and administrative expense                          |       | 51,772                                                   |       | 41,382 |   | 45,612 |   |
| Equipment lease expense                                     |       | 13,441                                                   |       | 18,406 |   | 24,478 |   |
| Employee stock ownership plan compensation charge           |       | 9,322                                                    |       | 6,755 |   | 12,413 |   |
| Loss on disposal of assets and other                        |       | 8,485                                                    |       | 13,042 |   | 11,250 |   |
|                                                        |       |                                                     |       |   |   |   |   |
| **Operating income**                                        |       | 158,787                                                  |       | 146,815 |   | 111,200 |   |
|                                                        |       |                                                     |       |   |   |   |   |
| Interest expense                                            |       | (76,786                                                  | )          | (65,785 | ) | (63,001 | ) |
| Debt prepayment premiums                                    |       | (17,308                                                  | )          | — |   | — |   |
| Other income (expense), net                                 |       | (442                                                     | )          | (1,321 | ) | 1,039 |   |
|                                                        |       |                                                     |       |   |   |   |   |
| **Earnings before income taxes**                            |       | 64,251                                                   |       | 79,709 |   | 49,238 |   |
|                                                        |       |                                                     |       |   |   |   |   |
| Income tax expense                                          |       | 1,890                                                    |       | 2,208 |   | 6 |   |
|                                                        |       |                                                     |       |   |   |   |   |
| **Net earnings**                                            |       | $                                                        | 62,361     |   | $ | 77,501 |   | $ | 49,232 |   |

 

Seenotes to consolidated financial statements.

 

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**FERRELLGAS,L.P. AND SUBSIDIARIES**

** **

**CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL**

**(inthousands)**

 
| ** **                                                                                                                 | ** ** | ** **  | ** ** | ** **  | ** ** | **Accumulated other**  | ** ** | ** **      | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-----------------------------|------------|-----------------|------------|
| ** **                                                                                                                 | ** ** | ** **  | ** ** | ** **  | ** ** | **comprehensive loss** | ** ** | ** **      | ** ** |
| ** **                                                                                                                 | ** ** | ** **  | ** ** | ** **  | ** ** | ** **                  | ** ** | **Currency**    | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                                                                                                                 | ** ** | **Limited** | ** ** | **General** | ** ** | **Risk**                    | ** ** | **translation** | ** ** | **Pension** | ** ** | **partners’** | ** ** |
| ** **                                                                                                                 | ** ** | **partner** | ** ** | **partner** | ** ** | **management**              | ** ** | **adjustments** | ** ** | **liability** | ** ** | **capital** | ** ** |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| **Balance at July 31, 2007**                                                                                          |       | $           | 501,501    |        | $          | 5,119                       |       | $               | 5,055      |   | $ | 30 |   | $ | (349 | ) | $ | 511,356 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Contributions in connection with ESOP and unit and  stock-based compensation charges                                       |       | 14,086      |       | 143         |       | —                      |       | —          |       | — |   | 14,229 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Quarterly distributions                                                                                                    |       | (150,815    | )          | (1,539      | )          | —                      |       | —          |       | — |   | (152,354 | ) |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Comprehensive income:                                                                                                      |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Net earnings                                                                                                               |       | 48,735      |       | 497         |       | —                      |       | —          |       | — |   | 49,232 |   |
| Other comprehensive income (loss):                                                                                         |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Net earnings on risk management derivatives                                                                                |       | —      |       | —      |       | 18,749                      |       | —          |       | — |   |   |   |
| Reclassification of derivatives to earnings                                                                                |       | —      |       | —      |       | (5,055                      | )          | —          |       | — |   |   |   |
| Foreign currency translation adjustment                                                                                    |       | —      |       | —      |       | —                      |       | (10             | )          | — |   |   |   |
| Tax effect on foreign currency translation  adjustment                                                                     |       | —      |       | —      |       | —                      |       | 6               |       | — |   |   |   |
| Pension liability adjustment                                                                                               |       | —      |       | —      |       | —                      |       | —          |       | 116 |   | 13,806 |   |
| Comprehensive income                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   | 63,038 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| **Balance at July 31, 2008**                                                                                          |       | 413,507     |       | 4,220       |       | 18,749                      |       | 26              |       | (233 | ) | 436,269 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Contributions in connection with ESOP and unit and  stock-based compensation charges                                       |       | 8,975       |       | 92          |       | —                      |       | —          |       | — |   | 9,067 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Quarterly distributions                                                                                                    |       | (156,031    | )          | (1,592      | )          | —                      |       | —          |       | — |   | (157,623 | ) |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Cash contributed by Ferrellgas Partners and the  general partner                                                           |       | 69,848      |       | 713         |       | —                      |       | —          |       | — |   | 70,561 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Net assets contributed by Ferrellgas Partners and  cash contributed by the general partner in connection with acquisitions |       | 5,515       |       | 56          |       | —                      |       | —          |       | — |   | 5,571 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Comprehensive income:                                                                                                      |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Net earnings                                                                                                               |       | 76,718      |       | 783         |       | —                      |       | —          |       | — |   | 77,501 |   |
| Other comprehensive income (loss):                                                                                         |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Net loss on risk management derivatives                                                                                    |       | —      |       | —      |       | (186,449                    | )          | —          |       | — |   |   |   |
| Reclassification of derivatives to earnings                                                                                |       | —      |       | —      |       | 166,711                     |       | —          |       | — |   |   |   |
| Foreign currency translation adjustment                                                                                    |       | —      |       | —      |       | —                      |       | (7              | )          | — |   |   |   |
| Tax effect on foreign currency translation  adjustment                                                                     |       | —      |       | —      |       | —                      |       | 3               |       | — |   |   |   |
| Pension liability adjustment                                                                                               |       | —      |       | —      |       | —                      |       | —          |       | 6 |   | (19,736 | ) |
| Comprehensive income                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   | 57,765 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| **Balance at July 31, 2009**                                                                                          |       | 418,532     |       | 4,272       |       | (989                        | )          | 22              |       | (227 | ) | 421,610 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Contributions in connection with ESOP and unit and  stock-based compensation charges                                       |       | 16,980      |       | 173         |       | —                      |       | —          |       | — |   | 17,153 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Quarterly distributions                                                                                                    |       | (191,822    | )          | (1,958      | )          | —                      |       | —          |       | — |   | (193,780 | ) |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Cash contributed by Ferrellgas Partners and the  general partner                                                           |       | 51,300      |       | 523         |       | —                      |       | —          |       | — |   | 51,823 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Net assets contributed by Ferrellgas Partners and  cash contributed by the general partner in connection with acquisitions |       | 3,061       |       | 31          |       | —                      |       | —          |       | — |   | 3,092 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Comprehensive income:                                                                                                      |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Net earnings                                                                                                               |       | 61,731      |       | 630         |       | —                      |       | —          |       | — |   | 62,361 |   |
| Other comprehensive income (loss):                                                                                         |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| Net earnings on risk management derivatives                                                                                |       | —      |       | —      |       | 12,063                      |       | —          |       | — |   |   |   |
| Reclassification of derivatives to earnings                                                                                |       | —      |       | —      |       | (11,231                     | )          | —          |       | — |   |   |   |
| Foreign currency translation adjustment                                                                                    |       | —      |       | —      |       | —                      |       | 3               |       | — |   |   |   |
| Tax effect on foreign currency translation  adjustment                                                                     |       | —      |       | —      |       | —                      |       | (1              | )          | — |   |   |   |
| Pension liability adjustment                                                                                               |       | —      |       | —      |       | —                      |       | —          |       | (46 | ) | 788 |   |
| Comprehensive income                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   | 63,149 |   |
|                                                                                                                       |       |        |       |        |       |                        |       |            |       |   |   |   |   |
| **Balance at July 31, 2010**                                                                                          |       | $           | 359,782    |        | $          | 3,671                       |       | $               | (157       | ) | $ | 24 |   | $ | (273 | ) | $ | 363,047 |   |

 

See notes to consolidatedfinancial statements.

 

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**FERRELLGAS,L.P. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(inthousands)**

 
| ** **                                                                                    | ** ** | **For the year ended July 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                          |       |                                                     |       |   |   |   |   |
| **Cash flows from operating  activities:**                                                    |       |                                                     |       |   |   |   |   |
| Net earnings                                                                                  |       | $                                                        | 62,361     |   | $ | 77,501 |   | $ | 49,232 |   |
| Reconciliation of net earnings to net cash  provided by operating activities:                 |       |                                                     |       |   |   |   |   |
| Depreciation and amortization expense                                                         |       | 82,491                                                   |       | 82,494 |   | 85,521 |   |
| Employee stock ownership plan compensation charge                                             |       | 9,322                                                    |       | 6,755 |   | 12,413 |   |
| Unit and stock-based compensation charge                                                      |       | 7,831                                                    |       | 2,312 |   | 1,816 |   |
| Loss on disposal of assets                                                                    |       | 7,296                                                    |       | 5,009 |   | 4,820 |   |
| Loss on transfer of accounts receivable related to  the accounts receivable securitization    |       | 6,566                                                    |       | 12,124 |   | 10,548 |   |
| Provision for doubtful accounts                                                               |       | 8,440                                                    |       | 5,317 |   | 8,830 |   |
| Deferred tax expense (benefit)                                                                |       | 439                                                      |       | 388 |   | (1,650 | ) |
| Other                                                                                         |       | 1,417                                                    |       | (854 | ) | (2,679 | ) |
| Changes in operating assets and liabilities, net  of effects from business acquisitions:      |       |                                                     |       |   |   |   |   |
| Accounts and notes receivable, net of  securitization                                         |       | 2,529                                                    |       | 65,466 |   | (48,606 | ) |
| Inventories                                                                                   |       | (37,103                                                  | )          | 22,493 |   | (40,920 | ) |
| Prepaid expenses and other current assets                                                     |       | (831                                                     | )          | (118 | ) | 755 |   |
| Accounts payable                                                                              |       | (263                                                     | )          | (21,054 | ) | 8,523 |   |
| Accrued interest expense                                                                      |       | 601                                                      |       | (156 | ) | (3,572 | ) |
| Other current liabilities                                                                     |       | (139                                                     | )          | 4,995 |   | (2,380 | ) |
| Other liabilities                                                                             |       | 1,544                                                    |       | (1,044 | ) | 151 |   |
| Accounts receivable securitization:                                                           |       |                                                     |       |   |   |   |   |
| Proceeds from new accounts receivable  securitizations                                        |       | 124,000                                                  |       | 109,000 |   | 103,000 |   |
| Proceeds from collections reinvested in revolving  period accounts receivable securitizations |       | 1,334,144                                                |       | 1,231,336 |   | 1,365,655 |   |
| Remittances of amounts collected as servicer of  accounts receivable securitizations          |       | (1,448,144                                               | )          | (1,376,336 | ) | (1,456,655 | ) |
| Net cash provided by operating activities                                                     |       | 162,501                                                  |       | 225,628 |   | 94,802 |   |
|                                                                                          |       |                                                     |       |   |   |   |   |
| **Cash flows from investing activities:**                                                     |       |                                                     |       |   |   |   |   |
| Business acquisitions, net of cash acquired                                                   |       | (40,914                                                  | )          | (2,706 | ) | (191 | ) |
| Capital expenditures                                                                          |       | (45,185                                                  | )          | (54,085 | ) | (43,823 | ) |
| Proceeds from sale of assets                                                                  |       | 9,220                                                    |       | 8,199 |   | 10,874 |   |
| Other                                                                                         |       | (4,480                                                   | )          | (4,643 | ) | (2,991 | ) |
| Net cash used in investing activities                                                         |       | (81,359                                                  | )          | (53,235 | ) | (36,131 | ) |
|                                                                                          |       |                                                     |       |   |   |   |   |
| **Cash flows from financing  activities:**                                                    |       |                                                     |       |   |   |   |   |
| Distributions                                                                                 |       | (193,780                                                 | )          | (157,623 | ) | (152,354 | ) |
| Contributions from partners                                                                   |       | 51,823                                                   |       | 70,561 |   | — |   |
| Proceeds from increase in long-term debt                                                      |       | 656,861                                                  |       | 208,259 |   | 115,249 |   |
| Reductions in long-term debt                                                                  |       | (576,955                                                 | )          | (239,555 | ) | (92,985 | ) |
| Net additions to (reductions in) short-term  borrowings                                       |       | 1,044                                                    |       | (59,570 | ) | 67,950 |   |
| Cash paid for financing costs                                                                 |       | (15,798                                                  | )          | (3,953 | ) | (383 | ) |
| Net cash used in financing activities                                                         |       | (76,805                                                  | )          | (181,881 | ) | (62,523 | ) |
|                                                                                          |       |                                                     |       |   |   |   |   |
| **Effect of exchange rate changes  on cash**                                                  |       | 2                                                        |       | (7 | ) | (10 | ) |
|                                                                                          |       |                                                     |       |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                                              |       | 4,339                                                    |       | (9,495 | ) | (3,862 | ) |
| Cash and cash equivalents - beginning of year                                                 |       | 7,050                                                    |       | 16,545 |   | 20,407 |   |
| **Cash and cash equivalents - end  of year**                                                  |       | $                                                        | 11,389     |   | $ | 7,050 |   | $ | 16,545 |   |

 

See notes to consolidatedfinancial statements.

 

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**FERRELLGAS,L.P.**

**ANDSUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Dollarsin thousands, unless otherwise designated)**

 

**A.****           ****Partnershiporganization and formation**

 

Ferrellgas, L.P. was formed on April 22, 1994, and is a Delawarelimited partnership. Ferrellgas, L.P. owns and operates propane distributionand related assets. Ferrellgas Partners, L.P. (“Ferrellgas Partners”), apublicly traded limited partnership, holds an approximate 99% limited partnerinterest in, and consolidates, Ferrellgas, L.P. Ferrellgas, Inc. (the “generalpartner”), a wholly-owned subsidiary of Ferrell Companies, Inc. (“FerrellCompanies”), holds an approximate 1% general partner interest in Ferrellgas,L.P. and performs all management functions required by Ferrellgas, L.P.Ferrellgas Partners and Ferrellgas, L.P. are governed by their respectivepartnership agreements. These agreements contain specific provisions for theallocation of net earnings and loss to each of the partners for purposes ofmaintaining the partner capital accounts.

 

Ferrellgas, L.P. owns a 100% equity interest in Ferrellgas FinanceCorp., whose only business activity is to act as the co-issuer and co-obligorof any debt issued by Ferrellgas, L.P.

 

Ferrell Companies is wholly-owned by a leveraged employee stockownership trust (“ESOT”) established pursuant to the Ferrell Companies EmployeeStock Ownership Plan (“ESOP”). The purpose of the ESOP is to provide employeesof the general partner an opportunity for ownership in Ferrell Companies andindirectly in Ferrellgas, L.P. As contributions are made by Ferrell Companiesto the ESOT in the future, shares of Ferrell Companies are allocated to theemployees’ ESOP accounts.

 

**B.****           ****Summaryof significant accounting policies**

 

**(1)**** ****Nature of operations:** Ferrellgas,L.P. is engaged primarily in the distribution of propane and related equipmentand supplies in the United States. The propane distribution market is seasonalbecause propane is used primarily for heating in residential and commercialbuildings. Ferrellgas, L.P. serves approximately one million residential,industrial/commercial, portable tank exchange, agricultural, wholesale andother customers in all 50 states, the District of Columbia, and Puerto Rico.

 

**(2) Accounting estimates:** The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America (“GAAP”) requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosures of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reported period. Actual results could differ from these estimates.Significant estimates impacting the consolidated financial statements includeaccruals that have been established for contingent liabilities, pending claimsand legal actions arising in the normal course of business, useful lives ofproperty, plant and equipment assets, residual values of tanks, capitalizationof customer tank installation costs, amortization methods of intangible assets,valuation methods used to value sales returns and allowances, allowance fordoubtful accounts, financial derivative contracts and stock and unit-basedcompensation calculations.

 

**(3) Principles of consolidation:**The accompanying consolidated financial statements present theconsolidated financial position, results of operations and cash flows ofFerrellgas, L.P. and its subsidiaries after elimination of all materialintercompany accounts and transactions. Ferrellgas, L.P. 

 

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consolidates the following wholly-owned taxable corporations: BlueRhino Global Sourcing, Inc. and Blue Rhino Canada, Inc. Ferrellgas Receivables,LLC (“Ferrellgas Receivables”), a wholly-owned unconsolidated subsidiary, is aspecial purpose entity.

 

**(4) Cash and cash equivalents and non-cash activities:**For purposes ofthe consolidated statements of cash flows, Ferrellgas, L.P. considers cashequivalents to include all highly liquid debt instruments purchased with anoriginal maturity of three months or less. Significant cash and non-cashactivities are presented below:

** **
| ** **                                                                   | ** ** | **For the year ended July 31,** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| CASH PAID FOR:                                                               |       |                                                     | ** ** |   |   |   |   |
| Interest                                                                     |       | $                                                        | 66,223     | ** ** | $ | 59,626 |   | $ | 64,922 |   |
| Income taxes                                                                 |       | $                                                        | 1,524      | ** ** | $ | 1,374 |   | $ | 3,766 |   |
| NON-CASH INVESTING ACTIVITIES:                                               |       |                                                     | ** ** |   |   |   |   |
| Assets contributed from Ferrellgas Partners in  connection with acquisitions |       | $                                                        | 3,061      | ** ** | $ | 5,515 |   | $ | — |   |
| Issuance of liabilities in connection with  acquisitions                     |       | $                                                        | 5,494      | ** ** | $ | 1,673 |   | $ | — |   |
| Property, plant and equipment additions                                      |       | $                                                        | 593        | ** ** | $ | 973 |   | $ | 1,970 |   |

 

(**5) Accounts receivable securitization:**Ferrellgas, L.P. has agreements to transfer, on an ongoing basis, a portion ofits trade accounts receivable through Ferrellgas Receivables, an entity thatmaintains an accounts receivable securitization facility that is a wholly-ownedunconsolidated special purpose entity. Ferrellgas, L.P. retains servicingresponsibilities as well as a retained interest in the transferred receivables.Ferrellgas, L.P. also holds a note receivable from Ferrellgas Receivables tothe extent that expected cash proceeds from the sales of accounts receivable toFerrellgas Receivables have not been received. Ferrellgas, L.P. has no othercontinuing involvement with the transferred receivables, other than servicingthe receivables. The related receivables are transferred from the consolidatedbalance sheets and a retained interest and note receivable are recorded for theamount of receivables sold in excess of cash received and a related loss on thetransfer is recorded, which represents the discount on the sale. The retainedinterest and note receivable are included in “Accounts and notes receivable,net” in the consolidated balance sheets. See Note B — Summary of significantaccounting policies — (20) New accounting standards — Transfers of financialassets and variable interest entities — below regarding a new accountingstandard for financial asset transfers effective August 1, 2010.

 

Ferrellgas, L.P. determines the fair value of its retained interest andnote receivable based on the present value of future expected cash flows usingmanagement’s best estimates of various factors, including credit lossexperience and discount rates commensurate with the risks involved. Theseassumptions are updated periodically based on actual results; therefore, theestimated credit loss and discount rates utilized are materially consistentwith historical performance. Due to the short-term nature of Ferrellgas, L.P.’strade receivables, variations in the credit and discount assumptions would notsignificantly impact the fair value of the retained interests and notereceivable. Costs associated with the sale of receivables are included in “Losson disposal of assets and other” in the consolidated statements of earnings.See Note F — Accounts and notes receivable, net and accounts receivablesecuritization — for further discussion of these transactions.

 

**(6) Inventories: **Inventories are stated atthe lower of cost or market using weighted average cost and actual costmethods.

 

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**(7) Property, plant and equipment: **Property, plant and equipment are stated at cost less accumulateddepreciation. Expenditures for maintenance and routine repairs are expensed asincurred. Ferrellgas, L.P. capitalizes computer software, equipment replacementand betterment expenditures that upgrade, replace or completely rebuild majormechanical components and extend the original useful life of the equipment.Depreciation is calculated using the straight-line method based on theestimated useful lives of the assets ranging from two to 30 years. Ferrellgas,L.P., using its best estimates based on reasonable and supportable assumptionsand projections, reviews long-lived assets for impairment whenever events orchanges in circumstances indicate that the carrying amount of its assets mightnot be recoverable. See Note E — Supplemental financial statement information —for further discussion of property, plant and equipment.

 

**(8) Goodwill:** Ferrellgas, L.P. records goodwill as theexcess of the cost of acquisitions over the fair value of the related netassets at the date of acquisition. Goodwill is tested for impairment annuallyon January 31, or more frequently if circumstances dictate, and if impaired,written off against earnings at that time. Ferrellgas, L.P. has not recognizedany impairment losses as a result of these tests. For purposes of Ferrellgas,L.P.’s goodwill impairment test, Ferrellgas, L.P. has determined that it hasone reporting unit. Ferrellgas, L.P. assesses the carrying value of goodwill atits reporting unit based on an estimate of the fair value of the reportingunit. Fair value of the reporting unit is estimated using a market valueapproach taking into consideration the quoted market price of FerrellgasPartners’ common units.

 

**(9) Intangible assets:**Intangible assets withfinite useful lives, consisting primarily of customer lists, non-compete agreementsand patented technology, are stated at cost, net of accumulated amortizationcalculated using the straight-line method over periods ranging from two to 15years. Trade names and trademarks have indefinite lives, are not amortized, andare stated at cost. Ferrellgas, L.P. tests finite-lived intangible assets forimpairment when events or changes in circumstances indicate that the carryingamount of these assets might not be recoverable. Ferrellgas, L.P. testsindefinite-lived intangible assets for impairment annually on January 31 ormore frequently if circumstances dictate. Ferrellgas, L.P. has not recognizedimpairment losses as a result of these tests. When necessary, intangible assets’useful lives are revised and the impact on amortization reflected on aprospective basis. See Note G — Goodwill and intangible assets, net — forfurther discussion of intangible assets.

 

**(10) Derivatives and hedging activities:** Ferrellgas, L.P.’s overallobjective for entering into derivative contracts, including commodity optionsand swaps, is to hedge a portion of its exposure to market fluctuations inpropane prices. These financial instruments are formally designated anddocumented as a hedge of a specific underlying exposure, as well as the riskmanagement objectives and strategies for undertaking the hedge transaction.Because of the high degree of correlation between the hedging instrument andthe underlying exposure being hedged, fluctuations in the value of thederivative instrument are generally offset by changes in the anticipated cashflows of the underlying exposure being hedged. The fair value of thesederivatives fluctuates over the length of the contracts. These fair valueamounts should not be viewed in isolation, but rather in relation to theanticipated cash flows of the underlying hedged transaction and the overallreduction in our risk relating to adverse fluctuations in propane prices.Ferrellgas, L.P. formally assesses, both at inception and at least quarterlythereafter, whether the financial instruments that are used in hedgingtransactions are effective at offsetting changes in the anticipated cash flowsof the related underlying exposures. Any ineffective portion of a financialinstrument’s change in fair value is recognized in “Cost of product sold -propane and other gas liquids sales” in the consolidated statements ofearnings. Ferrellgas, L.P. also enters into derivative contracts that qualifyfor the normal purchase normal sales exception within GAAP guidance. Financialinstruments formally designated and documented as a hedge of a specificunderlying exposure are recorded gross at fair 

 

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value as either “Prepaid expenses and other current assets” or “Othercurrent liabilities” on the consolidated balance sheets with changes in fairvalue reported in other comprehensive income.

 

**(11) Revenue recognition:** Revenues from thedistribution of propane and other gas liquids, including revenues from customerdeposits and advances, are recognized by Ferrellgas, L.P. at the time productis delivered to its customers. Other revenues, which include revenue from thesale of propane appliances and equipment is recognized at the time of deliveryor installation. Revenues from repairs and maintenance are recognized uponcompletion of the service. Ferrellgas, L.P. recognizes shipping and handlingrevenues and expenses for sales of propane, appliances and equipment at thetime of delivery or installation. Shipping and handling revenues are includedin the price of propane charged to customers, and are classified as revenue.Revenues from annually billed, non-refundable tank rentals are recognized on astraight-line basis over one year. Cooperative advertising program costs arerecorded as a reduction to our revenue.

 

**(12) Shipping and handling expenses:**Shipping and handlingexpenses related to delivery personnel, vehicle repair and maintenance andgeneral liability expenses are classified within “Operating expense” in theconsolidated statements of earnings. Depreciation expenses on delivery vehiclesFerrellgas, L.P. owns are classified within “Depreciation and amortizationexpense.” Delivery vehicles and distribution technology leased by Ferrellgas,L.P. are classified within “Equipment lease expense.” See Note E — Supplementalfinancial statement information - for the financial statement presentation ofshipping and handling expenses.

 

**(13) Cost of product sold:** “Cost of product sold —propane and other gas liquids sales” includes all costs to acquire propane andother gas liquids, the costs of storing and transporting inventory prior todelivery to Ferrellgas, L.P.’s customers, the results from risk managementactivities to hedge related price risk and the costs of materials related tothe refurbishment of Ferrellgas, L.P.’s portable propane tanks. “Cost ofproduct sold — other” primarily includes costs related to the sale of propaneappliances and equipment.

 

**(14) Operating expenses:** “Operating expense”primarily includes the personnel, vehicle, delivery, handling, plant, office,selling, marketing, credit and collections and other expenses related to theretail distribution of propane and related equipment and supplies.

 

**(15) General and administrative expenses: “**General andadministrative expense” primarily includes personnel and incentive expenserelated to executives and employees and other overhead expense related tocentralized corporate functions.

 

**(16)**** ****Unitand stock-based compensation:**

 

**Ferrellgas Unit Option Plan (“UOP”)**

The UOP is authorized to issue options covering up to 1.35 millioncommon units to employees of the general partner or its affiliates. TheCompensation Committee of the Board of Directors of the general partneradministers the UOP, authorizes grants of unit options thereunder and sets theunit option price and vesting terms of unit options in accordance with theterms of the UOP. No single officer or director of the general partner mayacquire more than 314,895 common units under the UOP. The options currentlyoutstanding under the UOP vest over a five-year period, and expire on the tenthanniversary of the date of the grant. The fair value of each option award isestimated on the date of grant using a binomial option valuation model.Expected volatility is based on the historical volatility of FerrellgasPartners’ publicly-traded common units. Historical information is used toestimate option exercise and employee termination behavior. Management believesthat there are three groups of employees eligible to participate in the UOP.The expected term of options granted is derived from historical exercisepatterns and represents the period of time that options 

 

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are expected to be outstanding. The risk free rate for periods withinthe contractual life of the option is based on the U.S. Treasury yield curve ineffect at the time of grant. During the years ended July 31, 2010 and 2009, theportion of the total non-cash compensation charge relating to the UOP was $23thousand and $15 thousand, respectively, and related to grants of unit optionsto acquire 0.3 million common units. During the year ended July 31, 2008, nocompensation charge relating to the UOP was recognized as all optionsoutstanding at that time were fully vested.

 

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

 

The ICP is not a Ferrellgas, L.P. stock-compensation plan; however, inaccordance with Ferrellgas, L.P.’s partnership agreements, all employee-relatedcosts incurred by Ferrell Companies are allocated to Ferrellgas, L.P. As aresult, Ferrellgas, L.P. incurs a non-cash compensation charge from FerrellCompanies. During the years ended July 31, 2010, 2009 and 2008, the portion ofthe total non-cash compensation charge relating to the ICP was $7.8 million,$2.3 million and $1.8 million, respectively.

 

Ferrell Companies is authorized to issue options covering up to 9.25million shares of Ferrell Companies common stock under the ICP. The ICP wasestablished by Ferrell Companies to allow upper middle and senior levelmanagers as well as directors of the general partner to participate in theequity growth of Ferrell Companies. The shares underlying the stock options arecommon shares of Ferrell Companies; therefore, there is no earnings per sharedilution of Ferrellgas, L.P. The ICP stock options vest ratably over periodsranging from zero to 12 years or 100% upon a change of control of FerrellCompanies, or upon the death, disability or retirement at the age of 65 of theparticipant. Vested options are exercisable in increments, but in no eventlater than 10 or 20 years from the date of issuance. The fair value of eachoption award is estimated on the date of grant using a binomial optionvaluation model.

 

**(17)**** ****Incometaxes: **Ferrellgas, L.P. is a limited partnership and owns four subsidiariesthat are taxable corporations. As a result, except for the taxablecorporations, Ferrellgas, L.P.’s earnings or losses for federal income taxpurposes are included in the tax returns of the individual partners.Accordingly, the accompanying consolidated financial statements of Ferrellgas,L.P. reflect federal income taxes related to the above mentioned taxablecorporations and certain states that allow for income taxation of partnerships.Net earnings for financial statement purposes may differ significantly fromtaxable income reportable to partners as a result of differences between thetax basis and financial reporting basis of assets and liabilities, the taxableincome allocation requirements under Ferrellgas, L.P.’s partnership agreementand differences between Ferrellgas, L.P.’s financial reporting year end andlimited partners tax year end.

 

Income tax expense consisted of the following:

 
| ** **                 | ** ** | **For the year ended July 31,** | ** ** |
|----------------------------|------------|----------------------------------------------------------|------------|
| ** **                 | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Current expense            |       | $                                                        | 1,451      |   | $ | 1,820 |   | $ | 1,656 |   |
| Deferred expense (benefit) |       | 439                                                      |       | 388 |   | (1,650 | ) |
| Income tax expense         |       | $                                                        | 1,890      |   | $ | 2,208 |   | $ | 6 |   |

 

Deferred taxes consisted of the following:

 
|                       | * * | ** ** | ** ** | **2010** | ** ** | **2009** | ** ** |
|----------------------------|----------|------------|------------|----------|------------|----------|------------|
| Deferred tax assets        |     |       |       | $        | 1,030      |     | $          | 877 |   |
| Deferred tax liabilities   |     |       |       | (2,481   | )          | (1,889   | )          |
| Net deferred tax liability |     |       |       | $        | (1,451     | )        | $          | (1,012 | ) |

 

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During fiscal 2008, the Governor of the State of Michigan signed intolaw a one time credit for the Michigan Business Tax Act. The passing of thisnew tax law caused Ferrellgas, L.P. to recognize a one time deferred taxbenefit of $2.8 million during fiscal 2008.

 

**(18) Sales taxes:**Ferrellgas, L.P. accountsfor the collection and remittance of sales tax on a net tax basis. As a result,these amounts are not reflected in the consolidated statements of earnings.

 

**(19)****Segment information:**Ferrellgas, L.P. is a single reportable operating segment engaging in thedistribution of propane and related equipment and supplies to customers primarilyin the United States.

 

**(20) New accounting standards:**

 

**Transfers of Financial Assets and Variable Interest Entities**

 

In June 2009, the Financial Accounting Standards Board (“FASB”) issuedtwo amendments to existing GAAP, one of which eliminates the concept of aqualifying special-purpose-entity (QSPEs). The second amends guidanceapplicable to variable interest entities (VIEs).  The provisions of these amendments haveeliminated the QSPE status and have required Ferrellgas, L.P. to evaluate allVIE’s to determine whether they must be consolidated effective August 1,2010.  As a result of the amendments,beginning August 1, 2010, Ferrellgas Receivables will be accounted for as aconsolidated subsidiary and $108.9 million of trade receivables and a correspondingshort-term secured liability will be recorded on Ferrellgas, L.P.’sconsolidated balance sheets. Borrowings and repayments under the facility willbe reported in the financing section of the statement of cash flows. Uponadoption Ferrellgas, L.P. does not expect an impact on its results ofoperations and does not expect an impact from the short-term secured liabilityon any debt covenant agreements.

 

**FASB Codification**

 

In June 2009, the FASB approved its Accounting Standards Codification (“Codification”)as the exclusive authoritative reference for U.S. GAAP for SEC registrants. TheCodification, which changes the referencing of accounting standards, iseffective for interim and annual reporting periods ending after September 15,2009. The adoption of the Codification effective August 1, 2009 did not have asignificant impact on Ferrellgas, L.P.’s financial position, results ofoperations or cash flows.

 

**Business Combinations**

 

In December 2007, the FASB issued guidance that establishes principlesand requirements for how the acquirer in a business combination recognizes andmeasures the identifiable assets acquired, the liabilities assumed, and anynoncontrolling interest in the acquiree, how the acquirer recognizes andmeasures goodwill or a gain from a bargain purchase (formerly negativegoodwill) and how the acquirer determines what information to disclose. Thisguidance is effective for business combinations for which the acquisition dateis on or after the beginning of the first annual reporting period beginning onor after December 15, 2008. The adoption of this guidance effective August 1,2009 did not have a significant impact on Ferrellgas, L.P.’s financialposition, results of operations or cash flows.

 

**C**.            **Business combinations**

 

Business combinations areaccounted for under the purchase method and the assets acquired and liabilitiesassumed are recorded at their estimated fair market values as of theacquisition dates. The results of operations are included in the consolidated statementsof earnings from the date of acquisition. The pro forma effect of thesetransactions was not material to Ferrellgas, L.P.’s results of operations.

 

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During fiscal 2010,Ferrellgas, L.P. acquired propane distribution assets with an aggregate valueof $45.1 million in the following transaction:

 

·                  Vanson, LLC,based in Michigan, acquired September 2009.

 

This acquisition was funded by $36.5 million in cash payments, theissuances of $5.5 million of liabilities and other costs and considerations,and the contribution of net assets of $3.1 million from Ferrellgas Partners.

 

The aggregate fair value of this transaction was allocated as follows:

 
| Customer tanks, buildings, land and other |   | $      | 14,707 |   |
|-------------------------------------------|--------|--------|--------|--------|
| Non-compete agreements                    |   | 3,271  |   |
| Customer lists                            |   | 27,136 |   |
|                                      |   | $      | 45,114 |   |

 

Theestimated fair values and useful lives of assets acquired are based on apreliminary internal valuation and are subject to final valuation adjustments.Ferrellgas, L.P. intends to continue its analysis of the net assets of thesetransactions to determine the final allocation of the total purchase price tothe various assets and liabilities acquired.

 

During fiscal 2009, Ferrellgas, L.P. acquired propane distributionassets with an aggregate value of $10.0 million in the following fourtransactions:

 

·                  LorensenPropane Gas, Inc., based in California, acquired September 2008;

·                  HBH GasSystems, LLC — Austin’s Colony Phase 5, based in Texas, acquired September2008;

·                  OttawaCooperative, based in Kansas, acquired May 2009; and

·                  Town &Country Propane, Inc, based in Missouri, acquired July 2009.

 

These acquisitions were funded by $2.7 million in cash payments, theissuances of $1.8 million of liabilities and other costs and considerations,and the contribution of net assets of $5.5 million from Ferrellgas Partners.

 

The aggregate fair values of these four transactions were allocated asfollows:

 
| Customer tanks, buildings, land and other |   | $     | 3,031  |   |
|-------------------------------------------|--------|-------|--------|--------|
| Non-compete agreements                    |   | 1,438 |   |
| Customer lists                            |   | 5,475 |   |
| Working capital                           |   | 6     |   |
|                                      |   | $     | 9,950  |   |

 

Theestimated fair values and useful lives of assets acquired are based on aninternal valuation and included only minor adjustments during the 12 monthperiod after the date of acquisition.

 

During fiscal 2008, Ferrellgas, L.P. had no acquisitions of propanedistribution assets.

 

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**D.****           ****Quarterlydistributions of available cash**

 

Ferrellgas, L.P. makes quarterly cash distributions of all of its “availablecash.” Available cash is defined in the partnership agreement of Ferrellgas,L.P. as, generally, the sum of its consolidated cash receipts less consolidatedcash disbursements and net changes in reserves established by the generalpartner for future requirements. Reserves are retained in order to provide forthe proper conduct of Ferrellgas, L.P.’s business, or to provide funds fordistributions with respect to any one or more of the next four fiscal quarters.Distributions are made within 45 days after the end of each fiscal quarterending October, January, April, and July.

 

Distributions by Ferrellgas, L.P. in an amount equal to 100% of itsavailable cash, as defined in its partnership agreement, will be madeapproximately 99% to Ferrellgas Partners and approximately 1% to the generalpartner.

 

**E.****           ****Supplementalfinancial statement information**

 

Inventories consist of the following:

 
| ** **                       | ** ** | **2010** | ** ** | **2009** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Propane gas and related products |       | $        | 146,805    |     | $          | 109,606 |   |
| Appliances, parts and supplies   |       | 20,106   |       | 20,202   |       |
| Inventories                      |       | $        | 166,911    |     | $          | 129,808 |   |

 

Inaddition to inventories on hand, Ferrellgas, L.P. enters into contractsprimarily to buy propane for supply procurement purposes. Most of thesecontracts have terms of less than one year and call for payment based on marketprices at the date of delivery. All supply procurement fixed price contractshave terms of fewer than 24 months. As of July 31, 2010, Ferrellgas, L.P.had committed, for supply procurement purposes, to take net delivery ofapproximately 72.3 million gallons of propane at fixed prices.

 

Property, plant and equipment, net consist of the following:

 
| ** **                              | ** ** | **Estimated**         | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|------------|------------|------------|------------|
| ** **                              | ** ** | **useful lives** | ** ** | **2010**   | ** ** | **2009**   | ** ** |
| Land                                    |       | Indefinite            |       | $          | 30,566     |       | $          | 30,414 |   |
| Land improvements                       |       | 2-20                  |       | 11,108     |       | 10,858     |       |
| Buildings and improvements              |       | 20                    |       | 66,114     |       | 64,392     |       |
| Vehicles, including transport trailers  |       | 8-20                  |       | 99,246     |       | 92,914     |       |
| Bulk equipment and district facilities  |       | 5-30                  |       | 103,748    |       | 100,123    |       |
| Tanks, cylinders and customer equipment |       | 2-30                  |       | 770,865    |       | 767,682    |       |
| Computer and office equipment           |       | 2-5                   |       | 115,189    |       | 115,343    |       |
| Construction in progress                |       | n/a                   |       | 2,823      |       | 5,853      |       |
|                                    |       |                  |       | 1,199,659  |       | 1,187,579  |       |
| Less: accumulated depreciation          |       |                  |       | 546,891    |       | 521,044    |       |
| Property, plant and equipment, net      |       |                  |       | $          | 652,768    |       | $          | 666,535 |   |

 

Depreciationexpense totaled $61.3 million, $62.3 million and $64.6 million for fiscal 2010,2009 and 2008, respectively.

 

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Other current liabilities consist of the following:

 
| ** **                     | ** ** | **2010** | ** ** | **2009** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Accrued interest               |       | $        | 17,324     |     | $          | 16,723 |   |
| Accrued payroll                |       | 20,464   |       | 23,395   |       |
| Customer deposits and advances |       | 23,280   |       | 23,115   |       |
| Other                          |       | 43,667   |       | 42,428   |       |
| Other current liabilities      |       | $        | 104,735    |     | $          | 105,661 |   |

 

Losson disposal of assets and other consist of the following:

 
| ** **                                                                                 | ** ** | **For the year ended July 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Loss on disposal of assets                                                                 |       | $                                                        | 7,296      |   | $ | 5,009 |   | $ | 4,820 |   |
| Loss on transfer of accounts receivable related to  the accounts receivable securitization |       | 6,566                                                    |       | 12,124 |   | 10,548 |   |
| Service  income related to the accounts receivable Securitization                          |       | (5,377                                                   | )          | (4,091 | ) | (4,118 | ) |
| Loss on disposal of assets and other                                                       |       | $                                                        | 8,485      |   | $ | 13,042 |   | $ | 11,250 |   |

 

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

 
| ** **                            | ** ** | **For the year ended July 31,** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                            | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Operating expense                     |       | $                                                        | 183,612    |   | $ | 178,218 |   | $ | 171,938 |   |
| Depreciation and amortization expense |       | 5,601                                                    |       | 4,915 |   | 5,096 |   |
| Equipment lease expense               |       | 14,192                                                   |       | 17,541 |   | 22,703 |   |
|                                  |       | $                                                        | 203,405    |   | $ | 200,674 |   | $ | 199,737 |   |

 

**F.****            ****Accountsand notes receivable, net and accounts receivable securitization**

 

Accounts and notes receivable, net consist of the following:

 
| ** **                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Accounts receivable                         |       | $        | 33,725     |     | $          | 33,903 |   |
| Note receivable from Ferrellgas Receivables |       | 44,927   |       | 52,038   |       |
| Retained interest                           |       | 15,323   |       | 24,979   |       |
| Other                                       |       | 269      |       | 284      |       |
| Less: Allowance for doubtful accounts       |       | (5,010   | )          | (4,294   | )          |
| Accounts and notes receivable, net          |       | $        | 89,234     |     | $          | 106,910 |   |

 

During April 2010, Ferrellgas, L.P. executed a new accountsreceivable securitization facility with Wells Fargo Bank, N.A., Fifth ThirdBank and BNP Paribas. This new accounts receivable securitization facility has$145.0 million of capacity, matures on April 4, 2013 and replacesFerrellgas, L.P.’s previous 364-day facility which was to expire on April 14,2010. As part of this new facility, Ferrellgas, L.P. transfers a portion of itstrade accounts receivable to Ferrellgas Receivables, which finances itsacquisition of the trade receivable assets by issuing beneficial interests in(securitizing) the receivables to a commercial paper conduit for proceeds of upto $145.0 million. Ferrellgas, L.P. does not provide any guarantee or similarsupport to the collectability of these receivables. Ferrellgas, L.P. structuredthe facility using a wholly-owned, unconsolidated special 

 

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purpose entity in order to facilitate the transaction while complyingwith Ferrellgas, L.P.’s various debt covenants. If the covenants arecompromised, funding from the facility could be restricted or suspended, or itscosts could increase. As a servicer, Ferrellgas, L.P. remits daily to thisspecial purpose entity funds collected on the trade receivables held byFerrellgas Receivables.

 

Ferrellgas, L.P. transfers a portion of its trade accounts receivableto Ferrellgas Receivables and retains an interest and a note receivable relatedto these transferred receivables. As these transferred receivables aresubsequently collected, the funding from the accounts receivable securitizationfacility is reduced. Ferrellgas Receivables recorded the following on itsbalance sheet:

 
| ** **                                                   | ** ** | **2010** | ** ** | **2009** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|
| Trade accounts receivable transferred from  Ferrellgas, L.P. |       | $        | 108,929    |     | $          | 118,982 |   |
|                                                         |       |     |       |     |       |
| Note payable to Ferrellgas, L.P.                             |       | 44,927   |       | 52,038   |       |
|                                                              |            |          |            |          |            |  |  |

 

Ferrellgas, L.P.’s consolidated balance sheets do not include tradeaccounts receivables transferred, but do include a note receivable fromFerrellgas Receivables which represents expected cash proceeds from the sale ofaccounts receivable to Ferrellgas Receivables that have not yet been received.As of July 31, 2010, Ferrellgas, L.P. had received proceeds from tradeaccounts receivable sales of $47.0 million with the ability to receive proceedsof an additional $11.0 million. See Note B — Summary of significant accountingpolicies — “(20) New accounting standards” regarding a new accounting standardfor financial asset transfers effective August 1, 2010.

 

Other accounts receivable securitization activity consists of thefollowing:

 
| ** **            | ** ** | **For the year ended  July 31,** | ** ** |
|-----------------------|------------|------------------------------------------------------|------------|
| ** **            | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| Net non-cash activity |       | $                                                    | 1,189      |   | $ | 8,033 |   |
| Bad debt expense      |       | (600                                                 | )          | 600 |   |
|                       |            |                                                      |            |  |  |  |  |

 

The net non-cash activity is reported in “Loss on disposal of assetsand other” in the consolidated statements of earnings. See details of the netnon-cash activity disclosed in Note E — Supplemental financial statementinformation — “Loss on transfer of accounts receivable related to the accountsreceivable securitization” and “Service income related to the accountsreceivable securitization.” The weighted average discount rate used to valuethe retained interest in the transferred receivables was 3.4% and 3.6% as of July 31,2010 and 2009, respectively.

 

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**G.****          ****Goodwilland intangible assets, net**

 

Goodwill and intangible assets, net consist of:

 
| ** **                        | ** ** | **July 31, 2010** | ** ** | **July 31, 2009** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                        | ** ** | **Gross**                   | ** ** | ** **                  | ** ** | ** ** | ** ** | **Gross** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **carrying**                | ** ** | **Accumulated**             | ** ** | ** ** | ** ** | **carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **amount**                  | ** ** | **amortization**            | ** ** | **Net** | ** ** | **amount** | ** ** | **amortization** | ** ** | **Net** | ** ** |
| Goodwill, net                     |       | $                           | 248,939    |                        | $          | — |   | $ | 248,939 | ** ** | $ | 248,939 |   | $ | — |   | $ | 248,939 |   |
|                              |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Intangible assets, net            |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Amortized intangible assets       |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Customer lists                    |       | $                           | 395,682    |                        | $          | (244,197 | ) | $ | 151,485 |   | $ | 368,716 |   | $ | (225,038 | ) | $ | 143,678 |   |
| Non-compete agreements            |       | 44,341                      |       | (35,203                     | )          | 9,138 |   | 44,481 |   | (36,957 | ) | 7,524 |   |
| Other                             |       | 3,507                       |       | (2,190                      | )          | 1,317 |   | 3,584 |   | (1,860 | ) | 1,724 |   |
|                              |       | 443,530                     |       | (281,590                    | )          | 161,940 |   | 416,781 |   | (263,855 | ) | 152,926 |   |
|                              |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Unamortized intangible assets     |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Trade names & trademarks |       | 59,117                      |       | —                      |       | 59,117 |   | 59,111 |   | — |   | 59,111 |   |
| Total intangible assets, net      |       | $                           | 502,647    |                        | $          | (281,590 | ) | $ | 221,057 |   | $ | 475,892 |   | $ | (263,855 | ) | $ | 212,037 |   |

 

Customer lists have estimated lives of 15 years, while non-competeagreements and other intangible assets have estimated lives ranging from two toten years. Ferrellgas, L.P. intends to utilize all acquired trademarks andtrade names and does not believe there are any legal, regulatory, contractual,competitive, economical or other factors that would limit their useful lives.Therefore, trademarks and trade names have indefinite useful lives.

 

Aggregate amortization expense:

 

For the year ended July 31,

 
| 2010 |   | $      | 21,180 |   |
|------|--------|--------|--------|--------|
| 2009 |   | 20,166 |   |
| 2008 |   | 20,970 |   |

 

Estimated amortization expense:

 

For the year ended July 31,

 
| 2011 |   | $      | 21,277 |   |
|------|--------|--------|--------|--------|
| 2012 |   | 20,829 |   |
| 2013 |   | 20,278 |   |
| 2014 |   | 17,010 |   |
| 2015 |   | 14,183 |   |

 

**H.****          ****Debt**

 

***Short-term borrowings***

 

Ferrellgas, L.P. classified a portion of its credit facility borrowingsas short-term because it was used to fund working capital needs that managementhad intended to pay down within the 12 month period following each balancesheet date. As of July 31, 2010 and 2009, $67.2 million and $66.2 million,respectively, were classified as short-term borrowings. For further discussionsee the secured credit facility section below.

 

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***Long-term debt***

 

Long-term debt consists of the following:

 
| ** **                                                                                                                                                                                                                       | ** ** | **2010** | ** ** | **2009** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Senior notes**                                                                                                                                                                                                                 |       |     |       |     |       |
| Fixed rate, 6.75% due 2014, net of unamortized  discount of $21,974 and $26,458 at July 31, 2010 and 2009, respectively  (1)                                                                                                |       | $        | 428,026    |     | $          | 423,542 |   |
| Fixed rate, 9.125%, due 2017, net of unamortized  discount of $3,870 (2)                                                                                                                                                         |       | 296,130  |       | —   |       |
| Fixed rate, Series D-E, ranging from 7.24% to  7.42% due 2010-2013                                                                                                                                                          |       | —   |       | 152,000  |       |
| Fixed rate, Series C, 8.87%, due 2009                                                                                                                                                                                       |       | —   |       | 73,000   |       |
|                                                                                                                                                                                                                             |       |     |       |     |       |
| **Credit facility**                                                                                                                                                                                                              |       |     |       |     |       |
| Secured, variable interest rate, expiring 2012  (net of $67.2 million classified as short-term borrowings)                                                                                                                       |       | 99,797   |       | —   |       |
| Unsecured, variable interest rate, expiring 2010  (net of $66.2 million classified as short-term borrowings)                                                                                                                     |       | —   |       | 88,541   |       |
|                                                                                                                                                                                                                             |       |     |       |     |       |
| **Notes payable**, 9.5% and  8.4% weighted average interest rate at July 31, 2010 and 2009,  respectively, due 2010 to 2016, net of unamortized discount of $2,876 and  $1,301 at July 31, 2010 and 2009, respectively |       | 9,475    |       | 5,321    |       |
|                                                                                                                                                                                                                             |       | 833,428  |       | 742,404  |       |
| Less: current portion, included in other current  liabilities on the consolidated balance sheets                                                                                                                                 |       | 2,340    |       | 1,422    |       |
| **Long-term debt**                                                                                                                                                                                                               |       | $        | 831,088    |     | $          | 740,982 |   |

 

----

(1)                                 On April 20, 2004,Ferrellgas, L.P. issued $250.0 million of its fixed rate senior notes with a debtdiscount of $0.9 million that will be amortized to interest expense through2014. On August 4, 2008, Ferrellgas, L.P. issued $200.0 million of itsfixed rate senior notes with a debt discount of $30.0 million that will beamortized to interest expense through 2014. These notes are general unsecuredobligations of Ferrellgas, L.P. and rank on an equal basis in right of paymentwith all senior indebtedness of Ferrellgas, L.P. and are senior to allsubordinated indebtedness of Ferrellgas, L.P. The outstanding principal amountis due on May 1, 2014. Ferrellgas, L.P. would incur prepayment penaltiesif it were to repay the notes prior to 2012.

 

(2)                                 On September 14, 2009,Ferrellgas, L.P. issued $300.0 million of its fixed rate senior notes with adebt discount of $4.2 million that will be amortized to interest expensethrough 2017. These notes are senior unsecured obligations of Ferrellgas, L.P.and rank on an equal basis in right of payment with all senior indebtedness ofFerrellgas, L.P., are senior to all subordinated indebtedness of Ferrellgas,L.P. and are junior to all secured indebtedness of Ferrellgas, L.P. Theoutstanding principal amount is due on October 1, 2017. Ferrellgas, L.P.would incur prepayment penalties if it were to repay the notes prior to 2015.

 

*Senior notes*

 

During August 2009, Ferrellgas, L.P. made scheduled principalpayments of $73.0 million on the 8.87% Series C senior notes.

 

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During September 2009, Ferrellgas, L.P. issued $300.0 million inaggregate principal amount of new 9.125% senior notes due 2017 at an offeringprice equal to 98.6% of par with the proceeds used to fund the October 2009note payments discussed below and to reduce borrowings on the unsecured creditfacility due April 2010.

 

During October 2009, Ferrellgas, L.P. prepaid the outstandingprincipal amount on its $82.0 million 7.24% series D notes due August 1,2010 and its $70.0 million 7.42% series E notes due August 1, 2013 and therelated prepayment premiums of $17.3 million.

 

*Secured credit facility*

 

DuringNovember 2009, Ferrellgas, L.P. closed on a new secured credit facilitythat provides $400.0 million in revolving credit for loans and has a $200.0million sublimit for letters of credit. This secured credit facility replacedFerrellgas, L.P.’s unsecured credit facility due April 2010 and willmature in November 2012.

 

Thesecured credit facility contains various affirmative and negative covenants anddefault provisions, as well as requirements with respect to the maintenance ofspecified financial ratios and limitations on the making of loans andinvestments.

 

During April 2010, Ferrellgas, L.P. received cash contributions of$30.5 million and $0.3 million from Ferrellgas Partners and the generalpartner, respectively, which were used to reduce borrowings outstanding underthe secured credit facility. As of July 31, 2010, Ferrellgas, L.P. hadtotal borrowings outstanding under this secured credit facility due November 2012of $167.0 million, of which $99.8 million was classified as long-term debt. Asof July 31, 2009, Ferrellgas, L.P. had total borrowings outstanding underits unsecured credit facility of $154.7 million, of which $88.5 million wasclassified as long-term debt.

 

Borrowingsunder the secured credit facility due November 2012 had a weighted averageinterest rate of 4.40% at July 31, 2010. All borrowings under the facilitybear interest, at Ferrellgas, L.P.’s option, at a rate equal to either:

 

·                  for Base RateLoans or Swing Line Loans, the Base Rate, which is defined as the higher ofi) the federal funds rate plus 0.50%, ii) Bank of America’s primerate; or iii) the Eurodollar Rate plus 1%; plus a margin varying from2.50% to 3.25% (as of July 31, 2010, the margin was 2.75%); or

·                  for EurodollarRate Loans, the Eurodollar Rate, which is defined as the LIBOR Rate plus amargin varying from 3.50% to 4.25% (as of July 31, 2010, the margin was3.75%).

 

As of July 31, 2010, the federal funds rate and Bank of America’sprime rate were 0.18% and 3.25%, respectively. As of July 31, 2010, theone-month and three-month Eurodollar Rates were 0.40% and 0.60%, respectively).

 

In addition, an annual commitment fee is payable at a per annum rate of0.50% times the actual daily amount by which the facility exceeds the sum of (i) theoutstanding amount of revolving credit loans and (ii) the outstandingamount of letter of credit obligations.

 

Theobligations under this secured credit facility are secured by substantially allassets of Ferrellgas, L.P., the general partner and certain subsidiaries ofFerrellgas, L.P. but specifically excluding (a) assets that are subject toFerrellgas, L.P.’s receivables securitization facility, (b) the generalpartner’s equity interest in Ferrellgas Partners and (c) equity interestin certain unrestricted 

 

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subsidiaries.Such obligations are also guaranteed by the general partner and certainsubsidiaries of Ferrellgas, L.P.

 

Letters of credit outstanding at July 31, 2010 totaled $47.1million and were used primarily to secure insurance arrangements and to alesser extent, product purchases. Letters of credit outstanding at July 31,2009 totaled $44.4 million and were used primarily to secure insurancearrangements and to a lesser extent, product purchases. At July 31, 2010,Ferrellgas, L.P. had available letter of credit remaining capacity of $152.9million. At July 31, 2009, Ferrellgas, L.P. had available letter of creditremaining capacity of $105.6 million. Ferrellgas, L.P. incurred commitment feesof $0.9 million, $0.9 million and $0.4 million in fiscal 2010, 2009 and 2008,respectively.

 

*Covenants*

 

The senior notes and the credit facility agreement contain variousrestrictive covenants applicable to Ferrellgas, L.P. and its subsidiaries, themost restrictive relating to additional indebtedness. In addition, Ferrellgas,L.P. is prohibited from making cash distributions if a default or event ofdefault exists or would exist upon making such distribution, or if Ferrellgas,L.P. fails to meet certain coverage tests. As of July 31, 2010,Ferrellgas, L.P. is in compliance with all requirements, tests, limitations andcovenants related to these debt agreements.

 

The scheduled annual principal payments on long-term debt are asfollows:

 
| **For the year ended July 31,** | ** ** | **Scheduled  annual  principal  payments** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|
| 2011                                                     |       | $                                          | 2,340      |   |
| 2012                                                     |       | 2,290                                      |       |
| 2013                                                     |       | 2,179                                      |       |
| 2014                                                     |       | 451,643                                    |       |
| 2015                                                     |       | 1,655                                      |       |
| Thereafter                                               |       | 402,041                                    |       |
| Total                                                    |       | $                                          | 862,148    |   |

 

The carrying amount of short-term financial instruments approximatesfair value because of the short maturity of the instruments. The estimated fairvalue of Ferrellgas, L.P.’s long-term debt instruments was $940.6 million and$791.3 million as of July 31, 2010 and 2009, respectively. The fair valueis estimated based on quoted market prices.

 

**I.****               ****Partners’capital**

 

*Partnership distributions paid*

 
| ** **          | ** ** | **For the year ended July 31,** | ** ** |
|---------------------|------------|----------------------------------------------------------|------------|
| ** **          | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Ferrellgas Partners |       | $                                                        | 191,822    |   | $ | 156,031 |   | $ | 150,815 |   |
| General partner     |       | $                                                        | 1,958      |   | $ | 1,592 |   | $ | 1,539 |   |

 

On August 27, 2010, Ferrellgas, L.P. declared distributions toFerrellgas Partners and the general partner of $35.1 million and $0.4 million,respectively, which were paid on September 14, 2010.

 

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* *

*Partnership contributions received*

 

During fiscal 2010, Ferrellgas, L.P. received cash contributionstotaling $51.3 million and $0.5 million from Ferrellgas Partners and thegeneral partner, respectively, and net asset contributions related toacquisitions totaling $3.1 million from Ferrellgas Partners and the generalpartner.

 

During fiscal 2009, Ferrellgas, L.P. received cash contributionstotaling $70.6 million and net asset contributions related to acquisitionstotaling $5.6 million from Ferrellgas Partners and the general partner.

 

During fiscal 2008, Ferrellgas, L.P. received no cash or net assetcontributions related to acquisitions from Ferrellgas Partners and the generalpartner.

 

See additional discussions about transactions with related parties inNote K — Transactions with related parties.

 

*Other comprehensive income (“OCI”)*

 

See Note J — Derivatives — for details regarding changes in fair valueon risk management financial derivatives recorded within OCI for the yearsended July 31, 2010 and 2009.

 

**J.****             ****Derivatives**

 

*Commodity Price Risk Management*

 

Ferrellgas,L.P.’s risk management activities primarily attempt to mitigate price risksrelated to the purchase, storage, transport and sale of propane generally inthe contract and spot markets from major domestic energy companies on ashort-term basis. Ferrellgas, L.P. attempts to mitigate these price risksthrough the use of financial derivative instruments and forward propanepurchase and sales contracts.

 

Ferrellgas,L.P.’s risk management strategy involves taking positions in the forward orfinancial markets that are equal and opposite to Ferrellgas, L.P.’s positionsin the physical products market in order to minimize the risk of financial lossfrom an adverse price change. This risk management strategy is successful whenFerrellgas, L.P.’s gains or losses in the physical product markets are offsetby its losses or gains in the forward or financial markets. These financialderivatives are designated as cash flow hedges.

 

Ferrellgas,L.P.’s risk management activities include the use of financial derivativeinstruments including, but not limited to, price swaps, options, futures andbasis swaps to seek protection from adverse price movements and to minimizepotential losses. Ferrellgas, L.P. enters into these financial derivativeinstruments directly with third parties in the over-the-counter market and withbrokers who are clearing members with the New York Mercantile Exchange.Ferrellgas, L.P. also enters into forward propane purchase and sales contractswith counterparties. These forward contracts qualify for the normal purchasenormal sales exception within GAAP guidance and are therefore not recorded byFerrellgas, L.P. prior to settlement.

 

*Cash Flow Hedging Activity*

 

Ferrellgas,L.P. uses financial derivative instruments for risk management purposes tohedge a portion of its exposure to market fluctuations in propane prices. Thesefinancial derivative instruments are designated as cash flow hedginginstruments, thus the effective portions of changes in the fair value of thefinancial derivatives are recorded in OCI prior to settlement and are 

 

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subsequentlyrecognized in the consolidated statements of earnings in “Cost of goods sold —propane and other gas liquids sales” when the forward or forecasted propane salestransaction impacts earnings. The effectiveness of cash flow hedges isevaluated at inception and on an on-going basis. Changes in the fair value ofcash flow hedges due to hedge ineffectiveness, if any, are recognized in “Costof product sold — propane and other gas liquids sales.” During the years ended July 31,2010 and 2009, Ferrellgas, L.P. did not recognize any gain or loss in earningsrelated to hedge ineffectiveness and did not exclude any component of thefinancial derivative contract gain or loss from the assessment of hedgeeffectiveness related to these cash flow hedges.

 

Thefair value of the financial derivative instruments below are included within “Prepaidexpenses and other current assets” and “Other current liabilities” on theconsolidated balance sheets:

 
| ** **                                           | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|
| Derivatives — Price risk management assets      |       | $        | 1,882      |     | $          | 3,391 |   |
| Derivatives — Price risk management liabilities |       | 2,039    |       | 4,380    |       |
|                                                      |            |          |            |          |            |  |  |

 

Ferrellgas,L.P. had the following cash flow hedge activity included in OCI in theconsolidated statement of partners’ capital:

 
| ** **                                                                                                                              | ** ** | **For the year  ended July 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| Fair value gain (loss) adjustment classified as  OCI with offset in Price risk management assets and Price risk management  liabilities |       | $                                                    | 12,063     |   | $ | (186,449 | ) |
|                                                                                                                                    |       |                                                 |       |   |   |
| Reclassification of net gains (losses) originally  recorded within OCI to Cost of product sold — propane and other gas liquids     |       | 11,231                                               |       | (166,711 | ) |
|                                                                                                                                         |            |                                                      |            |  |  |  |  |

 

Ferrellgas, L.P. expects to reclassify net losses of approximately $0.1million to earnings during the next 12 months. These net losses are expected tobe offset by margins on propane sales commitments Ferrellgas, L.P. has with itscustomers that qualify for the normal purchase normal sales exception.

 

During the years ended July 31, 2010 and 2009, Ferrellgas, L.P. hadno reclassifications to earnings resulting from discontinuance of any cash flowhedges arising from the probability of the original forecasted transactions notoccurring within the originally specified period of time defined within thehedging relationship.

 

As of July 31, 2010, Ferrellgas, L.P. had financial derivativecontracts covering 1.0 million barrels of propane that were entered into ascash flow hedges of forward and forecasted purchases of propane.

 

During the years ended July 31, 2010 and 2009, four counterpartiesrepresented 84% and 85%, respectively, of net settled cash flow hedgingpositions reported in “Cost of goods sold — propane and other gas liquidssales.” During the years ended July 31, 2010 and 2009, Ferrellgas, L.P.neither held nor entered into financial derivative contracts that containedcredit risk related contingency features.

 

In accordance with GAAP, Ferrellgas, L.P. determines the fair value ofits assets and liabilities subject to fair value measurement by using thehighest possible “Level” as defined within the GAAP hierarchy. The three levelsdefined by the GAAP hierarchy are as follows:

 

·      Level 1 —Quoted prices available in active markets for identical assets or liabilities.

 

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·      Level 2 — Pricinginputs not quoted in active markets but either directly or indirectlyobservable.

·                  Level 3 — Significant inputsto pricing that have little or no transparency with inputs requiringsignificant management judgment or estimation.

 

Ferrellgas, L.P. considers over-the-counter derivative instrumentsentered into directly with third parties as Level 2 valuation since the valuesof these derivatives are quoted by third party brokers and are on an exchangefor similar transactions. The market prices used to value Ferrellgas, L.P.’sderivatives have been determined using independent third party prices, readilyavailable market information, broker quotes, and appropriate valuationtechniques.

 

At July 31, 2010 and 2009, all derivative assets and liabilitiesqualified for classification as Level 2 - other observable inputs as defined bythe GAAP hierarchy. All financial derivatives assets and liabilities werenon-trading positions.

 

**K.****           ****Transactionswith related parties**

 

Ferrellgas, L.P. has no employees and is managed and controlled by itsgeneral partner. Pursuant to Ferrellgas, L.P.’s partnership agreement, thegeneral partner is entitled to reimbursement for all direct and indirectexpenses incurred or payments it makes on behalf of Ferrellgas, L.P., and allother necessary or appropriate expenses allocable to Ferrellgas, L.P. orotherwise reasonably incurred by its general partner in connection withoperating Ferrellgas, L.P.’s business. These costs primarily includecompensation and benefits paid to employees of the general partner who performservices on Ferrellgas, L.P.’s behalf and are reported in the consolidatedstatements of earnings as follows:

 
| ** **                         | ** ** | **For the year ended July 31,** | ** ** |
|------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                         | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                               |       |                                                     |       |   |   |   |   |   |   |   |
| Operating expense                  |       | $                                                        | 224,974    |   | $ | 217,374 |   | $ | 185,576 |   |
|                               |       |                                                     |       |   |   |   |   |   |   |   |
| General and administrative expense |       | $                                                        | 24,620     |   | $ | 23,801 |   | $ | 27,203 |   |

 

During fiscal 2009, Ferrellgas, L.P. received payments totaling $0.3 million for services provided to and subleaserevenue receipts from Samson Dental Practice Management, LLC, a companywholly-owned by Mr. Ferrell.

 

Elizabeth Solberg, a member of the general partner’s Board ofDirectors, serves as the General Manager of Fleishman—Hillard Inc. Duringfiscal 2010 and 2009, Ferrellgas, L.P. paid Fleishman-Hillard Inc. $0.2 millionand $0.2 million, respectively for marketing and communications services.

 

Seeadditional discussions about transactions with related parties in Note I —Partner’s capital.

 

**L.****            ****Contingenciesand commitments**

 

*Litigation*

 

Ferrellgas, L.P.’s operations are subject to all operating hazards andrisks normally incidental to handling, storing, transporting and otherwiseproviding for use by consumers of combustible liquids such as propane. As aresult, at any given time, Ferrellgas, L.P. is threatened with or named as adefendant in various lawsuits arising in the ordinary course of business.Currently, Ferrellgas, L.P. is not a party to any legal proceedings other thanvarious claims and lawsuits arising in the ordinary course of business. It isnot possible to determine the ultimate disposition of these matters; however, 

 

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management is of the opinion that there are no known claims orcontingent claims that are reasonably expected to have a material adverseeffect on the consolidated financial condition, results of operations and cashflows of Ferrellgas, L.P.

 

Ferrellgas,L.P. has been named as a defendant in lawsuits filed in multiple federal andstate courts that seek to certify nationwide or statewide classes related toits Blue Rhino branded propane tank exchange activities. The plaintiffs in eachcase generally allege that Ferrellgas, L.P. failed to inform consumers of theamount of propane contained in propane tanks they purchased and thatFerrellgas, L.P. violated anti-trust laws by allegedly conspiring with acompetitor. The federal cases have been coordinated for multidistrict treatmentin the United States District Court for the Western District of Missouri. Basedon Ferrellgas, L.P.’s business and consumer notification practices in its BlueRhino tank exchange operations, Ferrellgas, L.P. believes that all of theseclaims are without merit and intends to defend the claims vigorously.

 

*Long-term debt-related commitments*

 

Ferrellgas,L.P. has long and short-term payment obligations under agreements such assenior notes and its credit facility. See Note H - Debt - for a description ofthese debt obligations and a schedule of future maturities.

 

*Operating lease commitments and buyouts*

 

Ferrellgas,L.P. leases certain property, plant and equipment under noncancelable andcancelable operating leases. Amounts shown in the table below represent minimumlease payment obligations under Ferrellgas, L.P.’s third-party operating leaseswith terms in excess of one year for the periods indicated. These arrangementsinclude the leasing of transportation equipment, property, computer equipmentand propane tanks. Ferrellgas, L.P. accounts for these arrangements asoperating leases.

 

Ferrellgas,L.P. is required to recognize a liability for the fair value of guarantees. Theonly material guarantees Ferrellgas, L.P. has are associated with residualvalue guarantees of operating leases. Most of the operating leases involvingFerrellgas, L.P.’s transportation equipment contain residual value guarantees.These transportation equipment lease arrangements are scheduled to expire overthe next seven fiscal years. Most of these arrangements provide that the fairvalue of the equipment will equal or exceed a guaranteed amount, or Ferrellgas,L.P. will be required to pay the lessor the difference. The fair value of theseresidual value guarantees was $0.7 million as of July 31, 2010. Althoughthe fair values of the underlying equipment at the end of the lease terms havehistorically exceeded these guaranteed amounts, the maximum potential amount ofaggregate future payments Ferrellgas, L.P. could be required to make underthese leasing arrangements, assuming the equipment is worthless at the end ofthe lease term, was $8.5 million as of July 31, 2010. Ferrellgas, L.P.does not know of any event, demand, commitment, trend or uncertainty that wouldresult in a material change to these arrangements.

 

Operatinglease buyouts represent the maximum amount Ferrellgas, L.P. would pay if itwere to exercise its right to buyout the assets at the end of their lease term.

 

The following table summarizes Ferrellgas, L.P.’s contractual operatinglease commitments and buyout obligations as of July 31, 2010:

 

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| ** **                  | ** ** | **Future minimum rental and buyout amounts by fiscal year** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **                  | ** ** | **2011**                                                                                            | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **2015** | ** ** | **Thereafter** | ** ** |
|                        |       |                                                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Operating lease obligations |       | $                                                                                                   | 21,620     |   | $ | 14,505 |   | $ | 10,474 |   | $ | 8,410 |   | $ | 6,398 |   | $ | 10,427 |   |
| Operating lease buyouts     |       | $                                                                                                   | 5,350      |   | $ | 3,128 |   | $ | 813 |   | $ | 1,008 |   | $ | 501 |   | $ | 2,588 |   |

 

Certain property and equipment is leased under non-cancelable operatingleases, which require fixed monthly rental payments and which expire at variousdates through 2024. Rental expense under these leases totaled $33.7 million,$38.6 million, and $44.3 million for fiscal 2010, 2009 and 2008, respectively.

 

**M.****         ****Employeebenefits**

 

Ferrellgas, L.P. has no employees and is managed and controlled by itsgeneral partner. Ferrellgas, L.P. assumes all liabilities, which includespecific liabilities related to the following employee benefit plans for thebenefit of the officers and employees of the general partner.

 

Ferrell Companies makes contributions to the ESOT, which causes aportion of the shares of Ferrell Companies owned by the ESOT to be allocated toemployees’ accounts over time. The allocation of Ferrell Companies’ shares toemployee accounts causes a non-cash compensation charge to be incurred byFerrellgas, L.P., equivalent to the fair value of such shares allocated. Thisnon-cash compensation charge is reported separately in Ferrellgas, L.P.’sconsolidated statements of earnings and thus excluded from operating andgeneral and administrative expenses. The non-cash compensation charges were$9.3 million, $6.8 million, and $12.4 million during fiscal 2010, 2009 and2008, respectively. Ferrellgas, L.P. is not obligated to fund or makecontributions to the ESOT.

 

The general partner and its parent, Ferrell Companies, have a definedcontribution profit-sharing plan which includes both profit sharing andmatching contributions. The plan covers substantially all full time employees.With the establishment of the ESOP in July 1998, Ferrellgas, L.P.suspended future contributions to the profit sharing plan beginning with fiscal1998. The plan, which qualifies under section 401(k) of the InternalRevenue Code, also provides for matching contributions under a cash or deferredarrangement based upon participant salaries and employee contributions to theplan. Matching contributions for fiscal 2010, 2009 and 2008 were $3.2 million,$2.7 million, and $2.6 million, respectively.

 

The general partner has a defined benefit plan that providesparticipants who were covered under a previously terminated plan with aguaranteed retirement benefit at least equal to the benefit they would havereceived under the terminated plan. Until July 31, 1999, benefits underthe terminated plan were determined by years of credited service and salarylevels. As of July 31, 1999, years of credited service and salary levelswere frozen. The general partner’s funding policy for this plan is tocontribute amounts deductible for Federal income tax purposes and invest theplan assets primarily in corporate stocks and bonds, U.S. Treasury bonds andshort-term cash investments. During fiscal 2010, 2009 and 2008 othercomprehensive income and other liabilities were adjusted by $46 thousand,$(6.0) thousand and $(0.1) million, respectively.

 

**N**.            **Quarterlydata (unaudited)**

 

The following summarized unaudited quarterly data includes alladjustments (consisting only of normal recurring adjustments), whichFerrellgas, L.P. considers necessary for a fair presentation. Due to theseasonality of the propane distribution industry, first and fourth quarterRevenues, gross 

 

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margin from propane and other gas liquids sales and Net earnings areconsistently less than the second and third quarter results. Other factorsaffecting the results of operations include competitive conditions, demand forproduct, timing of acquisitions, variations in the weather and fluctuations inpropane prices.

 

**For the year ended July 31, 2010**

 
| ** **                                                 | ** ** | **First  quarter** | ** ** | **Second  quarter** | ** ** | **Third  quarter** | ** ** | **Fourth  quarter** | ** ** |
|------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
|                                                       |       |               |       |                |       |               |       |                |       |
| Revenues                                                   |       | $                  | 352,070    |                | $          | 777,852            |       | $                   | 615,290    |   | $ | 353,848 |   |
| Gross margin from propane and other gas liquids  sales (a) |       | 126,746            |       | 220,368             |       | 180,708            |       | 114,962             |       |
| Net earnings (loss)                                        |       | (26,887            | )          | 83,849              |       | 39,661             |       | (34,262             | )          |
|                                                            |            |                    |            |                     |            |                    |            |                     |            |  |  |  |  |

 

**For the year ended July 31, 2009**

 
| ** **                                                 | ** ** | **First  quarter** | ** ** | **Second  quarter** | ** ** | **Third  quarter** | ** ** | **Fourth  quarter** | ** ** |
|------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
|                                                       |       |               |       |                |       |               |       |                |       |
| Revenues                                                   |       | $                  | 480,074    |                | $          | 715,625            |       | $                   | 561,133    |   | $ | 312,690 |   |
| Gross margin from propane and other gas liquids  sales (a) |       | 119,143            |       | 219,009             |       | 165,969            |       | 118,164             |       |
| Net earnings (loss)                                        |       | (8,948             | )          | 76,431              |       | 39,293             |       | (29,275             | )          |
|                                                            |            |                    |            |                     |            |                    |            |                     |            |  |  |  |  |

 

----

(a)   Gross margin from “Propaneand other gas liquids sales” represents “Revenues - Propane and other gasliquids sales” less “Cost of product sold — propane and other gas liquidssales.”

 

**O**.           **Subsequent events**

 

Ferrellgas, L.P. has evaluated events and transactions occurring afterthe balance sheet date through the date Ferrellgas, L.P.’s consolidatedfinancial statements were issued, and concluded that there were no events ortransactions occurring during this period that required recognition ordisclosure in its financial statements.

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Tothe Board of Directors ofFerrellgas Finance Corp.**Overland Park, Kansas

 

Wehave audited the accompanying balance sheets of Ferrellgas Finance Corp. (awholly-owned subsidiary of Ferrellgas, L.P., referred to herein as “the Company”)as of July 31, 2010 and 2009, and the related statements of earnings,stockholder’s equity, and cash flows for each of the three years in the periodended July 31, 2010.  These financial statements are theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, such financial statements presentfairly, in all material respects, the financial position of Ferrellgas FinanceCorp. as of July 31, 2010 and 2009, and the results of its operations andits cash flows for each of the three years in the period ended July 31,2010, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theCompany’s internal control over financial reporting as of July 31, 2010,based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated September 28,2010 expressed an unqualified opinion on the Company’s internal control overfinancial reporting.

 

 

/s/ DELOITTE & TOUCHE LLP

Kansas City, MissouriSeptember 28, 2010

 

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**FERRELLGAS FINANCE CORP.**

**(a wholly-owned subsidiary of Ferrellgas, L.P.)**

 

**BALANCE SHEETS**

 
| ** **                                                                                | ** ** | **July 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                | ** ** | **2010**          | ** ** | **2009** | ** ** |
| **ASSETS**                                                                                | ** ** | ** **        | ** ** |   | ** ** |
|                                                                                      |       |              |       |   |   |
| Cash                                                                                      |       | $                 | 1,100      |   | $ | 1,100 |   |
| **Total assets**                                                                          |       | $                 | 1,100      |   | $ | 1,100 |   |
|                                                                                      |       |              |       |   |   |
| **STOCKHOLDER’S EQUITY**                                                             |       |              |       |   |   |
|                                                                                      |       |              |       |   |   |
| Common stock, $1 par value; 2,000 shares authorized;  1,000 shares issued and outstanding |       | $                 | 1,000      |   | $ | 1,000 |   |
|                                                                                      |       |              |       |   |   |
| Additional paid in capital                                                                |       | 27,219            |       | 6,757 |   |
|                                                                                      |       |              |       |   |   |
| Accumulated deficit                                                                       |       | (27,119           | )          | (6,657 | ) |
| **Total stockholder’s equity**                                                       |       | $                 | 1,100      |   | $ | 1,100 |   |

 

Seenotes to financial statements.

 

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**FERRELLGAS FINANCE CORP.**

**(a wholly-owned subsidiary of Ferrellgas, L.P.)**

 

**STATEMENTS OF EARNINGS**

 
| ** **                         | ** ** | **For the year ended July 31,** | ** ** |
|------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                         | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                               |       |                                                     |       |   |   |   |   |
| General and administrative expense |       | $                                                        | 20,462     |   | $ | 3,445 |   | $ | 992 |   |
|                               |       |                                                     |       |   |   |   |   |
| **Net loss**                       |       | $                                                        | (20,462    | ) | $ | (3,445 | ) | $ | (992 | ) |

 

Seenotes to financial statements.

 

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**FERRELLGASFINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas, L.P.)**

 

**STATEMENTS OF STOCKHOLDER’S EQUITY**

 
| ** **             | ** ** | ** **            | ** ** | ** **       | ** ** | **Additional**  | ** ** | ** **             | ** ** | **Total**  | ** ** |
|------------------------|------------|-----------------------|------------|------------------|------------|-----------------|------------|------------------------|------------|------------|------------|
| ** **             | ** ** | **Common stock** | ** ** | **paid in** | ** ** | **Accumulated** | ** ** | **stockholder’s** | ** ** |
| ** **             | ** ** | **Shares**            | ** ** | **Dollars**      | ** ** | **capital**     | ** ** | **deficit**            | ** ** | **equity** | ** ** |
|                   |       |                  |       |             |       |            |       |                   |       |       |       |
| **July 31, 2007** |       | 1,000                 |       | $                | 1,000      |            | $          | 2,220                  |       | $          | (2,220     | ) | $ | 1,000 |   |
| Capital contribution   |       | —                |       | —           |       | 1,092           |       | —                 |       | 1,092      |       |
| Net loss               |       | —                |       | —           |       | —          |       | (992                   | )          | (992       | )          |
| **July 31, 2008** |       | 1,000                 |       | 1,000            |       | 3,312           |       | (3,212                 | )          | 1,100      |       |
| Capital contribution   |       | —                |       | —           |       | 3,445           |       | —                 |       | 3,445      |       |
| Net loss               |       | —                |       | —           |       | —          |       | (3,445                 | )          | (3,445     | )          |
| **July 31, 2009** |       | 1,000                 |       | 1,000            |       | 6,757           |       | (6,657                 | )          | 1,100      |       |
| Capital contribution   |       | —                |       | —           |       | 20,462          |       | —                 |       | 20,462     |       |
| Net loss               |       | —                |       | —           |       | —          |       | (20,462                | )          | (20,462    | )          |
| **July 31, 2010** |       | 1,000                 |       | $                | 1,000      |            | $          | 27,219                 |       | $          | (27,119    | ) | $ | 1,100 |   |

 

Seenotes to financial statements.

 

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**FERRELLGAS FINANCE CORP.**

**(a wholly-owned subsidiary of Ferrellgas, L.P.)**

 

**STATEMENTS OF CASH FLOWS**

 
| ** **                                 | ** ** | **For the year ended July 31,** | ** ** |
|--------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                 | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Cash flows from operating  activities:** |       |                                                     |       |   |   |   |   |
| Net loss                                   |       | $                                                        | (20,462    | ) | $ | (3,445 | ) | $ | (992 | ) |
| Cash used in operating activities          |       | (20,462                                                  | )          | (3,445 | ) | (992 | ) |
|                                       |       |                                                     |       |   |   |   |   |
| **Cash flows from financing  activities:** |       |                                                     |       |   |   |   |   |
| Capital contribution                       |       | 20,462                                                   |       | 3,445 |   | 1,092 |   |
| Cash provided by financing activities      |       | 20,462                                                   |       | 3,445 |   | 1,092 |   |
|                                       |       |                                                     |       |   |   |   |   |
| Change in cash                             |       | —                                                   |       | — |   | 100 |   |
| Cash - beginning of year                   |       | 1,100                                                    |       | 1,100 |   | 1,000 |   |
| **Cash - end of year**                     |       | $                                                        | 1,100      |   | $ | 1,100 |   | $ | 1,100 |   |

 

Seenotes to financial statements.

 

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**FERRELLGAS FINANCE CORP.**

**(a wholly-owned subsidiary of Ferrellgas, L.P.)**

 

**NOTES TO FINANCIAL STATEMENTS**

 

**A.****                                   ****Formation**

 

Ferrellgas Finance Corp. (the “Finance Corp.”), aDelaware corporation, was formed on January 16, 2003 and is a wholly-ownedsubsidiary of Ferrellgas, L.P. (the “Partnership”).

 

The Partnership contributed $1,000 to the FinanceCorp. on January 24, 2003 in exchange for 1,000 shares of common stock.

 

The Finance Corp. has nominal assets, does notconduct any operations and has no employees.

 

**B.**                                    **Commitment**

 

On April 20, 2004 the Partnership issued $250.0million of 6 3/4% senior notes due 2014. On August 4, 2008, thePartnership issued $200.0 million of 6 3/4% senior notes due 2014 at anoffering price equal to 85% of par. The Partnership may redeem some or all ofthe aggregate principal amount of the notes at any time on or after May 1,2009.

 

During September 2009, the Partnership issued$300.0 million in aggregate principal amount of new 9.125% senior unsecurednotes due 2017 at an offering price equal to 98.6% of par.

 

The Finance Corp. serves as co-issuer and co-obligorfor debt securities of the Partnership.

 

**C.**                                    **IncomeTaxes**

 

Incometaxes have been computed separately as the Finance Corp. files its own incometax return. Deferred income taxes are provided as a result of temporarydifferences between financial and tax reporting using the asset/liabilitymethod. Deferred income taxes are recognized for the tax consequences oftemporary differences between the financial statement carrying amounts and taxbasis of existing assets and liabilities.

 

Dueto the inability of the Finance Corp. to utilize the deferred tax benefit of$10,549 associated with the net operating loss carryforward of $27,119, whichexpires at various dates through July 31, 2030, a valuation allowance hasbeen provided on the full amount of the deferred tax asset. Accordingly, thereis no net deferred tax benefit for fiscal 2010, 2009 and 2008, and there is nonet deferred tax asset as of July 31, 2010 and 2009.

 

F-66

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**INDEX TO FINANCIAL STATEMENT SCHEDULES**

 
| ** **                                      | **Page**                                                                                                                                                       |
|-------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                            |                                                                                                                                                           |
| **Ferrellgas  Partners, L.P. and Subsidiaries** |                                                                                                                                                           |
|                                            |                                                                                                                                                           |
| Schedule I                                      | Parent  Only Balance Sheets as of July 31, 2010 and 2009 and Statements of  Earnings and Cash Flows for the years ended July 31, 2010, 2009 and 2008 | S-2 |
|                                            |                                                                                                                                                           |   |
| Schedule II                                     | Valuation and Qualifying Accounts for the years ended  July 31, 2010, 2009 and 2008                                                                       | S-5 |
|                                            |                                                                                                                                                           |   |
| **Ferrellgas, L.P. and Subsidiaries**           |                                                                                                                                                           |
|                                            |                                                                                                                                                           |   |
| Schedule II                                     | Valuation and  Qualifying Accounts for the years ended July 31, 2010, 2009 and 2008                                                                       | S-6 |

 

S-1

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Table ofContents

 

**Schedule l**

 

| ** ** | **FERRELLGAS PARTNERS, L.P.**        | ** ** |
|------------|--------------------------------------|------------|
| ** ** | **PARENT ONLY**                      | ** ** |
| ** ** | ** **                           | ** ** |
| ** ** | **BALANCE SHEETS**                   | ** ** |
| ** ** | **(in thousands, except unit data)** | ** ** |

 
| ** **                                                                                       | ** ** | **July 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                       | ** ** | **2010**          | ** ** | **2009** | ** ** |
| **ASSETS**                                                                                       |       |              |       |   |   |
| Cash and cash equivalents                                                                        |       | $                 | 12         |   | $ | 16 |   |
| Prepaid expenses and other current assets                                                        |       | 10                |       | 675 |   |
| Investment in Ferrellgas, L.P.                                                                   |       | 359,367           |       | 417,338 |   |
| Other assets, net                                                                                |       | 6,152             |       | 1,237 |   |
| **Total assets**                                                                                 |       | $                 | 365,541    |   | $ | 419,266 |   |
|                                                                                             |       |              |       |   |   |
| **LIABILITIES AND PARTNERS’ CAPITAL**                                                       |       |              |       |   |   |
|                                                                                             |       |              |       |   |   |
| Other current liabilities                                                                        |       | $                 | 3,319      |   | $ | 3,102 |   |
| Long term debt                                                                                   |       | 280,000           |       | 269,091 |   |
|                                                                                             |       |              |       |   |   |
| **Partners’ capital**                                                                       |       |              |       |   |   |
| Common unitholders (69,521,818 and 68,236,755  units outstanding at 2010 and 2009, respectively) |       | 141,281           |       | 206,255 |   |
| General partner (702,241 and 689,260 units outstanding  at 2010 and 2009, respectively)          |       | (58,644           | )          | (57,988 | ) |
| Accumulated other comprehensive loss                                                             |       | (415              | )          | (1,194 | ) |
| **Total partners’ capital**                                                                 |       | 82,222            |       | 147,073 |   |
| **Total liabilities and partners’  capital**                                                |       | $                 | 365,541    |   | $ | 419,266 |   |

 

S-2

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Table ofContents

 

**FERRELLGAS PARTNERS, L.P.**

**PARENT ONLY**

 

**STATEMENTS OF EARNINGS**

**(in thousands)**

 
| ** **                             | ** ** | **For the year ended July 31,** | ** ** |
|----------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                             | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                   |       |                                                     |       |   |   |   |   |
| Equity in earnings of Ferrellgas, L.P. |       | $                                                        | 61,731     |   | $ | 76,718 |   | $ | 48,735 |   |
| Operating expense                      |       | 424                                                      |       | 328 |   | 259 |   |
|                                   |       |                                                     |       |   |   |   |   |
| **Operating income**                   |       | 61,307                                                   |       | 76,390 |   | 48,476 |   |
|                                   |       |                                                     |       |   |   |   |   |
| Interest expense                       |       | (24,498                                                  | )          | (23,734 | ) | (23,711 | ) |
| Debt prepayment premiums               |       | (3,408                                                   | )          | — |   | — |   |
| Other income (expense), net            |       | (666                                                     | )          | — |   | — |   |
| Income tax expense                     |       | (26                                                      | )          | (84 | ) | (76 | ) |
|                                   |       |                                                     |       |   |   |   |   |
| **Net earnings**                       |       | $                                                        | 32,709     |   | $ | 52,572 |   | $ | 24,689 |   |

 

S-3

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Table of Contents

 

**FERRELLGASPARTNERS, L.P.**

**PARENTONLY**

** **

**STATEMENTSOF CASH FLOWS**

**(inthousands)**

 
| ** **                                                                          | ** ** | **For the year ended July 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Cash flows from operating  activities:**                                          |       |                                                     |       |   |   |   |   |
| Net earnings                                                                        |       | $                                                        | 32,709     |   | $ | 52,572 |   | $ | 24,689 |   |
| Reconciliation of net earnings to net cash used in  operating activities:           |       |                                                     |       |   |   |   |   |
| Other                                                                               |       | 1,182                                                    |       | 292 |   | 519 |   |
| Equity in earnings of Ferrellgas, L.P.                                              |       | (61,731                                                  | )          | (76,718 | ) | (48,735 | ) |
| Net cash used in operating activities                                               |       | (27,840                                                  | )          | (23,854 | ) | (23,527 | ) |
|                                                                                |       |                                                     |       |   |   |   |   |
| **Cash flows from investing  activities:**                                          |       |                                                     |       |   |   |   |   |
| Distributions received from Ferrellgas, L.P.                                        |       | 191,822                                                  |       | 156,031 |   | 150,815 |   |
| Cash contributed to Ferrellgas, L.P.                                                |       | (51,300                                                  | )          | (69,848 | ) | — |   |
| Net cash provided by investing activities                                           |       | 140,522                                                  |       | 86,183 |   | 150,815 |   |
|                                                                                |       |                                                     |       |   |   |   |   |
| **Cash flows from financing  activities:**                                          |       |                                                     |       |   |   |   |   |
| Distributions                                                                       |       | (139,763                                                 | )          | (132,581 | ) | (127,190 | ) |
| Cash paid for financing costs                                                       |       | (6,275                                                   | )          | 50 |   | (383 | ) |
| Proceeds from increase in long-term debt                                            |       | 280,000                                                  |       | — |   | — |   |
| Reductions in long-term debt                                                        |       | (268,000                                                 | )          | — |   | — |   |
| Issuance of common units (net of issuance costs of  $18, $401 and $0, respectively) |       | 19,949                                                   |       | 69,447 |   | — |   |
| Proceeds from exercise of common unit options                                       |       | 1,189                                                    |       | — |   | 76 |   |
| Other                                                                               |       | 214                                                      |       | 702 |   | — |   |
| Net cash used in financing activities                                               |       | (112,686                                                 | )          | (62,382 | ) | (127,497 | ) |
|                                                                                |       |                                                     |       |   |   |   |   |
| Decrease in cash and cash equivalents                                               |       | (4                                                       | )          | (53 | ) | (209 | ) |
| Cash and cash equivalents - beginning of year                                       |       | 16                                                       |       | 69 |   | 278 |   |
| **Cash and cash equivalents - end  of year**                                        |       | $                                                        | 12         |   | $ | 16 |   | $ | 69 |   |

 

S-4

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Table ofContents

 

**Schedule II**

 

| ** ** | **FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES**            | ** ** |
|------------|-----------------------------------------------------------|------------|
| ** ** | ** **                                                | ** ** |
| ** ** | **VALUATION AND QUALIFYING ACCOUNTS**

**(in thousands)** | ** ** |

 
| ** **                        | ** ** | ** **          | ** ** | **Additions**       | ** ** | ** **    | ** ** | ** **       | ** ** |
|-----------------------------------|------------|---------------------|------------|---------------------|------------|---------------|------------|------------------|------------|
| ** **                        | ** ** | **Balance at** | ** ** | **Charged to** | ** ** | ** **    | ** ** | **Deductions**   | ** ** | **Balance** | ** ** |
| ** **                        | ** ** | **beginning**       | ** ** | **cost /**     | ** ** | **Other**     | ** ** | **(amounts**     | ** ** | **at end** | ** ** |
| **Description**                   | ** ** | **of period**  | ** ** | **expenses**        | ** ** | **additions** | ** ** | **charged-off)** | ** ** | **of period** | ** ** |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2010** | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance for doubtful accounts   |       | $                   | 4,294      |                | $          | 7,821         |       | $                | 420        |   | $ | (7,525 | ) | $ | 5,010 |   |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2009** | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance for doubtful accounts   |       | $                   | 5,977      |                | $          | 4,421         |       | $                | 961        |   | $ | (7,065 | ) | $ | 4,294 |   |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2008** | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance for doubtful accounts   |       | $                   | 4,358      |                | $          | 8,092         |       | $                | 643        |   | $ | (7,116 | ) | $ | 5,977 |   |

 

S-5

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Table ofContents

 

**FERRELLGAS, L.P. AND SUBSIDIARIES**

 

**VALUATION AND QUALIFYING ACCOUNTS**

**(in thousands)**

 
| ** **                        | ** ** | ** **          | ** ** | **Additions**       | ** ** | ** **    | ** ** | ** **       | ** ** |
|-----------------------------------|------------|---------------------|------------|---------------------|------------|---------------|------------|------------------|------------|
| ** **                        | ** ** | **Balance at** | ** ** | **Charged to** | ** ** | ** **    | ** ** | **Deductions**   | ** ** | **Balance** | ** ** |
| ** **                        | ** ** | **beginning**       | ** ** | **cost /**     | ** ** | **Other**     | ** ** | **(amounts**     | ** ** | **at end** | ** ** |
| **Description**                   | ** ** | **of period**  | ** ** | **expenses**        | ** ** | **additions** | ** ** | **charged-off)** | ** ** | **of period** | ** ** |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2010** | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance for doubtful accounts   |       | $                   | 4,294      |                | $          | 7,821         |       | $                | 420        |   | $ | (7,525 | ) | $ | 5,010 |   |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2009** | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance for doubtful accounts   |       | $                   | 5,977      |                | $          | 4,421         |       | $                | 961        |   | $ | (7,065 | ) | $ | 4,294 |   |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2008** | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance for doubtful accounts   |       | $                   | 4,358      |                | $          | 8,092         |       | $                | 643        |   | $ | (7,116 | ) | $ | 5,977 |   |

 

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Tableof Contents

 

The exhibits listed below are furnished as part of this Annual Reporton Form 10-K. Exhibits required by Item 601 of Regulation S-K of theSecurities Act, which are not listed, are not applicable.

 
| ** ** | ** ** | ** ** | ** ** | **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                      |
|------------|------------|------------|------------|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |       |       | 3.1                 |       | Fourth  Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners,  L.P. dated as of February 18, 2003. Incorporated by reference to Exhibit 3.1  to our registration statement on Form S-3 filed March 6, 2009.                                                                                                                                                                              |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 3.2                 |       | First  Amendment to Fourth Amended and Restated Agreement of Limited Partnership of  Ferrellgas Partners, L.P. dated as of March 8, 2005. Incorporated by  reference to Exhibit 3.2 to our registration statement on Form S-3  filed March 6, 2009.                                                                                                                                                              |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 3.3                 |       | Second  Amendment to Fourth Amended and Restated Agreement of Limited Partnership of  Ferrellgas Partners, L.P. dated as of June 29, 2005. Incorporated by  reference to Exhibit 3.3 to our registration statement on Form S-3  filed March 6, 2009.                                                                                                                                                             |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 3.4                 |       | Third  Amendment to Fourth Amended and Restated Agreement of Limited Partnership of  Ferrellgas Partners, L.P. dated as of October 11, 2006. Incorporated by  reference to Exhibit 3.4 to our registration statement on Form S-3  filed March 6, 2009.                                                                                                                                                           |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 3.5                 |       | Certificate  of Incorporation of Ferrellgas Partners Finance Corp. filed with the Delaware  Division of Corporations on March 28, 1996. Incorporated by reference to  Exhibit 3.6 to our registration statement on Form S-3 filed March 6,  2009.                                                                                                                                                                |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 3.6                 |       | Bylaws  of Ferrellgas Partners Finance Corp. Incorporated by reference to Exhibit 3.7  to our registration statement on Form S-3 filed March 6, 2009.                                                                                                                                                                                                                                                                 |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 3.7                 |       | Third  Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P.  dated as of April 7, 2004. Incorporated by reference to Exhibit 3.5  to our registration statement on Form S-3 filed March 6, 2009.                                                                                                                                                                                            |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 3.8                 |       | Certificate  of Incorporation of Ferrellgas Finance Corp. filed with the Delaware Division  of Corporations on January 16, 2003. Incorporated by reference to  Exhibit 3.8 to our registration statement on Form S-3 filed March 6,  2009.                                                                                                                                                                       |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 3.9                 |       | Bylaws  of Ferrellgas Finance Corp. adopted as of January 16, 2003. Incorporated  by reference to Exhibit 3.9 to our registration statement on Form S-3  filed March 6, 2009.                                                                                                                                                                                                                               |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 4.1                 |       | Specimen  Certificate evidencing Common Units representing Limited Partner Interests.  Incorporated by reference to Exhibit A of Exhibit 3.1 to our  registration statement on Form S-3 filed March 6, 2009.                                                                                                                                                                                                     |
|       |       |       |       |                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       |       |       | 4.2                 |       | Indenture  dated as of September 24, 2002, with form of Note attached, among  Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp. and U.S. Bank  National Association, as trustee, relating to $170,000,000 aggregate  principal amount of the Registrant’s 8 3⁄4% Senior Notes due 2012. Incorporated  by reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q  filed March 10, 2009. |

 

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Table of Contents

 
|   |   |   |   | 4.3    |   | Indenture  dated as of April 20, 2004, with form of Note attached, among Ferrellgas  Escrow LLC, Ferrellgas Finance Escrow Corporation and U.S. Bank National  Association, as trustee, relating to $250 million aggregate amount of the  Registrant’s 6 3⁄4% Senior Notes due 2014. Incorporated by reference to Exhibit 4.3  to our Quarterly Report on Form 10-Q filed March 10, 2009.               |
|--------|--------|--------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |   | 4.4    |   | Indenture  dated as of August 4, 2008, with form of Note attached, among  Ferrellgas, L.P., Ferrellgas Finance Corp. and U.S. Bank National  Association, as trustee, relating to $200 million aggregate amount of the  Registrant’s 6 3⁄4% Senior Notes due 2014. Incorporated by reference to Exhibit 4.1  to our Current Report on Form 8-K filed August 5, 2008.                                    |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |   | 4.5    |   | Indenture  dated as of September 14, 2009 with form of Note attached, among  Ferrellgas, L.P., Ferrellgas Finance Corp. and U.S. Bank National  Association, as trustee, relating to $300 million aggregate amount of the  Registrant’s 9 1/8% Senior Notes due 2017. Incorporated by reference to  Exhibit 4.1 to our Current Report on Form 8-K filed September 14,  2009.                               |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |   | 4.6    |   | Indenture  dated as of April 13, 2010, among Ferrellgas Partners, L.P., Ferrellgas  Partners Finance Corp. and U.S. Bank National Association, as trustee,  relating to $280 million aggregate amount of the Registrant’s 8 5/8% Senior  Notes due 2020. Incorporated by reference to Exhibit 4.1 to our Current  Report on Form 8-K filed April 13, 2010.                                                      |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |   | 4.7    |   | First  Supplemental Indenture dated as of April 13, 2010, with form of Note  attached, among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp.  and U.S. Bank National Association, as trustee, relating to $280 million  aggregate amount of the Registrant’s 8 5/8% Senior Notes due 2020.  Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K  filed April 13, 2010. |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |   | 4.8    |   | Registration  Rights Agreement dated as of September 14, 2009, by and among  Ferrellgas, L.P., Ferrellgas Finance Corp. and the initial purchasers named  therein. Incorporated by reference to Exhibit 4.2 to our Current Report  on Form 8-K filed September 14, 2009.                                                                                                                                        |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |   | 4.9    |   | Registration  Rights Agreement dated as of August 4, 2008, by and among Ferrellgas,  L.P., Ferrellgas Finance Corp. and the initial purchasers named therein.  Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K  filed August 5, 2008.                                                                                                                                                |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |   | 4.10   |   | Registration  Rights Agreement dated as of December 17, 1999, by and between  Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc.  Incorporated by reference to Exhibit 4.8 to our Quarterly Report on Form 10-Q  filed March 10, 2009.                                                                                                                                                       |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |   | 4.11   |   | First  Amendment to Registration Rights Agreement dated as of March 14, 2000,  by and between Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc.  Incorporated by reference to Exhibit 4.9 to our Quarterly Report on Form 10-Q  filed March 10, 2009.                                                                                                                                            |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |   |   | 4.12   |   | Second  Amendment to Registration Rights Agreement dated as of April 6, 2001, by  and between Ferrellgas Partners, L.P. and The Williams Companies, Inc.  Incorporated by reference to Exhibit 4.10 to our Quarterly Report on Form 10-Q  filed March 10, 2009.                                                                                                                                                 |

 

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Table of Contents

 
|   |   |   |   | 4.13   |   | Third  Amendment to Registration Rights Agreement dated as of June 29, 2005, by  and between Ferrellgas Partners, L.P. and JEF Capital Management, Inc.  Incorporated by reference to Exhibit 4.13 to our Quarterly Report on  Form 10-Q filed June 9, 2010.                                                                                                                                                                      |
|--------|--------|--------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |   |   | 10.1   |   | Credit  Agreement dated as of November 2, 2009, among Ferrellgas, L.P. as the  borrower, Ferrellgas, Inc. as the general partner of the borrower, Bank  of America N.A. as administrative agent, swing line lender and L/C issuer,  and the lenders party hereto. Incorporated by reference to Exhibit 10.1  to our Current Report on Form 8-K filed November 4, 2009.                                                            |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |   |   | 10.2   |   | Receivable  Sale Agreement dated as of April 6, 2010, between Ferrellgas, L.P., as  originator, and Ferrellgas Receivables, LLC, as buyer. Incorporated by  reference to Exhibit 10.1 to our Current Report on Form 8-K filed  April 7, 2010.                                                                                                                                                                                          |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |   |   | 10.3   |   | Receivables  Purchase Agreement dated as of April 6, 2010, among Ferrellgas  Receivables, LLC, as seller, Ferrellgas, L.P., as servicer, the purchasers  from time to time party hereto, Fifth Third Bank and BNP Paribas, as  co-agents, and Wells Fargo Bank, N.A., as administrative agent. Incorporated  by reference to Exhibit 10.2 to our Current Report on Form 8-K  filed April 7, 2010.                                      |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| #      |   |   |   | 10.4   |   | Ferrell  Companies, Inc. Supplemental Savings Plan, as amended and restated  effective January 1, 2010. Incorporated by reference to Exhibit 10.14  to our Quarterly Report on Form 10-Q filed March 10, 2010.                                                                                                                                                                                                                    |
|   |   |   |   |   |   | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| #      |   | *      |   | 10.5   |   | Second  Amended and Restated Ferrellgas Unit Option Plan, effective April 19,  2001.                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| #      |   |   |   | 10.6   |   | Ferrell  Companies, Inc. 1998 Incentive Compensation Plan, as amended and  restated effective October 11, 2004. Incorporated by reference to  Exhibit 10.22 to our Annual Report on Form 10-K filed September 28,  2009.                                                                                                                                                                                                          |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| #      |   |   |   | 10.7   |   | Amendment  to Ferrell Companies, Inc. 1998 Incentive Compensation Plan, dated as of  March 7, 2010. Incorporated by reference to Exhibit 10.7 to our  Quarterly Report on Form 10-Q filed June 9, 2010.                                                                                                                                                                                                                           |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| #      |   |   |   | 10.8   |   | Employment,  Confidentiality, and Noncompete Agreement dated as of July 17, 1998 by  and among Ferrell Companies, Inc. as the company, Ferrellgas, Inc.  as the company, James E. Ferrell as the executive and LaSalle National Bank  as trustee of the Ferrell Companies, Inc. Employee Stock Ownership  Trust. Incorporated by reference to Exhibit 10.19 to our Quarterly  Report on Form 10-Q filed March 10, 2009. |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| #      |   |   |   | 10.9   |   | Waiver  to Employment, Confidentiality, and Noncompete Agreement dated as of December 19,  2006 by and among Ferrell Companies, Inc. as the company, Ferrellgas, Inc.  as the company, James E. Ferrell as the executive and Greatbanc Trust Company  as successor trustee to LaSalle National Bank. Incorporated by reference to  Exhibit 10.19 to our Quarterly Report on Form 10-Q filed March 9,  2007.                  |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| #      |   |   |   | 10.10  |   | Amended  and Restated Change In Control Agreement dated as of March 5, 2008 by  and between Ferrellgas, Inc. as the company and Patrick J. Walsh as the  executive. Incorporated by reference to exhibit 10.25 to our Quarterly Report  on Form 10-Q filed March 7, 2008.                                                                                                                                                              |

 

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| #      |   |   |   | 10.11  |   | Change  In Control Agreement dated as of March 5, 2008 by and between  Ferrellgas, Inc. as the company and Richard V. Mayberry as the  executive. Incorporated by reference to exhibit 10.28 to our Quarterly Report  on Form 10-Q filed March 7, 2008.                                                        |
|--------|--------|--------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.12  |   | Change  In Control Agreement dated as of October 9, 2006 by and between  Ferrellgas, Inc. as the company and James E. Ferrell as the executive.  Incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K  filed October 12, 2006.                                                    |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.13  |   | Employment  Agreement dated as of August 10, 2009 by and between Ferrellgas, Inc.  as the company and Stephen L. Wambold as the executive. Incorporated by  reference to Exhibit 10.1 to our Current Report on Form 8-K filed  August 10, 2009.                                                           |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.14  |   | Employment  Agreement dated as of August 10, 2009 by and between Ferrellgas, Inc.  as the company and James R. VanWinkle as the executive. Incorporated by  reference to Exhibit 10.2 to our Current Report on Form 8-K filed  August 10, 2009.                                                           |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.15  |   | Employment  Agreement dated as of August 10, 2009 by and between Ferrellgas, Inc.  as the company and Jennifer Boren as the executive. Incorporated by reference  to Exhibit 10.3 to our Current Report on Form 8-K filed August 10,  2009.                                                               |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.16  |   | Employment  Agreement dated as of August 10, 2009 by and between Ferrellgas, Inc.  as the company and Tod Brown as the executive. Incorporated by reference to  Exhibit 10.4 to our Current Report on Form 8-K filed August 10,  2009.                                                                    |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.17  |   | Employment  Agreement dated as of August 10, 2009 by and between Ferrellgas, Inc.  as the company and Eugene D. Caresia as the executive. Incorporated by  reference to Exhibit 10.5 to our Current Report on Form 8-K filed  August 10, 2009.                                                            |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.18  |   | Employment  Agreement dated as of August 10, 2009 by and between Ferrellgas, Inc.  as the company and George L. Koloroutis as the executive. Incorporated by  reference to Exhibit 10.6 to our Current Report on Form 8-K filed  August 10, 2009.                                                         |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.19  |   | Agreement  and release dated as of December 4, 2007 by and among Ferrell Companies, Inc.,  Ferrellgas, Inc., Ferrellgas Partners L.P., Ferrellgas L.P. and Brian J.  Kline as the employee. Incorporated by reference to Exhibit 10.33 to our  Quarterly Report on Form 10-Q filed December 6, 2007. |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.20  |   | Agreement  and release dated as of March 28, 2008 by and among Ferrell Companies, Inc.,  Ferrellgas, Inc., Ferrellgas Partners L.P., Ferrellgas, L.P. and Kevin  T. Kelly as the employee. Incorporated by reference to Exhibit 10.1 to  our Current Report on Form 8-K filed March 28, 2008.        |
|   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   |   |   | 10.21  |   | Services  Agreement dated as of September 26, 2008 between Samson Dental Practice  Management, LLC as the client and Ferrellgas, L.P. as the provider.  Incorporated by reference to Exhibit 10.33 to our Annual Report on Form 10-K  filed September 29, 2008.                                                |

 

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| #      |   |   |   | 10.22                                              |       | Amendment  No. 1 to Services Agreement dated as of May 1, 2009 between Samson  Dental Practice Management, LLC as the client and Ferrellgas, L.P. as the  provider. Incorporated by reference to Exhibit 99.1 to our Current  Report on Form 8-K filed May 4, 2009. |
|--------|--------|--------|--------|----------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| #      |   |   |   | 10.23                                              |       | Termination  of Agreements dated as of March 12, 2010, by and between Ferrellgas,  L.P., Ferrellgas, Inc. and Samson Dental Practice Management, LLC.  Incorporated by reference to Exhibit 10.7 to our Quarterly Report on  Form 10-Q filed June 9, 2010.          |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 21.1                                               |       | List  of subsidiaries                                                                                                                                                                                                                                                                        |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 23.1                                               |       | Consent  of Deloitte & Touche, LLP, independent registered public accounting  firm, for the certain use of its report appearing in the Annual Report on  Form 10-K of Ferrellgas Partners, L.P. for the year ended July 31,  2009.                                        |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 23.2                                               |       | Consent  of Deloitte & Touche, LLP, independent registered public accounting  firm, for the certain use of its report appearing in the Annual Report on  Form 10-K of Ferrellgas Partners Finance Corp. for the year ended July 31,  2009.                                |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 23.3                                               |       | Consent  of Deloitte & Touche, LLP, independent registered public accounting  firm, for the certain use of its report appearing in the Annual Report on  Form 10-K of Ferrellgas, L.P. for the year ended July 31, 2009.                                                  |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 23.4                                               |       | Consent  of Deloitte & Touche, LLP, independent registered public accounting  firm, for the certain use of its report appearing in the Annual Report on  Form 10-K of Ferrellgas Finance Corp. for the year ended July 31,  2009.                                         |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 31.1                                               |       | Certification  of Ferrellgas Partners, L.P. pursuant to Rule 13a-14(a) or Rule 15d-14(a) of  the Exchange Act.                                                                                                                                                           |
|   |   |   |   | ** **                                         | ** ** | ** **                                                                                                                                                                                                                                                                                   |
| *      |   |   |   | 31.2                                               |       | Certification  of Ferrellgas Partners Finance Corp. pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Exchange Act.                                                                                                                                                   |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 31.3                                               |       | Certification  of Ferrellgas, L.P. pursuant to Rule 13a-14(a) or Rule 15d-14(a) of  the Exchange Act.                                                                                                                                                                    |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 31.4                                               |       | Certification  of Ferrellgas Finance Corp. pursuant to Rule 13a-14(a) or Rule 15d-14(a) of  the Exchange Act.                                                                                                                                                            |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 32.1                                               |       | Certification  of Ferrellgas Partners, L.P. pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                         |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 32.2                                               |       | Certification  of Ferrellgas Partners Finance Corp. pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                 |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 32.3                                               |       | Certification  of Ferrellgas, L.P. pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                  |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
| *      |   |   |   | 32.4                                               |       | Certification  of Ferrellgas Finance Corp. pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                          |
|   |   |   |   |                                               |       |                                                                                                                                                                                                                                                                                         |
|        |
|   |   | *      |   | Filed  herewith                                    |
|   |   | #      |   | Management  contracts or compensatory plans.  |

 

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