UNITED STATESSECURITIES AND
EXCHANGE COMMISSION

# Washington,
D.C. 20549

# FORM 10-K

[X]     Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934For the fiscal year ended
July 31, 2004

or

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

For
the transition period from __________ to __________

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

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

---

(Exact name of
registrants as specified in their charters)

|                                                                       |                                            
|---------------------------------------------------------------------- | -------------------------------------------
|DelawareDelawareDelawareDelaware                                       | 43-169848043-174252043-169848114-1866671   
|(States
      or other jurisdictions of incorporation or organization) | (I.R.S.
      Employer Identification Nos.)

7500 College Boulevard, Suite 1000, Overland Park, KS 66210

_________________

(Address of principal
executive office) (Zip Code)

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

Securities
registered pursuant to Section 12(b) of the Act:

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

_________________

Securities registered
pursuant to section 12(g) of the Act:

Limited Partner Interests
of Ferrellgas, L.P.         Common Stock of
Ferrellgas Finance Corp.

_________________

Title of class

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

| | Yes [X]
                 No [ ]
| | -------------------------------

|Indicate |  | by check
      mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
      S-K is not contained herein, and will not be contained, to the best of
      registrants knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment
      to this Form 10-K. [ X ]
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Ferrellgas Partners, L.P.
: Yes [ X ]          No [ ]

Ferrellgas
Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance
Corp.: Yes [ ]          No [ X ]

The aggregate market value
as of January 31, 2004, of Ferrellgas Partners, L.P.s Common Units held by
nonaffiliates of Ferrellgas Partners, L.P., based on the reported closing price
of such units on the New York Stock Exchange on such date, was approximately
$531,408,000. There is no aggregate market value of the common equity of
Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp.
as their common equity is not sold or traded.

At August 31, 2004, the
registrants had common units or shares of common stock outstanding as follows:

|Ferrellgas Partners, L.P.         | 51,652,875 | Common Units      
|--------------------------------- | ---------- | ------------------
|Ferrellgas Partners Finance Corp. | 1,000      | Common
      Stock
|Ferrellgas, L.P.                  | n/a        | n/a               
|Ferrellgas Finance Corp.          | 1,000      | Common
      Stock

Documents
Incorporated by Reference: None

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

# 2004 FORM
10-K ANNUAL REPORT

# Table of
Contents

|     |     |                                                                                                                            | 
|---- | --- | -------------------------------------------------------------------------------------------------------------------------- | 
|     |     | PART I                                                                                                                     | 
|ITEM | 1.  | BUSINESS                                                                                                                   | 
|ITEM | 2.  | PROPERTIES                                                                                                                 | 
|ITEM | 3.  | LEGAL PROCEEDINGS                                                                                                          | 
|ITEM | 4.  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                        | 
|     |     | PART II                                                                                                                    | 
|ITEM | 5.  | MARKET FOR REGISTRANTS COMMON EQUITY,
RELATED UNITHOLDER AND STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES | 
|ITEM | 6.  | SELECTED FINANCIAL DATA                                                                                                    | 
|ITEM | 7.  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                | 
|ITEM | 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK                                                                 | 
|ITEM | 8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                                | 
|ITEM | 9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE                                 | 
|ITEM | 9A. | CONTROLS AND PROCEDURES                                                                                                    | 
|ITEM | 9B. | OTHER INFORMATION                                                                                                          | 
|     |     | PART III                                                                                                                   | 
|ITEM | 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS                                                                        | 
|ITEM | 11. | EXECUTIVE COMPENSATION                                                                                                     | 
|ITEM | 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
       AND MANAGEMENT AND RELATED UNITHOLDER MATTERS                       | 
|ITEM | 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                             | 
|ITEM | 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                     | 
|     |     | PART IV                                                                                                                    | 
|ITEM | 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
       REPORTS ON FORM 8-K                                                    | 
|     |     |                                                                                                                            | 

# PART I

# ITEM 1. BUSINESS.

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

In
this Annual Report, unless the context indicates otherwise, references to:

| | o |  | "us,"
"we," "our," or "ours," refer to Ferrellgas Partners,  L.P. together with its
consolidated  subsidiaries,          including  Ferrellgas Partners Finance Corp.,
 Ferrellgas,  L.P. and Ferrellgas Finance Corp., except when          used in connection
 with "common  units" or "senior  units," in which case these terms refer to Ferrellgas
         Partners, L.P. without its consolidated subsidiaries;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | "Ferrellgas
Partners" refer to Ferrellgas Partners, L.P. itself, without its consolidated
subsidiaries;
| | - |  | -------------------------------------------------------------------------------------------------------

| | o |  | the
"operating  partnership" refer to Ferrellgas,  L.P. together with its consolidated
 subsidiaries,  including          Ferrellgas Finance Corp.;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
"general partner" refer to Ferrellgas, Inc.;
| | - |  | ------------------------------------------------

| | o |  | "unitholders"
refers to holders of common units of Ferrellgas Partners;
| | - |  | -----------------------------------------------------------------------

| | o |  | "customers"
 refers to customers  other than our wholesale  customers or our other bulk propane
 distributors or          marketers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

| | o |  | propane
sales volumes refers to the volume of propane sold to our customers and excludes
any volumes of propane sold to our wholesale customers and other bulk propane
distributors or marketers; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | Notes refers
to the notes of the consolidated financial statements of Ferrellgas Partners or the
operating partnership, as applicable.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

Ferrellgas
Partners is a holding entity that conducts no operations and has two direct subsidiaries,
Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners
only significant assets are its approximate 99% limited partnership interest in the
operating partnership and its 100% equity interest in Ferrellgas Partners Finance Corp.

The
operating partnership was formed on April 22, 1994, and accounts for substantially all of
our consolidated assets, sales and operating earnings, except for interest expense related
to $268.0 million in the aggregate principal amount of 8.75% senior notes due 2012
co-issued by Ferrellgas Partners and Ferrellgas Partners Finance Corp.

Our
general partner performs all management functions for us and our subsidiaries and holds a
1% general partner interest in Ferrellgas Partners and an approximate 1% general partner
interest in the operating partnership. The parent company of our general partner, Ferrell
Companies, Inc., owns approximately 35% of our outstanding common units. Ferrell Companies
is in turn owned 100% by an employee stock ownership trust.

We
file annual, quarterly, and other reports and other information with the SEC. You may read
and download our SEC filings over the internet from several commercial document retrieval
services as well as at the SECs website at www.sec.gov. You may also read and copy
our SEC filings at the SECs public reference room located at, 450 5th
street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information concerning the public reference room and any applicable copy charges. Because
our common units are traded on the New York Stock Exchange, we also provide our SEC
filings and particular other information to the New York Stock Exchange. You may obtain
copies of these filings and this other information at the offices of the New York Stock
Exchange located at 11 Wall Street, New York, New York 10005. In addition, our SEC filings
are available on our website at www.ferrellgas.com at no cost as soon as reasonably
practicable after our electronic filing or furnishing thereof with the SEC. Please note
that any internet addresses provided in this Form 10-K are for informational purposes only
and are not intended to be hyperlinks. Accordingly, no information found and/or
provided at such internet addresses is intended or deemed to be incorporated by reference
herein.

# General

We
are a leading distributor of propane and related equipment and supplies to customers
primarily in the United States. We believe that we are the second largest marketer of
propane in the United States, including the largest national provider of propane by
portable tank exchange, as measured by our pro-forma propane sales volumes in fiscal year
2004.

We
serve more than one million residential, industrial/commercial, portable tank exchange,
agricultural, and other customers in all 50states, Puerto Rico, the U.S. Virgin
Islands and Canada. Our operations primarily include the distribution and sale of propane
and related equipment and supplies with concentrations in the Midwest, Southeast,
Southwest and Northwest regions of the country. Our propane distribution business includes
transporting propane purchased by us from third parties to our retail distribution outlets
and from there to tanks on our propane customers premises. In addition, our
distribution of propane by portable tank exchange generally consists of transporting
propane purchased by us from third parties to our portable tank exchange distribution
outlets and from there to nationwide and local retailers. Our portable tank exchange
operations provide a nationally branded portable tank exchange through a distributor
network of independent and owned distributorships.

In
the residential and industrial/commercial markets, propane is primarily used for space
heating, water heating and cooking. In the portable tank exchange market, propane is
primarily used for gas grilling. In the agricultural market, propane is primarily used for
crop drying, space heating, irrigation and weed control. In addition, propane is used for
a variety of industrial applications, including as an engine fuel which is burned in
internal combustion engines that power vehicles and forklifts and as a heating or energy
source in manufacturing and drying processes.

In
our past three fiscal years, we reported annual propane sales volumes of:

|Fiscal year ended | Propane sales volumes
(in millions)
|----------------- | -----------------------------------
|July 31, 2004     |                                    
|July 31, 2003     |                                    
|July 31, 2002     |                                    

The
decrease in propane sales volumes in our fiscal year 2004 as compared to our fiscal year
2003 was due primarily to national average heating season temperatures (November through
March), as reported by the National Oceanic and Atmospheric Administration, that was 5%
warmer than normal as compared to temperatures that approximated normal in fiscal year
2003. Customer conservation and delayed customer orders caused by higher commodity prices also
contributed to the decrease in propane sales volume during the fiscal year. This decrease
was partially offset by increases in our propane sales volumes due to acquisitions made in
fiscal year 2004.

# 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 in Atchison, Kansas. Our initial growth
largely resulted from small acquisitions in rural areas of eastern Kansas, northern and
central Missouri, Iowa, western Illinois, southern Minnesota, South Dakota and Texas.
Since 1986, we have acquired approximately 150 propane distributors, expanding our
operations to include all 50 states. As of July 31, 2004, we had 683 propane distribution
locations from which we distribute product to our propane customers.

On
April 20, 2004, an affiliate of our general partner acquired all of the outstanding common
stock of Blue Rhino Corporation in an all cash merger, after which it converted Blue Rhino
Corporation into a limited liability company, Blue Rhino LLC. On April 21, 2004, this
affiliate contributed Blue Rhino LLC to our operating partnership, through a series of
transactions. Blue Rhino LLC was thereafter merged with and into our operating
partnership. As a result of this contribution, we have become the largest national
provider of propane by portable tank exchange as well as a leading supplier of
complementary propane and non-propane products to consumers through many of the
nations largest retailers. This contribution expanded our operations to all 50
states, Puerto Rico, the Virgin Islands and Canada. Other than the Blue Rhino
contribution, our largest recent acquisitions have been:

|Company         | Date Acquired | Estimated Propane Sales
Volumes
Acquired
(in millions)
|--------------- | ------------- | ------------------------------------------------------
|Thermogas       |               | December 1999                                         
|Skelgas Propane |               | May 1996                                              

# Business Strategy

Our business strategy is to:

| | o |  | achieve
operating efficiencies through the utilization of technology in our operations;
| | - |  | ---------------------------------------------------------------------------------------

| | o |  | capitalize
on our national presence and economies of scale;
| | - |  | -----------------------------------------------------------

| | o |  | expand
our operations through disciplined acquisitions and internal growth; and
| | - |  | -------------------------------------------------------------------------------

| | o |  | align
employee interest with investors through significant employee ownership.
| | - |  | ------------------------------------------------------------------------------

Achieving operating
efficiencies through the utilization of technology.

During
fiscal year 2001, we completed a review of our key business processes to identify areas
where we could use technology to improve our operational efficiency. Specifically, we
identified areas where we believe we could reduce operating expenses and improve customer
satisfaction. These areas of opportunity included the development of new technology to
improve our routing and scheduling of propane customer deliveries and to improve our
customer administration and operational workflow. Since fiscal year 2002, we allocated
considerable resources toward these improvements, including the purchase of computer
hardware and software and the development of new software. We have incurred capital
expenditures of $53.0 million related to this technology initiative during the last three
fiscal years, which were funded primarily from net cash provided by operating activities.
These capital expenditures represent a substantial majority of the capital expenditures we
expect to incur in connection with this technology initiative. We have also incurred
approximately $13.0 million of operating expenses, in fiscal year 2004, primarily related
to increased costs for data management and processing, telecommunication costs, training
and other costs related to the deployment of this new technology initiative. We believe
that approximately $6.0 million in fiscal year 2004 is a non-recurring expense primarily
related to training and data management. We expect to incur approximately $15.0 million of
similar operating expenses in fiscal year 2005. We believe that approximately $5.0 million
in fiscal year 2005 will be a non-recurring expense primarily related to training and data
management. We expect that after the full deployment of our technology initiative these
increased operating expenses will be more than offset by reductions in operating costs
from the distribution outlets utilizing the technology initiative.

We
conducted a pilot program of the technology initiative in a limited geographic area in
fiscal year 2003. We have since deployed this new technology initiative to approximately
one-third of our retail propane distribution outlets and expect to deploy this new
technology initiative to the majority of our retail propane distribution outlets by the
end of fiscal year 2005.

Capitalizing on our
national presence and economies of scale.

We
believe our national presence of 683 propane distribution locations in the United States
as of July 31, 2004 gives us advantages over our smaller competitors. These advantages
include economies of scale in areas such as:

| | o |  | product
procurement;
| | - |  | --------------------

| | o |  | transportation;
| | - |  | ---------------

| | o |  | fleet
purchases;
| | - |  | ----------------

| | o |  | propane
customer administration; and
| | - |  | ------------------------------------

| | o |  | general
administration.
| | - |  | -----------------------

Our
national presence also allows us to be one of the few propane distributors that can
competitively serve commercial customers and portable tank exchange customers on a
nationwide basis, including the ability to serve such propane customers through leading
home-improvement centers, mass merchants, hardware, grocery and convenience stores. In
addition, we believe that our national presence provides us opportunities to make
acquisitions of other propane distribution companies that overlap with our existing
operations, providing economies of scale and significant cost savings in these markets.

Employing a disciplined
acquisition strategy and achieving internal growth.

We
expect to continue the expansion of our propane customer base through the acquisition of
other propane distributors. We intend to concentrate on acquisition activities in
geographical areas adjacent to our existing operations, and on a selected basis in areas
that broaden our geographic coverage. We also intend to focus on acquisitions that can be
efficiently combined with our existing operations to provide an attractive return on
investment after taking into account the economies of scale and cost savings we anticipate
will result from those combinations. Our goal is to improve the operations and
profitability of the businesses we acquire by integrating them into our established
national organization. We also believe that, as a result of our industry leadership and
efficient operating standards, we are positioned to successfully compete for growth
opportunities within our existing operating regions. In addition, we have implemented
marketing programs that focus specific resources towards internal growth.

Aligning employee
interests with our investors.

In
1998, we established an employee benefit plan that we believe aligns the interests of our
employees with those of our investors. Through the Ferrell Companies, Inc. Employee Stock
Ownership Trust, our employees own approximately 35% of our outstanding common units,
allowing them to participate directly in our overall success. This plan is unique in the
propane distribution industry and we believe that the entrepreneurial culture fostered by
employee-ownership provides us with another distinct competitive advantage.

# Distribution of Propane
and Related Equipment and Supplies

Our
propane distribution business consists principally of transporting propane purchased from
third parties to distribution outlets and then to tanks on customers premises and to
portable propane tanks. Our market areas for our residential and agricultural customers
are generally rural, but also include urban areas for industrial applications. Our market
area for our industrial/commercial and portable tank exchange customers are generally
urban. We utilize marketing programs targeting both new and existing customers by
emphasizing:

| | o |  | our
efficiency in delivering propane to customers;
| | - |  | --------------------------------------------------

| | o |  | our
employee training and safety programs; and
| | - |  | ----------------------------------------------

| | o |  | our
national distributor network for our commercial and portable tank exchange customers.
| | - |  | -----------------------------------------------------------------------------------------

We
sell propane primarily in four markets:

| | o |  | residential;
| | - |  | ------------

| | o |  | industrial/commercial;
| | - |  | ----------------------

| | o |  | portable
tank exchange; and
| | - |  | ---------------------------

| | o |  | agricultural.
| | - |  | -------------

The distribution of propane generally
involves large numbers of small volume deliveries averaging approximately 250 gallons
each. Our deliveries of propane are transported from our retail distribution outlets to
our customers by our fleet of bulk delivery trucks, which are generally fitted with 3,000
gallon tanks. Propane storage tanks located on our customers premises are then
filled from these bulk delivery trucks. We also deliver propane to our
industrial/commercial and portable tank exchange customers using our fleet of portable
tank and portable tank exchange delivery trucks, particular truck tractors and portable
tank exchange delivery trailers.

A
substantial majority of our gross profit is derived from the distribution and sale of
propane and related risk management activities. Gross profit from our propane distribution
operations is derived primarily from five customer groups:

| | o |  | residential;
| | - |  | ------------

| | o |  | industrial/commercial;
| | - |  | ----------------------

| | o |  | portable
tank exchange;
| | - |  | -----------------------

| | o |  | agricultural;
and
| | - |  | -----------------

| | o |  | other.
| | - |  | ------

Our
gross profit from the distribution of propane is primarily based on margins; that is the
cents-per-gallon difference between our costs to purchase and distribute propane and the
sale prices we charge our customers. Our residential customers and portable tank exchange
customers typically provide us a greater margin and tend to be a more stable customer base
and less sensitive to price changes than our industrial/commercial and agricultural and
other customers. Should wholesale propane prices decline in the future, our margins on the
distribution of propane to our customers should increase in the short-term because
customer prices have tended to change less rapidly than wholesale prices. Likewise, should
the wholesale cost of propane increase, margins and profitability would likely be reduced,
for the short-term, until customer prices can be increased.

Residential
customers typically rent their storage tanks from their distributors. Approximately 80% of
our residential customers rent their tanks from us. Our rental terms and the fire safety
regulations in some states require rented bulk tanks to be filled only by the propane
supplier owning the tank. The cost and inconvenience of switching bulk tanks helps
minimize a customers tendency to switch suppliers of propane on the basis of minor
variations in price, helping us minimize customer loss.

In
addition, we generally lease tanks to independent distributors involved with our delivery
of propane by portable tank exchange operations. Our owned and independent
distributors provide portable tank exchange customers with a national delivery presence
that is not available from our competitors.

Our
retail distribution outlets also conduct the retail sale of propane appliances and related
parts and fittings, as well as other retail propane related services and consumer
products.

In
fiscal year 2004, no one customer accounted for 10% or more of our consolidated revenues.

Seasonality and Effect of
Weather

The
market for propane is seasonal because propane is used primarily for heating in
residential and commercial buildings during the cooler months and primarily for cooking
and grilling during the warmer months. Consequently, our sales and operating profits are
concentrated in our second and third fiscal quarters. In addition, propane sales volume
traditionally fluctuates from year to year in response to variations in weather, price and
other factors. We believe that our broad geographic distribution helps us minimize
exposure to regional weather and economic patterns. See additional information about how
seasonality affects our debt to cash flow ratios and the payment of quarterly
distributions in Managements Discussion and Analysis of Financial Condition
and Results of Operations  Liquidity and Capital Resources. During times of
colder than normal winter weather, we have been able to take advantage of our large,
efficient distribution network to avoid supply disruptions such as those experienced by
some of our competitors, thereby broadening our long-term customer base.

Risk Management Activities

Our
risk management activities primarily attempt to mitigate risks related to the purchase,
storage and transport of propane. We generally purchase propane in the contract and spot
markets from major domestic energy companies on a short-term basis. Our costs to purchase
and distribute propane fluctuate with the movement of market prices. That fluctuation
subjects us to potential price risk, which we attempt to minimize through the use of risk
management activities.

Our
risk management activities include the use of energy commodity forward contracts, swaps
and options traded on the over-the-counter financial markets and futures and options
traded on the New York Mercantile Exchange. These risk management activities are conducted
primarily to offset the effect of market price fluctuations on propane inventory and
purchase commitments and to mitigate the price risk on sale commitments to our customers
and payment commitments to independent distributors.

Our
risk management activities are intended to generate a profit, which we then apply to
offset our cost of product sold. The results of risk management activities directly
related to our delivery of propane to our customers, which includes our supply
procurement, storage and transportation activities, are included in our discussions of
cost of product sold and margins and are accounted for primarily at cost. The results of
our other risk management activities are presented separately in our discussion of cost of
product sold and gross profit as risk management trading activities and are accounted for
at fair value. The results from our risk management activities are included in our
discussions about our results of operations in Managements Discussion and
Analysis of Financial Condition and Results of Operations  Results of
Operations, Managements Discussion and Analysis of Financial Condition
and Results of Operations Disclosures about Risk Management Activities Accounted for
at Fair Value and Quantitative and Qualitative Disclosures about Market
Risk.

Risk management
activities  supply procurement, storage and transportation

Through
our supply procurement activities, we purchase propane primarily from major domestic
energy companies. Supplies of propane from these sources have traditionally been readily
available, although no assurance can be given that they will be readily available in the
future. As a result of our ability to buy large volumes of propane and utilize our
national distribution system and significant underground storage capacity, we believe we
are in position to achieve product cost savings and avoid shortages during periods of
tight supply to an extent not generally available to other propane distributors. We are
not dependent upon any single supplier, the loss of which would have a material adverse
effect on us. During fiscal year 2004, no supplier provided us 10% or more of our total
propane purchases. However, if supplies were interrupted or difficulties in obtaining
alternative transportation were to arise, the cost of procuring replacement supplies may
materially increase.

A
portion of our propane inventory is purchased under supply contracts that typically have a
one-year term and a price that fluctuates based on the spot market prices. In order to
limit overall price risk, we will enter into fixed price over-the-counter energy commodity
forward and swap contracts that generally have terms of less than 18 months. We also use
options and swaps to hedge a portion of our forecasted purchases for up to 18 months in
the future.

Through
our storage activities, we may purchase and store inventories of propane to avoid delivery
interruptions during periods of increased demand and to take advantage of favorable
commodity prices. We own three underground and four above-ground storage facilities with
an aggregate capacity of approximately 257 million gallons of propane. As of July 31,
2004, approximately 181 million gallons of this underground capacity was leased to third
parties and revenues from these leases are included in other revenue in our
consolidated statements of earnings. The remaining space is available for our use. As of
July 31, 2004, we also had under lease 2.0 million gallons of storage at third party
storage facilities and pipeline terminals for contract terms of less than one year.

We
also incur risks related to the price and availability of propane during periods of much
colder than normal weather, temporary supply shortages concentrated in certain geographic
regions and commodity price distortions between geographic regions. In addition to the use
of other risk management activities, we attempt to mitigate these risks through our
transportation activities by utilizing our transport truck and railroad tank car fleet to
distribute propane between supply or storage locations and retail distribution outlets.
The propane we sell to our customers is generally transported from natural gas processing
plants and refineries, pipeline terminals and storage facilities to distribution outlets
or storage facilities by our leased railroad tank cars and our owned or leased highway
transport trucks. We also use common carrier transport trucks during the peak delivery
season in the winter months or to provide service in areas where economic considerations
favor common carrier use. Because of the Blue Rhino contribution, we will now be able to
use a portion of our transport truck fleet during the spring and summer months to support
propane sales volume related to our portable tank exchange customers.

Risk management trading
activities

We
also purchase and sell derivatives to manage other risks associated with commodity prices.
Our risk management trading activities utilize energy commodity forward contracts, options
and swaps traded on the over-the-counter financial markets and futures and options traded
on the New York Mercantile Exchange to manage and hedge our exposure to the volatility of
floating commodity prices and to protect our inventory positions. These risk management
trading activities are intended to generate a profit, which we then apply to reduce our
cost of product sold. Although these activities attempt to mitigate our commodity price
risk, we do not attempt to qualify these transactions for hedge accounting treatment.
These transactions are accounted for at fair value in our consolidated statements of
earnings.

# Industry

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

Based
upon industry publications, propane accounts for approximately 3% to 4% of household
energy consumption in the United States, a level which has remained relatively constant
for the past two decades. Propane competes primarily with natural gas, electricity and
fuel oil as an energy source principally on the basis of price, availability and
portability. Propane serves as an alternative to natural gas in rural and urban areas
where natural gas is unavailable or portability of product is required. Propane is
generally more expensive than natural gas on an equivalent British Thermal Unit
(BTU) basis in locations served by natural gas, although propane is often sold
in such areas as a standby fuel for use during peak demands and during interruption in
natural gas service. The expansion of natural gas into traditional propane markets has
historically been inhibited by the capital costs required to expand distribution and
pipeline systems. Although the extension of natural gas pipelines tends to displace
propane distribution in the neighborhoods affected, we believe that new opportunities for
propane sales arise as more geographically remote neighborhoods are developed.

Propane
is generally less expensive to use than electricity for space heating, water heating and
cooking and competes effectively with electricity in those parts of the country where
propane is less expensive than electricity on an equivalent BTU basis. Although propane is
similar to fuel oil in application, market demand and price, propane and fuel oil have
generally developed their own distinct geographic markets. Because residential furnaces
and appliances that burn propane will not operate on fuel oil, a conversion from one fuel
to the other requires the installation of new equipment. Residential propane customers
will have an incentive to switch to fuel oil only if fuel oil becomes significantly less
expensive than propane. Conversely, we may be unable to expand our customer base in areas
where fuel oil is widely used, particularly the northeast United States, unless propane
becomes significantly less expensive than fuel oil. However, many industrial customers who
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 with other companies
engaged in the propane distribution business. Competition within the propane distribution
industry stems from two types of participants: the larger, multi-state marketers,
including farmers cooperatives, and the smaller, local independent marketers,
including rural electric cooperatives. Based on our pro-forma propane sales volumes in
fiscal year 2004, we believe that we are the second largest marketer of propane in the
United States including the largest national provider of propane by portable tank exchange
based on our pro-forma propane sales volumes in fiscal year 2004.

Most
of our propane distribution outlets compete with three or more marketers or distributors,
the principal factors being price and service. We compete with other propane marketers
primarily on the basis of reliability of service and responsiveness to customer needs,
safety and price. Each propane distribution outlet operates in its own competitive
environment because propane marketers typically reside in close proximity to their
customers to lower the cost of providing service. We anticipate that our new technology
initiative, which we expect to deploy to the majority of our retail distribution outlets
by the end of fiscal year 2005, will modify the structure of our typical retail
distribution outlet. For those retail distribution outlets where this technology
initiative has been deployed, a typical retail distribution outlet (now referred to as a
service center) will encompass approximately four to five of our former retail
distributions outlets, along with associated delivery trucks (now referred to as service
units). These service units will utilize hand-held computers and satellite technology to
more efficiently route and schedule customer deliveries.

# Other Activities

Our
other activities include the following:

| | o |  | wholesale
propane marketing and distribution;
| | - |  | ---------------------------------------------

| | o |  | wholesale
marketing of propane appliances;
| | - |  | ------------------------------------------

| | o |  | the
sale of refined fuels;
| | - |  | --------------------------

| | o |  | chemical
feedstocks marketing;
| | - |  | ------------------------------

| | o |  | natural
gas liquids storage; and
| | - |  | --------------------------------

| | o |  | common
carrier services.
| | - |  | ------------------------

These activities together with the
retail sale of propane appliances and related parts and fittings, the renting of bulk
propane tanks to customers, and other retail propane related services comprised less than
10% of our total revenues in our fiscal year 2004.

# Employees

We
have no employees and are managed by our general partner pursuant to our partnership
agreement. At August 31, 2004, our general partner had 4,348 full-time employees.

Our general partner employed its
employees in the following areas:

|                             | 
|---------------------------- | 
|Propane distribution outlets | 
|Transportation and Storage   | 
|Corporate Offices            | 
|                             | 
|Total                        | 
|                             | 

Less
than one percent of these employees are represented by an aggregate of four different
local labor unions, which are all affiliated with the International Brotherhood of
Teamsters. Our general partner has not experienced any significant work stoppages or other
labor problems.

# Governmental Regulation
 Environmental and Safety Matters

Propane
is not subject to any price or allocation regulation and propane has not been defined by
any federal or state environment law as an environmentally hazardous substance.

In
connection with all acquisitions of propane distribution businesses that involve the
purchase of real property, we conduct a due diligence investigation to attempt to
determine whether any substance other than propane has been sold from, stored on or
otherwise come into contact with any such real property prior to its purchase. At a
minimum, due diligence includes questioning the sellers, obtaining representations and
warranties concerning the sellers compliance with environmental laws and visual
inspections of the real property.

With
respect to the transportation of propane by truck, we are subject to regulations
promulgated under the Federal Motor Carrier Safety Act. These regulations cover the
transportation of flammable materials and are administered by the United States Department
of Transportation. The National Fire Protection Association Pamphlet No. 58 establishes a
set of rules and procedures governing the safe handling of propane. Those rules and
procedures have been adopted by us and serve as the industry standard by the states in
which we operate.

We
believe that we are in material compliance with all governmental regulations and industry
standards applicable to environmental and safety matters. The Department of Transportation
established new regulations addressing emergency discharge control issues that became
effective on July 1, 1999. We have implemented the required discharge control systems and
are in compliance in all material respects with current regulatory requirements.

# 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 tradenames include marks or pending marks before
the United States Patent and Trademark Office such as Ferrellgas, Ferrell North America,
Ferrellmeter, American Energy Incorporated and NRG Distributors. Our general partner has
an option to purchase for a nominal value the tradenames Ferrellgas and
Ferrell North America and the trademark Ferrellmeter that it
contributed to us during 1994, if it is removed as our general partner other than
for cause. If our general partner ceases to serve as our general partner for
any reason other than for cause, it will have the option to purchase our other
tradenames and trademarks from us for fair market value.

We
believe that the Blue Rhino name and its various trademarks are an important part of our
delivery of propane to our portable tank exchange customers. The Blue Rhino name and logo,
the names RhinoTUFF®, Tri-Safe®, Bison® and
Bison design®, Uniflame®, UniGrill®,
DuraClay®, GardenArt®, Americas Choice For Grill
Gas®, Endless Summer®, Endless Summer
Comfort®, Grill Gas® and Grill Gas design®,
ShippingSpot® and Spot design®, SkeeterVac®,
Grill Aficionado, Fine Tune®, Harmony,
Spark Something Fun, Patriot, Its Your Backyard.
Enjoy It More With Skeetervac, Less Biting Insects. More Backyard
Fun, Vac & Tac, and Wavedrawer are
our registered and pending trademarks. In addition, we have patents issued for an Overflow
Protection Valve Assembly and a Method for Reconditioning a Propane Gas Tank, which expire
in 2018 and 2017, respectively, as well as various other patents and patent applications
pending. The protection afforded by our patents is critical to our ability to service our
portable tank exchange customers cost-effectively and to maintain our competitive
advantage.

# Businesses of Other
Subsidiaries

Ferrellgas
Partners Finance Corp. is a Delaware corporation formed in 1996 and is our wholly-owned
subsidiary. Ferrellgas Partners Finance Corp. has nominal assets and does not conduct any
operations, but serves as a co-issuer and co-obligor for debt securities of Ferrellgas
Partners. Institutional investors that might otherwise be limited in their ability to
invest in debt securities of Ferrellgas Partners because it is a partnership are
potentially able to invest in debt securities of Ferrellgas Partners because Ferrellgas
Partners Finance Corp. acts as a co-issuer and co-obligor. Because of its structure and
pursuant to the reduced disclosure format, a discussion of the results of operations,
liquidity and capital resources of Ferrellgas Partners Finance Corp. is not presented in
this Annual Report. See Note B to Ferrellgas Partners Finance Corp.s financial
statements for a discussion of the debt securities with respect to which Ferrellgas
Partners Finance Corp. is serving as a co-issuer and co-obligor.

Ferrellgas
Finance Corp. is a Delaware corporation formed in 2003 and is a wholly-owned subsidiary of
the operating partnership. Ferrellgas Finance Corp. has nominal assets and does not
conduct any operations, but serves as a co-issuer and co-obligor for debt securities of
the operating partnership. Institutional investors that might otherwise be limited in
their ability to invest in debt securities of the operating partnership because it is a
partnership are potentially able to invest in debt securities of the operating partnership
because Ferrellgas Finance Corp. acts as a co-issuer and co-obligor. Because of its
structure and pursuant to the reduced disclosure format, a discussion of the results of
operations, liquidity and capital resources of Ferrellgas Finance Corp. is not presented
in this Annual Report. See Note B to Ferrellgas Finance Corp.s financial statements
for a discussion of the debt securities with respect to which Ferrellgas Finance Corp. is
serving as a co-issuer and co-obligor.

Ferrellgas
Receivables, LLC was organized in September 2000, and is a wholly-owned, unconsolidated
qualifying special purpose entity and a subsidiary of the operating partnership. The
operating partnership transfers interests in a pool of accounts receivable to Ferrellgas
Receivables. Ferrellgas Receivables then sells the interests to a commercial paper conduit
of Banc One, NA. Ferrellgas Receivables does not conduct any other activities. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 140
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, the transactions with Ferrellgas Receivables are accounted for in our
consolidated financial statements as sales of accounts receivable with the retention of an
interest in transferred accounts receivable. The accounts receivable securitization is
more fully described in Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources 
Operating Activities and in Note F Accounts receivable securitization 
to our consolidated financial statements provided herein.

We
sell gas grills, patio heaters, fireplace and garden accessories and a line of mosquito
traps that use portable propane tanks. These products are manufactured by independent
third parties in Asia and are sold to mass market retailers in Asia or shipped to the
United States, where they are sold under our various trade names. These products are sold
through the following taxable corporations that are wholly-owned subsidiaries of the
operating partnership:

| | o |  | Blue
Rhino Global Sourcing, LLC;
| | - |  | --------------------------------

| | o |  | Uniflame
Corporation; and
| | - |  | -------------------------

| | o |  | UniAsia,
Ltd.
| | - |  | -------------

Blue Rhino Canada, Inc. is a taxable
Delaware corporation through which we conduct our portable tank exchange in Canada.
QuickShip, Inc. is a retail shipping service and is also a taxable corporation acquired in
connection with the Blue Rhino contribution. All of these taxable corporations are
wholly-owned subsidiaries of the operating partnership.

We
also own a 50% interest in R-4 Technical Center-NC, LLC, a company that refurbishes
portable propane tanks.

# Risk factors

Risks Inherent in the
Distribution of Propane

Weather conditions may reduce the
demand for propane; our financial condition is vulnerable to warm winters and poor weather
in the grilling season.

Weather
conditions have a significant impact on the demand for propane for both heating and
agricultural purposes. Many of our customers rely heavily on propane as a heating fuel.
Accordingly, our sales volumes of propane are highest during the five-month winter-heating
season of November through March and are directly affected by the temperatures during
these months. During fiscal year 2004, approximately 59% of our propane sales volume was
attributable to sales during the winter-heating season. Actual weather conditions can vary
substantially from year to year, which may significantly affect our financial performance.
Furthermore, variations in weather in one or more regions in which we operate can
significantly affect our total propane sales volume and therefore our realized profits. A
negative effect on our sales volume may in turn affect our results of operations. The
agricultural demand for propane is also affected by weather, as dry or warm weather during
the harvest season may reduce the demand for propane used in some crop drying
applications.

Our
portable tank exchange operations experience higher volumes in the spring and summer,
which includes the majority of the grilling season. Sustained periods of poor weather,
particularly in the grilling season, can negatively affect our portable tank exchange
revenues. In addition, poor weather may reduce consumers propensity to purchase and
use grills and other propane-fueled appliances thereby reducing demand for portable tank
exchange as well as the demand for our propane-fueled outdoor products.

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

Our
profitability is affected by the competition for customers among all of the participants
in the retail propane distribution business. We compete with a number of large national
and regional firms and several thousand small independent firms. Because of the relatively
low barriers to entry into the propane market, there is the potential for small
independent propane distributors, as well as other companies not previously engaged in
retail propane distribution, to compete with our retail outlets. In recent years, some
rural electric cooperatives and fuel oil distributors have expanded their businesses to
include propane distribution. As a result, we are subject to the risk of additional
competition in the future. Some of our competitors may have greater financial resources
than we do. Should a competitor attempt to increase market share by reducing prices, our
operating margins and customer base may be negatively impacted. Generally,
warmer-than-normal weather further intensifies competition. We believe that our ability to
compete effectively depends on our service reliability, our responsiveness to customers,
our ability to maintain competitive retail propane prices and control our operating
expenses.

The propane distribution industry
is a mature one, which may limit our growth.

The
propane distribution industry is a mature one. We foresee only limited growth in total
national demand for propane in the near future. We believe the overall demand for propane
has remained relatively constant over the past several years, with year-to-year industry
volumes impacted primarily by fluctuations in temperatures and economic conditions. Our
ability to grow our sales volumes within the propane distribution industry is primarily
dependent upon our ability to acquire other propane distributors and upon the success of
our marketing efforts to acquire new customers. If we are unable to compete effectively in
the propane distribution business, we may lose existing customers or fail to acquire new
customers.

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

Propane
competes with other sources of energy, some of which are less costly for equivalent energy
value. We compete for customers against other propane suppliers and against suppliers of
electricity, natural gas and fuel oil. Electricity is a major competitor of propane, but
propane generally enjoys a competitive price advantage over electricity. Except for some
industrial and commercial applications, propane is generally not competitive with natural
gas in areas where natural gas pipelines already exist because such pipelines generally
make it possible for the delivered cost of natural gas to be less expensive than the bulk
delivery of propane. The expansion of natural gas into traditional propane markets has
historically been inhibited by the capital cost required to expand distribution and
pipeline systems, however, the gradual expansion of the nations natural gas
distribution systems has resulted in the availability of natural gas in areas that were
previously dependent upon propane. Although propane is similar to fuel oil in some
applications and market demand, propane and fuel oil compete to a lesser extent primarily
because of the cost of converting from one to the other and due to the fact that both fuel
oil and propane have generally developed their own distinct geographic markets. We cannot
predict the effect that the development of alternative energy sources might have on our
operations.

Energy efficiency and technology
advances may affect demand for propane; increases in propane prices may cause our
residential customers to increase their conservation efforts.

The
national trend toward increased conservation and technological advances, including
installation of improved insulation and the development of more efficient furnaces and
other heating devices, has reduced the demand for propane in our industry. We cannot
predict the materiality of the effect of future conservation measures or the effect that
any technological advances in heating, conservation, energy generation or other devices
might have on our operations. As the price of propane increases, some of our customers
tend to increase their conservation efforts and thereby decrease their consumption of
propane. We cannot predict the materiality of the effect of those decreases on our
financial results.

Current economic and political
conditions may harm the energy business disproportionately to other industries.

Deteriorating
regional and global economic conditions and the effects of ongoing military actions
against terrorists may cause significant disruptions to commerce throughout the world. If
those disruptions occur in areas of the world which are tied to the energy industry, such
as the Middle East, it is most likely that our industry will be either affected first or
affected to a greater extent than other industries. These conditions or disruptions may:

| | o |  | impair
our ability to effectively market or acquire propane; or
| | - |  | ---------------------------------------------------------------

| | o |  | impair
our ability to raise equity or debt capital for acquisitions, capital expenditures or
ongoing operations.
| | - |  | ----------------------------------------------------------------------------------------------------------------

The revenues received from the
recently acquired Blue Rhino assets and business are concentrated with a limited number of
retailers under non-exclusive arrangements that may be terminated at will.

The
revenues we anticipate receiving from our delivery of propane by portable tank exchange
are concentrated with a limited number of retailers. If one or more of these retailers
were to materially reduce or terminate its business with us, the results from our delivery
of propane by portable tank exchange operations may suffer. For fiscal year 2004, on a
pro-forma basis, Wal*Mart, Home Depot, and Lowes represented approximately 35%, 15%
and 13% of Blue Rhino, Inc.s net revenues, respectively. None of our significant
retail accounts associated with our portable tank exchange operation are contractually
bound to offer portable tank exchange service or products. Therefore, retailers can
discontinue our delivery of propane to them by portable tank exchange service, or sales of
our propane related products, at any time and accept a competitors delivery of
propane by portable tank exchange, or its related propane products or none at all.
Continued relations with a retailer depend upon various factors, including price, customer
service, consumer demand and competition. In addition, most of our significant retailers
have multiple vendor policies and may seek to accept a competitors delivery of
propane by portable tank exchange, or accept products competitive with our propane related
products, at new or existing locations of these significant retailers. If any significant
retailer materially reduces, terminates or is unwilling to expand its relationship with us
or requires price reductions or other adverse modifications in our selling terms, our
results from our delivery of propane by portable tank exchange operations may suffer.

If the distributors that our
customers rely upon for the delivery of propane by portable tank exchange do not perform
up to the expectations of such customers, if we encounter difficulties in managing the
operations of these distributors or if we or these distributors are not able to manage
growth effectively, our relationships with our customers may be adversely impacted and our
delivery of propane by portable tank exchange may suffer.

We
rely exclusively on our distributors to deliver our propane for a retailers portable
tank exchange service. Accordingly, our success depends on our ability to maintain and
manage distributor relationships and operations and on the distributors ability to
set up and adequately service accounts. Many of our distributors are independent, and we
exercise only limited influence over the resources that these distributors devote to the
delivery of propane by portable tank exchange. National retailers impose demanding service
requirements on us, and we could suffer a loss of consumer or retailer goodwill if our
distributors do not adhere to our quality control and service guidelines or fail to ensure
the timely delivery of an adequate supply of propane by portable tank exchange at retail
locations. The poor performance of a single distributor to a national retailer could
jeopardize our entire relationship with that retailer and cause our delivery of propane by
portable tank exchange to that particular retailer to suffer. In addition, the number of
retail locations accepting delivery of our propane by portable tank exchange and,
subsequently, the retailers corresponding sales have historically grown
significantly along with the creation of our distributor network. Accordingly, our
distributors must be able to adequately service an increasing number of retail accounts.
If we or our distributors fail to manage growth effectively, our financial results from
our delivery of propane by portable tank exchange may suffer.

If we experience problems
associated with the R4 Technical Center, our distributors may not be able to deliver
propane by portable tank exchange to retailers and our delivery of propane by portable
tank exchange may suffer.

R4
Technical CenterNorth Carolina, LLC is a joint venture in which we and Manchester
Tank & Equipment Co. each own a 50% interest. Several distributors owned by us as well
as several independent distributors rely on R4 Technical Center for their required
supplies of refilled and refurbished propane tanks. We effectively share management of R4
Technical Center with Manchester Tank & Equipment. If R4 Technical Center experiences
problems, whether operational, caused by management disagreements or otherwise, we may be
unable to meet production goals, achieve targeted production costs or otherwise satisfy
the needs of our distributors, in which event the ability of our distributors to service
our retail accounts may be adversely impacted and cause our delivery of propane by
portable tank exchange to suffer.

If we are unable to manage the
impact of overfill prevention device valve guidelines, our delivery of propane by portable
tank exchange may suffer.

Guidelines
published by the National Fire Protection Association in the current form of Pamphlet 58
and adopted in many states require that all portable propane tanks refilled after April 1,
2002 must be fitted with an overfill prevention valve. If we or our distributors cannot
satisfy the demand for compliant portable propane tanks such that our retailers maintain
an adequate supply, our retailer relationships and our delivery of propane by portable
tank exchange may suffer. In addition, for some of our customers, we have fixed in advance
the price of propane per portable tank exchange unit charged to our retailers. When
pricing, we make assumptions with regard to the number of portable tanks that will already
have an overfill prevention valve when presented for exchange, on which our margins will
be greater, and the number of tanks that will need an overfill prevention valve. If our
actual experience is inconsistent with our assumptions, our margins on sales to that
retailer may be lower than expected, which may have an adverse effect on our financial
condition and results of operations of our delivery of propane by portable tank exchange.

We depend on particular management
information systems to effectively manage all aspects of our delivery of propane by
portable tank exchange.

We
depend on our management information systems to process orders, manage inventory and
accounts receivable collections, maintain distributor and customer information, maintain
cost-efficient operations and assist in delivering products on a timely basis. In
addition, our staff of management information systems professionals relies heavily on the
support of several key consultants. Any disruption in the operation of those management
information systems, loss of employees knowledgeable about such systems, termination of
our relationship with one or more of these key consultants or failure to continue to
modify such systems effectively as our business expands could negatively affect our
business.

Potential retail partners may not
be able to obtain necessary permits or may be substantially delayed in obtaining necessary
permits, which may adversely impact our ability to increase our delivery of propane by
portable tank exchange to new retail locations.

Local
ordinances, which vary from jurisdiction to jurisdiction, generally require retailers to
obtain permits to store and sell propane tanks. These ordinances influence retailers acceptance
of propane by portable tank exchange, distribution methods, propane tank packaging and
storage. The ability and time required to obtain permits varies by jurisdiction. Delays
in obtaining permits have from time to time significantly delayed the installation of new
retail locations. Some jurisdictions have refused to issue the necessary permits, which
has prevented some installations. Some jurisdictions may also impose additional
restrictions on our ability to market and our distributors ability to transport
propane tanks or otherwise maintain its portable tank exchange services.

Risks Inherent to Our
Business

Our substantial debt and other
financial obligations could impair our financial condition and our ability to fulfill our
obligations.

We
have substantial indebtedness and other financial obligations. As of July 31, 2004:

| | o |  | we
had total indebtedness of approximately $1,158.0 million;
| | - |  | ------------------------------------------------------------

| | o |  | Ferrellgas
Partners had partners' capital of approximately $202.1 million;
| | - |  | --------------------------------------------------------------------------

| | o |  | the
operating partnership had availability under its bank credit facility of approximately
$159.3 million; and
| | - |  | --------------------------------------------------------------------------------------------------------------

| | o |  | we
had aggregate future minimum rental commitments under non-cancelable tank and other
equipment operating leases of approximately $81.2 million; provided, however, if we elect
to purchase the underlying assets at the end of the lease terms, such aggregate buyout
would be $26.2 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
operating partnership has issued notes with maturity dates ranging from fiscal years 2006
to 2014, that bear interest at rates ranging from 6.75% to 8.87%. These notes do not
contain any sinking fund provisions but do require annual aggregate principal payments,
without premium, during the following fiscal years of approximately:

| | o |  | $109
million - 2006;
| | - |  | --------------------

| | o |  | $
58 million - 2007;
| | - |  | --------------------

| | o |  | $
90 million - 2008;
| | - |  | --------------------

| | o |  | $
52 million - 2009;
| | - |  | --------------------

| | o |  | $
73 million - 2010;
| | - |  | --------------------

| | o |  | $
82 million - 2011; and
| | - |  | ------------------------

| | o |  | $
320 million - 2014.
| | - |  | ---------------------

Amounts
outstanding under the operating partnerships bank credit facility will be due on
April 28, 2006. All of the indebtedness and other obligations described above are
obligations of the operating partnership except for $268.0 million of senior debt due 2012
issued by Ferrellgas Partners and Ferrellgas Partners Finance Corp. This $268.0 million in
principal amount of senior notes also contain no sinking fund provisions.

Subject
to the restrictions governing the operating partnerships indebtedness and other
financial obligations and the indenture governing Ferrellgas Partners outstanding
senior notes due 2012, we may incur significant additional indebtedness and other
financial obligations, which may be secured and/or structurally senior to any debt
securities we may issue.

Our
substantial indebtedness and other financial obligations could have important consequences
to our security holders. For example, it could:

| | o |  | make
it more difficult for us to satisfy our obligations with respect to our securities;
| | - |  | ----------------------------------------------------------------------------------------

| | o |  | impair
our ability to obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | result
in higher interest expense in the event of increases in interest rates since some of our
debt is, and will continue to be, at variable rates of interest;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | impair
our operating capacity and cash flows if we fail to comply with financial and restrictive
covenants in our debt agreements and an event of default occurs as a result of that
failure that is not cured or waived;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | require
us to dedicate a substantial portion of our cash flow to payments on our indebtedness and
other financial obligations, thereby reducing the availability of our cash flow to fund
distributions, working capital, capital expenditures and other general partnership
requirements;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | limit
our flexibility in planning for, or reacting to, changes in our business and the industry
in which we operate; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------

| | o |  | place
us at a competitive disadvantage compared to our competitors that have proportionately
less debt.
| | - |  | -------------------------------------------------------------------------------------------------------

Ferrellgas Partners or the
operating partnership may be unable to refinance their indebtedness or pay that
indebtedness if it becomes due earlier than scheduled.

If
Ferrellgas Partners or the operating partnership are unable to meet their debt service
obligations or other financial obligations, they could be forced to restructure or
refinance their indebtedness and other financial transactions, seek additional equity
capital or sell their assets. They may then be unable to obtain such financing or capital
or sell their assets on satisfactory terms, if at all. Their failure to make payments,
whether after acceleration of the due date of that indebtedness or otherwise, or our
failure to refinance the indebtedness would impair their operating capacity and cash
flows.

The terms of our senior units
limit our use of proceeds from sales of equity.

While
our senior units are outstanding, other than issuances of equity pursuant to an exercise
of any of our common unit options, Ferrellgas Partners may use up to $20.0 million of
aggregate cash proceeds from sales of its equity to reduce our indebtedness. By letter
agreement dated November 20, 2003, JEF Capital Management, Inc. agreed to waive the
occurrence of a Material Event if Ferrellgas Partners issues common units at
any time and from time to time on or prior to March 31, 2004, and does not use the cash
proceeds from such offering or offerings to redeem a portion of the outstanding senior
units. On February 25, 2004, JEF Capital and Ferrellgas Partners extended the letter
agreement through December 31, 2004. After December 31, 2004, cash proceeds from equity
issuances that exceed $20.0 million must be used to redeem a portion of our outstanding
senior units, all of which are owned by JEF Capital. As a result, as long as any of our
senior units are outstanding, our ability to access the equity capital markets for
purposes other than the redemption of our senior units, including meeting our future
obligations under our existing securities or any other securities that we may issue, will
be limited. JEF Capital is beneficially owned by James E. Ferrell, the President and Chief
Executive Officer of our general partner and the Chairman of its Board of Directors.

Restrictive covenants in the
agreements governing our indebtedness and other financial obligations may reduce our
operating flexibility.

The
indenture governing the outstanding notes of Ferrellgas Partners and the agreements
governing the operating partnerships indebtedness and other financial obligations
contain, and any indenture that will govern debt securities issued by Ferrellgas Partners
or the operating partnership may contain, various covenants that limit our ability and the
ability of specified subsidiaries of ours to, among other things:

| | o |  | incur
additional indebtedness;
| | - |  | ------------------------------

| | o |  | make
distributions to our unitholders;
| | - |  | --------------------------------------

| | o |  | purchase
or redeem our outstanding equity interests or subordinated debt;
| | - |  | -------------------------------------------------------------------------

| | o |  | make
specified investments;
| | - |  | ---------------------------

| | o |  | create
or incur liens;
| | - |  | ----------------------

| | o |  | sell
assets;
| | - |  | ------------

| | o |  | engage
in specified transactions with affiliates;
| | - |  | -------------------------------------------------

| | o |  | restrict
the ability of our subsidiaries to make specified payments, loans, guarantees and
transfers of assets      or interests in assets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | engage
in sale-leaseback transactions;
| | - |  | --------------------------------------

| | o |  | effect
a merger or consolidation with or into other companies or a sale of all or substantially
all of our      properties or assets; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

| | o |  | engage
in other lines of business.
| | - |  | ----------------------------------

These
restrictions could limit the ability of Ferrellgas Partners, the operating partnership and
our other subsidiaries:

| | o |  | to
obtain future financings;
| | - |  | ----------------------------

| | o |  | to
make needed capital expenditures;
| | - |  | ------------------------------------

| | o |  | to
withstand a future downturn in our business or the economy in general; or
| | - |  | ----------------------------------------------------------------------------

| | o |  | to
conduct operations or otherwise take advantage of business opportunities that may arise.
| | - |  | -------------------------------------------------------------------------------------------

Some
of the agreements governing our indebtedness and other financial obligations also require
the maintenance of specified financial ratios and the satisfaction of other financial
conditions. Our ability to meet those financial ratios and conditions can be affected by
unexpected downturns in business operations beyond our control, such as significantly
warmer than normal weather, a volatile energy commodity cost environment or an economic
downturn. Accordingly, we may be unable to meet these ratios and conditions. This failure
could impair our operating capacity and cash flows and could restrict our ability to incur
debt or to make cash distributions, even if sufficient funds were available.

Our
breach of any of these covenants or the operating partnerships failure to meet any
of these ratios or conditions could result in a default under the terms of the relevant
indebtedness, which could cause such indebtedness or other financial obligations, and by
reason of cross-default provisions, any of Ferrellgas Partners or the operating
partnerships other outstanding notes or future debt securities, to become
immediately due and payable. If we were unable to repay those amounts, the lenders could
initiate a bankruptcy proceeding or liquidation proceeding or proceed against the
collateral, if any. If the lenders of the operating partnerships indebtedness or
other financial obligations accelerate the repayment of borrowings or other amounts owed,
we may not have sufficient assets to repay our indebtedness or other financial
obligations, including our outstanding notes and any future debt securities.

Our results of operations and our
ability to make distributions or pay interest or principal on debt securities could be
negatively impacted by price and inventory risk and management of these risks.

The
amount of gross profit we make depends significantly on the excess of the sales price over
our costs to purchase and distribute propane. Consequently, our profitability is sensitive
to changes in energy prices, in particular, changes in wholesale propane prices. Propane
is a commodity whose market price can fluctuate significantly based on changes in supply,
changes in other energy prices or other market conditions. We have no control over these
market conditions. In general, product supply contracts permit suppliers to charge posted
prices plus transportation costs at the time of delivery or the current prices established
at major delivery points. Any increase in the price of product could reduce our gross
profit because we may not be able to immediately pass rapid increases in such costs, or
costs to distribute product, on to our customers.

While
we generally attempt to minimize our inventory risk by purchasing product on a short-term
basis, we may purchase and store propane or other natural gas liquids depending on
inventory and price outlooks. We may purchase large volumes of propane at the then current
market price during periods of low demand and low prices, which generally occurs during
the summer months. The market price for propane could fall below the price at which we
made the purchases, which would adversely affect our profits or cause sales from that
inventory to be unprofitable. A portion of our inventory is purchased under supply
contracts that typically have a one-year term and at a price that fluctuates based on the
prevailing market prices. Our contracts with our independent portable tank exchange
distributors provide for a portion of our payment to the distributor to be based upon a
price that fluctuates based on the prevailing propane market prices. To limit our overall
price risk, we may purchase and store physical product and enter into fixed price
over-the-counter energy commodity forward contracts, swaps and options that have terms of
up to 18 months. This strategy may not be effective in limiting our price risk if, for
example, weather conditions significantly reduce customer demand, or market or weather
conditions prevent the delivery of physical product during periods of peak demand,
resulting in excess physical product after the end of the winter heating season and the
expiration of related forward or option contracts.

Some
of our sales are pursuant to commitments at fixed prices. To manage these commitments, we
may purchase and store physical product and/or enter into fixed price-over-the-counter
energy commodity forward contracts and options. We may enter into these agreements at
volume levels that we believe are necessary to mitigate the price risk related to our
anticipated sales volumes under the commitments. If the price of propane declines and our
customers purchase less propane than we have purchased from our suppliers, we could incur
losses when we sell the excess volumes. If the price of propane increases and our
customers purchase more propane than we have purchased from our suppliers, we could incur
losses when we are required to purchase additional propane to fulfill our customers
orders. The risk management of our inventory and contracts for the future purchase of
product could impair our profitability if the price of product changes in ways we do not
anticipate.

We
also purchase and sell derivatives to manage other risks associated with commodity prices.
Our risk management trading activities use various types of energy commodity forward
contracts, options and swaps traded on the over-the-counter financial markets and futures
and options traded on the New York Mercantile Exchange to manage and hedge our exposure to
the volatility of floating commodity prices and to protect our inventory positions. These
risk management trading activities are based on our managements estimates of future
events and prices and are intended to generate a profit which we then apply to reduce our
cost of product sold. However, if those estimates are incorrect or other market events
outside of our control occur, such activities could generate a loss in future periods
which would increase our cost of product sold and potentially impair our profitability.

The
Board of Directors of our general partner adopted a commodity risk management policy which
places specified restrictions on all of our commodity risk management activities such as
limits on the types of commodities, loss limits, time limits on contracts and limitations
on our ability to enter into derivative contracts. The policy also requires the
establishment of a risk management committee of senior executives. This committee is
responsible for monitoring commodity risk management activities, establishing and
maintaining timely reporting and establishing and monitoring specific limits on the
various commodity risk management activities. These limits may be waived on a case-by-case
basis by a majority vote of the risk management committee and/or Board of Directors,
depending on the specific limit being waived. From time to time, for valid business
reasons based on the facts and circumstances, authorization has been granted to allow
specific commodity risk management positions to exceed established limits. In addition,
the operating partnerships credit facility places limitations on our ability to
amend our commodity risk management policy. If we sustain material losses from our risk
management activities due to our failure to anticipate future events, a failure of the
policy, incorrect waivers or otherwise, our ability to make distributions to our
unitholders or pay interest or principal of any debt securities may be negatively impacted
as a result of such loss.

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

Through
our supply procurement activities, we purchased approximately 50% of our propane from ten
suppliers during fiscal year 2004. In addition, during extended periods of colder than
normal weather, suppliers may temporarily run out of propane necessitating the
transportation of propane by truck, rail car or other means from other areas. If supplies
from these sources were interrupted or difficulties in alternative transportation were to
arise, the cost of procuring replacement supplies and transporting those supplies from
alternative locations might be materially higher and, at least on a short-term basis, our
margins could be reduced.

The availability of cash from our
credit facilities may be impacted by many factors beyond our control.

We
typically borrow on the operating partnerships bank credit facility or sell accounts
receivable under its accounts receivable securitization facility to fund our working
capital requirements. We may also borrow on the operating partnerships bank credit
facility to fund distributions to our unitholders. We purchase product from suppliers and
make payments with terms that are typically within five to ten days of delivery. We
believe that the availability of cash from the operating partnerships bank credit
facility and the accounts receivable securitization facility will be sufficient to meet
our future working capital needs. However, if we were to experience an unexpected
significant increase in working capital requirements or have insufficient funds to fund
distributions, this need could exceed our immediately available resources. Events that
could cause increases in working capital borrowings or letter of credit requirements may
include:

| | o |  | a
significant increase in the cost of propane;
| | - |  | ----------------------------------------------

| | o |  | a
significant delay in the collections of accounts receivable;
| | - |  | --------------------------------------------------------------

| | o |  | increased
volatility in energy commodity prices related to risk management activities;
| | - |  | --------------------------------------------------------------------------------------

| | o |  | increased
liquidity requirements imposed by insurance providers;
| | - |  | ----------------------------------------------------------------

| | o |  | a
significant downgrade in our credit rating;
| | - |  | ---------------------------------------------

| | o |  | decreased
trade credit; or
| | - |  | --------------------------

| | o |  | a
significant acquisition.
| | - |  | --------------------------

As
is typical in our industry, our customers do not pay upon receipt, but pay between thirty
and sixty days after delivery. During the winter heating season, we experience significant
increases in accounts receivable and inventory levels and thus a significant decline in
working capital availability. Although we have the ability to fund working capital with
borrowings from the operating partnerships bank credit facility and sales of
accounts receivable under its accounts receivable securitization facility, we cannot
predict the effect that increases in propane prices and colder than normal winter weather
may have on future working capital availability.

We may not be successful in making
acquisitions and any acquisitions we make may not result in our anticipated results; in
either case, potentially limiting our growth, limiting our ability to compete and
impairing our results of operations.

We
have historically expanded our business through acquisitions. We regularly consider and
evaluate opportunities to acquire local, regional and national propane distributors. We
may choose to finance these acquisitions through internal cash flow, external borrowings
or the issuance of additional common units or other securities. We have substantial
competition for acquisitions of propane companies among the publicly-traded master limited
partnerships. Although we believe there are numerous potential large and small acquisition
candidates in our industry, there can be no assurance that:

| | o |  | we
will be able to acquire any of these candidates on economically acceptable terms;
| | - |  | ------------------------------------------------------------------------------------

| | o |  | we
will be able to successfully integrate acquired operations with any expected cost savings;
| | - |  | ---------------------------------------------------------------------------------------------

| | o |  | any
acquisitions made will not be dilutive to our earnings and distributions;
| | - |  | -----------------------------------------------------------------------------

| | o |  | any
additional equity we issue as consideration for an acquisition will not be dilutive to
our unitholders; or
| | - |  | --------------------------------------------------------------------------------------------------------------

| | o |  | any
additional debt we incur to finance an acquisition will not affect the operating
partnerships ability to make distributions to Ferrellgas Partners or service the
operating partnerships existing debt.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are subject to operating and
litigation risks, which may not be covered by insurance.

Our
operations are subject to all operating hazards and risks normally incidental to the
handling, storing and delivering of combustible liquids such as propane. As a result, we
have been, and are likely to be, a defendant in various legal proceedings arising in the
ordinary course of business. We will maintain insurance policies with insurers in such
amounts and with such coverages and deductibles as we believe are reasonable and prudent.
However, we cannot guarantee that such insurance will be adequate to protect us from all
material expenses related to potential future claims for personal injury and property
damage or that such levels of insurance will be available in the future at economical
prices.

Risks Inherent to an
Investment in Our Debt Securities

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

Subject
to the limitations on restricted payments contained in the indenture that governs
Ferrellgas Partners outstanding notes, the instruments governing the outstanding
indebtedness of the operating partnership and any applicable indenture that will govern
any debt securities Ferrellgas Partners or the operating partnership may issue, the
partnership agreements of both Ferrellgas Partners and the operating partnership require
us to distribute all of our available cash each fiscal quarter to our limited partners and
our general partner and do not require us to accumulate cash for the purpose of meeting
obligations to holders of any debt securities of Ferrellgas Partners or the operating
partnership. As a result of these distribution requirements, we do not expect either
Ferrellgas Partners or the operating partnership to accumulate significant amounts of
cash. Depending on the timing and amount of our cash distributions and because we are not
required to accumulate cash for the purpose of meeting obligations to holders of any debt
securities of Ferrellgas Partners or the operating partnership, such distributions could
significantly reduce the cash available to us in subsequent periods to make payments on
any debt securities of Ferrellgas Partners or the operating partnership.

Debt securities of Ferrellgas
Partners will be structurally subordinated to all indebtedness and other liabilities of
the operating partnership and its subsidiaries.

Debt
securities of Ferrellgas Partners will be effectively subordinated to all existing and
future claims of creditors of the operating partnership and its subsidiaries, including:

| | o |  | the
lenders under the operating partnership's indebtedness;
| | - |  | -----------------------------------------------------------

| | o |  | the
claims of lessors under the operating partnership's operating leases;
| | - |  | -------------------------------------------------------------------------

| | o |  | the
claims of the lenders and their affiliates under the operating partnership's accounts
receivable      securitization facility;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------

| | o |  | debt
securities, including any subordinated debt securities, issued by the operating
partnership; and
| | - |  | -----------------------------------------------------------------------------------------------------

| | o |  | all
other possible future creditors of the operating partnership and its subsidiaries.
| | - |  | --------------------------------------------------------------------------------------

This
subordination is due to these creditors priority as to the assets of the operating
partnership and its subsidiaries over Ferrellgas Partners claims as an equity holder
in the operating partnership and, thereby, indirectly, the claims of holders of Ferrellgas
Partners debt securities. As a result, upon any distribution to these creditors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to Ferrellgas
Partners or its property, the operating partnerships creditors will be entitled to
be paid in full before any payment may be made with respect to Ferrellgas Partners
debt securities. Thereafter, the holders of Ferrellgas Partners debt securities will
participate with its trade creditors and all other holders of its indebtedness in the
assets remaining, if any. In any of these cases, Ferrellgas Partners may have insufficient
funds to pay all of its creditors, and holders of its debt securities may therefore
receive less, ratably, than creditors of the operating partnership and its subsidiaries.
As of July 31, 2004, the operating partnership had approximately $908.9 million of
outstanding indebtedness and other liabilities to which any of the debt securities of
Ferrellgas Partners will effectively rank junior.

All payments on any subordinated
debt securities that we may issue will be subordinated to the payments of any amounts due
on any senior indebtedness that we may have issued or incurred.

The
right of the holders of subordinated debt securities to receive payment of any amounts due
to them, whether interest, premium or principal, will be subordinated to the right of all
of the holders of our senior indebtedness, as such term will be defined in the applicable
subordinated debt indenture, to receive payments of all amounts due to them. If an event
of default on any of our senior indebtedness occurs, then until such event of default has
been cured, we may be unable to make payments of any amounts due to the holders of our
subordinated debt securities. Accordingly, in the event of insolvency, creditors who are
holders of our senior indebtedness may recover more, ratably, than the holders of our
subordinated debt securities.

Debt securities of Ferrellgas
Partners are expected to be non-recourse to the operating partnership, which will limit
remedies of the holders of Ferrellgas Partners debt securities.

Ferrellgas
Partners obligations under any debt securities are expected to be non-recourse to
the operating partnership. Therefore, if Ferrellgas Partners should fail to pay the
interest or principal on the notes or breach any of its other obligations under its debt
securities or any applicable indenture, holders of debt securities of Ferrellgas Partners
will not be able to obtain any such payments or obtain any other remedy from the operating
partnership or its subsidiaries. The operating partnership and its subsidiaries will not
be liable for any of Ferrellgas Partners obligations under its debt securities or
the applicable indenture.

Ferrellgas Partners or the
operating partnership may be unable to repurchase debt securities upon a change of control
and it may be difficult to determine if a change of control has occurred.

Upon
the occurrence of change of control events as may be described from time to
time in our filings with the SEC and related to the issuance by Ferrellgas Partners or the
operating partnership of debt securities, the applicable issuer or a third party may be
required to make a change of control offer to repurchase those debt securities at a
premium to their principal amount, plus accrued and unpaid interest. The applicable issuer
may not have the financial resources to purchase its debt securities in that circumstance,
particularly if a change of control event triggers a similar repurchase requirement for,
or results in the acceleration of, other indebtedness. The indenture governing Ferrellgas
Partners outstanding notes contains such a repurchase requirement. Some of the
agreements governing the operating partnerships indebtedness currently provide that
specified change of control events will result in the acceleration of the indebtedness
under those agreements. Future debt agreements of Ferrellgas Partners or the operating
partnership may also contain similar provisions. The obligation to repay any accelerated
indebtedness of the operating partnership will be structurally senior to Ferrellgas
Partners obligations to repurchase its debt securities upon a change of control. In
addition, future debt agreements of Ferrellgas Partners or the operating partnership may
contain other restrictions on the ability of Ferrellgas Partners or the operating
partnership to repurchase its debt securities upon a change of control. These restrictions
could prevent the applicable issuer from satisfying its obligations to purchase its debt
securities unless it is able to refinance or obtain waivers under any indebtedness of
Ferrellgas Partners or of the operating partnership containing these restrictions. The
applicable issuers failure to make or consummate a change of control repurchase
offer or pay the change of control purchase price when due will give the trustee and the
holders of the debt securities particular rights that will be described from time to time
in our filings with the SEC.

In
addition, one of the events that may constitute a change of control is a sale of all or
substantially all of the applicable issuers assets. The meaning of
substantially all varies according to the facts and circumstances of the
subject transaction and has no clearly established meaning under New York law, which is
the law that will likely govern any indenture for the debt securities. This ambiguity as
to when a sale of substantially all of the applicable issuers assets has occurred
may make it difficult for holders of debt securities to determine whether the applicable
issuer has properly identified, or failed to identify, a change 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.

We
do not intend to list the debt securities we may issue from time to time on any securities
exchange or to seek approval for quotations through any automated quotation system. An
established market for the debt securities may not develop, or if one does develop, it may
not be maintained. Although underwriters may advise us that they intend to make a market
in the debt securities, they are not expected to be obligated to do so and may discontinue
such market making activity at any time without notice. In addition, market-making
activity will be subject to the limits imposed by the Securities Act and the Exchange Act.
For these reasons, we cannot assure a debt holder that:

| | o |  | a
liquid market for the debt securities will develop;
| | - |  | -----------------------------------------------------

| | o |  | a
debt holder will be able to sell its debt securities; or
| | - |  | ----------------------------------------------------------

| | o |  | a
debt holder will receive any specific price upon any sale of its debt securities.
| | - |  | -----------------------------------------------------------------------------------

If
a public market for the debt securities did develop, the debt securities could trade at
prices that may be higher or lower than their principal amount or purchase 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 been subject to disruptions that have caused
substantial fluctuations in the prices of these securities.

Risks Inherent to an
Investment in Ferrellgas Partners Equity

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

The
partnership agreement of Ferrellgas Partners generally allows Ferrellgas Partners to issue
additional limited partner interests and other equity securities. When Ferrellgas Partners
issues additional equity securities, a unitholders proportionate partnership
interest will decrease. Such an issuance could negatively affect the amount of cash
distributed to unitholders and the market price of common units. The issuance of
additional common units will also diminish the relative voting strength of the previously
outstanding common units.

Cash distributions are not
guaranteed and may fluctuate with our performance and other external factors.

Although
we are required to distribute all of our available cash, we cannot guarantee
the amounts of available cash that will be distributed to the holders of our equity
securities. Available cash generally means, for any fiscal quarter, the sum of all cash
received by us from all sources and any reductions in reserves, less the sum of all of our
cash disbursements and any additions to reserves. The actual amounts of available cash
will depend upon numerous factors, including:

| | o |  | cash
flow generated by operations;
| | - |  | ----------------------------------

| | o |  | weather
in our areas of operation;
| | - |  | ----------------------------------

| | o |  | borrowing
capacity under our credit facilities;
| | - |  | -----------------------------------------------

| | o |  | principal
and interest payments made on our debt;
| | - |  | -------------------------------------------------

| | o |  | the
costs of acquisitions, including related debt service payments;
| | - |  | -------------------------------------------------------------------

| | o |  | restrictions
contained in debt instruments;
| | - |  | -------------------------------------------

| | o |  | issuances
of debt and equity securities;
| | - |  | ----------------------------------------

| | o |  | fluctuations
in working capital;
| | - |  | --------------------------------

| | o |  | capital
expenditures;
| | - |  | ---------------------

| | o |  | adjustments
in reserves made by our general partner in its discretion;
| | - |  | ----------------------------------------------------------------------

| | o |  | prevailing
economic conditions; and
| | - |  | -----------------------------------

| | o |  | financial,
business and other factors, a number of which will be beyond our control.
| | - |  | ------------------------------------------------------------------------------------

Cash distributions are dependent
primarily on cash flow, including from reserves and, subject to limitations, working
capital borrowings. Cash distributions are not dependent on profitability, which is
affected by non-cash items. Therefore, cash distributions might be made during periods
when we record losses and might not be made during periods when we record profits.

Our general partner has broad
discretion to determine the amount of available cash for distribution to
holders of our equity securities through the establishment and maintenance of cash
reserves, thereby potentially lessening and limiting the amount of available
cash eligible for distribution.

Our
general partner determines the timing and amount of our distributions and has broad
discretion in determining the amount of funds that will be recognized as available
cash. Part of this discretion comes from the ability of our general partner to
establish and make additions to our reserves. Decisions as to amounts to be placed in or
released from reserves have a direct impact on the amount of available cash for
distributions because increases and decreases in reserves are taken into account in
computing available cash. Funds within or added to our reserves are not considered to be
available cash and are therefore not required to be distributed. Each fiscal
quarter, our general partner may, in its reasonable discretion, determine the amounts to
be placed in or released from reserves, subject to restrictions on the purposes of the
reserves. Reserves may be made, increased or decreased for any proper purpose, including,
but not limited to, reserves:

| | o |  | to
comply with the terms of any of our agreements or obligations, including the
establishment of reserves to fund the payment of interest and principal in the future of
any debt securities of Ferrellgas Partners or the operating partnership;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | to
provide for level distributions of cash notwithstanding the seasonality of our business;
and
| | - |  | -----------------------------------------------------------------------------------------------

| | o |  | to
provide for future capital expenditures and other payments deemed by our general partner
to be necessary or advisable.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

The
decision by our general partner to establish, increase or decrease our reserves may limit
the amount of cash available for distribution to holders of our equity securities. Holders
of our equity securities will not receive payments required by such securities unless we
are able to first satisfy our own obligations and the establishment of any reserves. See
the first risk factor under Risks Arising from Our Partnership Structure and
Relationship with Our General Partner.

The debt agreements of Ferrellgas
Partners and the operating partnership may limit their ability to make distributions to
holders of their equity securities.

The
debt agreements governing Ferrellgas Partners and the operating partnerships
outstanding indebtedness contain restrictive covenants that may limit or prohibit
distributions to holders of their equity securities under various circumstances.
Ferrellgas Partners existing indenture generally prohibits it from:

| | o |  | making
any distributions to unitholders if an event of default exists or would exist when such
distribution is      made;
| | - |  | -------------------------------------------------------------------------------------------------------------------------

| | o |  | if
its consolidated fixed charge coverage ratio as defined in the indenture is greater than
1.75 to 1.00, distributing amounts in excess of 100% of available cash for the
immediately preceding fiscal quarter; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | if
its consolidated fixed charge coverage ratio as defined in the indenture is less than or
equal to 1.75 to 1.00, distributing amounts in excess of $25 million less any restricted
payments made for the prior sixteen fiscal quarters plus the aggregate cash contributions
made to us during that period.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See the first risk factor under
Risks Arising from Our Partnership Structure and Relationship with Our General
Partner for a description of the restrictions on the operating partnerships
ability to distribute cash to Ferrellgas Partners. Any indenture applicable to future
issuances of debt securities by Ferrellgas Partners or the operating partnership may
contain restrictions that are the same as or similar to those in their existing debt
agreements.

The distribution priority to our
common units owned by the public terminates no later than December 31, 2005.

Assuming
that the restrictions under our debt agreements are met, our partnership agreements
require us to distribute 100% of our available cash to our unitholders on a quarterly
basis. Available cash is generally all of our cash receipts, less cash disbursements and
adjustments for net changes in reserves. Currently, the common units owned by the public
have a right to receive distributions of available cash before any distributions of
available cash are made on the common units owned by Ferrell Companies. After the payment
of any required distributions on our senior units, we must pay a distribution on the
publicly-held common units before we pay a distribution on the common units held by
Ferrell Companies. If there exists an outstanding amount of deferred distributions on the
common units held by Ferrell Companies of $36.0 million, the common units held by Ferrell
Companies will be paid in the same manner as the publicly-held common units. While there
are any deferred distributions outstanding on common units held by Ferrell Companies, we
may not increase the distribution to our public common unitholders above the highest
quarterly distribution paid on our common units for any of the immediately preceding four
fiscal quarters. After payment of all required distributions, we will use remaining
available cash to reduce any amount previously deferred on the common units held by
Ferrell Companies.

This
distribution priority right is scheduled to end December 31, 2005, or earlier if there is
a change of control, we dissolve or Ferrell Companies sells all of our common units held
by it. Whether an extension of the expiration of the distribution priority is likely or
unlikely involves several factors that are not currently known and/or cannot be assessed
until a time closer to the expiration date. The termination of this distribution priority
may lower the market price for our common units.

The holder of our senior units may
have the right in the future to convert the senior units into common units, substantially
diluting our existing common unitholders.

The
senior unitholder has the option to convert our senior units into common units beginning
on the earlier of December 31, 2005, or the occurrence of a material event, as defined in
the partnership agreement of Ferrellgas Partners. The number of common units issuable upon
conversion of a senior unit is equal to the senior unit liquidation preference, currently
$40 plus any accrued and unpaid distributions, divided by the then current market price of
a common unit. This conversion may be dilutive to our existing common unitholders.

Generally,
a material event includes:

| | o |  | a
change of control;
| | - |  | --------------------

| | o |  | our
treatment as an association taxable as a corporation for federal income tax purposes;
| | - |  | -----------------------------------------------------------------------------------------

| | o |  | our
failure to use the aggregate cash proceeds from equity issuances after December 31, 2004,
other than issuances of equity pursuant to an exercise of any unit options, to redeem a
portion of our senior units other than up to $20.0 million of cash proceeds from equity
issuances used to reduce our indebtedness; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
failure to pay the senior unit distribution in full for any fiscal quarter.
| | - |  | -------------------------------------------------------------------------------

The holder of our senior units may
have the right in the future to sell our senior units, or the common units received upon a
conversion of our senior units, with special indemnification rights.

Currently,
our outstanding senior units may not be transferred. However, that restriction will lapse
on the earlier of December 31, 2005, or upon the occurrence of a material event as
described above. If the current restrictions on the sale or conversion of our senior units
lapse as discussed above and the holder were to sell any of our senior units prior to
December 17, 2007, we are required to indemnify the holder for the amount of the
shortfall, if any, if the proceeds from that sale are less than the original aggregate
face value of the applicable senior units. The original face value of each senior unit is
$40. The aggregate face value of the 2.0 million senior units outstanding as of July 31,
2004 was $79.8 million. The actual amount of a shortfall, if any, will depend on our
financial standing and market circumstances at the time of any sale.

A redemption of our senior units
may be dilutive to our common unitholders.

Our
senior units are redeemable in whole or in part by us at our sole discretion. Each senior
unit is redeemable at its liquidation preference of $40 plus any accumulated and unpaid
senior unit distributions. We may issue additional equity interests for cash to provide
the funds to redeem all or part of our outstanding senior units. Such an issuance may be
dilutive to our common unitholders.

Persons owning 20% or more of
Ferrellgas Partners common units cannot vote. This limitation does not apply to
common units owned by Ferrell Companies, our general partner and its affiliates or the
common units into which our senior units are converted by the current holder thereof.

All
common units held by a person that owns 20% or more of Ferrellgas Partners common
units cannot be voted. This provision may:

| | o |  | discourage
a person or group from attempting to remove our general partner or otherwise change
management; and
| | - |  | --------------------------------------------------------------------------------------------------------------

| | o |  | reduce
the price at which our common units will trade under various circumstances.
| | - |  | ----------------------------------------------------------------------------------

This
limitation does not apply to our general partner and its affiliates. Ferrell Companies,
the parent of our general partner, owns all of the outstanding capital stock of our
general partner in addition to approximately 35% of our common units.

If
our senior units convert into common units, the current holder may vote any converted
common units even if the aggregate number of common units issued upon conversion exceeds
20% of the then outstanding common units. This voting exemption does not apply if the
converted common units are held by someone other than the current holder or a related
party of the current holder, as defined in the partnership agreement of Ferrellgas
Partners.

Risks Arising from Our
Partnership Structure and Relationship with Our General Partner

Ferrellgas Partners is a holding
entity and has no material operations or assets. Accordingly, Ferrellgas Partners is
dependent on distributions from the operating partnership to service its obligations.
These distributions are not guaranteed and may be restricted.

Ferrellgas
Partners is a holding entity for our subsidiaries, including the operating partnership.
Ferrellgas Partners has no material operations and only limited assets. Ferrellgas
Partners Finance Corp. is Ferrellgas Partners wholly-owned finance subsidiary, serves as a
co-obligor on any of its debt securities, conducts no business and has nominal assets.
Accordingly, Ferrellgas Partners is dependent on cash distributions from the operating
partnership and its subsidiaries to service obligations of Ferrellgas Partners. The
operating partnership is required to distribute all of its available cash each fiscal
quarter, less the amount of cash reserves that our general partner determines is necessary
or appropriate in its reasonable discretion to provide for the proper conduct of our
business, to provide funds for distributions over the next four fiscal quarters or to
comply with applicable law or with any of our debt or other agreements. This discretion
may limit the amount of available cash the operating partnership may distribute to
Ferrellgas Partners each fiscal quarter. Holders of Ferrellgas Partners securities
will not receive payments required by those securities unless the operating partnership is
able to make distributions to Ferrellgas Partners after the operating partnership first
satisfies its obligations under the terms of its own borrowing arrangements and reserves
any necessary amounts to meet its own financial obligations.

In
addition, the various agreements governing the operating partnerships indebtedness
and other financing transactions permit quarterly distributions only so long as each
distribution does not exceed a specified amount, the operating partnership meets a
specified financial ratio and no default exists or would result from such distribution.
Those agreements include the indentures governing the operating partnerships
existing notes, a bank credit facility and an accounts receivable securitization facility.
Each of these agreements contain various negative and affirmative covenants applicable to
the operating partnership and some of these agreements require the operating partnership
to maintain specified financial ratios. If the operating partnership violates any of these
covenants or requirements, a default may result and distributions would be limited. These
covenants limit the operating partnerships ability to, among other things:

| | o |  | incur
additional indebtedness;
| | - |  | ------------------------------

| | o |  | engage
in transactions with affiliates;
| | - |  | ---------------------------------------

| | o |  | create
or incur liens;
| | - |  | ----------------------

| | o |  | sell
assets;
| | - |  | ------------

| | o |  | make
restricted payments, loans and investments;
| | - |  | ------------------------------------------------

| | o |  | enter
into business combinations and asset sale transactions; and
| | - |  | -----------------------------------------------------------------

| | o |  | engage
in other lines of business.
| | - |  | ----------------------------------

The ownership of our general
partner could change if Ferrell Companies defaults on its outstanding indebtedness.

Ferrell
Companies owns all of the outstanding capital stock of our general partner in addition to
approximately 35% of our common units. As of July 31, 2004, Ferrell Companies had pledged
these securities against approximately $46.1 million of senior debt, net of pledged cash
reserves, with a scheduled maturity of June 2006. If and when such senior debt is
completely extinguished in the future, Ferrell Companies has agreed to subsequently pledge
these common units and other collateral against its then outstanding subordinated debt, if
any. As of July 31, 2004, the outstanding balance of such subordinated debt was
approximately $40.3 million, with a scheduled maturity of August 2007. In addition to its
cash reserves, Ferrell Companies primary sources of income to pay its debt are
dividends that Ferrell Companies receives from our general partner and distributions
received on the common units it holds. For fiscal year 2004, Ferrell Companies received
approximately $37.7 million from these sources. If Ferrell Companies defaults on its debt,
its lenders could acquire control of our general partner and the common units owned by it.
In that case, the lenders could change management of our general partner and operate the
general partner with different objectives than current management.

Unitholders have limits on their
voting rights; our general partner manages and operates us, thereby generally precluding
the participation of our unitholders in operational decisions.

Our
general partner manages and operates us. Unlike the holders of common stock in a
corporation, unitholders have only limited voting rights on matters affecting our
business. Amendments to the agreement of limited partnership of Ferrellgas Partners may be
proposed only by or with the consent of our general partner. Proposed amendments must
generally be approved by holders of at least a majority of our common units and also, if
the amendment will adversely affect our senior units, a majority of our senior units.

Unitholders
will have no right to elect our general partner on an annual or other continuing basis,
and our general partner may not be removed except pursuant to:

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

| | o |  | upon
the election of a successor general partner by the vote of the holders of not less than a
majority of the outstanding units entitled to vote, which includes both common units and
senior units.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because Ferrell Companies is the
parent of our general partner and owns approximately 35% of our outstanding common units
and JEF Capital owns 100% of our outstanding senior units, amendments to the agreement of
limited partnership of Ferrellgas Partners or the removal of our general partner may not
be made without the consent of Ferrell Companies and, if applicable, the consent of JEF
Capital. JEF Capital is beneficially owned by Mr. Ferrell, the president, chief executive
officer and chairman of the Board of Directors of our general partner.

Our general partner has a limited
call right with respect to the limited partner interests of Ferrellgas Partners.

If
at any time less than 20% of the then-issued and outstanding limited partner interests of
any class of Ferrellgas Partners are held by persons other than our general partner and
its affiliates, our general partner has the right, which it may assign to any of its
affiliates or to us, to acquire all, but not less than all, of the remaining limited
partner interests of such class held by such unaffiliated persons at a price generally
equal to the then-current market price of limited partner interests of such class. As a
consequence, a unitholder may be required to sell its common units at a time when the
unitholder may not desire to sell them or at a price that is less than the price desired
to be received upon such sale.

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

The
limitations on the liability of holders of limited partner interests for the obligations
of a limited partnership have not been clearly established in some states. If it were
determined that we had been conducting business in any state without compliance with the
applicable limited partnership statute, or that the right, or the exercise of the right by
the limited partners as a group, to:

| | o |  | remove
or replace our general partner;
| | - |  | --------------------------------------

| | o |  | make
specified amendments to our partnership agreements; or
| | - |  | -----------------------------------------------------------

| | o |  | take
other action pursuant to our partnership agreements that constitutes participation in the
"control" of      our business,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

then the limited partners could be
held liable in some circumstances for our obligations to the same extent as a general
partner.

In
addition, under some circumstances a unitholder may be liable to us for the amount of a
distribution for a period of three years from the date of the distribution. Unitholders
will not be liable for assessments in addition to their initial capital investment in our
common units. Under Delaware General Corporate Law, we may not make a distribution to our
unitholders if the distribution causes all our liabilities to exceed the fair value of our
assets. Liabilities to partners on account of their partnership interests and liabilities
for which recourse is limited to specific property are not counted for purposes of
determining whether a distribution is permitted. Delaware law provides that a limited
partner who receives such a distribution and knew at the time of the distribution that the
distribution violated the Delaware law will be liable to the limited partnership for the
distribution amount for three years from the distribution date. Under Delaware law, an
assignee that becomes a substituted limited partner of a limited partnership is liable for
the obligations of the assignor to make contributions to the partnership. However, such an
assignee is not obligated for liabilities unknown to that assignee at the time such
assignee became a limited partner if the liabilities could not be determined from the
partnership agreements.

Our general partners
liability to us and our unitholders may be limited.

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

| | o |  | the
general partner does not breach any duty to us or our unitholders by borrowing funds or
approving any borrowing; our general partner is protected even if the purpose or effect
of the borrowing is to increase incentive distributions to our general partner;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
general partner does not breach any duty to us or our unitholders by taking any actions
consistent with the standards of reasonable discretion outlined in the definitions of
available cash and cash from operations contained in our partnership agreements; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
general partner does not breach any standard of care or duty by resolving conflicts of
interest unless our general partner acts in bad faith.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

The modifications of state law
standards of fiduciary duty contained in our partnership agreements may significantly
limit the ability of unitholders to successfully challenge the actions of our general
partner as being a breach of what would otherwise have been a fiduciary duty. These
standards include the highest duties of good faith, fairness and loyalty to the limited
partners. Such a duty of loyalty would generally prohibit a general partner of a Delaware
limited partnership from taking any action or engaging in any transaction for which it has
a conflict of interest. Under our partnership agreements, our general partner may exercise
its broad discretion and authority in our management and the conduct of our operations as
long as our general partners actions are in our best interest.

Our general partner and
its affiliates may have conflicts with us.

The
directors and officers of our general partner and its affiliates have fiduciary duties to
manage itself in a manner that is beneficial to its stockholder. At the same time, our
general partner has fiduciary duties to manage us in a manner that is beneficial to us and
our unitholders. Therefore, our general partners duties to us may conflict with the
duties of its officers and directors to its stockholder.

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

| | o |  | decisions
of our general partner with respect to the amount and timing of our cash expenditures,
borrowings, acquisitions, issuances of additional securities and changes in reserves in
any quarter may affect the amount of incentive distributions we are obligated to pay our
general partner;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | borrowings
do not constitute a breach of any duty owed by our general partner to our unitholders
even if these borrowings have the purpose or effect of directly or indirectly enabling us
to make distributions to the holder of our incentive distribution rights, currently our
general partner, or to hasten the expiration of the deferral period with respect to the
common units held by Ferrell Companies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | we
do not have any employees and rely solely on employees of our general partner and its
affiliates;
| | - |  | ----------------------------------------------------------------------------------------------------

| | o |  | under
the terms of our partnership agreements, we must reimburse our general partner and its
affiliates for costs incurred in managing and operating us, including costs incurred in
rendering corporate staff and support services to us;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
general partner is not restricted from causing us to pay it or its affiliates for any
services rendered on terms that are fair and reasonable to us or causing us to enter into
additional contractual arrangements with any of such entities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | neither
our partnership agreements nor any of the other agreements, contracts and arrangements
between us, on the one hand, and our general partner and its affiliates, on the other,
are or will be the result of arms-length negotiations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | whenever
possible, our general partner limits our liability under contractual arrangements to all
or a portion of our assets, with the other party thereto having no recourse against our
general partner or its assets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
partnership agreements permit our general partner to make these limitations even if we
could have obtained more favorable terms if our general partner had not limited its
liability;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | any
agreements between us and our general partner or its affiliates will not grant to our
unitholders, separate and apart from us, the right to enforce the obligations of our
general partner or such affiliates in favor of us; therefore, our general partner will be
primarily responsible for enforcing those obligations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
general partner may exercise its right to call for and purchase common units as provided
in the partnership agreement of Ferrellgas Partners or assign that right to one of its
affiliates or to us;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
partnership agreements provide that it will not constitute a breach of our general partners
fiduciary duties to us for its affiliates to engage in activities of the type conducted
by us, other than retail propane sales to end users in the continental United States in
the manner engaged in by our general partner immediately prior to our initial public
offering, even if these activities are in direct competition with us;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
general partner and its affiliates have no obligation to present business opportunities
to us; and
| | - |  | ------------------------------------------------------------------------------------------------------

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

Mr.  Ferrell
is the President and Chief Executive Officer of our general partner and           the
Chairman of its Board of Directors. Mr. Ferrell also owns JEF Capital, the
          holder of our senior units, and other companies with whom we conduct our
          ordinary business operations. Mr. Ferrells ownership of these entities
may  conflict with his duties as an officer and director of our general partner.
          Matters in which such conflicts of interest may arise include:

| | o |  | our
issuance of common units and the redemption of our senior units; see Risks
Inherent to Our BusinessThe terms of our senior units limit our use of proceeds
from sales of equity and Risks Inherent to an Investment in Our EquityThe
holder of our senior units may have the right in the future to convert the senior units
into common units, substantially diluting our existing common unitholders;"
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | a
request by us for Mr. Ferrell to waive particular rights he may have as the beneficial
owner of our senior      units; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

| | o |  | our
relationship and conduct of business with any of Mr. Ferrell's companies.
| | - |  | -----------------------------------------------------------------------------

See Conflicts of Interest
and Fiduciary Responsibilities.

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

Ferrell
Companies, the owner of our general partner, may transfer the capital stock of our general
partner without the consent of our unitholders. In such an instance, our general partner
will remain bound by our partnership agreements. If, however, through share ownership or
otherwise, persons not now affiliated with our general partner were to acquire its general
partner interest in us or effective control of our general partner, our management and
resolutions of conflicts of interest, such as those described above, could change
substantially.

Our general partner may
voluntarily withdraw or sell its general partner interest.

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

Our general partner can
protect itself against dilution.

Whenever
we issue equity securities to any person other than our general partner and its
affiliates, our general partner has the right to purchase additional limited partner
interests on the same terms. This allows our general partner to maintain its partnership
interest in us. No other unitholder has a similar right. Therefore, only our general
partner may protect itself against dilution caused by our issuance of additional equity
securities.

Tax Risks

The IRS could treat us as a
corporation for tax purposes, which would substantially reduce the cash available for
distribution to our unitholders.

The
anticipated after-tax economic benefit of an investment in us depends largely on our being
treated as a partnership for federal income tax purposes. We believe that, under current
law, we have been and will continue to be classified as a partnership for federal income
tax purposes. One of the requirements for such classification is that at least 90% of our
gross income for each taxable year has been and will be qualifying income
within the meaning of Section 7704 of the Internal Revenue Code. Whether we will continue
to be classified as a partnership in part depends on our ability to meet this qualifying
income test in the future.

If
we were classified as a corporation for federal income tax purposes, we would pay tax on
our income at corporate rates, currently, 35% at the federal level, and we would probably
pay additional state income taxes as well. In addition, distributions would generally be
taxable to the recipient as corporate distributions and no income, gains, losses or
deductions would flow through to our unitholders. Because a tax would be imposed upon us
as a corporation, the cash available for distribution to our unitholders would be
substantially reduced. Therefore, treatment of us as a corporation would result in a
material reduction in the anticipated cash flow and after-tax return to our unitholders
and thus would likely result in a substantial reduction in the value of our common units.

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

A successful IRS contest of the
federal income tax positions we take may reduce the market value of our common units and
the costs of any contest will be borne by us and therefore indirectly by our unitholders
and our general partner.

We
have not requested any ruling from the IRS with respect to:

| | o |  | our
classification as a partnership for federal income tax purposes; or
| | - |  | -----------------------------------------------------------------------

| | o |  | whether
our propane operations generate qualifying income under Section 7704 of the
Internal Revenue Code.
| | - |  | ------------------------------------------------------------------------------------------------------------

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

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

A
unitholder will be required to pay federal income taxes and, in some cases, state and
local income taxes on its share of our taxable income, even if it does not receive cash
distributions from us. A unitholder may not receive cash distributions equal to its share
of our taxable income or even the tax liability that results from that income. Further, a
unitholder may incur a tax liability in excess of the amount of cash it receives upon the
sale of its units.

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

We
estimate that a person who acquires common units in the 2004 calendar year and owns those
common units through the record dates for all cash distributions payable for all periods
within the 2004 calendar year will be allocated, on a cumulative basis, an amount of
federal taxable income that will be less than 10% of the cumulative cash distributed to
such person for those periods. The taxable income allocable to a unitholder for subsequent
periods may constitute an increasing percentage of distributable cash. These estimates are
based on several assumptions and estimates that are subject to factors beyond our control.
Accordingly, the actual percentage of distributions that will constitute taxable income
could be higher or lower and any differences could result in a material reduction in the
market value of our common units.

There are limits on the
deductibility of losses.

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

Tax gain or loss on the
disposition of our common units could be different than expected.

If
a unitholder sells its common units, the unitholder will recognize a gain or loss equal to
the difference between the amount realized and its tax basis in those common units. Prior
distributions in excess of the total net taxable income the unitholder was allocated for a
common unit, which decreased its tax basis in that common unit, will, in effect, become
taxable income to the unitholder if the common unit is sold at a price greater than its
tax basis in that common unit, even if the price you receive is less than its original
cost. A substantial portion of the amount realized, whether or not representing a gain,
will likely be ordinary income to that unitholder. Should the IRS successfully contest
some positions we take, a selling unitholder could recognize more gain on the sale of
units than would be the case under those positions, without the benefit of decreased
income in prior years. In addition, if a unitholder sells its units, the unitholder may
incur a tax liability in excess of the amount of cash that unitholder receives from the
sale.

Tax-exempt entities, regulated
investment companies, and foreign persons face unique tax issues from owning common units
that may result in additional tax liability or reporting requirements for them.

An
investment in common units by tax-exempt entities, such as employee benefit plans,
individual retirement accounts, regulated investment companies, generally known as mutual
funds, and non-U.S. persons, raises issues unique to them. For example, virtually all of
our income allocated to organizations exempt from federal income tax, including individual
retirement accounts and other retirement plans, will be unrelated business taxable income
and thus will be taxable to them. Very little of our income will be qualifying income to a
regulated investment company or mutual fund. Distributions to non-U.S. persons will be
reduced by withholding taxes, at the highest effective tax rate applicable to individuals,
and non-U.S. persons will be required to file federal income tax returns and generally pay
tax on their share of our taxable income.

Our tax shelter registration could
increase the risk of a potential IRS audit.

We
are registered with the IRS as a tax shelter. The IRS has issued to us the following tax
shelter registration number: 94201000010. Issuance of the registration number does
not indicate that an investment in us or the claimed tax benefits have been reviewed,
examined or approved by the IRS. The tax laws require that some types of entities,
including some partnerships, register as tax shelters in response to the
perception that they claim tax benefits that may be unwarranted. As a result, we may be
audited by the IRS and tax adjustments could be made. The rights of a unitholder owning
less than a 1% interest in us to participate in the income tax audit process are very
limited. Further, any adjustments in our tax returns will lead to adjustments in the
unitholders tax returns and may lead to audits of unitholders tax returns and
adjustments of items unrelated to us. A unitholder will bear the cost of any expenses
incurred in connection with an examination of its personal tax return.

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

We
will furnish each unitholder with a Schedule K-1 that sets forth that unitholders
allocable share of income, gains, losses and deductions. In preparing these schedules, we
will use various accounting and reporting conventions and adopt various depreciation and
amortization methods. We cannot guarantee that these schedules will yield a result that
conforms to statutory or regulatory requirements or to administrative pronouncements of
the IRS. If any of the information on these schedules is successfully challenged by the
IRS, the character and amount of items of income, gain, loss or deduction previously
reported by unitholders might change, and unitholders might be required to adjust their
tax liability for prior years and incur interest and penalties with respect to those
adjustments.

Unitholders may lose tax benefits
as a result of nonconforming depreciation conventions.

Because
we cannot match transferors and transferees of common units, uniformity of the economic
and tax characteristics of our common units to a purchaser of common units of the same
class must be maintained. To maintain uniformity and for other reasons, we will take
depreciation and amortization positions that may not conform to all aspects of the
Treasury Regulations. A successful IRS challenge to those positions could reduce the
amount of tax benefits available to our unitholders. A successful challenge could also
affect the timing of these tax benefits or the amount of gain from the sale of common
units and could have a negative impact on the value of our common units or result in audit
adjustments to a unitholders tax returns.

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

In
addition to federal income taxes, unitholders will likely be subject to other taxes, such
as state and local taxes, unincorporated business taxes and estate, inheritance or
intangible taxes that are imposed by the various jurisdictions in which we do business or
own property. A unitholder will likely be required to file state and local income tax
returns and pay state and local income taxes in some or all of the various jurisdictions
in which we do business or own property and may be subject to penalties for failure to
comply with those requirements. We currently conduct business in 50 states, Puerto Rico,
the U.S. Virgin Islands and Canada. It is a unitholders responsibility to file all
required United States federal, state and local tax returns.

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

Because
of widespread state budget deficits, several states are evaluating ways to subject
partnerships to entity-level taxation through the imposition of state income, franchise or
other forms of taxation. If any state were to impose a tax upon us as an entity, the cash
available for distribution to unitholders would be reduced. The partnership agreements of
Ferrellgas Partners and the operating partnership each provide that if a law is enacted or
existing law is modified or interpreted in a manner that subjects one or both partnerships
to taxation as a corporation or otherwise subjects one or both partnerships to
entity-level taxation for federal, state or local income tax purposes, provisions of one
or both partnership agreements will be subject to change. These changes would include a
decrease in the minimum quarterly distribution and the target distribution levels to
reflect the impact of those taxes.

Unitholders may have negative tax
consequences if we default on our debt or sell assets.

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

Recently enacted tax legislation
may make investments in corporations more attractive than they used to be when compared to
investments in our common units.

The
Jobs and Growth Tax Relief Reconciliation Act of 2003 generally reduces the maximum tax
rate on particular dividends paid by particular corporations to individuals to 15% in 2003
through 2008 and, for taxpayers in the 10% and 15% ordinary income tax brackets, to 5% in
2003 through 2007 and to zero in 2008. The Tax Relief Reconciliation Act also reduces the
maximum tax rate for an individual to 35% and the maximum tax rate applicable to net
long-term capital gains of an individual to 15%. Absent further legislation, the maximum
15% tax rate on long-term capital gains will cease to apply to taxable years beginning
after December 31, 2008 and will increase to 20% for taxable years beginning thereafter.
The Tax Relief Reconciliation Act may cause some investments in corporations to be more
attractive to individual investors than they used to be when compared to an investment in
our common units and could materially affect the value of our common units.

# Conflicts of Interest

Conflicts
of interest could arise as a result of the relationships between us, on the one hand, and
our general partner and its affiliates, on the other. The directors and officers of our
general partner have fiduciary duties to manage our general partner in a manner beneficial
to its stockholder. At the same time, our general partner has fiduciary duties to manage
us in a manner beneficial to us and our unitholders. The duties of our general partner to
us and our unitholders, therefore, may conflict with the duties of the directors and
officers of our general partner to its stockholder.

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

| | o |  | decisions
of our general partner with respect to the amount and timing of our cash expenditures,
borrowings, acquisitions, issuances of additional securities and changes in reserves in
any quarter may affect the amount of incentive distributions we are obligated to pay our
general partner;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | borrowings
do not constitute a breach of any duty owed by our general partner to our unitholders
even if these borrowings have the purpose or effect of directly or indirectly enabling us
to make distributions to the holder of our incentive distribution rights, currently our
general partner, or to hasten the expiration of the deferral period with respect to the
common units held by Ferrell Companies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | we
do not have any employees and rely solely on employees of our general partner and its
affiliates;
| | - |  | ----------------------------------------------------------------------------------------------------

| | o |  | under
the terms of our partnership agreements, we must reimburse our general partner and its
affiliates for costs incurred in managing and operating us, including costs incurred in
rendering corporate staff and support services to us;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
general partner is not restricted from causing us to pay it or its affiliates for any
services rendered on terms that are fair and reasonable to us or causing us to enter into
additional contractual arrangements with any of such entities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | neither
our partnership agreements nor any of the other agreements, contracts and arrangements
between us, on the one hand, and our general partner and its affiliates, on the other,
are or will be the result of arms-length negotiations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | whenever
possible, our general partner limits our liability under contractual arrangements to all
or a portion of our assets, with the other party thereto having no recourse against our
general partner or its assets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
partnership agreements permit our general partner to make these limitations even if we
could have obtained more favorable terms if our general partner had not limited its
liability;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | any
agreements between us and our general partner or its affiliates will not grant to our
unitholders, separate and apart from us, the right to enforce the obligations of our
general partner or such affiliates in favor of us; therefore, our general partner will be
primarily responsible for enforcing those obligations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
general partner may exercise its right to call for and purchase common units as provided
in the partnership agreement of Ferrellgas Partners or assign that right to one of its
affiliates or to us;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
partnership agreements provide that it will not constitute a breach of our general partners
fiduciary duties to us for its affiliates to engage in activities of the type conducted
by us, other than retail propane sales to end users in the continental United States in
the manner engaged in by our general partner immediately prior to our initial public
offering, even if these activities are in direct competition with us;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
general partner and its affiliates have no obligation to present business opportunities
to us; and
| | - |  | ------------------------------------------------------------------------------------------------------

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

Mr. Ferrell
is the President and Chief Executive Officer of our general partner and           the
Chairman of its Board of Directors. Mr. Ferrell also owns JEF Capital, the
          holder of our senior units, and other companies with whom we conduct our
          ordinary business operations. Mr. Ferrells ownership of these entities
may           conflict with his duties as an officer and director of our general partner.
          Matters in which such conflicts of interest may arise include:

| | o |  | our
issuance of common units and the redemption of our senior units; see Risk Factors
 Risks Inherent to Our Business  The terms of our senior units limit our use
of proceeds from sales of equity and Risk Factors  Risks Inherent to an
Investment in Ferrellgas Partners Equity  The holder of our senior units may
have the right in the future to convert the senior units into common units, substantially
diluting our existing common unitholders;"
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | a
request by us for Mr. Ferrell to waive  particular  rights he may have as the  beneficial
 owner of our senior      units; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

| | o |  | our
relationship and conduct of business with any of Mr. Ferrell's companies.
| | - |  | -----------------------------------------------------------------------------

# Fiduciary
Responsibilities

Unless
otherwise provided for in a partnership agreement, Delaware law generally requires a
general partner of a Delaware limited partnership to adhere to fiduciary duty standards
under which it owes its limited partners the highest duties of good faith, fairness and
loyalty and which generally prohibit the general partner from taking any action or
engaging in any transaction as to which it has a conflict of interest. Our partnership
agreements expressly permit our general partner to resolve conflicts of interest between
itself or its affiliates, on the one hand, and us or our unitholders, on the other, and to
consider, in resolving such conflicts of interest, the interests of other parties in
addition to the interests of our unitholders. In addition, the partnership agreement of
Ferrellgas Partners provides that a purchaser of common units is deemed to have consented
to specified conflicts of interest and actions of our general partner and its affiliates
that might otherwise be prohibited, including those described above, and to have agreed
that such conflicts of interest and actions do not constitute a breach by our general
partner of any duty stated or implied by law or equity. Our general partner will not be in
breach of its obligations under our partnership agreements or its duties to us or our
unitholders if the resolution of such conflict is fair and reasonable to us. Any
resolution of a conflict approved by the audit committee of our general partner is
conclusively deemed fair and reasonable to us. The latitude given in our partnership
agreements to our general partner in resolving conflicts of interest may significantly
limit the ability of a unitholder to challenge what might otherwise be a breach of
fiduciary duty.

The
partnership agreements of Ferrellgas Partners and the operating partnership expressly
limit the liability of our general partner by providing that our general partner, its
affiliates and their officers and directors will not be liable for monetary damages to us,
our unitholders or assignees thereof for errors of judgment or for any acts or omissions
if our general partner and such other persons acted in good faith. In addition, we are
required to indemnify our general partner, its affiliates and their respective officers,
directors, employees, agents and trustees to the fullest extent permitted by law against
liabilities, costs and expenses incurred by our general partner or such other persons if
our general partner or such persons acted in good faith and in a manner they reasonably
believed to be in, or (in the case of a person other than our general partner) not opposed
to, the best interests of us and, with respect to any criminal proceedings, had no
reasonable cause to believe the conduct was unlawful.

# ITEM 2. PROPERTIES.

As
of July 31, 2004, we owned or leased the following transportation equipment that was
utilized primarily in the propane distribution operations.

|                                         | Owned | Leased | Total
|---------------------------------------- | ----- | ------ | -----
|Truck tractors                           |       | 103    |      
|Propane transport trailers               |       | 334    |      
|Portable tank delivery trucks            |       | 362    |      
|Portable tank exchange delivery trailers |       | 69     |      
|Bulk propane delivery trucks             |       | 1,298  |      
|Pickup and service trucks                |       | 1,036  |      
|Railroad tank cars                       |       | --     |      

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

A
typical propane distribution outlet is comprised of one to three acres of land, a small
office, a workshop, an aggregate bulk storage capacity of 12,000 to 368,000 gallons
operated at multiple sites and an inventory of customer storage tanks and/or portable
propane tanks that it provides to its customers. We anticipate that our new technology
initiative, which we expect to deploy to the majority of our retail distribution outlets
by the end of fiscal year 2005, will modify the structure of our typical retail
distribution outlet. For those retail distribution outlets where this technology
initiative has been deployed, a typical retail distribution outlet will encompass
approximately four or five of our former retail distribution outlet, along with associated
delivery trucks. These retail distribution outlets will utilize hand-held computers and
satellite technology to more efficiently route and schedule customer deliveries. At July
31, 2004, we owned approximately 45.3 million gallons of propane storage at our retail
distribution outlets. We own our land and buildings in the local markets of approximately
half of our operating locations and lease the remaining facilities on terms customary in
the industry.

We
own approximately 1.0 million propane tanks, most of which are located on customer
property and rented to those customers. We also own approximately 3.1 million portable
propane tanks, most of which are used by us to deliver propane to our portable tank
exchange customers and to deliver propane to our industrial and commercial customers.

We
own underground storage facilities at Hutchinson, Kansas; Adamana, Arizona; and Moab, Utah
and four above-ground storage facilities primarily located in the Upper Midwest and North
Carolina. Together, these storage facilities are capable of holding 257 million gallons of
natural gas liquids.

|(in millions of gallons)            | 
|----------------------------------- | 
|
|Adamana, Arizona                    | 
|Hutchinson, Kansas                  | 
|Moab, Utah and above-ground storage | 
|                                    | 
|Total                               | 
|                                    | 

Currently,
we lease approximately 181 million gallons of this capacity to third parties. The
remaining space is available for our use.

We
own two buildings with an aggregate of 54,691 square feet of office space and the related
real property. We also lease 24,797 square feet of office space at separate locations that
together with the two buildings, comprise our corporate headquarters in the Kansas City
metropolitan area. We also lease 27,696 square feet of office space in Houston, Texas in
connection with our risk management and other operations and lease 63,014 square feet of
office and warehouse space in Winston-Salem, North Carolina in connection with our
delivery of propane by portable tank exchange.

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

# ITEM 3. LEGAL
PROCEEDINGS.

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

# ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS.

None

# PART II

|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED UNITHOLDER AND
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|------- | ----------------------------------------------------------------------------------------------------------------------------

# Common Units of
Ferrellgas Partners

Our
common units represent limited partner interests in Ferrellgas Partners and are listed and
traded on the New York Stock Exchange under the symbol FGP. As of August 31, 2004, we had
866 common unitholders of record. The following table sets forth the high and low sales
prices for our common units on the New York Stock Exchange and the cash distributions
declared per common unit for the periods indicated.

|               | Common Unit Price
Range |    
|-------------- | ----------------------- | ---
|
|               |                         |    
|First Quarter  |                         | $20
|Second Quarter |                         | 20 
|Third Quarter  |                         | 21 
|Fourth Quarter |                         | 23 
|               |                         |    
|First Quarter  |                         | 23 
|Second Quarter |                         | 25 
|Third Quarter  |                         | 25 
|Fourth Quarter |                         | 22 

We
make quarterly cash distributions of our available cash. Available cash is defined in our
partnership agreement as, generally, the sum of our consolidated cash receipts less
consolidated cash disbursements and changes in cash reserves established by our general
partner for future requirements. To the extent necessary and due to the seasonal nature of
our operations, we will generally reserve cash inflows from our second and third fiscal
quarters for distributions during our first and fourth fiscal quarters. Based upon our
current financial condition and results of operations, our general partner currently
believes that during our fiscal year 2005 we will be able to make quarterly cash
distributions per common unit comparable to those quarterly distributions made during our
last two fiscal years; however, no assurances can be given that such distributions will be
made or the amount of such distributions. See Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and Capital
Resources for a discussion of the financial tests and covenants which place limits
on the amount of cash that we can use to pay distributions.

---

# Recent Sales of
Unregistered Securities

All
issuances of unregistered securities during fiscal year 2004 were previously reported in a
Quarterly Report or Current Report.

# Ferrellgas Partners Tax
Matters

Ferrellgas
Partners is a master limited partnership and thus not subject to federal income taxes.
Instead, our common unitholders are required to report for income tax purposes their
allocable share of our income, gains, losses, deductions and credits, regardless of
whether we make distributions to our common unitholders. Accordingly, each common
unitholder should consult their own tax advisor in analyzing the federal, state, and local
tax consequences applicable to their ownership or disposition of our common units.
Ferrellgas Partners reports its tax information on a calendar year basis, while financial
reporting is based on a fiscal year ending July 31.

# Common Equity Of Other
Registrants

There
is no established public trading market for the common equity of the operating
partnership, Ferrellgas Partners Finance Corp. or Ferrellgas Finance Corp. All of the
common equity of the operating partnership and Ferrellgas Partners Finance Corp. is held
by Ferrellgas Partners and all of the common equity of Ferrellgas Finance Corp. is held by
the operating partnership. There are no equity securities of the operating partnership,
Ferrellgas Partners Finance Corp. or Ferrellgas Finance Corp. authorized for issuance
under any equity compensation plan. During fiscal year 2004, there were no issuances of
securities of the operating partnership, Ferrellgas Partners Finance Corp. or Ferrellgas
Finance Corp. which were not registered under the Securities Act or previously reported in
a Quarterly Report on Form 10-Q or a Current Report on Form 8-K of the operating
partnership, Ferrellgas Partners Finance Corp. or Ferrellgas Finance Corp.

Neither
Ferrellgas Partners Finance Corp. nor Ferrellgas Finance Corp. has declared or paid any
cash dividends on its common equity during fiscal years 2003 or 2004. The operating
partnership distributes cash declared on its common equity four times per fiscal year. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources  Financing Activities 
Distributions paid by the operating partnership for a discussion of its
distributions during fiscal years 2003 and 2004. See Managements Discussion
and Analysis of Financial Condition and Results of Operations  Liquidity and Capital
Resources for a discussion of the financial tests and covenants which place limits
on the amount of cash that the operating partnership can use to pay distributions.

On
June 11, 2003, a shelf registration statement was declared effective by the SEC for the
periodic sale by us of up to $500 million of equity and/or debt securities (File Nos.
333-103267, 333-103267-01, 333-103267-02 and 333-103267-03). This was the first
registration statement filed under the Securities Act by Ferrellgas Finance Corp. and the
first filed by the operating partnership since June 24, 1994. As of October 16, 1998, the
operating partnership was no longer subject to the reporting requirements under the
Exchange Act in connection with its 1994 registration statement. Pursuant to the shelf
registration statement, the operating partnership and Ferrellgas Finance Corp. are
permitted to issue debt securities from time to time to fund acquisitions, reduce
indebtedness, redeem senior units and provide funds for general corporate purposes. See
Business  Businesses of Other Subsidiaries. No offerings of debt
securities have been made by the operating partnership or Ferrellgas Finance Corp. since
the shelf registration statement was declared effective. As of August 31, 2004, we had
$151.4 million available under this shelf registration statement. See Liquidity and
Capital Resources  Financing Activities.

# Equity Compensation Plan
Information

SeeItem 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
MattersEquity Plan Compensation Information.

# ITEM 6. SELECTED
FINANCIAL DATA.

The
following tables presents selected consolidated historical financial data for Ferrellgas
Partners and the operating partnership.

(in thousands, except per unit data)

|                                       | Ferrellgas Partners, L.P.
|-------------------------------------- | -------------------------
|
|
|Income Statement Data:                 |                          
|Total revenues                         |                          
|Interest expense                       |                          
|Earnings before cumulative effect of   |                          
|change in accounting principle         |                          
|Basic and diluted earnings (loss) per  |                          
|common unit before cumulative          |                          
|effect of change in accounting         |                          
|principle                              |                          
|Cash distributions declared per common |                          
|unit                                   |                          
|Balance Sheet Data at end of period:   |                          
|Working capital (deficit)              |                          
|Total assets                           |                          
|Long-term debt                         |                          
|Partners' capital                      |                          
|Operating Data:                        |                          
|Propane sales volumes (in thousands of |                          
|gallons)                               |                          
|Capital expenditures:                  |                          
|Maintenance                            |                          
|Growth                                 |                          
|Technology initiative                  |                          
|Tank lease buyout                      |                          
|Acquisition                            |                          
|                                       |                          
|                                       |                          
|Total                                  |                          
|                                       |                          

---

|                                     | Ferrellgas, L.P.
|------------------------------------ | ----------------
|
|
|Income Statement Data:               |                 
|Total revenues                       |                 
|Interest expense                     |                 
|Earnings before cumulative effect of |                 
|change in accounting principle       |                 
|Balance Sheet Data at end of period: |                 
|Working capital (deficit)            |                 
|Total assets                         |                 
|Long-term debt                       |                 
|Partners' capital                    |                 
|Operating Data:                      |                 
|Propane sales volumes (in thousands  |                 
|of gallons)                          |                 
|Capital expenditures :               |                 
|Maintenance                          |                 
|Growth                               |                 
|Technology initiative                |                 
|Tank lease buyout                    |                 
|Acquisition                          |                 
|                                     |                 
|                                     |                 
|Total                                |                 
|                                     |                 

Our capital expenditures fall
generally into five categories:

| |  | o |  | maintenance
capital expenditures, which include capitalized expenditures for betterment and
replacement of property, plant and equipment;
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | o |  | growth
capital expenditures, which include expenditures for purchases of both bulk and portable
propane tanks and other equipment to facilitate expansion of our customer base and
operating capacity;
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | o |  | technology
initiative capital expenditures, which include expenditures for purchases of computer
hardware and software and the development of new software;
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | o |  | tank
lease buyout expenditures, which are related to the purchase of bulk propane tanks and
related assets during fiscal year 2003 that we previously leased; these bulk propane
tanks were originally leased in connection with the Thermogas acquisition, which we
completed in fiscal year 2000; and
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | o |  | acquisition
capital expenditures, which include expenditures related to the acquisition of retail
distribution propane operations;. acquisition capital expenditures represent the total
cost of acquisitions less working capital acquired; our fiscal year 2001 capital
expenditures do not include a $4.6 million adjustment made in the second fiscal quarter
of fiscal year 2001 to working capital related to a final valuation adjustment to record
the Thermogas acquisition.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Blue Rhino contribution resulted in a significant increase in our total assets, long-term
debt and partners capital as of July 31, 2004 as compared to July 31, 2003.

The
tank lease buyout contributed to an increase in our interest expense and a comparable
decrease in equipment lease expense in fiscal year 2003. This transaction also contributed
to a significant increase in total assets and long-term debt as of July 31, 2003 as
compared to July 31, 2002.

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|------- | --------------------------------------------------------------------------------------

Our
managements discussion and analysis of financial condition and results of operations
relates to Ferrellgas Partners L.P. and the operating partnership.

Ferrellgas
Partners Finance Corp. and Ferrellgas Finance Corp. have nominal assets, do not conduct
any operations and have no employees. Ferrellgas Partners Finance Corp. serves as
co-obligor for debt securities of Ferrellgas Partners and Ferrellgas Finance Corp. serves
as co-obligor for debt securities of the operating partnership. Accordingly, and due to
the reduced disclosure format, a discussion of the results of operations, liquidity and
capital resources of Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. are
not presented in this section.

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

The
discussions set forth in the Results of Operations and Liquidity and
Capital Resources sections generally refer to Ferrellgas Partners and its
consolidated subsidiaries. However, there exists five material differences between
Ferrellgas Partners and the operating partnership. Those material differences are:

| | o |  | the
two partnerships incur different amounts of interest expense on their outstanding
indebtedness; see the statements of earnings in their respective consolidated financial
statements and Notes H  Long-term debt  in the respective notes to their
consolidated financial statements;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | Ferrellgas
Partners issued common units in several transactions during fiscal year 2004 and in
August 2004;
| | - |  | -----------------------------------------------------------------------------------------------------------

| | o |  | Ferrellgas
Partners issued $50.0 million in aggregate principal amount of 83⁄4% senior notes
due 2012 during fiscal year 2004;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

| | o |  | during
fiscal year 2003, Ferrellgas Partners incurred $7.1 million in expenses related to the
early extinguishment of its debt; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

| | o |  | during
fiscal year 2004, Ferrellgas Partners paid $8.5 million in cash to an unrelated
third-party pursuant to a short-term, non-interest bearing note related to an acquisition
made in fiscal year 2003.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Forward-looking
statements

Statements
included in this report include forward-looking statements. These forward-looking
statements are identified as any statement that does not relate strictly to historical or
current facts. They often use words such as anticipate, believe,
intend, plan, projection, forecast,
strategy, position, continue, estimate,
expect, may, will, or the negative of those terms or
other variations of them or comparable terminology. These statements often discuss plans,
strategies, events or developments that we expect or anticipate will or may occur in the
future and are based upon the beliefs and assumptions of our management and on the
information currently available to them. In particular, statements, expressed or implied,
concerning our future operating results or our ability to generate sales, income or cash
flow are forward-looking statements.

Forward-looking
statements are not guarantees of performance. You should not put undue reliance on any
forward-looking statements. All forward-looking statements are subject to risks,
uncertainties and assumptions that could cause our actual results to differ materially
from those expressed in or implied by these forward-looking statements. Many of the
factors that will affect our future results are beyond our ability to control or predict.

Some
of our forward-looking statements include the following:

| | o |  | whether
the operating partnership will have sufficient funds to meet its obligations, including
its obligations under its debt securities, and to enable it to distribute to Ferrellgas
Partners sufficient funds to permit Ferrellgas Partners to meet its obligations with
respect to its existing securities;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | whether
Ferrellgas Partners and the operating partnership will continue to meet all of the
quarterly financial tests required by the agreements governing their indebtedness; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | the
expectation that gross profit, depreciation expense, operating income and net earnings
will increase in fiscal year 2005.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

When considering any forward-looking
statement, you should also keep in mind the risk factors in Business  Risk
Factors. Any of these risks could impair our business, financial condition or
results of operation. Any such impairment may affect our ability to make distributions to
our unitholders or pay interest on the principal of any of our debt securities. In
addition, the trading price, if any, of our securities could decline as a result of any
such impairment. Except for our ongoing obligations to disclose material information as
required by federal securities laws, we undertake no obligation to update any
forward-looking statements or risk factors after the date of this annual report.

In
addition, the classification of Ferrellgas Partners and the operating partnership as
partnerships for federal income tax purposes means that we do not generally pay federal
income taxes. We do, however, pay taxes on the income of our subsidiaries that are
corporations. We rely on a legal opinion from our counsel, and not a ruling from the
Internal Revenue Service, as to our proper classification for federal income tax purposes.
See Risk Factors  Tax Risks  The IRS could treat us as a corporation for
tax purposes, which would substantially reduce the cash available for distribution to our
unitholders.

# Results of Operations

Overview

We
are a leading distributor of propane and related equipment and supplies to customers
primarily in the United States. We believe that we are the second largest retail marketer
of propane in the United States including the largest national provider of propane by
portable tank exchange as measured by our pro-forma propane sales volumes in fiscal year
2004. We serve more than one million residential, industrial/commercial,
propane tank exchange, agricultural and other customers in all 50 states, Puerto Rico, the U.S. Virgin
Islands and Canada. Our operations primarily include the distribution and sale of propane
and related equipment and supplies with concentrations in
the Midwest, Southeast, Southwest and Northwest regions of the country.

Weather
conditions have a significant impact on demand for propane for heating purposes.
Accordingly, the volume of propane sold for this purpose is directly affected by the
severity of the winter weather in the regions we serve and can vary substantially from
year to year. In any given area, sustained warmer-than-normal temperatures will tend to
result in reduced propane use, while sustained colder-than-normal temperatures will tend
to result in greater use.

The
market for propane is seasonal because of increased demand during the winter months
primarily for heating in residential and commercial buildings. Consequently, sales and
operating profits are concentrated in our second and third fiscal quarters, which are
during the winter heating season of November through March. Other factors affecting our
results of operations include competitive conditions, energy commodity prices, demand for
propane, timing of acquisitions and general economic conditions in the United States, and
to a lesser extent, economic conditions in Canada, Puerto Rico and the Virgin Islands.

Our
gross profit from the distribution of propane is primarily based on margins; that is the
cents-per-gallon difference between our costs to purchase and distribute propane and the
sales prices we charge our customers. The wholesale propane price per gallon is subject to
various market conditions and may fluctuate based on changes in demand, supply and other
energy commodity prices. We employ risk management activities that attempt to mitigate
risks related to the purchasing, storing and transporting of propane.

We
continue to pursue our business strategies of using technology to improve operations,
capitalizing on our national presence and economies of scale, employing a disciplined
acquisition strategy and achieving internal growth and aligning employee interest with our
investors. We have developed new technology to improve our routing and scheduling of
customer deliveries, customer administration and operational workflow. We expect to deploy
this new technology initiative to the majority of our retail distribution outlets by the
end of fiscal year 2005.

On
April 20, 2004, an affiliate of our general partner acquired all of the outstanding common
stock of Blue Rhino Corporation in an all cash merger, after which it converted Blue Rhino
Corporation into a limited liability company, Blue Rhino LLC. On April 21, 2004, this
affiliate contributed Blue Rhino LLC to our operating partnership, through a series of
transactions. Blue Rhino LLC was thereafter merged with and into our operating
partnership. As a result of these transactions, we have become the largest national
provider of propane by portable tank exchange as well as a leading supplier of
complementary propane and non-propane products to consumers through many of the
nations largest retailers. This contribution expanded our operations to Puerto Rico,
the Virgin Islands and Canada.

The
results of operations of the contributed Blue Rhino operations for the period from April
21, 2004 through July 31, 2004 are included in our statement of earnings for fiscal year
2004. These results include the propane delivered by portable tank exchange during this
period, which are included in our propane sales volumes calculation for fiscal year 2004.

# Fiscal Year Ended July
31, 2004 vs. July 31, 2003

(amounts in thousands)

|                                    | 2004 | 2003 | Increase
(Decrease) | Percentage
Change
|----------------------------------- | ---- | ---- | ------------------- | -----------------
|Propane sales volumes               |      |      |                     | 873,711          
|Propane and other gas liquids sales |      |      | $                   | 1,273,346        
|Gross profit                        |      |      |                     | 553,536          
|Operating income                    |      |      |                     | 101,533          
|Interest expense                    |      |      |                     | 74,467           

Heating degree
days, as reported by National Oceanic and Atmospheric Administration (NOAA),
were 5% warmer than normal during fiscal year 2004 compared to being relatively normal
during fiscal year 2003. Customer conservation and delayed customer orders caused by higher
commodity prices also contributed significantly to the volume shortfall this period. This
decrease in volumes was partially offset by increased propane sales volumes from
acquisitions.

The
average sales price per gallon increased due to the effect of a significant increase in
the wholesale cost of propane during fiscal year 2004 as compared to the prior year
period. The wholesale market price at one of the major supply points, Mt. Belvieu, Texas,
averaged $0.63 per gallon during fiscal year 2004, compared to an average of $0.54 per
gallon in the prior year. Other major supply points in the United States have also
experienced significant increases.

Propane
and other gas liquids sales increased $125.4 million compared to the prior year primarily
due to an increase in the average propane sales price per gallon and $11.6 million due to
an increase in propane sales volumes primarily due to acquisitions. The increase in
propane sales volumes was partially offset by the previously mentioned warmer temperatures
and customer conservation related to the sustained higher average propane sales prices.

Gross
profit increased $22.9 million primarily due to increased propane sales volumes from
acquisitions. This increase in gross profit was partially offset by the previously
mentioned warmer temperatures and customer conservation related to the sustained higher
average propane sales prices and lower contribution from our risk management trading
activities. See additional discussion regarding risk management trading activities in Item
7A Quantitative and Qualitative Disclosures about Market Risk.

Operating
income decreased $28.3 million reflecting, an increase in operating expense and to a
lesser extent, an increase in depreciation and amortization expense, partially offset by
the previously mentioned increase in gross profit and a decrease in equipment lease
expense. Operating expenses, primarily personnel and plant and office expenses, increased
due to acquisitions. Depreciation and amortization expense increased primarily due to
depreciation expense of $8.5 million for assets related to acquisitions completed during
fiscal year 2004 and depreciation expense of $7.8 million for assets related to our
technology initiative that were placed in service during the three months ended October
31, 2003. Equipment lease expense decreased due to the effect of the buyout of operating
tank leases in December 2002.

Interest
expense increased 17.0% primarily due to increased borrowings related to the buyout of
operating tank leases in December 2002 and to finance acquisitions completed in fiscal
year 2004.

Interest expense of the
operating partnership

Interest
expense increased 19.7% primarily due to increased borrowings related to the buyout of
operating tank leases in December 2002 and to finance acquisitions in fiscal year 2004.

Forward looking
statements.

We
expect increases in fiscal year 2005 for all income statement line items as compared to
fiscal year 2004 due to:

| | o |  | the
inclusion of a full year of operating results from our delivery of propane by portable
tank exchange;
| | - |  | ---------------------------------------------------------------------------------------------------------

| | o |  | our
assumption that fiscal year 2005 propane prices will be similar to those in fiscal year
2004;
| | - |  | -------------------------------------------------------------------------------------------------

| | o |  | our
assumption that heating degree days will return to normal in fiscal year 2005; and
| | - |  | --------------------------------------------------------------------------------------

| | o |  | our
assumption that interest rates will remain relatively stable in fiscal year 2005.
| | - |  | -------------------------------------------------------------------------------------

# Fiscal Year Ended July
31, 2003 vs. July 31, 2002

(amounts in thousands)

|                                    | 2003 | 2002 | Increase
(Decrease) | Percentage
Change
|----------------------------------- | ---- | ---- | ------------------- | -----------------
|Propane sales volumes               |      |      |                     | 898,622          
|Propane and other gas liquids sales |      |      | $                   | 1,136,358        
|Gross profit                        |      |      |                     | 530,670          
|Operating income                    |      |      |                     | 129,800          
|Interest expense                    |      |      |                     | 63,665           

Heating degree
days, as reported by NOAA, were relatively normal during fiscal year 2003 as compared to
9% warmer than normal during fiscal year 2002. These colder winter temperatures and to a
lesser extent acquisitions contributed to the increase in propane sales volumes.

The
average sales price per gallon increased due to the effect of a significant increase in
the wholesale cost of propane during fiscal year 2003 as compared to the prior year
period. The wholesale market price at one of the major supply points, Mt. Belvieu, Texas,
averaged $0.54 per gallon during fiscal year 2003, compared to an average of $0.37 per
gallon in the prior year period. Other major supply points in the United States have also
experienced significant increases.

Propane
and other gas liquids sales increased $121.4 million compared to the prior year period due
to an increase in the average propane sales price per gallon and an additional $61.8
million primarily due to an increase in propane sales volume.

Gross
profit increased $29.3 million primarily due to the increase in our propane sales volumes.
Improved results from our risk management trading activities were largely offset by
margins that, although better than expected, were less than the prior year period. We were
able to temporarily increase the margins in the prior year period to partially offset the
impact of significantly warmer winter temperatures. See additional discussion regarding
risk management trading activities in Item 7A Quantitative and Qualitative
Disclosures about Market Risk.

Operating
income increased $10.9 million reflecting the previously mentioned increase in gross
profit and a decrease in equipment lease expense, partially offset by an increase in
operating expense. Operating expense increased primarily due to expenses related to
acquisitions completed during fiscal year 2003, increased expenses related to our
technology initiative and increased vehicle-related fuel and oil costs. Equipment lease
expense decreased due to the effect of the buyout of operating tank leases in December
2002. Interest expense increased 6.8% primarily due to increased borrowings related to the
buyout of operating tank leases in December 2002 and to finance acquisitions. This
increase was partially offset by the effect of refinancing fixed-rate debt at a lower
interest rate.

Interest expense of the
operating partnership

Interest
expense increased 3.1% due to increased credit facility borrowings related to the buyout
of operating tank leases in December 2002.

# Liquidity and Capital
Resources

Our
cash requirements include working capital requirements, debt service payments, the
required quarterly senior unit distribution, the minimum quarterly common unit
distribution, capital expenditures and acquisitions. The minimum quarterly distribution of
$0.50 was paid on September 14, 2004 to all common units that were outstanding on
September 2, 2004, and represents the fortieth consecutive minimum quarterly distribution
paid to our common unitholders dating back to October 1994. Working capital requirements
are subject to the price of propane, the weather and other changes in the demand for
propane. Relatively colder weather and higher propane prices during the winter heating
season increase our working capital requirements.

Our
ability to satisfy our obligations is dependent upon future performance, which will be
subject to prevailing economic, financial, business, and other factors, many of which are
beyond our control.Due to the seasonality of the propane distribution business, a
significant portion of our cash flow from operations is generated during the winter
heating season, which occurs during our second and third fiscal quarters. Our net cash
provided by operating activities primarily reflect earnings from our business activities
adjusted for depreciation and amortization and changes in our working capital accounts.
Historically, we generate significantly lower net cash from operating activities in our
first and fourth fiscal quarters as compared to the second and third fiscal quarters
because fixed costs exceed gross profit during the non-peak heating season. Subject to
meeting the financial tests discussed above, our general partner believes that the
operating partnership will have sufficient funds available to meet its obligations, and to
distribute to Ferrellgas Partners sufficient funds to permit Ferrellgas Partners to meet
its obligations in the future, specifically fiscal years 2005 and 2006. In addition, our
general partner believes that the operating partnership will have sufficient funds
available to distribute to Ferrellgas Partners sufficient cash to pay the required
quarterly distribution on the senior units and the minimum quarterly distribution on all
of its common units in the future, specifically fiscal years 2005 and 2006.

Our
bank credit facility, public debt, private debt and accounts receivable securitization
facility contain several financial tests and covenants restricting our ability to pay
distributions, incur debt and engage in certain other business transactions. In general,
these tests are based on our debt to cash flow ratio and cash flow to interest expense
ratio.Our general partner currently believes that the most restrictive of these
tests are debt incurrence limitations under the terms of our bank credit and accounts
receivable securitization facilities and limitations on the payment of distributions
within our 8.75% senior notes due 2012. The bank credit and accounts receivable
securitization facilities generally limit the operating partnerships ability to
incur debt if it exceeds prescribed ratios of either debt to cash flow or cash flow to
interest expense. Our 8.75% senior notes restrict payments if a minimum ratio of cash flow
to interest expense is not met, assuming certain exceptions to this ratio limit have
previously been exhausted. This restriction places limitations on our ability to make
restricted payments such as the payment of cash distributions to unitholders. The cash
flow used to determine these financial tests generally is based upon our most recent cash
flow performance giving pro forma effect for acquisitions and divestitures made during the
test period. Our bank credit facility, public debt, private debt and accounts receivable
securitization facility do not contain repayment provisions related to a decline in our
credit rating.

As
of July 31, 2004, we met all the required quarterly financial tests and covenants during
fiscal year 2004. Based upon current estimates of our future cash flows, our general
partner believes that we will be able to continue to meet all of the required quarterly
financial tests and covenants in the future, specifically fiscal years 2005 and 2006.
However, if we were to encounter unexpected downturns in business operations in the
future, such as significantly warmer than normal winter temperatures, a volatile energy
commodity cost environment or an economic downturn, we may not meet the applicable
financial tests in future quarters. This failure could have a materially adverse effect on
our operating capacity and cash flows and could restrict our ability to incur debt or to
make cash distributions to our unitholders, even if sufficient funds were available.
Depending on the circumstances, we may consider alternatives to permit the incurrence of
debt or the continued payment of the quarterly cash distribution to our unitholders. No
assurances can be given, however, that such alternatives can or will be implemented with
respect to any given quarter.

Our
future capital expenditures and working capital needs are expected to be provided by a
combination of cash generated from future operations, existing cash balances, the bank
credit facility or the accounts receivable securitization facility. To fund expansive
capital projects and future acquisitions, we may obtain funds on our facilities, we may
issue additional debt to the extent permitted under existing financing arrangements or we
may issue additional equity securities, including, among others, common units.

Toward
this purpose, in June 2003, a shelf registration statement was declared effective by the
SEC for the periodic sale by Ferrellgas Partners, the operating partnership, Ferrellgas
Partners Finance Corp. and Ferrellgas Finance Corp. of up to $500 million of equity and/or
debt securities. The securities registered by this registration statement are available to
us for sale from time to time in the future to fund acquisitions, the reduction of
indebtedness, the redemption of senior units and for general partnership purposes subject
to acceptable market conditions. The following debt and equity securities have been issued
pursuant to this shelf registration since June 2003:

(dollars in thousands)

|Date  | Security | Shelf registration
balance
|----- | -------- | --------------------------
|      |          |                           
|6/03  |          |                           
|7/03  |          |                           
|12/03 |          |                           
|4/04  |          |                           
|6/04  |          |                           
|8/04  |          |                           
|8/04  |          |                           
|      |          |                           
|      |          |                           
|      |          |                           

We
also maintain a shelf registration statement with the SEC for the issuance of up to 2.0
million common units. We may issue these common units in connection with our acquisition
of other businesses, properties or securities in business combination transactions. See
additional discussion about these equity and debt offerings in Financing
Activities.

# Operating Activities

Net
cash provided by operating activities was $76.6 million for fiscal year 2004, compared to
net cash provided by operating activities of $130.6 million for the prior fiscal year.
This decrease in cash provided by operating activities is primarily due to the lower
proceeds from the accounts receivable securitization activity, and to a lesser extent a
decrease in cash flow from operating activities before changes in working capital. Cash
required to fund working capital during fiscal year 2004 was $19.0 million as compared to
$25.5 million for the prior fiscal year. This use of working capital is primarily due to
the timing of cash received from customers on accounts receivable and the cash needed to
purchase inventory.

Accounts receivable
securitization

Cash
flows from the accounts receivable securitization facility decreased $46.3 million
primarily due to managements decision at the end of fiscal year 2003 to reduce the
operating partnerships bank credit facility rather than remit greater amounts
collected as the servicer of our accounts receivable securitization facility. At the end
of fiscal year 2002, we did not have outstanding balances on either the operating
partnerships bank credit facility or the accounts receivable securitization
facility. This decision to use lower costs of capital at July 31, 2003, for working
capital needs left the accounts receivable securitization facility with an effective $34.0
million outstanding as compared to no balance outstanding at July 31, 2002.

Our
general strategy for obtaining liquidity at the lowest cost of capital is to initially
utilize the accounts receivable securitization facility before borrowings under the
operating partnerships bank credit facility. See additional discussion about the
operating partnerships bank credit facility in Financing Activities 
Bank credit facility. Our utilization of the accounts receivable securitization
facility is limited by the amount of accounts receivable that we are permitted to
transfer. During the winter heating season, when our working capital needs are greatest
and our accounts receivable balances increase rapidly, we typically increase our use of
the accounts receivable securitization facility to meet our increased working capital
needs. During our third and fourth fiscal quarters, our working capital needs and accounts
receivable balances typically decline. During fiscal year 2004, we remitted $12.3 million
to the accounts receivable securitization facility as compared to having received funding
from the facility of $34.0 million in fiscal year 2003. Our balance transferred to the
accounts receivable securitization facility was $27.2 million at July 31, 2004 as compared
to $42.5 million at July 31, 2003. We renewed this facility effective September 21, 2004,
for a 364-day commitment with Banc One, NA. This renewal provides us the ability to
transfer increased amounts of accounts receivable during the fiscal year 2005 winter
heating season. At July 31, 2004, we had the ability to transfer, at our option, an
additional $40.4 million of trade accounts receivable. In accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities, this transaction is reflected in our consolidated financial statements
as a sale of accounts receivable and a retained interest in transferred accounts
receivable.

The operating partnership

Net
cash provided by operating activities was $96.0 million for fiscal year 2004, compared to
net cash provided by operating activities of $153.3 million for the prior fiscal year.
This decrease in cash provided by operating activities is primarily due to the previously
mentioned lower proceeds from accounts receivable securitization activity and to a lesser
extent a decrease in cash flow from operating activities before changes in working
capital.

# Investing Activities

Net
cash used in investing activities was $425.6 million for fiscal year 2004, compared to
$231.4 million for the prior fiscal year. This increase in cash used in investing
activities is primarily due to the payment of the merger obligation assumed by us in the
Blue Rhino contribution.

Blue Rhino contribution

On
April 20, 2004, we paid $343.4 million in cash as payment of obligations of FCI Trading
that were assumed by the operating partnership in connection with the Blue Rhino
contribution. See Note C -Business combinations  in our consolidated financial
statements for further discussion about the Blue Rhino contribution. We also used $1.5
million in cash for transaction fees related to the Blue Rhino contribution.

Acquisitions

During
fiscal year 2004, we used $41.0 million in cash for the acquisition of ten smaller propane
distribution businesses, not including the Blue Rhino contribution, as compared to $39.1
million in cash in the prior fiscal year for the acquisition of five propane distribution
companies.

Capital expenditures

We
made cash capital expenditures of $41.4 million during fiscal year 2004 as compared to
$39.5 million in the prior fiscal year primarily due to the increased capital expenditures
required for the portable tank exchange operations acquired through the Blue Rhino
contribution, partially offset by reduced capital expenditures related to our technology
initiative that was placed in service during fiscal year 2004. Capital expenditures during
fiscal year 2004 consisted primarily of expenditures for our technology initiative
expenditures and the betterment and replacement of the following property, plant and
equipment: district facilities, customer storage, vehicle and equipment lease buyouts and
vehicles.

On
December 10, 2002, we purchased $155.6 million of equipment whose lease terms would have
expired in June 2003. See Note H  Long-term debt  to our consolidated
financial statements for discussion about the financing of these equipment lease buyouts.

We
lease property, computer equipment, propane tanks, light and medium duty trucks, truck
tractors and transport trailers. We believe leasing is a cost-effective method for meeting
our equipment needs. During fiscal year 2004, we purchased $4.6 millionof vehicles
whose lease terms expired during fiscal year 2004.

The operating partnership

The
investing activities discussion above also applies to the operating partnership, except
for cash flows related to business acquisitions. During fiscal year 2004, we used $41.0
million in cash for the acquisition of ten smaller propane distribution businesses, not
including the Blue Rhino contribution, as compared to $7.1 million in cash in the prior
fiscal year for the acquisition of four propane distribution companies.

# Financing Activities

Net
cash provided by financing activities was $353.3 million in fiscal year 2004 compared to
net cash provided of $92.1 million in fiscal year 2003. This increase in cash provided by
financing activities was primarily due to proceeds from the issuance of common units and
debt.

August 2004 common unit offering

During
August 2004, we issued, in a public offering, an additional 2.9 million of our common
units at a price of $20.00 per unit, less commissions and underwriting expenses. After
commissions and underwriting expenses, we received net proceeds of $55.1 million for the
issuance of these common units. We used the net proceeds, together with contributions made
by the general partner to maintain its effective 2% general partner interest in us, to
reduce borrowings outstanding under the bank credit facility of the operating partnership.

April 2004 common unit offering

On
April 14, 2004, we issued, in a public offering, an additional 7.0 million of our common
units at a price of $23.34 per unit, less commissions and underwriting expenses. After
commissions and underwriting expenses, we received net proceeds of $156.0 million for the
issuance of these common units. The proceeds were used to pay a portion of the assumed
merger consideration to the former common stockholders of Blue Rhino Corporation and to
reduce borrowings outstanding under the bank credit facility of the operating partnership.

Other April 2004
financing activities

On
April 21, 2004, we issued, in five separate private placements, an aggregate of 1.6
million common units at a price of $22.35 per unit. We received aggregate net proceeds of
$32.8 million in cash and $3.1 million in real property for the issuance of these common
units. These common units were issued as follows:

| | o |  | to
Mr. Billy D. Prim, for $15.0 million in cash;
| | - |  | ------------------------------------------------

| | o |  | to
Mr. Prim, in exchange for real property valued at $3.1 million;
| | - |  | ------------------------------------------------------------------

| | o |  | to
Mr. Andrew J.  Filipowski,  brother-in-law  of Mr. Prim, for $15.0 million in cash; prior
to the contribution          of Blue Rhino Mr. Filipowski was the Vice Chairman of Blue
Rhino Corporation;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | to
Mr. Malcolm McQuilkin, for $1.0 million in cash; prior to the contribution of Blue Rhino,
Mr. McQuilkin was the Chief Executive Officer of Blue Rhino Global Sourcing, LLC, a
former subsidiary of Blue Rhino Corporation; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | to
Mr. Ferrell,  Chairman,  for $1.8 million in cash; Mr. Ferrell is the President and Chief
 Executive  Officer          of our general partner.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

Prior to the contribution of Blue
Rhino, Mr. Prim was the Chairman and Chief Executive Officer of Blue Rhino Corporation;
subsequent to the Blue Rhino contribution, our general partner paid Mr. Prim $2.5 million
in connection with the assumption of a liability for the termination of his employment
agreement with Blue Rhino Corporation prior to the Blue Rhino contribution.

These
cash proceeds were used to pay a portion of the merger consideration assumed by us to the
former common stockholders of Blue Rhino Corporation. The transactions with Mr. Prim and
Mr. Filipowski were consummated prior to Mr. Prim becoming an officer and director of our
general partner.

On
April 21, 2004, Ferrellgas Partners issued, pursuant to the exercise of common unit
options by Mr. Ferrell, Chairman, President and Chief Executive Officer of our general
partner, an additional 0.2 million of common units at a strike price of $17.90 per unit.
We received net proceeds of $3.2 million for the issuance of these common units. The
proceeds were used to pay a portion of the merger consideration assumed by us to the
former common stockholders of Blue Rhino Corporation.

On
April 21, 2004, Ferrellgas Partners issued to FCI Trading 0.2 million of common units at a
price of $23.94 per unit. This $4.7 million of common units were issued to FCI Trading in
connection with the Blue Rhino contribution as consideration for FCI Tradings net
contribution of its membership interests in Blue Rhino LLC to the operating partnership.

On
April 21, 2004, Ferrellgas Partners issued $2.0 million of general partner units to our
general partner in consideration for the Blue Rhino LLC membership interest contributed to
Ferrellgas Partners by our general partner to maintain its 1% general partner interest.
Also on April 21, 2004, the operating partnership issued $2.1 million of general partner
units to the general partner. The general partner units were issued as consideration for
the general partners net contribution of its membership interests in Blue Rhino LLC
to the operating partnership to maintain its 1.0101% general partner interest. See Note L
 Transactions with related parties  for additional discussion of the
involvement of related parties in these transactions.

In
connection with the Blue Rhino contribution, we assumed Blue Rhinos outstanding bank
credit facility balance of $43.7 million, which we immediately repaid with borrowings from
our bank credit facility.

December 2003 common unit offering

On
December 1, 2003, we issued in a public offering, 2.0 million common units at a price of
$24.75 per unit, less commissions and underwriting expenses. After commissions and
underwriting expenses, we received net proceeds of $47.2 million for the issuance of these
common units. We used the net proceeds, together with contributions made by the general
partner to maintain its effective 2% general partner interest in us, to reduce borrowings
outstanding under the bank credit facility of the operating partnership by $38.3 million
and to repay debt incurred to fund prior acquisitions of $8.5 million. The remaining
proceeds were used for general partnership purposes of Ferrellgas Partners. See Note J
 Partners capital  to our consolidated financial statements for further
discussion of this common unit issuance.

Common unit equity issuance and
senior unit redemption in fiscal year 2003

During
the fourth quarter of fiscal year 2003, we received $26.0 million, after underwriting
discounts, commission and expenses, from the issuance of 1.2 million common units in a
public offering. We used these net proceeds to redeem 0.8 million senior units and to pay
the related accrued senior unit distribution.

During
fiscal years 2004, 2003 and 2002 we received $4.2 million, $6.7 million and $0.9 million
in connection with the issuance of 0.2 million, 0.4 million and 55 thousand common units
pursuant to the Ferrellgas unit option plan. See Note O  Unit options of Ferrellgas
Partners and stock options of Ferrell Companies  to our consolidated financial
statements, for additional disclosure about the Ferrellgas unit option plan.

Various equity transactions and
equity structure modifications in fiscal year 2001

Our
senior units are owned by an entity beneficially owned by our general partners
Chairman, Chief Executive Officer and President, Mr. Ferrell. We pay the senior units a
quarterly cash distribution equivalent to 10 percent per annum of the liquidating value,
currently $1 per quarter. We can redeem the senior units at any time, in whole or in part,
upon payment in cash of the liquidating value of the senior units, currently $40 per unit,
plus the amount of any accrued and unpaid distributions. The holder of the senior units
has the right, subject to various events and conditions, to convert any outstanding senior
units into common units beginning on the earlier of December 31, 2005 or upon the
occurrence of a material event as defined by our partnership agreement. The number of
common units issuable upon conversion of a senior unit is equal to the senior unit
liquidation value, divided by the then current market price of a common unit. Generally, a
material event includes (1) a change of control; (2) the treatment of Ferrellgas Partners
as an association taxable as a corporation for federal income tax purposes; (3) subject to
the immediately following paragraph, Ferrellgas Partners failure to use the
aggregate cash proceeds from equity issuances, other than issuances of equity pursuant to
an exercise of any common unit options, to redeem a portion of its senior units other than
up to $20 million of cash proceeds from equity issuances used to reduce Ferrellgas
Partners indebtedness; or (4) Ferrellgas Partners failure to pay the senior
unit distribution in full for any fiscal quarter. Such conversion rights are contingent
upon us not previously redeeming such securities.

By
letter agreement dated November 20, 2003, JEF Capital agreed to waive the occurrence of a
Material Event if Ferrellgas Partners issues common units at any time and from
time to time on or prior to March 31, 2004, and does not use the cash proceeds from such
offering or offerings to redeem a portion of the outstanding senior units. On February 25,
2004, JEF Capital and Ferrellgas Partners extended the letter agreement through December
31, 2004.

In
addition, Ferrell Companies granted us the option, until December 31, 2005, to defer
future distributions on the common units held by it up to an aggregate outstanding amount
of $36.0 million. As of July 31, 2004, we have not elected to defer any common unit
distributions due Ferrell Companies.

By
letter agreement dated November 20, 2003, JEF Capital agreed to waive the occurrence of a
Material Event if Ferrellgas Partners issues common units at any time and from
time to time on or prior to March 31, 2004, and does not use the cash proceeds from such
offering or offerings to redeem a portion of the outstanding senior units. On February 25,
2004, JEF Capital and Ferrellgas Partners extended the letter agreement through December
31, 2004.

Distributions

We
paid the required quarterly distributions on the senior units and the minimum quarterly
distribution on all common units, as well as general partner interests, totaling $91.9
million during fiscal year 2004. The required quarterly distribution on the senior units,
the minimum quarterly distribution on all common units and related general partner
distributions for the three months ended July 31, 2004 of $28.1 million was paid on
September 14, 2004 to holders of record on September 2, 2004. See related disclosure about
the distributions to the owner of the senior units in -Disclosures about Effects of
Transactions with Related Parties.

Contributions received by the
operating partnership

In
August 2004, the operating partnership received cash contributions of $55.3 million and
$0.5 million from its limited partner, Ferrellgas Partners and its general partner,
respectively. The operating partnership then used these net proceeds to reduce the
borrowings outstanding under its $307.5 million bank credit facility.

During
June 2004, the operating partnership received cash contributions of $51.0 million and $0.5
million from its limited partner, Ferrellgas Partners and its general partner,
respectively. The operating partnership then used these net proceeds to reduce the
borrowings outstanding under its $307.5 million bank credit facility.

During
April 2004, in connection with the Blue Rhino contribution and related transactions,
Ferrellgas Partners made a cash contribution of $192.5 million and a non-cash contribution
of $9.8 million. See additional discussion about the Blue Rhino contribution in Note C
 Business combinations to the operating partnerships consolidated
financial statements.

In
December 2003, the operating partnership received cash contributions of $37.9 million and
$0.4 million from its limited partner, Ferrellgas Partners and its general partner,
respectively. The operating partnership then used these net proceeds to reduce the
borrowings outstanding under its $307.5 million bank credit facility.

Distributions paid by the operating
partnership

The
operating partnership paid quarterly distributions totaling $112.1 million during fiscal
year 2004 to Ferrellgas Partners, L.P. and the general partner. On September 14, 2004, the
operating partnership paid a cash distribution to Ferrellgas Partners and the general
partner totaling $28.4 million.

Bank credit facility

At
July 31, 2004, $92.9 million of borrowings and $55.3 million of letters of credit were
outstanding under the unsecured $307.5 million bank credit facility of the operating
partnership, which will terminate on April 28, 2006. Letters of credit are currently used
to cover obligations primarily relating to requirements for insurance coverage and, to a
lesser extent, risk management activities. At July 31, 2004, we had $159.3 million
available for working capital, acquisition, capital expenditure and general partnership
purposes under the $307.5 million bank credit facility.

All
borrowings under the operating partnerships $307.5 million bank credit facility bear
interest, at our option, at a rate equal to either:

| | o |  | a
base rate, which is defined as the higher of the federal funds rate plus 0.50% or Bank of
Americas prime rate (as of July 31, 2004, the federal funds rate and Bank of Americas
prime rate were 1.29% and 4.25%, respectively); or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | the
Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of July 31, 2004, the
one-month Eurodollar Rate was 1.44%).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

In addition, an annual commitment fee
is payable on the daily unused portion of our $307.5 million bank credit facility at a per
annum rate varying from 0.375% to 0.625% (as of July 31, 2004, the commitment fee per
annum rate was 0.50%).

We
believe that the liquidity available from our $307.5 million bank credit facility and our
accounts receivable securitization facility will be sufficient to meet our future working
capital needs in the future, specifically for fiscal years 2005 and 2006. See
Operating Activities for discussion about our accounts receivable
securitization facility. However, if we were to experience an unexpected significant
increase in working capital requirements, our working capital needs could exceed our
immediately available resources. Events that could cause increases in working capital
borrowings or letter of credit requirements include, but are not limited to the following:

| | o |  | a
significant increase in the wholesale cost of propane;
| | - |  | --------------------------------------------------------

| | o |  | a
significant delay in the collections of accounts receivable;
| | - |  | --------------------------------------------------------------

| | o |  | increased
 volatility  in  energy  commodity  prices  related  to risk                management
activities;
| | - |  | ------------------------------------------------------------------------------------------------------------

| | o |  | increased
liquidity requirements imposed by insurance providers;
| | - |  | ----------------------------------------------------------------

| | o |  | a
significant downgrade in our credit rating;
| | - |  | ---------------------------------------------

| | o |  | decreased
trade credit; or
| | - |  | --------------------------

| | o |  | a
significant acquisition.
| | - |  | --------------------------

If one or more of these or other
events caused a significant use of available funding, we may consider alternatives to
provide increased working capital funding. No assurances can be given, however, that such
alternatives would be available, or, if available, could be implemented.

Long-term debt

On
June 10, 2004, we issued in a public offering $50.0 million in principal amount of fixed
rate 8.75% senior notes due 2012 at a price of 103.25% per note and with the same terms as
the $170.0 million in principal amount of 8.75% senior notes described below. We used the
proceeds from the $50.0 million senior note issuance to make a capital contribution to the
operating partnership to reduce indebtedness under its bank credit facility.

On
April 20, 2004, subsidiaries of the operating partnership completed a private placement of
$250.0 million in principal amount of 6.75% senior notes due 2014 at a price to the
noteholders of 99.637% per note. In the offering, the subsidiaries of the operating
partnership received proceeds, net of underwriting discounts and commissions, of $243.5
million. The subsidiaries then merged into the operating partnership and Ferrellgas
Finance Corp., a subsidiary of the operating partnership, on April 20, 2004 with the
operating partnership and Ferrellgas Finance Corp. assuming the payment obligation of the
notes. The proceeds of the notes were used to pay a portion of the assumed merger
consideration to the then former common stockholders of Blue Rhino Corporation and to
reduce borrowings under the bank credit facility of the operating partnership. Interest on
the 6.75% senior notes due 2014 is payable semi-annually in arrears on May 1 and November
1 of each year, commencing on November 1, 2004. These notes are unsecured and are not
redeemable before May 1, 2009, except in specific circumstances. In August 2004, the
$250.0 million notes were exchanged for a like amount of senior notes which have been
registered under the Securities Act of 1933.

On
December 18, 2002, we issued, in a public offering, an additional $48.0 million of 8.75%
senior notes with the same terms as the $170.0 million 8.75% senior notes described below.
We used the proceeds from the $48.0 million senior note issuance to reduce borrowings
outstanding under the bank credit facility of the operating partnership and to provide
increased availability of funds for working capital, acquisition, capital expenditure and
general partnership purposes.

On
September 24, 2002, we issued, in a public offering, $170.0 million of 8.75% senior notes
due 2012. Interest is payable semi-annually in arrears on June 15 and December 15. These
senior notes are unsecured and not redeemable before June 15, 2007, except under specific
circumstances. We used the proceeds from the $170.0 million senior note issuance to
repurchase and redeem our $160.0 million 9.375% senior secured notes due 2006 and to fund
related premiums, fees, accrued and unpaid interest and tender consent payments.

# Disclosures about
Effects of Transactions with Related Parties

We have
no employees and are managed and controlled by our general partner. Pursuant to our
partnership agreement, our general partner is entitled to reimbursement for all direct and
indirect expenses incurred or payments it makes on our behalf, and all other necessary or
appropriate expenses allocable to us or otherwise reasonably incurred by our general
partner in connection with operating our business. These reimbursable costs, which totaled
$211.5 million for fiscal year 2004, include compensation and benefits paid to employees
of our general partner who perform services on our behalf, as well as related general and
administrative costs.

Ferrell
Companies is the sole shareholder of our general partner and owns 17.8 million of our
common units. FCI Trading is wholly-owned by Ferrell Companies and owns 0.2 million of our
common units. FCI Trading was formed during fiscal year 2004. Ferrell Propane, Inc. is
wholly-owned by our general partner and owns 51 thousand of our common units. JEF Capital
is beneficially owned by Mr. Ferrell, the Chairman, President and Chief Executive Officer
of our general partner, and thus is an affiliate. JEF Capital is the holder of all of
Ferrellgas Partners issued and outstanding senior units.

During
fiscal year 2004, Ferrellgas Partners paid common unit distributions of $35.6 million,
$0.1 million and $0.1 million to Ferrell Companies, FCI Trading and Ferrell Propane,
respectively. Also during fiscal year 2004, Ferrellgas Partners and the operating
partnership together paid the general partner distributions of $2.1 million. We paid JEF
Capital $8.0 million in senior unit distributions during fiscal year 2004. On July 31,
2004, we accrued a senior unit distribution of $2.0 million that was paid to JEF Capital
on September 14, 2004.

Ferrellgas
Partners partnership agreement generally provides that it use the cash proceeds of
any offering of common units to redeem a portion of the outstanding senior units,
otherwise a Material Event would be deemed to have occurred and JEF Capital,
as the holder of the senior units, would thereafter have specified rights, such as the
right to convert the senior units into common units or the right to register the senior
units. By letter agreement dated November 20, 2003, JEF Capital agreed to waive the
occurrence of a Material Event if Ferrellgas Partners issues common units at
any time and from time to time on or prior to March 31, 2004, and does not use the cash
proceeds from such offering or offerings to redeem a portion of the outstanding senior
units. In consideration of the granting of the waiver, Ferrellgas Partners agreed not to
redeem any outstanding senior units prior to March 31, 2004, and to reimburse JEF Capital
for its reasonable legal fees not to exceed $70 thousand incurred in connection with the
execution of the waiver. On February 25, 2004, JEF Capital and Ferrellgas Partners
extended the letter agreement through December 31, 2004.

Ferrell
International Limited is beneficially owned by Mr. Ferrell and thus is an affiliate. We
enter into transactions with Ferrell International in connection with our risk management
activities and do so at market prices in accordance with our affiliate trading policy
approved by our general partners Board of Directors. These transactions include
forward, option and swap contracts and are all reviewed for compliance with the policy.
During fiscal year 2004, we recognized net sales from purchases, sales and commodity
derivative transaction of $0.3 million. These net purchases, sales and commodity
derivatives transactions with Ferrell International are classified as cost of product sold
on our consolidated statements of earnings. We provide limited accounting services to
Ferrell International. During fiscal year 2004, we recognized net receipts from providing
limited accounting services of $40 thousand. There were no amounts due from or due to
Ferrell International at July 31, 2004, except for 75 thousand barrels of propane to be
delivered from Ferrell International to the operating partnership valued at $2.1 million.

We
believe these related party transactions were under terms that were no less favorable to
us than those available with third parties.

See
both Certain Relationships and Related Transactions and Note L 
Transactions with related parties  to our consolidated financial statements for
additional discussion regarding the effects of transactions with related parties.

# Contractual Obligations

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

The
following table summarizes our contractual obligations at July 31, 2004:

|(in thousands)      | Payment or Settlement due by fiscal year
|------------------- | ----------------------------------------
|
|Long-term debt,     |                                         
|including           |                                         
|current portion (1) |                                         
|Capital lease       |                                         
|obligations (2)     |                                         
|Fixed rate interest |                                         
|obligations (3)     |                                         
|Operating lease     |                                         
|obligations (2)     |                                         
|Operating lease     |                                         
|buyouts (4)         |                                         
|Purchase            |                                         
|obligations: (5)    |                                         
|Product purchase    |                                         
|commitments: (6)    |                                         
|Estimated           |                                         
|payment             |                                         
|obligations         |                                         
|Underlying          |                                         
|major               |                                         
|volume              |                                         
|commitments (in     |                                         
|gallons)            |                                         
|Capital expenditure |                                         
|commitments (7)     |                                         

Historically, we have been successful
in renewing certain leases that are subject to buyouts. However, there is no assurance
that we will be successful in the future.

|(1) |  | We have long and short-term payment obligations under agreements such as our
          senior notes and credit facilities. 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) |  | 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 with terms in excess
          of one year for the periods indicated. Our
off-balance sheet arrangements include the leasing of transportation equipment, property,
computer equipment and propane tanks. We account for these arrangements as operating
leases. We believe these arrangements are a cost-effective method for financing our
equipment needs. These off-balance sheet arrangements enable us to lease equipment from
third parties rather than, among other options, purchasing the equipment using on-balance
sheet financing. Most
of the operating leases involving our transportation equipment contain residual value
guarantees. These transportation equipment lease arrangements are scheduled to expire
over the next seven years. Most of these arrangements provide that the fair value of the
equipment will equal or exceed a guaranteed amount, or we will be required to pay the
lessor the difference. Although the fair values at the end of the lease terms have
historically exceeded these guaranteed amounts, the maximum potential amount of aggregate
future payments we could be required to make under these leasing arrangements, assuming
the equipment is worthless at the end of the lease term, is currently $14.0 million. We
do not know of any event, demand, commitment, trend or uncertainty that would result in a
material change to these arrangements.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Fixed rate interest obligations represent the amount of interest due on fixed
          rate long-term debt. These amounts do not include interest on our bank credit
          facility, a variable rate debt obligation. As of July 31, 2004, variable rate
          interest on our outstanding balance of variable rate debt of $92.9 million would
          be $3.4 million on an annual basis. Actual variable rate interest amounts will
          differ due to changes in interest rates and actual seasonal borrowings under our
          bank credit facility.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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, 2004 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 short-term payment obligations relating to capital projects we have
          initiated. These commitments represent unconditional payment obligations that we
          have agreed to pay vendors for services rendered or products purchased.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The operating partnership

The
contractual obligation table above also applies to the operating partnership, except for
long-term debt, including current portion. The long-term debt for the operating
partnership is summarized in the table below:

|(in thousands)      | Payment or Settlement due by fiscal year
|------------------- | ----------------------------------------
|
|Long-term debt,     |                                         
|including           |                                         
|current portion (1) |                                         
|Fixed rate interest |                                         
|obligations (2)     |                                         

|(1) |  | The operating partnership has long and short-term payment obligations under
          agreements such as the operating partnerships credit facilities. 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 bank credit
          facility, a variable rate debt obligation. As of July 31, 2004, variable rate
          interest on our outstanding balance of variable rate debt of $92.9 million would
          be $3.4 million on an annual basis. Actual variable rate interest amounts will
          differ due to changes in interest rates and actual seasonal borrowings under our
          bank credit facility.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Off-balance sheet
financing arrangements

In this
section we discuss our off-balance sheet arrangements that have or are reasonably likely
to have a current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources. An off-balance sheet arrangement is any transaction,
agreement or other contractual arrangement involving an unconsolidated entity under which
a company has (a) made guarantees, (b) a retained or a contingent interest in transferred
assets, (c) an obligation under derivative instruments classified as equity or (d) any
obligation arising out of a material variable interest in an unconsolidated entity that
provides financing, liquidity, market risk or credit risk support to the company, or that
engages in leasing, hedging or research and development arrangements with the company.

In
September 2000, we formed a qualified special purpose entity as a bankruptcy remote
subsidiary and entered into a receivables facility arrangement, which we have most
recently amended in September 2004. This arrangement with a financial institution allows
us to sell between $60.0 million and $160.0 million of accounts receivable, depending upon the timing of the
year and available undivided interests in our accounts receivable from certain customers.
We believe this facility improves cash flows while serving as a source of liquidity for
our operations. See Note B(6)  Summary of significant accounting policies  and
Note F  Accounts receivable securitization in our consolidated financial statements
for additional discussion about this arrangement.

# Adoption of New
Accounting Standards

The
Financial Accounting Standards Board (FASB) recently issued SFAS No. 150
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, FASB Financial Interpretation No. 46 Consolidation of
Variable Interest Entities, Emerging Issues Task Force (EITF) 00-21
Accounting for Revenue Arrangements with Multiple Deliverables and SFAS No.
132R Employers Disclosures about Pensions and Other Postretirement
Benefits.

SFAS
No. 150 establishes standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously classified as
equity. This statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective for fiscal year 2004. SFAS No. 150 did not
have a material effect on our consolidated financial position, results of operations and cash flows.

FASB
Financial Interpretation No. 46 (FIN 46) clarifies Accounting Research
Bulletin No. 51, Consolidated Financial Statements. If certain conditions are
met, this interpretation requires the primary beneficiary to consolidate certain variable
interest entities in which equity investors lack the characteristics of a controlling
financial interest or do not have sufficient equity investment at risk to permit the
variable interest entity to finance its activities without additional subordinated
financial support from other parties. In December 2003, the FASB issued a revision to FIN
46, which addresses new effective dates and certain implementation issues. The
interpretation is generally effective for the periods ending after December 15, 2003.
Among these issues is the addition of a scope exception for certain entities that meet the
definition of a business, provided certain criteria are met. We do not have any variable
interest entities that would be subject to this revised interpretation.

EITF
No. 00-21 addresses how to account for arrangements that may involve multiple
revenue-generating activities, such as the delivery or performance of multiple products,
services, and/or rights to use assets. In applying this guidance, separate contracts with
the same party, entered into at or near the same time, will be presumed to be a bundled
transaction, and the consideration will be measured and allocated to the separate units
based on their relative fair values. This consensus guidance is applicable to agreements
entered into in quarters beginning after June 15, 2003. We adopted this new accounting
pronouncement beginning August 1, 2003. The implementation of this pronouncement did not
have a material impact on our consolidated financial position, results of operations and cash flows,
because we do not enter into a significant number of arrangements that may involve
multiple revenue-generating activities.

SFAS
No. 132R revises and improves employers financial statement disclosures about
defined benefit pension plans and other postretirement benefit plans. This revised
statement does not change the measurement or recognition of those plans and retains the
disclosures required by the original SFAS No. 132. This revised statement also requires
additional disclosures about the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement plans. This
revised statement is effective for fiscal year 2004. SFAS No. 132R did not have a material
effect on our consolidated financial position, results of operations and cash flows.

# Critical Accounting
Policies and Estimates

The
preparation of financial statements in conformity with United States Generally Accepted
Accounting Principles requires us to establish accounting policies and make estimates and
assumptions that affect our reported amounts of assets and liabilities at the date of the
consolidated financial statements. We evaluate our policies and estimates on an on-going
basis and discuss the development, selection and disclosure of critical accounting
policies with the Audit Committee. Predicting future events is inherently an imprecise
activity and as such requires the use of judgment. Our consolidated financial statements
may differ based upon different estimates and assumptions.

We
discuss our significant accounting policies in Note B  Summary of significant
accounting policies  to our consolidated financial statements. We believe the
following accounting policies are critical to the preparation of our consolidated
financial statements due to the estimation process and business judgment involved in their
application:

Depreciation of property,
plant and equipment

We
calculate depreciation on property, plant and equipment using the straight-line method
based on the estimated useful lives of the assets ranging from 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 regarding assumptions about the useful life of the assets being
depreciated. When necessary, the assets are revised and the impact on depreciation
is treated on a prospective basis.

Residual value of
customer and storage tanks

We
use an estimated residual value when calculating depreciation for our customer and bulk
storage tanks. Customer and bulk storage tanks are classified as property, plant and
equipment on our consolidated balance sheets. The depreciable basis of these tanks is
calculated using the original cost less the residual value. Depreciation is calculated
using straight-line method based on the tanks estimated useful life of 30 years.
Changes in the estimated residual value could have a material effect on our results of
operations. The estimates of the tanks residual value require our judgment of the
value of the tanks 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 a
prospective basis.

Valuation methods, amortization
methods and estimated useful lives of intangible assets

The
specific, identifiable intangible assets of a business enterprise depend largely upon the
nature of its operations. Potential intangible assets include intellectual property such
as trademarks and trade names, customer lists and relationships, and non-compete
agreements, as well as other intangible assets. The approach to the valuation of each
intangible asset will vary depending upon the nature of the asset, the business in which
it is utilized, and the economic returns it is generating or is expected to generate.
During fiscal year 2004 we did not find it necessary to adjust the valuation methods used
for any acquired intangible assets.

Our
recorded intangible assets primarily include the estimated value assigned to certain
customer-related and contract-based assets representing the rights we own arising from the
acquisition of propane distribution companies and related contractual agreements. A
customer-related or contract-based intangible with a finite useful life is amortized over
its estimated useful life, which is the period over which the asset is expected to
contribute directly or indirectly to the future cash flows of the entity. We believe that
trademarks and tradenames have an indefinite useful life due to our intention to utilize
all acquired trademarks and tradenames. When necessary, the intangible assets useful
lives are revised and the impact on amortization will be reflected on a prospective basis.
The determination of the fair market value of the intangible asset and the estimated
useful life are based on an analysis of all pertinent factors including (1) the use of
widely-accepted valuation approaches, the income approach or the cost approach, (2) the
expected use of the asset by the entity, (3) the expected useful life of related assets,
(4) any legal, regulatory or contractual provisions, including renewal or extension
periods that would not cause substantial costs or modifications to existing agreements,
(5) the effects of obsolescence, demand, competition, and other economic factors and (6)
the level of maintenance required to obtain the expected future cash flows.

If
the underlying assumption(s) governing the amortization of an intangible asset were later
determined to have significantly changed (either favorably or unfavorably), then we may be
required to adjust the amortization period of such asset to reflect any new estimate of
its useful life. Such a change would increase or decrease the annual amortization charge
associated with the asset at that time. During fiscal year 2004, we did not find it
necessary to adjust the valuation method, estimated useful life or amortization period of
any of our intangible assets.

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

At
July 31, 2004 and 2003, the carrying value of our intangible asset portfolio was $265.1
million and $98.2 million, respectively. We did not recognize any impairment losses
related to our intangible assets during fiscal years 2004 or 2003. For additional
information regarding our intangible assets, see Notes B  Summary of significant
accounting policies and G  Intangible assets, net to our consolidated financial
statements.

Fair value of derivative
commodity contracts

We
enter into commodity forward, futures, swaps and options contracts involving propane and
related products, which, in accordance with SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, are not accounting hedges, but are used for risk
management trading purposes. To the extent such contracts are entered into at fixed prices
and thereby subject us to market risk, the contracts are accounted for using the fair
value method. Under this valuation method, derivatives are carried in the consolidated
balance sheets at fair value with changes in value recognized in earnings. We classify all
gains and losses from these derivative contracts entered into for risk management trading
purposes as cost of product sold in the consolidated statements of earnings. We utilize
published settlement prices for exchange-traded contracts, quotes provided by brokers and
estimates of market prices based on daily contract activity to estimate the fair value of
these contracts. Changes in the methods used to determine the fair value of these
contracts could have a material effect on our results of operations. For further
discussion of derivative commodity contracts, see Managements Discussion and
Analysis of Financial Condition and Results of Operations  Results of
Operations, Liquidity and Capital Resources  Disclosures about Risk
Management Activities Accounted for at Fair Value and Quantitative and
Qualitative Disclosures about Market Risk and Note K  Derivatives  to
our consolidated financial statements. We do not anticipate future changes in the methods
used to determine the fair value of these derivative contracts.

# Disclosures about Risk
Management Activities Accounted for at Fair Value

The
following table summarizes the change in the unrealized fair value of contracts from our
risk management trading activities for fiscal year 2004.

|(in thousands)                               | 2004
|-------------------------------------------- | ----
|Unrealized losses in fair value of contracts |     
|outstanding at beginning of period           |     
|Other unrealized gains recognized            |     
|Less: realized losses recognized             |     
|                                             |     
|                                             |     
|Unrealized gains in fair value of contracts  |     
|outstanding at July 31                       |     
|                                             |     

The
following table summarizes the maturity of contracts from our risk management trading
activities for the valuation methodologies we utilized as of July 31, 2004.

|(in thousands)                              | Fair value of contracts at period-end
|------------------------------------------- | -------------------------------------
|
|Prices actively quoted                      |                                      
|Prices provided by other external sources   |                                      
|Prices based on models and other            |                                      
|valuation methods                           |                                      
|                                            |                                      
|Unrealized gains in fair value of contracts |                                      
|outstanding at July 31, 2004                |                                      
|                                            |                                      

See additional discussion about
market, counterparty credit and liquidity risks related to our risk management trading
activities and other risk management activities in Quantitative and Qualitative
Disclosures about Market Risk and Note K  Derivatives  to our
consolidated financial statements.

# ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our
risk management activities primarily attempt to mitigate risks related to the purchasing,
storing and transporting of propane. We generally purchase propane in the contract and
spot markets from major domestic energy companies on a short-term basis. Our costs to
purchase and distribute propane fluctuate with the movement of market prices. This
fluctuation subjects us to potential price risk, which we attempt to minimize through the
use of risk management activities.

Our
risk management trading activities include the use of energy commodity forward contracts,
swaps and options traded on the over-the-counter financial markets and futures and options
traded on the New York Mercantile Exchange. These risk management activities are conducted
primarily to offset the effect of market price fluctuations on propane inventory and
purchase commitments and to mitigate the price risk on sale commitments to our customers.

Our
risk management activities are intended to generate a profit, which we then apply to
reduce our cost of product sold. The results of our risk management activities directly
related to the delivery of propane to our customers, which include our supply procurement,
storage and transportation activities, are presented in our discussion of margins and are
accounted for at cost. The results of our other risk management activities are presented
separately in our discussion of gross profit found in Managements Discussion
and Analysis of Financial Condition and Results of Operations  Results of
Operations as risk management trading activities and are accounted for at fair
value.

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

Market,
Credit and Liquidity Risk. New York Mercantile Exchange traded futures and options are
guaranteed by the New York Mercantile Exchange and have nominal credit risk. We are
exposed to credit risk associated with forwards, swaps and option transactions in the
event of nonperformance by counterparties. For each counterparty, we analyze its financial
condition prior to entering into an agreement, establish a credit limit and monitor the
appropriateness of the limit. The change in market value of Exchange-traded futures
contracts requires daily cash settlement in margin accounts with brokers. Over-the-counter
instruments are generally settled at the expiration of the contract term. In order to
minimize the liquidity risk of cash, margin or collateral requirements of counterparties
for over-the-counter instruments, we attempt to balance maturities and positions with
individual counterparties. Historically, our risk management activities have not
experienced significant credit-related losses in any year or with any individual
counterparty. Our risk management contracts do not contain material repayment provisions
related to a decline in our credit rating.

Sensitivity
Analysis. We prepared a sensitivity analysis to estimate the exposure to market risk
of our energy commodity positions. Forward contracts, futures, swaps and options
outstanding as of July 31, 2004 and 2003, that were used in our risk management trading
activities were analyzed assuming a hypothetical 10% adverse change in prices for the
delivery month for all energy commodities. The potential loss in future earnings regarding
these positions from a 10% adverse movement in market prices of the underlying energy
commodities was estimated at $0.6 million and $1.4 million for risk management trading
activities and other risk management activities, respectively, as of July 31, 2004. As of
July 31, 2003, the potential loss in future earnings regarding these positions from a 10%
adverse movement was estimated at $0.9 million and $0 for risk management trading
activities and other risk management activities, respectively. The preceding hypothetical
analysis is limited because changes in prices may or may not equal 10%, thus actual
results may differ.

At
July 31, 2004 and 2003, we had $92.9 million and $126.7 million, respectively, in variable
rate amended bank credit facility borrowings. Thus, assuming a one percent increase in our
variable interest rate, our interest rate risk related to the borrowings on our variable
rate amended bank credit facility would result in a loss in future earnings of $0.9
million for fiscal year 2005. The preceding hypothetical analysis is limited because
changes in interest rates may or may not equal one percent, thus actual results may
differ.

# ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.

Our
consolidated financial statements and the Independent Registered Public Accounting
Firms Reports thereon and the Supplementary Financial Information listed on the
accompanying Index to Financial Statements and Financial Statement Schedules are hereby
incorporated by reference. See Note R  Quarterly data (unaudited)  to our
consolidated financial statements for Selected Quarterly Financial Data.

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

None.

# ITEM 9A. CONTROLS AND
PROCEDURES.

An
evaluation was performed by our management, with the participation of the principal
executive officer and principal financial officer of our general partner, of the
effectiveness of our disclosure controls and procedures (as such terms are defined in Rule
13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, our management,
including the principal executive officer and principal financial officer of our general
partner, concluded that our disclosure controls and procedures were designed to be and
were adequate and effective as of the end of fiscal year 2004 to provide reasonable
assurance that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act are recorded, processed, summarized and reported, within the
time periods specified in the SECs rules and forms.

It
should be noted that any system of disclosure controls and procedures, however well
designed and operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any system of disclosure
controls and procedures is based in part upon assumptions about the likelihood of future
events. Because of these and other inherent limitations of any such system, there can be
no assurance that any design will always succeed in achieving its stated goals under all
potential future conditions, regardless of how remote, and furthermore, because of
potential changes in future conditions, the effectiveness of our disclosure controls and
procedures may vary over time.

Due
to the deployment of our new technology initiative during fiscal year 2004, we modified
our internal controls over financial reporting during the quarter ended July 31, 2004.
This modification of internal controls over financial reporting was made to align our
internal controls with the implementation of our new technology initiative. See Item
1  Business  Business Strategy for additional discussion about the
development of this technology initiative that we began in fiscal year 2001. This
implementation is being conducted in phases by geographical areas and is scheduled to be
completed in the first quarter of fiscal 2006. This new technology initiative has been
designed to improve various aspects of our operations including routing and scheduling of
customer deliveries, customer administration and operational workflow related to our
retail sale and delivery of bulk propane.

# ITEM 9B. OTHER
INFORMATION.

On
October 11, 2004, we amended and restated the Ferrell Companies, Inc. 1998 Incentive Compensation
Plan to allow options to be granted with varying vesting periods and exercise periods on
any prospective option grants.

On
October 11, 2004, Mr. Prim and our general partner amended and restated his employment agreement to
allow for Mr. Prims total compensation to be determined based on hours
worked which is anticipated to be less than full-time due to the elimination of
administrative responsibilities associated with managing the former Blue Rhino Corporation
as a publicly-traded company prior to April 2004. The amendment also allows for the
reduction by 50% of the potential payment to be made to him in April 2007 and to vest him
in that reduced amount.

# PART III

# ITEM 10. DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANTS.

# Directors and Executive
Officers of our General Partner

The
following table sets forth certain information with respect to the directors and executive
officers of our general partner as of September 15, 2004. Each of the persons named below
is appointed or elected to their respective office or offices annually.

|Name                  | Age | Director Since | Executive Officer since | Position                                                                   
|--------------------- | --- | -------------- | ----------------------- | ---------------------------------------------------------------------------
|James E. Ferrell      | 64  | 1984           | 2000                    | Chairman, Chief Executive Officer and President                            
|Billy D. Prim         | 48  | 2004           | 2004                    | Director, Executive Vice President
and Chief Executive Officer, Blue

Rhino
|Patrick J. Chesterman | 54  | N/a            | 1997                    | Executive Vice President and Chief
Operating Officer                       
|Kenneth A. Heinz      | 40  | N/a            | 2001                    | Senior Vice President, Corporate
Development                               
|Kevin T. Kelly        | 39  | N/a            | 1998                    | Senior Vice President and Chief
Financial Officer                          
|Ron M. Logan, Jr      | 43  | N/a            | 2003                    | Senior Vice President, Ferrell
North America                               
|Timothy E. Scronce    | 39  | N/a            | 2004                    | Senior Vice President; President
and Chief Operating Officer, Blue
Rhino   
|Patrick J. Walsh      | 51  | N/a            | 2003                    | Vice President and Chief
Transformation Officer                            
|William K. Hoskins    | 69  | 2003           | N/a                     | Director                                                                   
|A. Andrew Levison     | 48  | 1994           | N/a                     | Director                                                                   
|John R. Lowden        | 47  | 2003           | N/a                     | Director                                                                   
|Michael F. Morrissey  | 62  | 1999           | N/a                     | Director                                                                   
|Elizabeth T. Solberg  | 65  | 1998           | N/a                     | Director                                                                   

James
E. FerrellMr. Ferrell has been with Ferrell Companies or its predecessors and
its affiliates in various executive capacities since 1965, including Chairman of the Board
of Directors of our general partner. He was named Chief Executive Officer and President of
our general partner on October 5, 2000. He previously served as our general partners
Chief Executive Officer until August 1998 and as President until October 1996.

Billy
D. Prim Mr. Prim was named Executive Vice President and Chief Executive Officer
of Blue Rhinoon April 21, 2004. Mr. Prim was elected a Director of our general
partner in April 2004. Prior to joining the general partner, he served as Chief Executive
Officer and Chairman of Blue Rhino Corporation since its inception in 1994.

Patrick
J. ChestermanMr. Chesterman was named Executive Vice President and Chief
Operating Officer of our general partner in June 2000. He had been Executive Vice
President and Chief Operating Officer, Ferrell North America since April 1998 after having
served as Senior Vice President, Supply since September 1997. After joining our general
partner in June 1994, he had one-year assignments as Vice President  Retail
Operations, Director of Field Support and Director of Human Resources.

Kenneth
A. HeinzMr. Heinz was named Senior Vice President of Corporate Development in
June 2003and had previously served as Vice President of Corporate Development since
November 2001. After joining our general partner in November, 1996, he served as Manager
of Taxation, Director of Finance and Taxation, and Vice President of Finance and Corporate
Development.

Kevin
T. KellyMr. Kelly was named Senior Vice President in October 2000 and Chief
Financial Officer in May 1998. After joining our general partner in June 1996, he served
as Director of Finance and Corporate Controller until May 1998.

Ron
M. Logan, Jr.Mr. Logan joined Ferrellgas as Senior Vice President of Ferrell
North America in June 2003 and was named as an executive officer by the general
partners Board of Directors in October 2003. Prior to joining the general partner,
he served as Vice President of Dynegy Midstream Services in Houston, Texas.

Timothy
E. Scronce Mr. Scronce was named Senior Vice President and President and Chief
Operating Officer of Blue Rhino in September 2004. Prior to joining the general partner,
he served as President and Chief Operating Officer of Blue Rhino Corporation since October
2002. From February 2002 until October 2002, he served as the Executive Vice President and
Chief Operating Officer of Blue Rhino Corporation. From August 2001 until February 2002,
he served as Vice President of Blue Rhino Corporation. Mr. Sconce was employed by
Diageo/GuinnessUDV, a manufacturer and distributor of beer, wine and spirits, as Vice
President from April 1996 until August 2001.

Patrick
J. Walsh Mr. Walsh was named Vice President and Chief Transformation Officer in
December 2003. He had been Vice President, Information Technology and Chief Information
Officer since February 2001 after having served as Vice President, Information Technology
since August 2000. Mr. Walsh was named Vice President, Administration in August 1998.
Prior to that he was Director, Field Services and Director, Marketing and Communications.
He joined Ferrellgas, Inc. in 1986 when it bought Buckeye Gas Products Company.

William
K. HoskinsMr. Hoskins was elected a Director of our general partner in January
2003. He is also Chairman of the Corporate Governance and Nominating Committee and a
member of the Audit Committee of our Board of Directors. Mr. Hoskins is the Managing
Partner of Resolution Counsel, LLP, President of Hoskins & Associates, as well as the
Managing Partner of Hoskins Group, LP. He also serves on the Board of Directors of
Isotechnika, Inc.

A.
Andrew LevisonMr. Levison was elected a Director of our general
          partner in September 1994. He is also a member of the Audit Committee and the
          Compensation Committee of our Board of Directors. Mr. Levison is the Chairman
of           Levison & Co., LLC, a Greenwich, Connecticut-based, private merchant
banking           firm and is the former head of Leveraged Finance at Donaldson, Lufkin
&          Jenrette in New York City.

John
R. LowdenMr. Lowden was elected a Director of our general partner in January
2003. He is also a member of the Compensation Committee and the Corporate Governance and
Nominating Committee of our Board of Directors. Mr. Lowden is the President of NewCastle
Partners, LLC.

Michael
F. MorrisseyMr. Morrissey was elected a Director of our general partner in
November 1999. He is also Chairman of the Audit Committee of our Board of Directors. Mr.
Morrissey retired as the Managing Partner of Ernst & Youngs Kansas City office
in the fall of 1999. He had been with that firm, or its predecessor, since 1975. Mr.
Morrissey also serves on the Board of Directors of Westar Energy, Inc.

Elizabeth
T. SolbergMs. Solberg was elected a Director of our general partner in July
1998. She is also Chair of the Compensation Committee and is a member of the Corporate
Governance and Nominating Committee of our Board of Directors. Ms. Solberg is Regional
President and Senior Partner of Fleishman-Hillard, Inc. and has been with the firm since
1976. She has been a member of the Board of Directors of Midwest Air Group, Inc. since
2001.

# Corporate Governance

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

The
Board of Directors of our general partner has adopted a set of Corporate Governance
Guidelines for the Board and charters for its Audit Committee, Corporate Governance and
Nominating Committee and Compensation Committee. A current copy of these Corporate
Governance Guidelines and charters, each of which were adopted and approved by the entire
Board, are available to our security holders on our website at www.ferrellgas.com.

Additionally,
the Board has affirmatively determined that Messrs. Hoskins, Levison, Lowden, Morrissey
and Ms. Solberg, who constitute a majority of its Directors, are independent
as described by the New York Stock Exchanges corporate governance rules. In
conjunction with regular Board meetings, these five non-management directors also meet in
a regularly scheduled executive session without members of management present. A
non-management director presides over each executive session of non-management directors.
Mr. Morrissey has been selected as the presiding director for non-management executive
sessions. If Mr. Morrissey is not present then the other non-management directors shall
select the presiding director. Additional executive sessions may be scheduled by a
majority of the non-management directors in consolation with the presiding director and
the Chairman of the Board.

# Audit Committee

The
Board has a designated Audit Committee established in accordance with the Exchange Act
comprised of Messrs. Morrissey, Hoskins and Levison. Mr. Morrissey is the chairman of the
Audit Committee and has been determined by the board to be an audit committee
financial expert. The Audit Committee charter, as well as the rules of the New York
Stock Exchange and the SEC, require that members of the Audit Committee satisfy
independence requirements as set out by the New York Stock Exchange. The Board
has determined that all of the members of the Audit Committee are independent as described
under the relevant standards. The Audit Committee charter, which was adopted and approved
by the entire Board, is available to our security holders on our website at
www.ferrellgas.com.

# Limitation on Directors
participating on audit committees

The
Board has adopted a policy limiting the number of public-company audit committees its
directors may serve on to three at any point in time. If a director 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 designated Corporate Governance and Nominating Committee, comprised of Messrs.
Hoskins, Lowden and Ms. Solberg. Mr. Hoskins is the chairman of the Corporate Governance
and Nominating Committee. The Corporate Governance and Nominating Committee charter
requires that members of the Corporate Governance and Nominating Committee satisfy
particular independence requirements. The Board has determined that all of the
members of the Corporate Governance and Nominating Committee are independent
as described under relevant standards. The Corporate Governance and Nominating Committee
charter, which was adopted and approved by the entire Board, is available to our security
holders on our website at www.ferrellgas.com.

# Compensation Committee

The
Board has a designated Compensation Committee, comprised of Ms. Solberg, Messrs. Levison
and Lowden. Ms. Solberg is chair of the Compensation Committee. The Compensation Committee
charter requires that members of the Compensation Committee satisfy particular
independence requirements. The Board has determined that all of the members of
the Compensation Committee are independent as described under relevant
standards. The Compensation Committee charter, which was adopted and approved by the
entire board, is available to our security holders on our website at
www.ferrellgas.com.

Disclosure about our security
holders ability to communicate with the Board of Directors of our general partner

The
Board of Directors of our general partner has a process by which security holders can
communicate with it. Security holders can send communications to the Board by contacting
our Investor Relations department by mail, telephone or e-mail at:

Ferrellgas, Inc.Attention:
Investor Relations7500 College BoulevardSuite 1000 Overland Park, KS 66210913-661-1533investors@ferrellgas.com

Code of ethics for principal
executive and financial officers and Code of business conduct and ethics

The
Board has adopted a Code of Ethics for our general partners principal executive
officer, principal financial officer, principal accounting officer or those persons
performing similar functions. Additionally, the Board has adopted a general Code of
business conduct and ethics for all of our general partners directors, officers and
employees. These codes, which were adopted and approved by the entire Board, are available
to our security holders on our website at www.ferrellgas.com.

We
intend to disclose any amendment to the Code of Ethics on our website, unless such
amendment is deemed to be technical, administrative, or otherwise non-substantive. Any
waivers from the Code of Ethics will also be disclosed on our website.

# Compensation of our
general partner

Our
general partner receives no management fee or similar compensation in connection with its
management of our business and receives no remuneration other than:

| | o |  | distributions
 on  its  combined  2%  general  partner  interest  in  Ferrellgas   Partners  and  the
 operating      partnership; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------

| | o |  | reimbursement
for:
| | - |  | ------------------

| |  | o |  | all
direct and indirect costs and expenses incurred on our behalf;
| |  | - |  | ------------------------------------------------------------------

| |  | o |  | all
selling, general and administrative expenses incurred by our general partner on our
behalf; and
| |  | - |  | ---------------------------------------------------------------------------------------------------

| |  | o |  | all
other expenses necessary or appropriate to the conduct of our business and allocable to
us.
| |  | - |  | -----------------------------------------------------------------------------------------------

The
selling, general and administrative expenses reimbursed include specific employee benefits
and incentive plans for the benefit of the executive officers and employees of our general
partner.

# Compliance with Section
16(a) of the Securities and Exchange Act

Section
16(a) of the Exchange Act requires our general partners officers and directors, and
persons who beneficially own more than 10% of our common units, to file reports of
beneficial ownership and changes in beneficial ownership of our common units with the SEC.
These persons are also required by the rules and regulations promulgated by the SEC to
furnish our general partner with copies of all Section 16(a) forms filed by them. 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) forms received by our general
partner and, to the extent applicable, written representations from certain reporting
persons that no Annual Statement of Beneficial Ownership of Securities on Form 5 were
required to be filed by those persons, our general partner believes that during fiscal
year 2004 all Section 16(a) filing requirements applicable to the officers, and directors
of our general partner and, beneficial owners of more than 10% of our common units were
met in a timely manner.

# ITEM 11. EXECUTIVE
COMPENSATION.

Summary
Compensation Table

The
following table sets forth the compensation for the past three fiscal years of our general
partners Chief Executive Officer and the four other most highly compensated
executive officers other than the Chief Executive Officer, who were serving as executive
officers at the end of fiscal year 2004.

|                            |  |      |  |         | Long-Term Compensation |        
|--------------------------- |  | ---- |  | ------- | ---------------------- | -------
|
|
|James E. Ferrell            |  | 2004 |  | 635,000 |                        | 110,000
|Chairman, Chief Executive   |  | 2003 |  | 624,000 |                        | 500,000
|Officer and President       |  | 2002 |  | 500,000 |                        | 500,000
|Patrick J. Chesterman       |  | 2004 |  | 350,000 |                        | 210,000
|Executive Vice President,   |  | 2003 |  | 348,000 |                        | 141,750
|and Chief Operating Officer |  | 2002 |  | 322,000 |                        | 300,000
|Kevin T. Kelly              |  | 2004 |  | 298,000 |                        | 110,000
|Senior Vice President and   |  | 2003 |  | 271,000 |                        | 200,000
|Chief Financial Officer     |  | 2002 |  | 221,000 |                        | 200,000
|Kenneth A. Heinz            |  | 2004 |  | 225,000 |                        | 110,000
|Senior Vice President,      |  | 2003 |  | 219,000 |                        | 130,000
|Corporate Development       |  | 2002 |  | 171,800 |                        | 125,000
|Ron M. Logan, Jr. (4)       |  | 2004 |  | 215,000 |                        | 110,000
|Senior Vice President,      |  | 2003 |  | 22,000  |                        | 50,000 
|Ferrell North America       | 

|(1) |  | Awards under bonus plans are for the year reported, regardless of the year paid.
|--- |  | --------------------------------------------------------------------------------

|(2) |  | All amounts represent the value of shares contributed to each individuals
          Employee Stock Ownership Plan account.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(3) |  | The awards are grants of unit options from the Ferrellgas, Inc. Unit Option Plan
          and stock options from the Incentive Compensation Plan, a stock option plan of
          Ferrell Companies (see below for unit option and stock option grant tables).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Ron M. Logan, Jr. was named Senior Vice President, Ferrell North America in
          2003.
|--- |  | -------------------------------------------------------------------------------------------

|(5) |  | Includes for Mr. Ferrell contributions of $8,329 to the employees 401(k)
          and profit sharing plans. Includes for Mr. Chesterman contributions of $12,400
          to the profit sharing plans and compensation of $1,248 resulting from the
          payment of life insurance premiums. Includes for Mr. Kelly contributions of
          $12,696 to the employees 401(k) and profit sharing plans. Includes for Mr.
          Heinz contributions of $13,372 to the employees 401(k) and profit sharing
          plans and compensation of $459 resulting from the payment of life insurance
          premiums. Includes for Mr. Logan compensation of $274 resulting from the
          payment of life insurance premiums.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Unit Options

The
Second Amended and Restated Ferrellgas Unit Option Plan grants employees of our general
partner unit options to purchase our common units. The purpose of the Unit Option Plan is
to encourage certain employees of our general partner to develop a proprietary interest in
our growth and performance, to generate an increased incentive to contribute to our future
success and prosperity, thereby enhancing our value for the benefit of our unitholders,
and to enhance the ability of our general partner to attract and retain key individuals
who are essential to our progress, growth and profitability, by giving these individuals
an opportunity to acquire our common units.

As
of July 31, 2004 we had outstanding 470,176 unit options, with a weighted average exercise
price of $18.26 per option. The unit options generally vest over a five-year period, and
expire on the tenth anniversary of the date of the grant. As of July 31, 2004, 245,776 of
the unit options outstanding were exercisable.

There
were no grants of unit options during fiscal year 2004.

The
following table lists information on our general partners Chief Executive Officer
and other named executive officers exercisable/unexercisable unit options as of July
31, 2004.

# AGGREGATED FERRELLGAS
UNIT OPTION EXERCISES IN LAST FISCAL YEAR AND
                                            FISCAL YEAR-END OPTION VALUES

|                      | Number of
Securities
Underlying
Unexercised
Options at Fiscal
Year End (#) | Value of
Unexercised
In-The-Money
Options at Fiscal
Year End ($)
|--------------------- | -------------------------------------------------------------------------- | ----------------------------------------------------------------
|
|James E. Ferrell      |                                                                            | 180,000                                                         
|Patrick J. Chesterman |                                                                            | --                                                              
|Kevin T. Kelly        |                                                                            | --                                                              
|Kenneth A. Heinz      |                                                                            | --                                                              
|Ron M. Logan, Jr      |                                                                            | --                                                              

# Employee Stock Ownership
Plan

On
July 17, 1998, pursuant to the Ferrell Companies, Inc. Employee Stock Ownership Plan, an
employee stock ownership trust purchased all of the outstanding common stock of Ferrell
Companies. The purpose of the Employee Stock Ownership Plan is to provide employees of our
general partner an opportunity for ownership in Ferrell Companies, and indirectly, in us.
Ferrell Companies makes contributions to the Employee Stock Ownership Plan, which allows a
portion of the shares of Ferrell Companies owned by the Employee Stock Ownership Plan to
be allocated to employees accounts over time.

# Incentive Compensation
Plan

Also
on July 17, 1998, the Ferrell Companies, Inc. 1998 Incentive Compensation Plan was
established by Ferrell Companies to allow upper-middle and senior level managers of our
general partner to participate in the equity growth of Ferrell Companies. Pursuant to this
Incentive Compensation Plan, eligible participants may be granted stock options to
purchase shares of common stock of Ferrell Companies. Neither Ferrellgas Partners nor the
operating partnership makes a financial contribution, directly or indirectly, to the Incentive Compensation
Plan. There were no grants of Incentive Compensation Plan options to named executive
officers during fiscal year 2004. See Item 9B. Other Information for information about an
amendment to this plan.

The
Ferrell Companies stock options vest ratably in 5% and 10% increments over 12 years 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 options are exercisable in
increments based on the timing of the payoff of Ferrell Companies debt, but in no event
later than 20 years from the date of issuance.

The
following table lists information on our general partners Chief Executive Officer
and other named executive officers exercisable/unexercisable stock options as of
July 31, 2004.

# AGGREGATED FERRELL
COMPANIES STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

|                      | Number of
Securities Underlying
Unexercised Options
At Fiscal Year End (#) | Value of
Unexercised
In-The-Money
Options at Fiscal
Year End ($)
|--------------------- | -------------------------------------------------------------------------- | ----------------------------------------------------------------
|
|James E. Ferrell      |                                                                            | -                                                               
|Patrick J. Chesterman |                                                                            | -                                                               
|Kevin T. Kelly        |                                                                            | -                                                               
|Kenneth A. Heinz      |                                                                            | -                                                               
|Ron M. Logan, Jr      |                                                                            | -                                                               

Profit
Sharing Plan

The
Ferrell Companies, Inc. Profit Sharing and 401(k) Investment Plan is a qualified defined
contribution plan, which includes both profit sharing and matching contributions. All
full-time employees of Ferrell Companies or any of its direct or indirect wholly-owned
subsidiaries with at least one year of service are eligible to participate in the profit
sharing plan. With the establishment of the Employee Stock Ownership Plan in July 1998, we
suspended future contributions to the profit sharing plan beginning with fiscal year 1998.
The plan also has a 401(k) feature allowing all full-time employees to specify a portion
of their pre-tax and/or after-tax compensation to be contributed to the plan. The plan
also provides for matching contributions under a cash or deferred arrangement based upon
participant salaries and employee contributions to the plan. Unlike the profit sharing
contributions, these matching contributions were not eliminated with the establishment of
the Employee Stock Ownership Plan.

Supplemental
Savings Plan

The
Ferrell Companies, Inc. Supplemental Savings Plan was established October 1, 1994 in order
to provide certain management or highly compensated employees with supplemental retirement
income which is approximately equal in amount to the retirement income that would have
been provided to members of the select group of employees under the terms of the 401(k)
feature of the profit sharing plan based on such members deferral elections
thereunder, but which could not be provided under the 401(k) feature of the profit sharing
plan due to the application of certain IRS rules and regulations.

Employment
Agreements

In
April 2001, the independent members of the Board of Directors of our general partner
modified the amount of compensation paid to Mr. Ferrell as Chairman, Chief Executive
Officer and President of our general partner pursuant to Mr. Ferrells existing
employment agreement dated July 17, 1998. Effective September 1, 2002, Mr. Ferrells
annual salary was increased to $635,000. Mr. Ferrell is also entitled to:

| | o |  | an
annual bonus,  the amount to be determined at the sole discretion of the independent
 members of the Board of          Directors of our general partner; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | an
incentive bonus equal to 0.005 of the increase in the equity value of Ferrell Companies
from July 31, 1998 to and including the date of the most recent appraisal of Ferrell
Companies at the date the bonus is payable.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The incentive bonus is payable on the
later of the termination of Mr. Ferrells employment agreement or the date that the
subordinated loan from Mr. Ferrell to Ferrell Companies is repaid. The value of this bonus
at July 31, 2004 was $0.9 million.

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

Pursuant
to the terms of Mr. Ferrells employment agreement, in the event of a termination
without cause, resignation for cause or a change of control of Ferrell Companies or our
general partner, Mr. Ferrell is entitled to a cash termination benefit equal to three
times the greater of 125% of his current base salary or the average compensation paid to
him for the prior three fiscal years.

Mr.
          Ferrells agreement also contains a non-compete provision for the period
of           time, following his termination of employment, equal to the greater of five
          years or the time in which certain outstanding debt of Ferrell Companies is
paid           in full. The non-compete provision provides that he shall not directly or
          indirectly own, manage, control, or engage in any business with any person
whose           business is substantially similar to ours.

Effective
April 20, 2004, Billy D. Prim entered into a three-year employment agreement with our
general partner. The employment agreement provides that Mr. Prim will receive an
annual salary of $600,000 to be reviewed annually, which amount may be increased at the
discretion of the Board of Directors of our general partner. In addition, Mr. Prim is
entitled to a bonus based on Blue Rhinos cash flow performance as determined by the
Board and a bonus to be determined at the discretion of the Chief Executive Officer of our
general partner. Upon the effectiveness of the employment agreement, Mr. Prim was
paid $2.5 million as a one-time payment.

In
the event of a termination without cause of Mr. Prims employment or his resignation
for good reason, Mr. Prim is entitled to a cash amount equal to his then current base
salary, payable over one year. If Mr. Prim remains an employee of our general partner
through April 20, 2007, Mr. Prim will be paid approximately $1.9 million.

Mr.
          Prims employment agreement also contains non-compete provisions for a
          period of three years following his termination or resignation of employment.
          The non-compete provisions provide that he shall not directly or indirectly
own,           manage, control or engage in any business with any person or entity whose
          business is substantially similar to ours.

On
October 11, 2004, Mr. Prim and our general partner amended and restated his employment agreement to
allow for Mr. Prims total compensation to be determined based on hours
worked which is anticipated to be less than full-time due to the elimination of
administrative responsibilities associated with managing the former Blue Rhino Corporation
as a publicly-traded company prior to April 2004. The amendment also allows for the
reduction by 50% of the potential payment to be made to him in April 2007 and to vest him
in that reduced amount.

During
the fourth quarter of fiscal year 2003 and as part of an offer of employment to Mr. Logan,
our general partner agreed that in the event of termination of Mr. Logans
employment, Mr. Logans employee benefit coverage will continue for six months along
with severance pay equal to the greater of (i) six months base salary, or (ii) the
severance package otherwise available through then current established policies.

During
the third quarter of fiscal year 2004 and as part of an offer of employment to Mr.
Scronce, our general partner agreed that in the event of the occurrence of any of the following: termination of Mr. Scronces employment
without cause; his continued employment for three years from April 21, 2004;
or a change in control of Ferrellgas Partners, Mr. Scronce will receive
$829,000 and the then current value of 25,000 Ferrellgas Partners units.

# Compensation of Directors

Our
general partner does not pay any additional remuneration to its employees for serving as
directors. Directors who are not employees of our general partner receive an annual
retainer of $36,000 to $46,000.

|ITEM 12. | SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS.
|-------- | ----------------------------------------------------------------------------------------------

The
following table sets forth certain information as of August 31, 2004, regarding the
beneficial ownership of our common units by:

| | o |  | persons
that own more than 5% of our common units;
| | - |  | --------------------------------------------------

| | o |  | are
directors and named executive officers of our general partner; and
| | - |  | ----------------------------------------------------------------------

| | o |  | all
directors and executive officers of our general partner as a group.
| | - |  | -----------------------------------------------------------------------

Other than those person listed below,
our general partner knows of no other person beneficially owning more than 5% of our
common units. The senior units currently are not voting securities of Ferrellgas Partners
and therefore are not presented in the table below.

Ferrellgas Partners, L.P.

|Title of Class | Name and Address of Beneficial Owner            | Units
BeneficiallyOwned | Percentage of
  Class
|-------------- | ----------------------------------------------- | ----------------------- | ---------------------
|Common Units   | Employee Stock Ownership Trust                  | 18,050,773              | 34.9                 
|               | James E. Ferrell                                | 279,176                 | *                    
|               | Patrick J. Chesterman                           | 18,200                  | *                    
|               | Kenneth A. Heinz                                | 15,500                  | *                    
|               | Kevin T. Kelly                                  | 19,700                  | *                    
|               | Ron M. Logan, Jr.                               | -                       | *                    
|               | William K. Hoskins                              | 15,000                  | *                    
|               | A. Andrew Levison                               | 39,300                  | *                    
|               | John R. Lowden                                  | -                       | *                    
|               | Michael F. Morrissey                            | 1,000                   | *                    
|               | Billy D. Prim                                   | 812,155                 | 1.6                  
|               | Elizabeth T. Solberg                            | 8,431                   | *                    
|               | All Directors and Executive Officers as a Group | 1,210,462               | 2.3                  

*    Less than one percent

Beneficial
ownership for the purposes of the foregoing table is defined by Rule 13d-3 under the
Exchange Act. Under that rule, a person is generally considered to be the beneficial owner
of a security if he has or shares the power to vote or direct the voting thereof or to
dispose or direct the disposition thereof or has the right to acquire either of those
powers within 60 days. See the Executive Compensation  Aggregated Ferrellgas
Unit Option Exercises In Last Fiscal Year And Fiscal Year End Option Values table
above for the number of common units that could be acquired by each named executive
officer through exercising common unit options.

The
address for LaSalle National Bank, the trustee for the Ferrell Companies, Inc. Employee
Stock Ownership Trust is 125 S. LaSalle Street, 17th Floor, Chicago, Illinois, 60603. The
common units owned by the Employee Stock Ownership Trust includes 17,803,883 common units
owned by Ferrell Companies which is 100% owned by the Employee Stock Ownership Trust,
195,686 common units owned by FCI Trading, a wholly-owned subsidiary of Ferrell Companies
and 51,204 common units owned by Ferrell Propane, Inc., a wholly-owned subsidiary of our
general partner.

# Securities Authorized
for Issuance under Equity Compensation Plans

The
table below provides information about our Second Amended and Restated Ferrellgas Unit
Option Plan as of July 31, 2004. This plan is our only equity compensation plan that
grants equity of Ferrellgas Partners to its participants. In addition to the information
set forth below, see Note O  Unit options of Ferrellgas Partners and stock options
of Ferrell Companies  to our consolidated financial statements for additional
information about the plan.

|Plan category                                                      | 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) | 470,106                                                                                       | $ 18.26                                                                            | 120,400 (2)                                                                                                                                        
|Total                                                              | 470,106                                                                                       | $18.26                                                                             | 120,400                                                                                                                                            

| | (1)
       The Second Amended and Restated Ferrellgas Unit
Option Plan did not require           approval by the security holders.
| | ----------------------------------------------------------------------------------------------------------------------------------

| | (2)
              This number may be increased upon the
occurrence of particular events. See           narrative below.
| | -----------------------------------------------------------------------------------------------------------------------

The
Second Amended and Restated Ferrellgas Unit Option Plan was initially adopted by the Board
of Directors of our general partner. The plan is intended to meet the requirements of the
New York Stock Exchange equity holder approval policy for option plans not approved by the
equity holders of a company, and thus approval of the plan by our common unitholders was
not required.

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

| | o |  | develop
a proprietary interest in our growth and performance;
| | - |  | -------------------------------------------------------------

| | o |  | generate
an increased incentive to contribute to our future success and prosperity, thereby
enhancing our value for the benefit of our common unitholders; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | enhance
our ability to attract and retain key individuals who are essential to our progress,
growth and profitability, by giving these individuals the opportunity to acquire our
common units.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
plan is to be administered either by an option committee of the Board of our general
partner that is composed of not less than two directors who are non-employee
directors within the meaning of Rule 16b-3 of the Exchange Act or by the Board
itself. The Board, which currently has five non-employee directors, has not
yet designated such an option committee and therefore currently administers the plan. The
Board has however designated an employee committee to recommend to it at various times
throughout the year the number of unit options to be granted and to whom such unit options
should be granted. The Board then votes upon such recommendations.

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

| | o |  | designate
the employees who are to be participants in the plan;
| | - |  | ---------------------------------------------------------------

| | o |  | determine
the number of unit options to be granted to an employee;
| | - |  | ------------------------------------------------------------------

| | o |  | determine
the terms and conditions of any unit option;
| | - |  | ------------------------------------------------------

| | o |  | interpret,
 construe and administer  the plan and any instrument or agreement  relating to a unit
option granted      under the plan;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

| | o |  | establish,
amend, suspend, or waive such rules and regulations and appoint such agents as it deems
appropriate for the proper administration of the plan;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | make
a determination as to the right of any person to receive payment of (or with respect to)
a unit option; and
| | - |  | ----------------------------------------------------------------------------------------------------------------

| | o |  | make
any other determinations and take any other actions that the administrator deems
necessary or desirable for the administration of the plan.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

Generally,
all of the directors, officers, and other employees of our general partner, or an
affiliate of our general partner, are eligible for participation in the plan. Grants to a
member of the Board or the option committee are permitted provided that the grantee
recuses themselves from the vote relating to such unit option grant. Grants may be made to
the same employee on more than one occasion and the terms and provisions of grants to the
same employee or to different employees need not be the same. The plan allows for the
granting of only non-qualified unit options and in no event shall the term of any unit
option exceed a period of ten years from the date of its grant. Unit options, to the
extent vested as of the date the holder thereof ceases to be an employee of our general
partner or one of its affiliates, will remain the property of the holder until the unit
options are exercised or expire. Unit options, to the extent not vested as of the date the
holder ceases to be an employee, are automatically canceled. Unit options or rights
thereunder are not assignable, alienable, saleable or transferable by a holder otherwise
than by will or by the laws of descent and distribution. It is intended that the plan and
any unit option granted to a person subject to Section 16 of the Exchange Act meet all of
the requirements of Rule 16b-3 of the Exchange Act.

To
comply with the rules of the New York Stock Exchange, no single officer or director of our
general partner may acquire under the plan more than 314,895 common units. In addition,
all common units available for issuance under this plan, whether to directors or officers
of our general partner or to any other persons, together with any common units available
for issuance under any other employee benefit plan, of which there are currently none, may
not exceed an aggregate total of 1,574,475 common units.

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

The
administrator of the plan has the discretion to cancel all or part of any outstanding unit
options at any time. Upon any such cancellation we will pay to the holder with respect to
each cancelled unit option an amount in cash equal to the excess, if any, of (i) the fair
market value of a common unit, at the effective date of such cancellation, over (ii) the
unit option exercise price. In addition, the administrator has the right to alter or amend
the plan or any part thereof from time to time; provided, however, that no change in any
unit option already granted may be made which would impair the rights of the holder
thereof without the consent of the holder. The administrator may also in its discretion
terminate the plan at any time with respect to any common units for which a unit option
has not yet been granted. There is currently no fixed termination date for the plan.
If a plan for our complete dissolution is adopted or our unitholders approve an
agreement for our sale or disposition of all or substantially all of our assets, then upon
such adoption or approval all or a portion, in the sole discretion of the administrator,
of a holders unit options outstanding as of the date of that adoption or approval
shall be immediately and fully vested and exercisable and may be exercised within one year
from the date of that adoption or approval.

# ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.

# Transactions With
Management and Others

We have
no employees and are managed and controlled by our general partner. Pursuant to our
partnership agreement, our general partner is reimbursed for all direct and indirect
expenses incurred or payments made on our behalf, and all other necessary or appropriate
expenses allocable to us or otherwise reasonably incurred by our general partner in
connection with operating our business. These costs, which totaled $211.5 million for
fiscal year 2004, include compensation and benefits paid to employees of our general
partner who perform services on our behalf and related general and administrative costs.
In addition, the conveyance of the net assets of our general partner to us upon our
formation included the assumption of specific liabilities related to employee benefit and
incentive plans for the benefit of the officers and employees of our general partner who
perform services on our behalf, as well as related general and administrative costs.

Mr.
          Ferrell, the Chairman, Chief Executive Officer and President of our general
          partner, beneficially owns all of our outstanding senior units at July 31, 2004.
          During fiscal year 2004, we paid JEF Capital, an entity beneficially owned by
          Mr. Ferrell, $8.0 million in senior unit distributions. As of July 31, 2004, we
          had recognized a liability for a future senior unit distribution of $2.0 million
          that was thereafter paid to JEF Capital on September 14, 2004.

Ferrell
International is an entity beneficially owned by Mr. Ferrell. We enter into transactions from time to time,
with Ferrell International in accordance with our affiliate trading policy. These
transactions are required to be approved by our general partners Board of Directors
and include forward, option and swap contracts and are reviewed for compliance with the
policy. During fiscal year 2004, we recognized net purchases, sales and commodity
derivatives transactions of $0.3 million. These net purchases, sales and commodity
derivative transactions with Ferrell International are classified on our consolidated
statements of earnings as cost of product sold. We also provide limited accounting
services to Ferrell International. During fiscal year 2004, we recognized net receipts
from providing these limited accounting services of $40,000. Other than 75,000 barrels of
propane to be delivered from Ferrell International to the operating partnership, there
were no amounts due to or from Ferrell International at July 31, 2004. These barrels of
propane have an aggregate value of $2.1 million and are to be delivered to the operating
partnership in August 2004.

During
fiscal year 2004, Ferrellgas Partners paid common unit distributions of $35.6 million,
$0.1 million and $0.1 million, to Ferrell Companies, FCI Trading and Ferrell Propane
respectively. Also during fiscal year 2004, Ferrellgas Partners paid the general partner
distributions of $0.9 million.

During
fiscal year 2004, the operating partnership made limited partner distributions to
Ferrellgas Partners of $111.0 million and distributions to our general partner of $1.1
million.

We
believe these related party transactions were under terms that were no less favorable to
us than those available with third parties.

SeeNoteJ  Partners capital  to our consolidated financial
statements for discussions of additional transactions with management and others,
including transactions involving Ferrellgas Partners, FCI Trading, our general partner,
JEF Capital, Mr. Ferrell and Mr. Prim in connection with various issuances of common units
by Ferrellgas Partners on December 1, 2003, April 14, 2004 and April 21, 2004.Please also see Note L  Transactions with related parties  to our
consolidated financial statements for discussions of other related party transactions.

# Certain Business
Relationships

None.

# Indebtedness of
Management

None.

# Transactions With
Promoters

None.

# ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES

The following
table presents fees billed for professional audit services rendered by Deloitte &
Touche LLP for the audit of our annual financial statements and for other services for the
years ended July 31, 2004 and 2003.

|For the fiscal year ended July 31, | 2004 | 2003
|---------------------------------- | ---- | ----
|
|Audit fees                         |      |     
|Audit related fees (1)             |      |     
|Tax fees (2)                       |      |     
|All other fees (3)                 |      |     
|                                   |      |     
|Total                              |      |     
|                                   |      |     

|(1) |  | Audit fees consist of assurance and related services that are
               reasonably related to the performance of the audit or review of our financial
               statements. This category includes fees related to the review
               of our quarterly and other SEC filings and services related to internal
               control assessments.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Audit-related fees consist of due diligence fees associated with acquisition transactions, financial accoutings
and reporting consultations and benefit plan audits.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Tax fees consist of professional services rendered in connection with tax return
               reviews, research and consultation.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------

|(3) |  | All other fees consist of subscription fees related to a web-based research tool.
|--- |  | ---------------------------------------------------------------------------------

The
Audit Committee of our general partner reviewed and approved all audit and non-audit
services provided to us by Deloitte & Touche during fiscal year 2004 prior to the
commencement of such services. For information regarding the Audit Committee's pre-approval policies and procedures related to the engagement
by us of an independent accountant, see our Audit Committee charter on our website at www.ferrellgas.com.

# PART IV

# ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

|    |    |                                                                                                   
|--- | -- | --------------------------------------------------------------------------------------------------
|(a) | 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.                                          
|    |    |                                                                                                   

# (b) Reports on Form 8-K.

We filed six Form 8-Ks during
the fiscal quarter ended July 31, 2004.

|Date of Report | Items
Reported | Financial Statements Filed                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------------- | -------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|May 5, 2004    | 5              | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|June 8, 2004   | 5, 7, 12       | Selected  Financial results of Ferrellgas  Partners,  L.P. and its subsidiaries
on a consolidated basis, for its third quarter April 30, 2004.                                                                                                                                                                                                                                                                                                                            
|June 10, 2004  | 5, 7           | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|July 1, 2004   | 7              | Financial statement of business acquired - Blue Rhino Corporation and
subsidiaries condensed consolidated balance sheet, statement of
operations and cash flows; and pro forma condensed combined
statement of earnings of  Ferrellgas,  L.P. for the nine months ended April 30,
2004 and related  footnotes;  and,  pro forma  condensed  combined  statement of
earnings of Ferrellgas  Partners,  L.P. for the nine months ended April 30, 2004
and related footnotes.
|July 27, 2004  | 5, 7           | Unaudited interim balance sheets and footnotes of Ferrellgas, Inc.                                                                                                                                                                                                                                                                                                                                                                                                        
|July 28, 2004  | 5, 7           | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

We furnished two Form 8-K's during
the fiscal quarter ended July 31, 2004.

|Date of Report | Items
Reported | Financial Statements Furnished
|-------------- | -------------- | ------------------------------
|May 21, 2004   | 9              | None                          
|May 27, 2004   | 7, 9, 12       | None                          

The exhibits listed below are
furnished as part of this Annual Report on Form 10-K. Exhibits required by Item 601 of
Regulation S-K of the Securities Act, which are not listed, are not applicable.

|  |   | ExhibitNumber | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|- | - | ------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |   | 2.1           | Contribution Agreement dated February 8, 2004, by and among FCI Trading Corp.,
Ferrellgas, Inc., Ferrellgas Partners, L.P. and Ferrellgas, L.P.  Incorporated by
reference to Exhibit 2.1 to our Current Report on Form 8-K filed February 12, 2004.                                                                                                                                                                                                                                                           
|  |   | 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 4.3 to our
Current Report on Form 8-K filed February 18, 2003.                                                                                                                                                                                                                                                                                  
|  |   | 3.2           | Certificate of Incorporation for Ferrellgas Partners Finance Corp. Incorporated by
reference to the same numbered Exhibit to our Quarterly Report on Form 10-Q filed June
13, 1997.                                                                                                                                                                                                                                                                                                                            
|  |   | 3.3           | Bylaws of Ferrellgas Partners Finance Corp. Incorporated by reference to the same
 numbered Exhibit to our Quarterly Report on Form 10-Q filed June 13, 1997.                                                                                                                                                                                                                                                                                                                                                  
|  |   | 3.4           | Third Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P., dated
as of April 7, 2004. Incorporated by reference to Exhibit 3.1 to our Current Report on
Form 8-K filed April 22, 2004.                                                                                                                                                                                                                                                                                                   
|  |   | 3.5           | Certificate of Incorporation of Ferrellgas Finance Corp.  Incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K of Ferrellgas Partners, L.P. filed
February 18, 2003.                                                                                                                                                                                                                                                                                                                     
|  |   | 3.6           | Bylaws of Ferrellgas Finance Corp.  Incorporated by reference to Exhibit 4.2 to the
Current Report on Form 8-K of Ferrellgas Partners, L.P. filed February 18, 2003.                                                                                                                                                                                                                                                                                                                                           
|  |   | 4.1           | Specimen Certificate evidencing Common Units representing Limited Partner Interests
(contained in Exhibit 3.1 hereto as Exhibit A thereto).                                                                                                                                                                                                                                                                                                                                                                    
|  |   | 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 8 3/4% Senior Notes due 2012. Incorporated by
reference to Exhibit 4.1 to our Current Report on Form 8-K filed September 24, 2002.                                                                                                                                                                      
|  |   | 4.3           | Indenture, dated as of April 20, 2004, with form of Note attached, among Ferrellgas
Escrow LLC, Ferrellgas Finance Escrow Corporation, Ferrellgas, L.P., Ferrellgas Finance Corp. and U.S. Bank National
Association, as trustee, relating to 6 3/4% Senior Notes due 2014. Incorporated by
reference to Exhibit 4.1 to our Current Report on Form 8-K filed April 22, 2004.                                                                                                                                   
|  |   | 4.4           | Ferrellgas, L.P., Note Purchase Agreement, dated as of July 1, 1998, relating to:
$109,000,000 6.99% Senior Notes, Series A, due August 1, 2005, $37,000,000 7.08%
Senior Notes, Series B, due August 1, 2006, $52,000,000 7.12% Senior Notes, Series C,
due August 1, 2008, $82,000,000 7.24% Senior Notes, Series D, due August 1, 2010, and
$70,000,000 7.42% Senior Notes, Series E, due August 1, 2013.
Incorporated by reference to Exhibit 4.4 to our Annual Report on Form 10-K filed
October 29, 1998.
|  |   | 4.5           | Ferrellgas, L.P., Note Purchase Agreement, dated as of February 28, 2000, relating to:
 $21,000,000 8.68% Senior Notes, Series A, due August 1, 2006, $70,000,000 8.78% Senior
 Notes, Series B, due August 1, 2007, and $93,000,000 8.87% Senior Notes, Series C, due
 August 1, 2009.
 Incorporated by reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q filed
 March 16, 2000.                                                                                                                  
|  |   | 4.6           | 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 4.2 to our Current Report on Form 8-K filed December 29, 2000.                                                                                                                                                                                                                                                              
|  |   | 4.7           | First Amendment to the 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 4.1 to our Quarterly Report on Form 10-Q filed
March 16, 2000.                                                                                                                                                                                                                                          
|  |   | 4.8           | Second Amendment to the 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 10.3 to our Current Report on Form 8-K filed April 6, 2001.                                                                                                                                                                                                                                                 
|  |   | 4.9           | Representations Agreement, dated as of December 17, 1999, by and among Ferrellgas
Partners, L.P., Ferrellgas, Inc., Ferrellgas, L.P. and Williams Natural Gas Liquids,
Inc. Incorporated by reference to Exhibit 2.3 to our Current Report on Form 8-K filed
December 29, 1999.                                                                                                                                                                                                                                
|  |   | 4.10          | First Amendment to Representations Agreement, dated as of April 6, 2001, by and among
Ferrellgas Partners, L.P., Ferrellgas, Inc., Ferrellgas, L.P. and The Williams
Companies, Inc. Incorporated by reference to Exhibit 10.2 to our Current Report on
Form 8-K filed April 6, 2001.                                                                                                                                                                                                                          
|  |   | 4.11          | Waiver and Acknowledgement of No Material Event dated November 20, 2003, by and among
Ferrellgas Partners, L.P., Ferrellgas, L.P., Ferrellgas, Inc. and JEF Capital
Management, Inc.  Incorporated by reference to Exhibit 4.1 to our Current Report on
Form 8-K filed November 24, 2003.                                                                                                                                                                                                                      
|  |   | 4.12          | Extension of Waiver and Acknowledgement of No Material Event dated February 25, 2004,
by and among Ferrellgas Partners, L.P., Ferrellgas, L.P., Ferrellgas, Inc. and JEF
Capital Management, Inc. Incorporated by reference to 4.11 to our Quarterly Report on Form 10-Q filed on March 10, 2004.                                                                                                                                                                                                              
|  |   | 10.1          | Fourth Amended and Restated Credit Agreement, dated as of December 10, 2002, by and
among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America National Trust and Savings
Association, as agent, and the other financial institutions party hereto. Incorporated by
reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed December 11, 2002.                                                                                                                                                     
|  |   | 10.2          | First Amendment to the Fourth Amended and Restated Credit Agreement, dated as ofMarch 9, 2004, by and among Ferrellgas, L.P., Ferrellgas, Inc., Bank of AmericaNational Trust and Savings Association, as agent, and the lenders party to theoriginal agreement. Incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K/A filed April 2, 2004.                                                                                                                                            
|  | * | 10.3          | Second Amendment to the Fourth Amended and Restated Credit Agreement, dated as of September 3, 2004, by and among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America National Trust and Savings Association, as agent, and the lenders party to the original agreement.                                                                                                                                                                                                                                       
|  |   | 10.4          | Receivable Interest Sale Agreement, dated as of September 26, 2000, by and between
Ferrellgas, L.P., as originator, and Ferrellgas Receivables, L.L.C., as buyer.
Incorporated by reference to Exhibit 10.17 to our Annual Report on Form 10-K filed
October 26, 2000.                                                                                                                                                                                                                                         
|  |   | 10.5          | First Amendment to the Receivable Interest Sale Agreement dated as of
January 17, 2001, by and between Ferrellgas, L.P., as originator, and Ferrellgas
Receivables, L.L.C., as buyer. Incorporated by reference to Exhibit 10.5 to our
Quarterly Report on Form 10-Q filed March 14, 2001.                                                                                                                                                                                                                     
|  |   | 10.6          | Receivables Purchase Agreement, dated as of September 26, 2000, by and among
Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter
Securitization Corporation, the financial institutions from time to time party hereto,
and Bank One, NA, main office Chicago, as agent.  Incorporated by reference to Exhibit
10.18 to our Annual Report on Form 10-K filed October 26, 2000.                                                                                                   
|  |   | 10.7          | First Amendment to the Receivables Purchase Agreement, dated as of January 17, 2001,
by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer,
Jupiter Securitization Corporation, the financial institutions from time to time party
hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference
to Exhibit 10.4 to our Quarterly Report on Form 10-Q filed March 14, 2001.                                                                             
|  |   | 10.8          | Second Amendment to the Receivables Purchase Agreement dated as of September 25, 2001,
by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer,
Jupiter Securitization Corporation, the financial institutions from time to time party
hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference
to Exhibit 10.29 to our Annual Report on Form 10-K filed October 25, 2001.                                                                           
|  |   | 10.9          | Third Amendment to the Receivables Purchase Agreement, dated as of September 24, 2002,
 by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer,
 Jupiter Securitization Corporation, the financial institutions from time to time party
 hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by reference to Exhibit 10.11 to our Annual Report of Form 10-K filed October 23, 2002.                                                                          
|  |   | 10.10         | Fourth Amendment to the Receivables Purchase Agreement, dated as of September 23,
2003, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as
servicer, Jupiter Securitization Corporation, the financial institutions from time to
time party hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by
reference to Exhibit 10.8 to our Annual Report on Form 10-K filed October 21, 2003.                                                                             
|  |   | 10.11         | Fifth Amendment to the Receivables Purchase Agreement, dated as of September 21, 2004,
by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer,
Jupiter Securitization Corporation, the financial institutions from time to time party
hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed September 24, 2004.                                                                            
|  |   | 10.12         | Purchase Agreement, dated as of November 7, 1999, by and among Ferrellgas Partners,
L.P., Ferrellgas, L.P and Williams Natural Gas Liquids, Inc.  Incorporated by
reference to Exhibit 99.1 to our Current Report on Form 8-K filed November 12, 1999.                                                                                                                                                                                                                                                         
|  |   | 10.13         | First Amendment to Purchase Agreement, dated as of December 17, 1999, by and among
Ferrellgas Partners, L.P., Ferrellgas, L.P., and Williams Natural Gas Liquids, Inc.
Incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K filed
December 29, 1999.                                                                                                                                                                                                                                     
|  |   | 10.14         | Second Amendment to Purchase Agreement, dated as of March 14, 2000, by and among
Ferrellgas Partners, L.P., Ferrellgas L.P., and Williams Natural Gas Liquids, Inc.
Incorporated by reference to Exhibit 2.1 to our Quarterly Report on Form 10-Q file
March 16, 2000.                                                                                                                                                                                                                                         
|  |   | 10.15         | Third Amendment to Purchase Agreement dated as of April 6, 2001, by and among
Ferrellgas Partners, L.P., Ferrellgas L.P. and The Williams Companies, Inc.
Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K file
April 6, 2001.                                                                                                                                                                                                                                                      
|  |   | 10.16         | Agreement and Plan of Merger dated as of February 8, 2004, by and among Blue Rhino
Corporation, FCI Trading Corp., Diesel Acquisition, LLC and Ferrell Companies, Inc.
Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed
February 12, 2004.                                                                                                                                                                                                                                    
|  |   | 10.17         | First amendment to the Agreement and Plan of Merger, dated as of March 16, 2004, 
and among Blue Rhino Corporation, FCI Trading Corp., Diesel Acquisition, LLC, and
Ferrell Companies, Inc. Incorporated by reference to Exhibit 99.1 to our Current
Report on Form 8-K filed April 2, 2004.                                                                                                                                                                                                                   
|  |   | 10.18         | Real Property Contribution Agreement, dated February 8, 2004, between Ferrellgas
Partners, L.P. and Billy D. Prim. Incorporated by reference to Exhibit 10.15 to our Quarterly Report on Form 10-Q filed June 14, 2004.                                                                                                                                                                                                                                                                                        
|  |   | 10.19         | Unit Purchase Agreement, dated February 8, 2004, between Ferrellgas Partners, L.P. and
Billy D. Prim. Incorporated by reference to Exhibit 4.5 to our Form S-3 filed May 21,
2004.                                                                                                                                                                                                                                                                                                                             
|  |   | 10.20         | Unit Purchase Agreement dated February 8, 2004, between Ferrellgas Partners, L.P. and
James E. Ferrell.  Incorporated by reference to Exhibit 99.3 to our Current Report on
Form 8-K filed February 12, 2004.                                                                                                                                                                                                                                                                                                  
|# |   | 10.21         | Ferrell Companies, Inc. Supplemental Savings Plan, restated January 1, 2000.
Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed
February 18, 2003.                                                                                                                                                                                                                                                                                                                              
|# |   | 10.22         | Second Amended and Restated Ferrellgas Unit Option Plan. Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed June 5, 2001.                                                                                                                                                                                                                                                                                                                                                       
|# | * | 10.23         | Ferrell Companies, Inc. 1998 Incentive Compensation Plan - As Amended and Restated Effective as of October 11, 2004.                                                                                                                                                                                                                                                                                                                                                                                           
|# |   | 10.24         | Employment agreement between James E. Ferrell and Ferrellgas, Inc., dated July 31,
1998. Incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K
filed October 29, 1998.                                                                                                                                                                                                                                                                                                                  
|# | * | 10.25         | Amended and Restated Employment Agreement, dated October 11, 2004, by and among
Ferrellgas, Inc., Ferrell Companies, Inc. and Billy D. Prim.                                                                                                                                                                                                                                                                                                                                                                   
|# | * | 10.26         | Arrangement dated June 4, 2003, between Ron M. Logan, Jr. and Ferrellgas, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|# | * | 10.27         | Arrangement dated February 6, 2004, between Timothy E. Scronce and Ferrellgas, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                            
|  | * | 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, 2004.                                                                                                                                                                                                                                                                                 
|  | * | 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, 2004.                                                                                                                                                                                                                                                                          
|  | * | 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, 2004.                                                                                                                                                                                                                                                                                          
|  | * | 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, 2004.                                                                                                                                                                                                                                                                                  
|  | * | 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 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | * | 32.3          | Certification of Ferrellgas, L.P. pursuant to U.S.C. Section 1350                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  | * | 32.4          | Certification of Ferrellgas Finance Corp. pursuant to U.S.C. Section 1350                                                                                                                                                                                                                                                                                                                                                                                                                                      

*
Filed herewith

#
      Management contracts or compensatory plans.

# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

| |                                                                 
| | ----------------------------------------------------------------
| | FERRELLGAS PARTNERS, L.P.
By Ferrellgas, Inc. (General Partner) 
| | By      /s/ James. E. Ferrell                                   
| | James E. Ferrell
Chairman, President and
Chief Executive Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons in the capacities and on the dates indicated:

|Signature                | Title                                                          | Date    
|------------------------ | -------------------------------------------------------------- | --------
|/s/ James. E. Ferrell    | Chairman, President and                                        | 10/13/04
|James E. Ferrell         | Chief Executive Officer
(Principal Executive Officer)          |         
|/s/ William K. Hoskins   | Director                                                       | 10/13/04
|William K. Hoskins       |                                                                |         
|/s/ A. Andrew Levison    | Director                                                       | 10/13/04
|A. Andrew Levison        |                                                                |         
|/s/ John R. Lowden       | Director                                                       | 10/13/04
|John R. Lowden           |                                                                |         
|/s/ Michael F. Morrissey | Director                                                       | 10/13/04
|Michael F. Morrissey     |                                                                |         
|/s/ Billy D. Prim        | Director                                                       | 10/13/04
|Billy D. Prim            |                                                                |         
|/s/ Elizabeth T. Solberg | Director                                                       | 10/13/04
|Elizabeth T. Solberg     |                                                                |         
|/s/ Kevin T. Kelly       | Senior Vice President and Chief                                | 10/13/04
|Kevin T. Kelly           | Financial Officer (Principal
Financial and Accounting Officer) |         

# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

| |                                                       
| | ------------------------------------------------------
| | FERRELLGAS PARTNERS FINANCE CORP.                     
| | By      /s/ James. E. Ferrell                         
| | James E. Ferrell
President and Chief Executive Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons in the capacities and on the dates indicated:

|Signature             | Title                                                                                  | Date    
|--------------------- | -------------------------------------------------------------------------------------- | --------
|/s/ James. E. Ferrell | President and Chief Executive                                                          | 10/13/04
|James E. Ferrell      | Officer (Principal Executive Officer)                                                  |         
|/s/ Kevin T. Kelly    | Senior Vice President,                                                                 | 10/13/04
|Kevin T. Kelly        | Chief Financial Officer and sole
director (Principal Financial and
Accounting Officer) |         

Supplemental Information
to be Furnished  With Reports Filed  Pursuant to Section 15(d) of the Act by Registrants
 Which Have Not     Registered Securities Pursuant to Section 12 of the Act

Ferrellgas
Partners Finance Corp. has not registered securities pursuant to Section 12 of the
Securities Act and files reports pursuant to Section 15(d) of the Securities Act. As of
the date of filing of this Annual Report on Form 10-K, no annual report or proxy material
has been sent to the holders of the securities of Ferrellgas Partners Finance Corp.,
however, a copy of this Annual Report will be furnished to the holders of the securities
of Ferrellgas Partners Finance Corp. subsequent to the date of filing of this Annual
Report.

# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

| |                                                                 
| | ----------------------------------------------------------------
| | FERRELLGAS, L.P.
By Ferrellgas, Inc. (General Partner)          
| | By      /s/ James. E. Ferrell                                   
| | James E. Ferrell
Chairman, President and
Chief Executive Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons in the capacities and on the dates indicated:

|Signature                | Title                                                          | Date    
|------------------------ | -------------------------------------------------------------- | --------
|/s/ James. E. Ferrell    | Chairman, President and                                        | 10/13/04
|James E. Ferrell         | Chief Executive Officer
(Principal Executive Officer)          |         
|/s/ William K. Hoskins   | Director                                                       | 10/13/04
|William K. Hoskins       |                                                                |         
|/s/ A. Andrew Levison    | Director                                                       | 10/13/04
|A. Andrew Levison        |                                                                |         
|/s/ John R. Lowden       | Director                                                       | 10/13/04
|John R. Lowden           |                                                                |         
|/s/ Michael F. Morrissey | Director                                                       | 10/13/04
|Michael F. Morrissey     |                                                                |         
|/s/ Billy D. Prim        | Director                                                       | 10/13/04
|Billy D. Prim            |                                                                |         
|/s/ Elizabeth T. Solberg | Director                                                       | 10/13/04
|Elizabeth T. Solberg     |                                                                |         
|/s/ Kevin T. Kelly       | Senior Vice President and Chief                                | 10/13/04
|Kevin T. Kelly           | Financial Officer (Principal
Financial and Accounting Officer) |         

# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

| |                                                       
| | ------------------------------------------------------
| | FERRELLGAS FINANCE CORP.                              
| | By      /s/ James. E. Ferrell                         
| | James E. Ferrell
President and Chief Executive Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons in the capacities and on the dates indicated:

|Signature             | Title                                                                                  | Date    
|--------------------- | -------------------------------------------------------------------------------------- | --------
|/s/ James. E. Ferrell | President and Chief Executive                                                          | 10/13/04
|James E. Ferrell      | Officer (Principal Executive Officer)                                                  |         
|/s/ Kevin T. Kelly    | Senior Vice President,                                                                 | 10/13/04
|Kevin T. Kelly        | Chief Financial Officer and sole
director (Principal Financial and
Accounting Officer) |         

INDEX TO FINANCIAL
STATEMENTS

Ferrellgas Partners, L.P.
and Subsidiaries

| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Independent Registered Public Accounting Firm's Report                                 
| | Consolidated Balance Sheets - July 31, 2004 and 2003                                   
| | Consolidated Statements of Earnings - Years ended July 31, 2004, 2003 and 2002         
| | Consolidated Statements of Partners' Capital - Years ended July 31, 2004, 2003 and 2002
| | Consolidated Statements of Cash Flows - Years ended July 31, 2004, 2003 and 2002       
| | Notes to Consolidated Financial Statements                                             

Ferrellgas Partners
Finance Corp.

| |                                                                              
| | -----------------------------------------------------------------------------
| | Independent Registered Public Accounting Firm's Report                       
| | Balance Sheets - July 31, 2004 and 2003                                      
| | Statements of Earnings - Years ended July 31, 2004, 2003 and 2002            
| | Statements of Stockholder's Equity - Years ended July 31, 2004, 2003 and 2002
| | Statements of Cash Flows - Years ended July 31, 2004, 2003 and 2002          
| | Notes to Financial Statements                                                

Ferrellgas, L.P. and
Subsidiaries

| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Independent Registered Public Accounting Firm's Report                                 
| | Consolidated Balance Sheets - July 31, 2004 and 2003                                   
| | Consolidated Statements of Earnings - Years ended July 31, 2004, 2003 and 2002         
| | Consolidated Statements of Partners' Capital - Years ended July 31, 2004, 2003 and 2002
| | Consolidated Statements of Cash Flows - Years ended July 31, 2004, 2003 and 2002       
| | Notes to Consolidated Financial Statements                                             

Ferrellgas Finance Corp.

| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Independent Registered Public Accounting Firm's Report                                              
| | Balance Sheets - July 31, 2004 and 2003                                                             
| | Statements of Earnings - Year ended July 31, 2004 and from inception until July 31, 2003            
| | Statements of Stockholder's Equity - Year ended July 31, 2004 and from inception until July 31, 2003
| | Statements of Cash Flows - Year ended July 31, 2004 and from inception until July 31, 2003          
| | Notes to Financial Statements                                                                       

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Ferrellgas Partners, L.P.
and SubsidiariesLiberty, Missouri

We have audited the accompanying
consolidated balance sheets of Ferrellgas Partners, L.P. and subsidiaries (the
Partnership) as of July 31, 2004 and 2003, and the related consolidated
statements of earnings, partners capital and cash flows for each of the three years
in the period ended July 31, 2004. These financial statements are the responsibility of
the Partnerships management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance
with standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 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
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated
financial statements present fairly, in all material respects, the financial position of
Ferrellgas Partners, L.P. and subsidiaries as of July 31, 2004 and 2003, and the results
of their operations and their cash flows for each of the three years in the period ended
July 31, 2004, in conformity with accounting principles generally accepted in the United
States of America.

As discussed in Note B(11) to the
consolidated financial statements, the Partnership changed its method of accounting for
asset retirement obligations with the adoption of Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations, in
fiscal 2003 and, as discussed in Note B(8) to the consolidated financial statements,
changed its method of accounting for goodwill and other intangible assets with the
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets in fiscal 2002.

/s/ DELOITTE & TOUCHE LLP

Kansas City, MissouriOctober
12, 2004

# FERRELLGAS PARTNERS,
L.P. AND SUBSIDIARIES

# CONSOLIDATED BALANCE
SHEETS (in thousands, except unit data)

|                                                          |  | 
|--------------------------------------------------------- |  | 
|
|                                                          |  | 
|                                                          |  | 
|                                                          |  | 
|ASSETS                                                    |  | 
|                                                          |  | 
|                                                          |  | 
|Current assets:                                           |  | 
|Cash and cash equivalents                                 |  | 
|Accounts and notes receivable (net of                     |  | 
|allowance for doubtful accounts of $2,523 and             |  | 
|$2,672 in 2004 and 2003, respectively)                    |  | 
|Inventories                                               |  | 
|Prepaid expenses and other current assets                 |  | 
|                                                          |  | 
|                                                          |  | 
|Total current assets                                      |  | 
|Property, plant and equipment, net                        |  | 
|Goodwill                                                  |  | 
|Intangible assets, net                                    |  | 
|Other assets, net                                         |  | 
|                                                          |  | 
|Total assets                                              |  | 
|                                                          |  | 
|LIABILITIES AND PARTNERS' CAPITAL                         |  | 
|                                                          |  | 
|Current liabilities:                                      |  | 
|Accounts payable                                          |  | 
|Other current liabilities                                 |  | 
|                                                          |  | 
|Total current liabilities                                 |  | 
|Long-term debt                                            |  | 
|Other liabilities                                         |  | 
|Contingencies and commitments (Note M)                    |  | 
|Minority interest                                         |  | 
|Partners' capital:                                        |  | 
|Senior unitholder (1,994,146 units outstanding and        |  | 
|liquidation preference $79,766 at both 2004 and 2003)     |  | 
|Common unitholders (48,772,875 and 37,673,455 units       |  | 
|outstanding at 2004 and 2003, respectively)               |  | 
|General partner (512,798 and 400,683 units outstanding at |  | 
|2004 and 2003, respectively)                              |  | 
|Accumulated other comprehensive income (loss)             |  | 
|                                                          |  | 
|Total partners' capital                                   |  | 
|                                                          |  | 
|Total liabilities and partners' capital                   |  | 
|                                                          |  | 
|                                                          |  | 
|                                                          |  | 

See notes to
consolidated financial statements





# FERRELLGAS PARTNERS,
L.P. AND SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF EARNINGS (in thousands, except per unit data)

|                                                     | For the year ended July 31,
|---------------------------------------------------- | ---------------------------
|
|                                                     |                            
|                                                     |                            
|                                                     |                            
|                                                     |                            
|Revenues:                                            |                            
|Propane and other gas liquids sales                  |                            
|Other                                                |                            
|                                                     |                            
|Total revenues                                       |                            
|Cost of product sold (exclusive of                   |                            
|depreciation, shown with amortization below)         |                            
|                                                     |                            
|Gross profit                                         |                            
|Operating expense                                    |                            
|Depreciation and amortization expense                |                            
|General and administrative expense                   |                            
|Equipment lease expense                              |                            
|Employee stock ownership plan compensation charge    |                            
|Loss on disposal of assets and other                 |                            
|                                                     |                            
|Operating income                                     |                            
|Interest expense                                     |                            
|Interest income                                      |                            
|Early extinguishment of debt expense                 |                            
|                                                     |                            
|Earnings before income taxes, minority interest and  |                            
|cumulative effect of change in accounting principle  |                            
|Income tax benefit                                   |                            
|Minority interest                                    |                            
|                                                     |                            
|Earnings before cumulative effect of change in       |                            
|accounting principle                                 |                            
|Cumulative effect of change in accounting principle, |                            
|net of minority interest of $28                      |                            
|                                                     |                            
|Net earnings                                         |                            
|Distribution to senior unitholder                    |                            
|Net earnings available to general partner unitholder |                            
|                                                     |                            
|Net earnings available to common unitholders         |                            
|                                                     |                            
|                                                     |                            
|Basic and diluted earnings per common unit           |                            
|Net earnings available to common unitholders before  |                            
|cumulative effect of change in accounting principle  |                            
|Cumulative effect of change in accounting principle  |                            
|                                                     |                            
|Net earnings available to common unitholders         |                            
|                                                     |                            

See notes to
consolidated financial statements.



# FERRELLGAS PARTNERS,
L.P. AND SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF PARTNERS CAPITAL(in thousands)

|                                              | Number of units |  | Accumulated other
comprehensive income (loss) |        
|--------------------------------------------- | --------------- |  | --------------------------------------------- | -------
|
|August 1, 2001                                |                 |  |                                               | 2,801.6
|Contribution in connection with               |                 | 
|ESOP compensation charge                      |                 |  |                                               | -      
|Common unit cash distributions                |                 |  |                                               | -      
|Senior unit cash and accrued    distributions |                 |  |                                               | -      
|Redemption of senior units                    |                 |  |                                               | (19.4  
|Common unit options exercised                 |                 |  |                                               | -      
|Common units issued in connection             |                 | 
|with acquisitions                             |                 |  |                                               | -      
|Comprehensive income:                         |                 | 
|Net earnings                                  |                 |  |                                               | -      
|Other comprehensive income:                   |                 | 
|Net losses on risk management derivatives     |                 |  |                                               | -      
|Reclassification of net losses on             |                 | 
|derivatives                                   |                 |  |                                               | -      
|Pension liability adjustment                  |                 |  |                                               | -      
|                                              |                 |  |                                               |        
|Comprehensive income                          |                 |  |                                               | -      
|                                              |                 |  |                                               |        
|                                              |                 |  |                                               |        
|July 31, 2002                                 |                 |  |                                               | 2,782.2
|Contribution in connection with               |                 | 
|ESOP compensation charge                      |                 |  |                                               | -      
|Common unit cash distributions                |                 |  |                                               | -      
|Senior unit cash and accrued distributions    |                 |  |                                               | -      
|Redemption of senior units                    |                 |  |                                               | (788.1 
|Common units issued in public offering        |                 |  |                                               | -      
|Common unit options exercised                 |                 |  |                                               | -      
|Common units issued in connection             |                 | 
|with acquisitions                             |                 |  |                                               | -      
|Comprehensive income:                         |                 | 
|Net earnings                                  |                 |  |                                               | -      
|Other comprehensive income:                   |                 | 
|Net gains on risk management derivatives      |                 |  |                                               | -      
|Reclassification of net gains on              |                 | 
|derivatives                                   |                 |  |                                               | -      
|Pension liability adjustment                  |                 |  |                                               | -      
|                                              |                 |  |                                               |        
|                                              |                 |  |                                               |        
|Comprehensive income                          |                 |  |                                               | -      
|                                              |                 |  |                                               |        
|                                              |                 |  |                                               |        
|July 31, 2003                                 |                 |  |                                               | 1,994.1
|Contribution in connection with               |                 | 
|ESOP compensation charge                      |                 |  |                                               | -      
|Common unit cash distributions                |                 |  |                                               | -      
|Senior unit cash and accrued distributions    |                 |  |                                               | -      
|Common units issued in public offerings       |                 |  |                                               | -      
|Common units issued in private offerings      |                 |  |                                               | -      
|Common unit options exercised                 |                 |  |                                               | -      
|Common units issued in connection             |                 | 
|with acquisitions                             |                 |  |                                               | -      
|Common units issued to affiliate in           |                 | 
|connection with contribution of membership    |                 | 
|interests in Blue Rhino LLC                   |                 |  |                                               | -      
|Comprehensive income:                         |                 | 
|Net earnings                                  |                 |  |                                               | -      
|Other comprehensive income:                   |                 | 
|Net gains on risk management derivatives      |                 |  |                                               | -      
|Reclassification of net gains on              |                 | 
|derivatives                                   |                 |  |                                               | -      
|Foreign currency translation adjustments      |                 |  |                                               | -      
|Pension liability adjustment                  |                 |  |                                               | -      
|                                              |                 |  |                                               |        
|Comprehensive income                          |                 |  |                                               | -      
|                                              |                 |  |                                               |        
|                                              |                 |  |                                               |        
|July 31, 2004                                 |                 |  |                                               | 1,994.1
|                                              |                 |  |                                               |        

See notes to
consolidated financial statements.



# FERRELLGAS PARTNERS,
L.P. AND SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF CASH FLOWS(in thousands)

|                                                            | For the year ended July 31,
|----------------------------------------------------------- | ---------------------------
|
|                                                            |                            
|                                                            |                            
|                                                            |                            
|                                                            |                            
|                                                            |                            
|Cash flows from operating activities:                       |                            
|Net earnings                                                |                            
|Reconciliation of net earnings to net cash provided         |                            
|by operating activities:                                    |                            
|Cumulative effect of change in accounting principle         |                            
|Early extinguishment of debt expense                        |                            
|Depreciation and amortization expense                       |                            
|Employee stock ownership plan compensation charge           |                            
|Loss on disposal of assets                                  |                            
|Minority interest                                           |                            
|Other                                                       |                            
|Changes in operating assets and liabilities, net of effects |                            
|from business acquisitions:                                 |                            
|Accounts and notes receivable, net of securitization        |                            
|Inventories                                                 |                            
|Prepaid expenses and other current assets                   |                            
|Accounts payable                                            |                            
|Accrued interest expense                                    |                            
|Other current liabilities                                   |                            
|Other liabilities                                           |                            
|Accounts receivable securitization:                         |                            
|Proceeds from new accounts receivable securitizations       |                            
|Proceeds from collections reinvested in revolving           |                            
|period accounts receivable securitizations                  |                            
|Remittances of amounts collected as servicer of             |                            
|accounts receivable securitizations                         |                            
|                                                            |                            
|Net cash provided by operating activities                   |                            
|                                                            |                            
|Cash flows from investing activities:                       |                            
|Cash paid for assumed merger and related obligations        |                            
|Business acquisitions, net of cash acquired                 |                            
|Cash paid for acquisition transaction fees                  |                            
|Capital expenditures - tank lease buyout                    |                            
|Capital expenditures - technology initiative                |                            
|Capital expenditures - other                                |                            
|Other                                                       |                            
|                                                            |                            
|Net cash used in investing activities                       |                            
|                                                            |                            
|Cash flows from financing activities:                       |                            
|Distributions                                               |                            
|Issuance of common units, net of issuance costs of          |                            
|$676 and $195 in 2004 and 2003, respectively                |                            
|Proceeds from issuance of debt                              |                            
|Principal payments on debt                                  |                            
|Net reductions to short-term borrowings                     |                            
|Redemption of senior units                                  |                            
|Cash paid for financing costs                               |                            
|Minority interest activity                                  |                            
|Proceeds from exercise of common unit options               |                            
|Cash contribution from general partner                      |                            
|                                                            |                            
|Net cash provided by (used in) financing activities         |                            
|                                                            |                            
|Effect of exchange rate changes on cash                     |                            
|Increase (decrease) in cash and cash equivalents            |                            
|Cash and cash equivalents - beginning of year               |                            
|                                                            |                            
|Cash and cash equivalents - end of year                     |                            
|                                                            |                            
|Supplemental disclosures of cash flow information:          |                            
|Cash paid for:                                              |                            
|Interest                                                    |                            
|                                                            |                            
|Income taxes                                                |                            
|                                                            |                            

See notes to
consolidated financial statements.



# FERRELLGAS
PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Dollars
in thousands, except per unit data, unless otherwise designated)

A.    
Partnership organization and formation

Ferrellgas Partners, L.P. (Ferrellgas
Partners) was formed April 19, 1994, and is a publicly traded limited partnership,
owning a 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 respective partnership
agreements. Ferrellgas Partners was formed to acquire and hold a limited partner interest
in the operating partnership. The operating partnership was formed to acquire, own and
operate the propane business and assets of Ferrellgas, Inc. (general partner),
a wholly-owned subsidiary of Ferrell Companies, Inc. (Ferrell Companies).
Ferrell Companies beneficially owns 18.1 million of the outstanding Ferrellgas Partners
common units. The general partner has retained a 1% general partner interest in
Ferrellgas Partners and also holds a 1.0101% general partner interest in the operating
partnership, representing an effective 2% general partner interest in Ferrellgas on a
combined basis. As general partner, it performs all management functions required by
Ferrellgas.

On July 17, 1998, 100% of the
outstanding common stock of Ferrell Companies was purchased primarily from Mr. James E.
Ferrell (Mr. Ferrell) and his family by a newly created leveraged employee
stock ownership trust (ESOT) established pursuant to the Ferrell Companies
Employee Stock Ownership Plan (ESOP). The purpose of the ESOP is to provide
employees of the general partner an opportunity for ownership in Ferrell Companies and
indirectly in Ferrellgas. As contributions are made by Ferrell Companies to the ESOT in
the future, shares of Ferrell Companies are allocated to the employees ESOP
accounts.

On December 17, 1999, Ferrellgas
Partners partnership agreement was amended, in connection with an acquisition, to
allow for the issuance of a newly created senior unit. Generally, these senior units were
to be paid quarterly distributions in additional senior units equal to 10% per annum.
Also, the senior units were structured to allow for a redemption by Ferrellgas Partners
at any time, in whole or in part, upon payment in cash of the liquidating value of the
senior units, currently $40 per unit, plus the amount of any accrued and unpaid
distributions. The holder of the senior units also had the right, at dates in the future
and subject to certain events and conditions, to convert any outstanding senior units
into common units.

On June 5, 2000, Ferrellgas Partners partnership
agreement was amended to allow the general partner to have an option in maintaining its
1% general partner interest in Ferrellgas Partners concurrent with the issuance of other
additional equity. Prior to this amendment, the general partner was required to make
capital contributions to Ferrellgas Partners to maintain its 1% general partner interest
concurrent with the issuance of any additional Ferrellgas Partners equity. Also as part
of this amendment, the general partner interest in Ferrellgas Partners became
represented by newly created general partner units.

On April 6, 2001, Ferrellgas Partners partnership
agreement was amended to reflect modifications made to the senior units, previously
issued on December 17, 1999, and the common units owned by Ferrell Companies. The senior
units are to be paid quarterly distributions in cash equivalent to 10% per annum of their
liquidation value, or $4 per senior unit. The amendment also granted the holder of the
senior units the right to convert any outstanding senior units into common units
beginning on the earlier of December 31, 2005 or upon the occurrence of a material
event as such term is defined by Ferrellgas Partners partnership agreement.
The number of common units issuable upon conversion of a senior unit is equal to the
senior unit liquidation value, currently $40 per unit plus any accrued and unpaid
distributions, divided by the then current market price of a common unit. Generally, a
material event includes (1) a change of control; (2) the treatment of Ferrellgas Partners
as an association taxable as a corporation for federal income tax purposes; (3)
Ferrellgas Partners failure to use the aggregate cash proceeds from equity
issuances after December 31, 2004, other than issuances of equity pursuant to an exercise
of any common unit options, to redeem a portion of its senior units other than up to $20
million of cash proceeds from equity issuances used to reduce Ferrellgas indebtedness;
or (4) Ferrellgas Partnersfailure to pay the senior unit distribution in full for
any fiscal quarter. Also as part of the amendment, Ferrell Companies granted Ferrellgas
Partners the ability, until December 31, 2005, to defer future distributions on the
common units held by it, up to an aggregate outstanding amount of $36.0 million. There
have been no deferrals to date.

B.    
Summary of significant accounting policies

(1)        Nature of operations:Ferrellgas Partners is a holding entity that conducts no
operations and has two subsidiaries, Ferrellgas Partners Finance Corp. and the
operating partnership. Ferrellgas Partners owns a 100% equity interest in
Ferrellgas Partners Finance Corp. No operations are conducted by or through
Ferrellgas Partners Finance Corp., whose only purpose is to act as the co-issuer
and co-obligor of any debt issued by Ferrellgas Partners. The operating
partnership is the only operating subsidiary of Ferrellgas Partners.

The operating partnership is engaged
primarily in the distribution of propane and related equipment and supplies in the United
States. The propane distribution market is seasonal because propane is used primarily for
heating in residential and commercial buildings. The operating partnership serves more
than one million residential, industrial/commercial, portable tank exchange, agricultural
and other customers. As of April 21, 2004, the operating partnership became the leading
provider of portable tank exchange see Note C  Business combinations  for
additional discussion about the Blue Rhino contribution.

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

(3)        Principles of consolidation:The accompanying consolidated financial statements
include Ferrellgas Partners accounts and those of its wholly-owned
subsidiary Ferrellgas Partners Finance Corp. and the operating partnership, its
majority-owned subsidiary, after elimination of all material intercompany
accounts and transactions. The accounts of Ferrellgas Partners
majority-owned subsidiary are included based on the determination that
Ferrellgas Partners possesses a controlling financial interest through a direct
ownership of a 98.9899% voting interest and its ability to exert control over
the operating partnership. The operating partnership includes the accounts of
its wholly-owned subsidiaries and one 50% owned subsidiary based on its ability
to exert control over this subsidiary. The general partners 1.0101%
general partner interest in the operating partnership is accounted for as a
minority interest. The wholly-owned unconsolidated subsidiary of the operating
partnership, Ferrellgas Receivables, LLC (Ferrellgas Receivables),
is a qualifying special purpose entity.

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

(5)        Inventories:Inventories are stated at the lower of cost or market using
weighted average cost and actual cost methods. Ferrellgas enters into commodity
derivative contracts involving propane and related products to hedge, reduce
risk and anticipate market movements. The fair value of these derivative
contracts is classified as inventory.

(6)        Accounts receivable securitization:Ferrellgas has agreements to transfer, on
an ongoing basis, certain of its trade accounts receivable through an accounts
receivable securitization facility and retains servicing responsibilities as
well as a retained interest related to a portion of the transferred receivables.
Ferrellgas accounts for the securitization of accounts receivable in accordance
with Statement of Financial Accounting Standards (SFAS) No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. As a result, the related receivables are
removed from the consolidated balance sheet and a retained interest is recorded
for the amount of receivables sold in excess of cash received. The retained
interest is included in Accounts and notes receivable in the
consolidated balance sheets.

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

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

(8)        Goodwill:Goodwill is not amortized and is tested for impairment each January
31 on an annual basis or more frequently if circumstances dictate. Beginning in the first quarter of fiscal year 2002, Ferrellgas adopted
 SFAS No. 142 Goodwill and Other Intangible Assets
which modified the financial accounting and reporting for acquired goodwill and other intangible assets, including the
requirement that goodwill and some intangible assets no longer be amortzied. Ferrellgas
did not recognize any impairment losses as a result of these tests. Ferrellgas
assesses the carrying value of goodwill at a reporting unit level, at least
annually, based on an estimate of the fair value of the respective reporting
unit. Fair value of the reporting unit is estimated using a market value
approach taking into consideration the quoted market price of Ferrellgas
common units. For purposes of Ferrellgas goodwill impairment test,
Ferrellgas has determined that it has one reporting unit.

(9)        Intangible assets:Intangible assets with definitive lives, consisting
primarily of customer lists, noncompete agreements and patented technology, are
stated at cost, net of amortization calculated using either straight-line or
accelerated methods over periods ranging from two to 15 years. Tradenames and
trademarks have indefinite lives and are not amortized, are also stated at cost.
Ferrellgas reviews identifiable intangibles for impairment in a similar manner
as with long-lived assets. Ferrellgas, using its best estimates based on
reasonable and supportable assumptions and projections, reviews long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of its assets might not be recoverable. When necessary, the
intangible assets useful lives are revised and the impact on amortization
will be reflected on a prospective basis. See Note G  Intangible assets,
net  for further discussion of intangible assets.

(10)        Accounting for derivative commodity contracts:Ferrellgas enters into commodity
options and swaps involving propane to specifically hedge certain price risks.
Any changes in the fair value of these specific cash flow hedge positions are
deferred and included in other comprehensive income and recognized as an
adjustment to cost of product sold in the month the forecasted price risk is
settled. Ferrellgas also enters into other commodity forward and futures
purchase/sale agreements and commodity swaps and options involving propane and
related products, which are not designated as hedges to a certain product cost
risk, but are used for risk management purposes. To the extent such contracts
are entered into at fixed prices and thereby subject Ferrellgas to market risk,
the contracts are accounted for using the fair value method. Under this
valuation method, derivatives are carried on the consolidated balance sheets at
fair value with changes in that value recognized in earnings. Ferrellgas
classifies all gains and losses from these derivative commodity contracts
entered into for product risk management purposes as cost of product sold in the
consolidated statements of earnings. See Note K  Derivatives  for
further discussion about these transactions.

(11)       Asset retirement obligation:SFAS No. 143
"Accounting for Asset Retirement Obligations" provides accounting requirements for
retirement obligations associated with tangible long-lived assets, including the
requirement that a liability be recognized if there is a legal or financial
obligation associated with the retirement of the assets. Ferrellgas adopted SFAS
No. 143 beginning in fiscal year 2003. This cumulative effect of a change in
accounting principle resulted in a one-time charge to earnings of $2.8 million
during fiscal year 2003, together with the recognition of a $3.1 million
long-term liability and a $0.3 million long-term asset. Ferrellgas believes the
implementation will not have a material ongoing effect on its consolidated financial
position, results of operations and cash flows. These obligations relate
primarily to the estimated future expenditures required to retire
Ferrellgas underground storage facilities. The remaining period until
these facilities will require closure and remediation expenditures is
approximately 50 years.

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

(13)        Shipping
and handling expenses:Shipping and handling expenses related to
delivery personnel, vehicle repair and maintenance and general
liability expenses are classified within operating expense on the
statement of earnings. Depreciation expenses on delivery vehicles
Ferrellgas owns are classified within depreciation and amortization
expense. Lease expenses on delivery vehicles Ferrellgas leases are
classified within equipment lease expense. See Note E  Supplemental
financial statement information  for the financial statement
presentation of shipping and handling expenses.

(14)        Cost of product sold:Cost of product sold includes all costs to acquire
propane, other gas liquids and non-gas items, including the results from all
risk management activities and the costs of storing and transporting inventory
prior to delivery to Ferrellgas customers. Cost of product sold also
includes costs related to the refurbishment of Ferrellgas portable propane
tanks.

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

(16)        Income taxes:Ferrellgas Partners is a limited partnership with one subsidiary
that is a taxable corporation. The operating partnership is a limited
partnership with seven subsidiaries that are taxable corporations. As a result,
except for the taxable corporations, Ferrellgas Partners earnings or
losses for Federal income tax purposes are included in the tax returns of the
individual partners, Ferrellgas Partners unitholders. Accordingly, except
for the effect from the taxable corporations, no recognition has been given to
income taxes in the accompanying consolidated financial statements of
Ferrellgas. Net earnings for financial statement purposes may differ
significantly from taxable income reportable to Ferrellgas Partners unitholders
as a result of differences between the tax basis and financial reporting basis
of assets and liabilities and the taxable income allocation requirements under
Ferrellgas Partners partnership agreement.

(17)        Net earnings per common unit:Net earnings per common unit is computed by
dividing net earnings, after deducting the general partners 1% interest
and accrued and paid senior unit distributions, by the weighted average number
of outstanding common units and the dilutive effect, if any, of outstanding unit
options. There was a less than $0.01 effect on the dilutive earnings per unit
calculation when making the assumption that all outstanding unit options were
exercised into common units. See Note Q  Earnings per common unit 
for further discussion about these calculations.

(18)        Unit and stock-based compensation:Ferrellgas accounts for the Ferrellgas Unit
Option Plan (unit option plan) and the Ferrell Companies, Inc.
Incentive Compensation Plan (ICP) using the intrinsic value method
under the provisions of Accounting Principles Board (APB) No. 25,
Accounting for Stock Issued to Employees, for all periods presented
and makes the fair value method pro forma disclosures required under the
provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
as amended by SFAS No. 148 Accounting for Stock-Based Compensation 
Transition and Disclosure. Accordingly, no compensation cost has been
recognized for the unit option plan, or for the ICP. Had compensation cost for
these plans been determined based upon the fair value at the grant date for
awards under these plans, consistent with the methodology prescribed under SFAS
No. 123, Ferrellgas net earnings and earnings per unit would have been
adjusted as noted in the table below:

|                                                       | 2004 | 2003 | 2002
|------------------------------------------------------ | ---- | ---- | ----
|Net earnings available to common unitholders,          |      |      |     
|as reported                                            |      |      | $   
|Deduct: Total stock-based employee                     |      |     
|compensation expenses determined under fair            |      |     
|value based method for all awards                      |      |      |     
|                                                       |      |      |     
|                                                       |      |      |     
|Pro forma net earnings available to common unitholders |      |      | $   
|                                                       |      |      |     
|                                                       |      |      |     
|Basic and diluted earnings per common unit:            |      |     
|Net earnings available to common unitholders before    |      |     
|cumulative effect of change in accounting              |      |     
|principle, as reported                                 |      |      | $   
|Net earnings available to common unitholders, as       |      |     
|reported                                               |      |      |     
|Net earnings available to common unitholders before    |      |     
|cumulative effect of change in accounting              |      |     
|principle, pro forma                                   |      |      |     
|Net earnings available to common unitholders, pro      |      |     
|forma                                                  |      |      |     

The fair value of the ICP stock
options granted during the 2004, 2003 and 2002 fiscal years were determined using a
binomial option valuation model with the following assumptions: a) a one percent
dividend, b) average stock price volatility of 17.9%, 18.6% and 19.2% used in 2004, 2003
and 2002, respectively, c) the risk-free interest rate used was 3.8%, 4.0% and 4.3% in
2004, 2003 and 2002, respectively and d) expected life of the options between five and 12
years.

See Note O  Unit options of
Ferrellgas Partners and stock options of Ferrell Companies  for further discussion
and disclosure of stock-based compensation.

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

(20)       Adoption of new accounting standards:The Financial Accounting Standards Board
(FASB) recently issued SFAS No. 150 Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,
FASB Financial Interpretation No. 46 Consolidation of Variable Interest
Entities, Emerging Issues Task Force (EITF) 00-21
Accounting for Revenue Arrangements with Multiple Deliverables and
SFAS No. 132R Employers Disclosures about Pensions and Other
Postretirement Benefits.

SFAS No. 150 establishes standards
for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity. This
statement is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective for fiscal year 2004. SFAS No. 150 did not have a
material effect on Ferrellgas consolidated financial position, results of operations and cash
flows.

FASB Financial Interpretation No. 46
(FIN 46) clarifies Accounting Research Bulletin No. 51, Consolidated
Financial Statements. If certain conditions are met, this interpretation requires
the primary beneficiary to consolidate certain variable interest entities in which equity
investors lack the characteristics of a controlling financial interest or do not have
sufficient equity investment at risk to permit the variable interest entity to finance
its activities without additional subordinated financial support from other parties. In
December 2003, the FASB issued a revision to FIN 46, which addresses new effective dates
and certain implementation issues. The interpretation is generally effective for the
periods ending after December 15, 2003. Among these issues is the addition of a scope
exception for certain entities that meet the definition of a business, provided certain
criteria are met. Ferrellgas does not have any variable interest entities that would be
subject to this revised interpretation.

EITF No. 00-21 addresses how to
account for arrangements that may involve multiple revenue-generating activities, such as
the delivery or performance of multiple products, services, and/or rights to use assets.
In applying this guidance, separate contracts with the same party, entered into at or
near the same time, will be presumed to be a bundled transaction, and the consideration
will be measured and allocated to the separate units based on their relative fair values.
This consensus guidance is applicable to agreements entered into in quarters beginning
after June 15, 2003. Ferrellgas adopted this new accounting pronouncement beginning
August 1, 2003. The implementation of this pronouncement did not have a material impact
on Ferrellgas consolidated financial position, results of operations and cash flows, because it
does not enter into a significant number of arrangements that may involve multiple
revenue-generating activities.

SFAS No. 132R revises and improves
employers financial statement disclosures about defined benefit pension plans and
other postretirement benefit plans. This revised statement does not change the
measurement or recognition of those plans and retains the disclosures required by the
original SFAS No. 132. This revised statement also requires additional disclosures about
the assets, obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. This revised statement is
effective for fiscal year 2004. SFAS No. 132R did not have a material effect on Ferrellgas consolidated financial
position, results of operations and cash flows.

C.     Business
combinations

During the year ended July 31, 2004,
Ferrellgas completed one material business combination and ten smaller business
combinations. Each of the business combinations was accounted for under the purchase
method and the assets acquired and liabilities assumed were recorded at their estimated
fair market values as of the acquisition date. The preliminary allocation of assets and
liabilities may be adjusted to reflect the final determined amounts during a period of
time following each business combination. The Blue Rhino contribution allocation is
preliminary pending the completion of the valuation of tangible and intangible assets and
the calculation of other costs. The results of operations from these business
combinations are included in Ferrellgas consolidated financial statements from the
date of the business combinations.

|                        | Allocation of Purchase Price
|----------------------- | ----------------------------
|
|Blue Rhino (April 2004) |                             
|                        |                             
|Others (various)        |                             
|                        |                             
|                        |                             
|                        |                             

Intangible assets subject to
amortization include:

| | o |  | $95.5
million assigned to customer lists, to be amortized over 15 years;
| | - |  | ------------------------------------------------------------------------

| | o |  | $3.3
million assigned to non-compete agreements, to be amortized over three years; and
| | - |  | --------------------------------------------------------------------------------------

| | o |  | others
totaling $6.3 million to be amortized over a weighted average period of seven years.
| | - |  | -------------------------------------------------------------------------------------------

Intangible assets not subject to
amortization include $59.0 million assigned to tradenames and trademarks.

The other ten smaller propane
distribution businesses acquired during the year ended July 31, 2004, included the
following:

| | o |  | Chapman's
Propane Co., Inc, based in Illinois, acquired August 2003;
| | - |  | --------------------------------------------------------------------

| | o |  | Bud's
Propane Service, Inc., based in Oregon, acquired September 2003;
| | - |  | ----------------------------------------------------------------------

| | o |  | Prairie
Land Coop, based in Iowa, acquired October 2003;
| | - |  | --------------------------------------------------------

| | o |  | Aeropres
Propane, Inc., based in Louisiana and Arkansas, acquired December 2003;
| | - |  | --------------------------------------------------------------------------------

| | o |  | Suburban
Propanes Midwest Retail Operations, based in Texas, Oklahoma, Missouri and Kansas,
acquired January 2004;
| | - |  | -------------------------------------------------------------------------------------------------------------------

| | o |  | Crows
LP Gas Co, based in Iowa, acquired March 2004;
| | - |  | -----------------------------------------------------

| | o |  | Hilltop
Supply Company, based in Southern California, acquired March 2004;
| | - |  | --------------------------------------------------------------------------

| | o |  | Blue
Ribbon Propane, based in Canada, acquired May 2004;
| | - |  | --------------------------------------------------------

| | o |  | C.
Barron & Sons, Inc., based in Michigan, acquired June 2004; and
| | - |  | ------------------------------------------------------------------

| | o |  | Tri-Counties
Gas Companies, based in Northern California, acquired July 2004.
| | - |  | -----------------------------------------------------------------------------

These purchases of the ten smaller
propane distribution businesses acquisitions were funded by $41.0 million in cash
payments, the issuance of 0.1 million common units valued at an aggregate of $1.5 million
and $0.8 million of notes payable to the seller. The estimated fair values and useful
lives of assets acquired are based on a preliminary valuation and are subject to final
valuation adjustments. Ferrellgas intends to continue its analysis of the net assets of
these acquired businesses to determine the final allocation of the total purchase price
to the various assets acquired.

Blue
Rhino contribution

On April 20, 2004, FCI Trading Corp.
(FCI Trading), an affiliate of the general partner, acquired all of the
outstanding common stock of Blue Rhino Corporation in an all-cash merger. Pursuant to an
Agreement and Plan of Merger dated February 8, 2004, a subsidiary of FCI Trading merged
with and into Blue Rhino Corporation whereby the then current stockholders of Blue Rhino
Corporation were granted the right to receive a payment from FCI Trading of $17.00 in
cash for each share of Blue Rhino Corporation common stock outstanding on April 20, 2004.
FCI Trading thereafter became the sole stockholder of Blue Rhino Corporation and
immediately after the merger, FCI Trading converted Blue Rhino Corporation into a limited
liability company, Blue Rhino LLC.

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

|                                                                    | 
|------------------------------------------------------------------- | 
|Assumption of obligations under the contribution agreement          | 
|Common units and general partner interest issued                    | 
|Assumption of Blue Rhino's bank credit facility outstanding balance | 
|Assumption of other liabilities and acquisition costs               | 
|                                                                    | 
|                                                                    | 
|                                                                    | 
|                                                                    | 

In consideration of this
contribution, Ferrellgas Partners issued 0.2 million common units to FCI Trading. Both
Ferrellgas Partners and FCI Trading have agreed to indemnify the general partner from any
damages incurred by the general partner in connection with the assumption of any of the
obligations described above. Also on April 21, 2004, subsequent to the contribution
described above, Blue Rhino LLC merged with and into the operating partnership. The
former operations of Blue Rhino LLC will hereafter be referred to as Blue Rhino.

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

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

Ferrellgasvaluation of the
tangible and intangible assets of the Blue Rhino contribution resulted in the recognition
of goodwill of $137.3 million. This preliminary valuation of goodwill was based on
Ferrellgas belief that the contributions of Blue Rhino will be beneficial to
Ferrellgas and Blue Rhinos operations as Blue Rhinos counter-seasonal
business activities and anticipated future growth is expected to provide Ferrellgas with
the ability to better utilize its seasonal resources to complement Ferrellgas retail
distribution locations with Blue Rhinos existing distributor network. Ferrellgas
has not yet obtained all information required to complete the evaluation and
allocation of the purchase price for the Blue Rhino contribution.  The final
evaluation and allocation will be completed in fiscal year 2005.

The results of operations of Blue
Rhino for the period from April 21, 2004 through July 31, 2004 are included in the
statement of earnings of the combined entity for the year ended July 31, 2004.

Pro forma results of operations

The following summarized unaudited
pro forma results of operations for the years ended July 31, 2004 and 2003, assumes that
the Blue Rhino contribution had occurred as of the beginning of the period presented.
These unaudited pro forma financial results have been prepared for comparative purposes
only and may not be indicative of (i) the results that would have occurred if Ferrellgas
had completed the Blue Rhino contribution as of the beginning of the periods presented or
(ii) the results that will be attained in the future. Nonrecurring items included in the
reported pro forma results of operations for the year ended July 31, 2003, include $2.5
million of income related to net proceeds from a litigation settlement in March 2003.
Items not included in the reported pro forma results of operations for the year ended
July 31, 2004, are $3.3 million of nonrecurring charges incurred by Blue Rhino
Corporation in the period from February 1, 2004 through April 20, 2004, that are directly
attributable to the Blue Rhino contribution.

|                                                                | For the year ended July 31,
|--------------------------------------------------------------- | ---------------------------
|
|Revenues                                                        |                            
|Earnings before cumulative effect of change in accounting       |                            
|principle                                                       |                            
|Net earnings                                                    |                            
|Basic and diluted net earnings available to common unitholders: |                            
|Earnings before cumulative effect of change in accounting       |                            
|principle                                                       |                            
|Net earnings                                                    |                            

During the year ended July 31, 2003,
Ferrellgas acquired the following propane distribution businesses with an aggregate value
at $51.1 million:

| | o |  | ProAm,
Inc., based primarily in Georgia and Texas, acquired December 2002;
| | - |  | --------------------------------------------------------------------------

| | o |  | a
branch of Cenex Propane Partners Co., based in Iowa, acquired November 2002;
| | - |  | ------------------------------------------------------------------------------

| | o |  | Northstar
Propane, based in Nevada, acquired November 2002;
| | - |  | -----------------------------------------------------------

| | o |  | Pettit
Oil Company, Inc., based in Washington, acquired May 2003; and
| | - |  | ---------------------------------------------------------------------

| | o |  | Wheeler's
Bottled Gas, Inc., based in Ohio, acquired July 2003.
| | - |  | ---------------------------------------------------------------

These purchases were funded by $41.0
million in cash payments, the issuance of 9 thousand common units valued at an aggregate
of $0.2 million, and $9.9 million in the issuance of a short-term non-interest bearing
note payable at an imputed interest rate of 4.25% to the seller and other costs and
consideration.

The aggregate value of these five
propane distribution businesses were allocated as follows: $29.6 million for assets such
as customer tanks, buildings and land, $1.1 million for non-compete agreements, $12.5
million for customer lists, and $7.9 million for net working capital. Net working capital
was comprised of $8.7 million of current assets and $0.8 million of current liabilities.
The estimated fair values and useful lives of assets acquired are based on a valuation
and include final valuation adjustments. The weighted average amortization period for
non-compete agreements and customer lists are five and 15 years, respectively.

During the year ended July 31, 2002,
Ferrellgas acquired the following propane distribution businesses with an aggregate value
at $10.8 million:

| | o |  | Blue
Flame Bottle Gas, based in Arizona, acquired December 2001;
| | - |  | ----------------------------------------------------------------

| | o |  | Alabama
Butane Co., based in Alabama, acquired November 2001; and
| | - |  | -----------------------------------------------------------------

| | o |  | Alma
Farmers Union Co-op, based in Wisconsin, acquired September 2001.
| | - |  | ----------------------------------------------------------------------

The purchases were funded by $6.3
million of cash payments and the issuance of 0.1 million common units valued at an
aggregate of $2.3 million, and $2.2 million of notes payable to the seller. The aggregate
value was allocated as follows: $7.1 million for assets such as customer tanks, buildings
and land, $2.7 million for non-compete agreements, $1.2 million for customer lists, $32
thousand for other assets and $(0.2) million for net working capital. Net working capital
was comprised of $0.5 million of current assets and $0.7 million of current liabilities.
The weighted average amortization period for non-compete agreements and customer lists
are five and 15 years, respectively.

D.    
Quarterly distributions of available cash

Ferrellgas Partners makes quarterly
cash distributions of all of its available cash.Available cash is defined in
the partnership agreement of Ferrellgas Partners as, generally, the sum of its
consolidated cash receipts less consolidated cash disbursements and net changes in
reserves established by the general partner for future requirements. Reserves are
retained in order to provide for the proper conduct of Ferrellgas Partners business,
or to provide funds for distributions 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
quarter ending October, January, April and July to holders of record on the applicable
record date.

Distributions by Ferrellgas Partners
in an amount equal to 100% of its available cash, as defined in its partnership
agreement, will be made to the senior and common unitholders and the general partner.
Additionally, the payment of incentive distributions to the holders of incentive
distribution rights will be made to the extent that certain target levels of cash
distributions are achieved. The senior units have certain distribution and preference
rights over the common units. The publicly held common units have certain distribution
preference rights over the common units held by Ferrell Companies.

On April 6, 2001, Ferrellgas
Partners modified the structure of its outstanding senior units and increased the cash
distribution coverage to its publicly held common unitholders. Among other changes, the
senior units were modified to allow the holder to be paid a quarterly distribution in
cash instead of in additional senior unit distributions. See Note A  Partnership
organization and formation  for additional information about the modifications to
the senior units. In addition, Ferrell Companies, the beneficial owner of 18.1 million
common units, granted Ferrellgas Partners the ability to defer future distributions on
the common units held by it up to an aggregate outstanding amount of $36.0 million. The
ability to defer distributions to Ferrell Companies provides Ferrellgas Partners public
common unitholders distribution support until December 31, 2005. This distribution
support is available if Ferrellgas Partners available cash for any fiscal quarter
is insufficient to pay all of the common unitholders their quarterly distribution.
Ferrellgas Partners will first pay a distribution to the senior units and then will pay a
distribution out of the remaining available cash to the publicly-held common units. Any
remaining available cash will then be used to pay a distribution on the common units held
by Ferrell Companies. Any quarterly distribution paid per unit to the publicly-held
common units that is not able to be paid on the Ferrell Companies-owned common units will
be deferred, within certain limits, and paid to Ferrell Companies in future quarters when
available cash is sufficient. If insufficient available cash should exist for a
particular quarter or any previous deferred distributions to Ferrell Companies remain
outstanding, the distribution declared per common unit may not be more than the highest
quarterly distribution paid on the common units for any of the immediately preceding four
fiscal quarters. If the cumulative amount of deferred quarterly distributions to Ferrell
Companies were to reach $36.0 million, the common units held by Ferrell Companies will
then be paid in the same priority as the publicly-held common units. After payment of all
required distributions for any subsequent period, Ferrellgas Partners will use any
remaining available cash to reduce any amount previously deferred on the common units
held by Ferrell Companies. Reductions in amounts previously deferred will then again be
available for future deferrals to Ferrell Companies through December 31, 2005.

E.    
Supplemental financial statement information

Inventories
consist of:

|                                 | 2004 | 2003
|-------------------------------- | ---- | ----
|Propane gas and related products |      |     
|Appliances, parts and supplies   |      |     
|                                 |      |     
|                                 |      |     
|                                 |      |     

In addition to inventories on hand,
Ferrellgas enters into contracts to buy product for supply purposes, primarily propane
for supply procurement purposes. Nearly all of these contracts have terms of less than
one year and most call for payment based on market prices at the date of delivery. All
fixed price contracts have terms of less than one year.

Property, plant and equipment
consist of:

|                                          | Estimated
useful lives | 2004 | 2003      
|----------------------------------------- | ---------------------- | ---- | ----------
|Land                                      |                        |      | indefinite
|Land improvements                         |                        |      | 2-20      
|Buildings and improvements                |                        |      | 20        
|Vehicles, including transport trailers    |                        |      | 8-20      
|Furniture and fixtures                    |                        |      | 5         
|Bulk equipment and district facilities    |                        |      | 5-30      
|Tanks and customer equipment              |                        |      | 2-30      
|Computer equipment and software           |                        |      | 2-5       
|Computer software development in progress |                        |      | n/a       
|Construction in progress                  |                        |      | n/a       
|                                          |                        |      |           
|                                          |                        |      |           
|                                          |                        |      |           
|Less:  accumulated depreciation           |                        |      |           
|                                          |                        |      |           
|                                          |                        |      |           
|                                          |                        |      |           
|                                          |                        |      |           

During fiscal year 2004, Ferrellgas
placed in service $49.0 million of computer software, which will be depreciated using the
straight-line method over its estimated useful life of 5 years.

Ferrellgas capitalized $0.6 million,
$2.2 million and $0.7 million of interest expense related to the development of computer
software for the years ended July 31, 2004, 2003 and 2002, respectively. During fiscal
year 2003 $7.0 million was paid related to the development of new computer software that was acquired during fiscal year 2002. Depreciation
expense totaled $41.2 million, $28.2 million, and $27.9 million for the fiscal years
ended July 31, 2004, 2003, and 2002, respectively.

Other current liabilities consist
of:

|                                                     | 2004 | 2003
|---------------------------------------------------- | ---- | ----
|Accrued interest                                     |      |     
|Accrued payroll                                      |      |     
|Accrued insurance                                    |      |     
|Note payable (pursuant to acquisition - see Note C - |      |     
|Business combinations)                               |      |     
|Other                                                |      |     
|                                                     |      |     
|                                                     |      |     
|                                                     |      |     

Loss on disposal of assets and other
consist of:

|                                                       | For the year ended July 31,
|------------------------------------------------------ | ---------------------------
|
|Loss on disposal of assets                             |                            
|Loss on transfer of accounts receivable related to the |                            
|accounts receivable securitization                     |                            
|Service income related to the accounts receivable      |                            
|securitization                                         |                            
|                                                       |                            
|Loss on disposal of assets and other                   |                            
|                                                       |                            

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

|                                      | For the year ended July 31,
|------------------------------------- | ---------------------------
|
|Operating expense                     |                            
|Depreciation and amortization expense |                            
|Equipment lease expense               |                            
|                                      |                            
|                                      |                            
|                                      |                            

F.    
Accounts receivable securitization

On September 26, 2000, the operating
partnership entered into an accounts receivable securitization facility with Bank One,
NA. As part of this renewable 364-day facility, the operating partnership transfers an
interest in a pool of its trade accounts receivable to Ferrellgas Receivables, a
wholly-owned unconsolidated, special purpose entity, which sells its interest to a
commercial paper conduit of Banc One, NA. The operating partnership does not provide any
guarantee or similar support to the collectibility of these receivables. The operating
partnership structured the facility using a wholly-owned unconsolidated, qualifying
special purpose entity in order to facilitate the transaction as required by Banc One, NA
and to comply with Ferrellgas various debt covenants. As a servicer, the operating
partnership remits daily to this special purpose entity funds collected on the pool of
trade receivables held by Ferrellgas Receivables. Ferrellgas renewed the facility for an
additional 364-day commitment on September 21, 2004.

The operating partnership transfers
certain of its trade accounts receivable to Ferrellgas Receivables and retains an
interest in a portion of these transferred receivables. As these transferred receivables
are subsequently collected and the funding from the accounts receivable securitization
facility is reduced, the operating partnerships retained interest in these
receivables is reduced. As of July 31, 2004 and 2003, the balance of the retained
interest was $5.2 million and $8.1 million, respectively and was classified as accounts
receivable on the consolidated balance sheets. At July 31, 2004, $27.1 million had been
transferred compared with $42.5 million at July 31, 2003. The operating partnership had
the ability to transfer, at its option, an additional $40.4 million of its trade accounts
receivable at July 31, 2004. The net non-cash activity relating to this retained interest
was $0.7 million, $1.8 million and $3.3 million during the years ended July 31, 2004,
2003, and 2002, respectively. These amounts reported in the consolidated statements of
earnings approximate the financing cost of issuing commercial paper backed by these
accounts receivable plus an allowance for doubtful accounts associated with the
outstanding receivables transferred to Ferrellgas Receivables. The weighted average
discount rate used to value the retained interest in the transferred receivables was
2.0%, 1.6% and 3.6% during the years ended July 31, 2004, 2003 and 2002, respectively.
Bad debt expense for these transferred receivables totaled $0.3 million, $0.3 million and
$0.2 million during the years ended July 31, 2004, 2003 and 2002, respectively.

G.     Intangible
assets, net

Intangible assets, net consist of:

|                              | July 31, 2004 | July 31, 2003
|----------------------------- | ------------- | -------------
|
|Amortized intangible assets   |               |              
|Customer lists                |               |              
|Non-compete agreements        |               |              
|Other                         |               |              
|                              |               |              
|                              |               |              
|                              |               |              
|Unamortized intangible assets |               |              
|Tradenames & trademarks       |               |              
|                              |               |              
|                              |               |              
|                              |               |              

Customer lists have estimated lives
of 15 years, while non-compete agreements have estimated lives ranging from two to 10
years. Ferrellgas believes that trademarks and tradenames have an indefinite useful life
due to Ferrellgas intention to utilize all acquired trademarks and tradenames.
Other intangible assets have estimated lives ranging from 2 to 10 years.

Aggregate amortization expense:

|                             | 2004 | 2003 | 2002
|---------------------------- | ---- | ---- | ----
|For the years ended July 31, |      |      | $   

Estimated amortization expense:

|For the years ended July 31
|---------------------------
|2005                       
|2006                       
|2007                       
|2008                       
|2009                       

H.    
Long-term debt

Long-term
debt consists of:

|                                                                      | 2004 | 2003
|--------------------------------------------------------------------- | ---- | ----
|Senior notes                                                          |      |     
|Fixed rate, 7.16% due 2005-2013 (1)                                   |      |     
|Fixed rate, 8.75%, due 2012, net of unamortized premium of $2,990 (2) |      |     
|Fixed rate, 8.8%, due 2006-2009 (3)                                   |      |     
|Fixed rate, 6.75% due 2014, net of unaccreted discount of $882 (4)    |      |     
|Credit agreement, variable interest rates, expiring 2006              |      |     
|Notes payable, 7.3% and 7.5% weighted average interest rates,         |      |     
|respectively, due 2004 to 2011                                        |      |     
|Capital lease obligations                                             |      |     
|                                                                      |      |     
|                                                                      |      |     
|                                                                      |      |     
|Less:  current portion, included in other current liabilities on the  |      |     
|consolidated balance sheets                                           |      |     
|                                                                      |      |     
|                                                                      |      |     
|                                                                      |      |     

|(1) |  | The operating partnership fixed rate senior notes, issued in August 1998, are
               general unsecured obligations of the operating partnership and rank on an equal
               basis in right of payment with all senior indebtedness of the operating
               partnership and senior to all subordinated indebtedness of the operating
               partnership. The outstanding principal amount of the series A, B, C, D and
               E notes shall be due on August 1, 2005, 2006, 2008, 2010, and 2013,
               respectively. In general, the operating partnership does not have the option to
               prepay the notes prior to maturity without incurring prepayment penalties.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | On September 24, 2002, Ferrellgas redeemed the Ferrellgas Partners fixed rate
               senior secured notes issued in April 1996, with the proceeds from $170.0 million
               of Ferrellgas Partners fixed rate senior notes. Ferrellgas recognized a $7.1
               million charge to earnings related to the premium and other costs incurred to
               redeem the notes plus the write-off of financing costs related to the original
               issuance of the Ferrellgas Partners senior secured notes. On December 18, 2002,
               Ferrellgas issued $48.0 million of Ferrellgas Partners fixed rate senior notes
               with a debt premium of $1.7 million that will be amortized to interest expense
               through 2012. On June 10, 2004 Ferrellgas issued $50.0 million of Ferrellgas
               Partners fixed rate senior secured notes with a debt premium of $1.6 million
               that will be amortized to interest expense through 2012. The Ferrellgas Partners
               senior notes bear interest from the date of issuance, payable semi-annually in
               arrears on June 15 and December 15 of each year.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | The operating partnership fixed rate senior notes, issued in February 2000, are
               general unsecured obligations of the operating partnership and rank on an equal
               basis in right of payment with all senior indebtedness of the operating
               partnership and senior to all subordinated indebtedness of the operating
               partnership. The outstanding principal amount of the series A, B and C
               notes are due on August 1, 2006, 2007 and 2009, respectively. In general,
               the operating partnership does not have the option to prepay the notes prior to
               maturity without incurring prepayment penalties.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | The operating partnership fixed rate senior notes, issued in April 2004 are
               general unsecured obligations of the operating partnership and rank on an equal
               basis in right of payment with all senior indebtedness of the operating
               partnership and senior to all subordinated indebtedness of the operating
               partnership. The outstanding principal amount is due on May 1, 2014. In
               general, the operating partnership does not have the option to prepay the notes
               prior to maturity without incurring prepayment penalties.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On April 20, 2004, subsidiaries of
the operating partnership completed a private placement of $250.0 million in principal
amount of 6.75% senior notes due 2014 at a price to the note holders of 99.637% per note.
In the offering, the subsidiaries of the operating partnership received proceeds, net of
underwriting discounts and commissions, of $243.5 million. The subsidiaries then merged
into the operating partnership and Ferrellgas Finance Corp., a subsidiary of the
operating partnership, on April 20, 2004 with the operating partnership and Ferrellgas
Finance Corp. assuming the payment obligation of the notes. The proceeds of the notes
were used to pay a portion of the merger consideration assumed by the operating
partnership of $17.00 per share to the then former common stockholders of Blue Rhino
Corporation in connection with the contribution of Blue Rhino to the operating
partnership by an affiliate of the general partner. See additional discussion about the
Blue Rhino contribution in Note C  Business combinations.

Interest on the 6.75% senior notes
due 2014 is payable semi-annually in arrears on May 1 and November 1 of each year,
commencing on November 1, 2004.

On December 10, 2002, Ferrellgas
refinanced its $157.0 million bank credit facility with a $307.5 million amended bank
credit facility, using $155.6 million of the funds available thereunder to purchase
propane tanks and related assets that it previously leased, plus making a $1.2 million
payment of related accrued lease expense. The remaining portion of the amended bank
credit facility is available for working capital, acquisition, capital expenditure and
general partnership purposes and will terminate on April 28, 2006, unless extended or
renewed. The credit facility has a letter of credit sub-facility with availability of
$80.0 million. As of July 31, 2004, Ferrellgas had borrowings of $92.9 million, at a
weighted average interest rate of 3.7%, under this amended bank credit facility.

All borrowings under the amended
bank credit facility bear interest, at Ferrellgasoption, at a rate equal to either:

| | o |  | the
base rate, which is defined as the higher of the federal funds rate plus 0.50% or Bank of
Americas prime rate (as of July 31, 2004, the federal funds rate and Bank of Americas
prime rate were 1.29% and 4.25%, respectively); or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | the
Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of July 31, 2004, the
one-month Eurodollar Rate was 1.44%).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

In addition, an annual commitment
fee is payable on the daily unused portion of the credit facility at a per annum rate
varying from 0.375% to 0.625% (as of July 31, 2004, the commitment fee per annum rate was
0.50%).

Letters of credit outstanding, used
primarily to secure obligations under certain insurance arrangements, totaled $55.3
million and $44.7 million at July 31, 2004 and 2003, respectively. At July 31, 2004,
Ferrellgas had $159.3 million of funding available. Ferrellgas incurred commitment fees
of $0.6 million, $0.5 million and $0.4 million in fiscal years 2004, 2003 and 2002,
respectively.

The senior notes and the credit
facility agreement contain various restrictive covenants applicable to Ferrellgas and its
subsidiaries, the most restrictive relating to additional indebtedness. In addition,
Ferrellgas Partners is prohibited from making cash distributions of the minimum quarterly
distribution if a default or event of default exists or would exist upon making such
distribution, or if Ferrellgas fails to meet certain coverage tests. Ferrellgas is in
compliance with all requirements, tests, limitations and covenants related to these debt
agreements.

I.     Guarantees

FASB Financial Interpretation No.
45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, requires recognition of a
liability for the fair value of guarantees issued after December 31, 2002. As of July 31,
2004, the only material guarantees that Ferrellgas had outstanding were associated with
residual value guarantees of operating leases. These operating leases are related to
transportation equipment with remaining lease periods scheduled to expire over the next
seven fiscal years. Upon completion of the lease period, Ferrellgas guarantees that the
fair value of the equipment will equal or exceed the guaranteed amount, or Ferrellgas
will pay the lessor the difference. The fair value of these residual value guarantees
entered into after December 31, 2002 was $1.1 million as of July 31, 2004. Although the
fair values at the end of the lease terms have historically exceeded these guaranteed
amounts, the maximum potential amount of aggregate future payments Ferrellgas could be
required to make under these leasing arrangements, assuming the equipment is worthless at
the end of the lease term, is $14.0 million.

J.     Partners capital

As of July 31, 2004 and 2003,
partners capital consisted of the following limited partner units:

|             | 2004 | 2003      
|------------ | ---- | ----------
|Senior units |      | 1,994,146 
|Common units |      | 48,772,875

As of July 31, 2004, total common
units outstanding consisted of (i) 30.7 million held by third parties and listed on the
New York Stock Exchange under the symbol FGP,(ii) 17.8 million held by
Ferrell Companies, (iii) 0.2 million held by FCI Trading, a subsidiary of Ferrell
Companies, and (iv) 0.1 million held by Ferrell Propane, Inc. (Ferrell Propane)
which is controlled by the general partner. As of July 31, 2003, total common units
outstanding consisted of (i) 19.8 million held by third parties, (ii) 17.8 million held
by Ferrell Companies and (iii) 0.1 million held by Ferrell Propane.

Together these limited partner units
represent Ferrellgas Partners limited partnersinterest and an effective 98%
economic interest in Ferrellgas Partners, exclusive of the general partners incentive
distribution rights. The general partner has an effective 2% interest in Ferrellgas
Partners, excluding incentive distribution rights.

The common units and senior units of
Ferrellgas Partners represent limited partner interests in Ferrellgas Partners, which
give the holders thereof the right to participate in distributions made by Ferrellgas
Partners and to exercise the other rights or privileges available to such holders under
the Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P.
dated February 18, 2003 (the Partnership Agreement). Under the terms of the
Partnership Agreement, holders of common units have limited voting rights on matters
affecting the business of Ferrellgas Partners. Generally, persons owning 20% or more of
Ferrellgas Partners outstanding common units cannot vote, however, this limitation
does not apply to those common units owned by the general partner or its affiliates, as
such term is defined in the Partnership Agreement.

The senior units of Ferrellgas
Partners represent limited partner interests in Ferrellgas Partners and have extremely
limited voting rights. Each senior unit is redeemable by Ferrellgas Partners at its
liquidation preference of $40 plus any accumulated and unpaid senior unit distributions.
The current holder of the senior units has the option to convert the senior units into
common units beginning on the earlier of December 31, 2005, or the occurrence of a material
event, as such term is defined in the Partnership Agreement. The number of common
units issuable upon conversion of a senior unit is equal to the sum of its liquidation
preference of $40 and any accumulated and unpaid senior unit distributions, divided by
the then current market price of a common unit. If the senior units convert into common
units and such converted common units continue to be held directly or indirectly by James
E. Ferrell or a related party, as such term is defined in the Third Amended and Restated Agreement of Limited
Partnership of Ferrellgas, L.P., then the holder thereof may vote those converted common units even if the
aggregate number of common units issued upon conversion exceeds 20% of the then
outstanding common units. This voting exemption does not apply if the converted common
units are held by someone other than James E. Ferrell or a related party, whether
directly or indirectly.

Ferrellgas maintains a shelf
registration statement for the issuance of common units, deferred participation units,
warrants and debt securities. Ferrellgas Partners partnership agreement allows the
general partner to issue an unlimited number of additional Ferrellgas general and limited
partner interests and other equity securities of Ferrellgas Partners for such
consideration and on such terms and conditions as shall be established by the general
partner without the approval of any unitholders.

On April 21, 2004, Ferrellgas
Partners issued, in five separate private placements, an aggregate of 1.6 million of
common units at a price of $22.35 per unit for net proceeds of $32.8 million in cash and
$3.1 million in real property for the issuance of these common units. These common units
were issued as follows:

| | o |  | to
Mr. Billy D. Prim ("Mr. Prim"), $15.0 million for cash;
| | - |  | ----------------------------------------------------------

| | o |  | to
Mr. Prim $3.1 million in exchange for real property;
| | - |  | -------------------------------------------------------

| | o |  | to
Mr.  Andrew  J.  Filipowski  ("Mr.  Filipowski"),  brother-in-law  of Mr.  Prim,  $15.0
 million  for  cash;  prior  to the          contribution of Blue Rhino Mr. Filipowski
was the Vice Chairman of Blue Rhino Corporation;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | to
Mr. Malcolm McQuilkin,  Chief Executive Officer, Blue Rhino Global Sourcing,  LLC for
Blue Rhino Corporation,  $1.0 million          for cash; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | to
Mr. Ferrell, Chairman, President and Chief Executive Officer of the general partner,
 $1.8 million for cash.
| | - |  | ---------------------------------------------------------------------------------------------------------------

Prior to the contribution of Blue
Rhino, Mr. Prim was the Chairman and Chief Executive Officer of Blue Rhino Corporation;
subsequent to the Blue Rhino contribution and pursuant to an employment agreement among
Ferrell Companies and the general partner, (i) the general partner paid Mr. Prim a
non-compete and non-solicitation payment of $2.5 million and (ii) he was appointed
Executive Vice President and a director of the general partner.

These cash proceeds were used to pay
a portion of the merger consideration assumed by the operating partnership to the then
former common stockholders of Blue Rhino Corporation. The transactions with Mr. Prim and
Mr. Filipowski were consummated prior to Mr. Prim becoming an officer and director of the
general partner. See additional discussion about the Blue Rhino contribution in Note C
 Business combinations.

On April 21, 2004, Ferrellgas
Partners issued to FCI Trading 0.2 million of common units at a price of $23.94 per unit.
This $4.7 million of common units was issued to FCI Trading in connection with the Blue
Rhino contribution as consideration for FCI Tradings net contribution of its
membership interests in Blue Rhino LLC to the operating partnership. See additional
discussion about the Blue Rhino contribution in Note C  Business combinations. See
Note L  Transactions with related parties  for additional discussion of the
involvement of related parties in this transaction.

On April 21, 2004, Ferrellgas
Partners issued, pursuant to the exercise of common unit options by Mr. Ferrell,
Chairman, President and Chief Executive Officer of the general partner, 0.2 million of
common units at a strike price of $17.90 per unit. Ferrellgas Partners received net
proceeds of $3.2 million for the issuance of these common units. The proceeds were used
to pay a portion of the assumed merger consideration to the then former common
stockholders of Blue Rhino Corporation. See additional discussion about the Blue Rhino
contribution in Note C- Business combinations. See Note O  Unit options of
Ferrellgas Partners and stock options of Ferrell Companies  for additional
information about unit options.

On April 21, 2004, Ferrellgas
Partners issued $2.0 million of general partner units to the general partner as
consideration for the Blue Rhino LLC membership interest contributed by the general
partner. Also on April 21, 2004, the general partner contributed a membership interest in
Blue Rhino LLC to the operating partnership to maintain its 1.0101% general partner
interest in the operating partnership. See Note L  Transactions with related
parties  for additional discussion of the involvement of related parties in this
transaction.

On April 14, 2004, Ferrellgas
Partners issued, in a public offering, 7.0 million of its common units at a price of
$23.34 per unit, less commissions and underwriting expenses. After commissions and
underwriting expenses, Ferrellgas Partners received net proceeds of $156.0 million for
the issuance of these common units. The proceeds were used to pay a portion of the
assumed merger consideration to the then former common stockholders of Blue Rhino
Corporation. See additional discussion about the Blue Rhino contribution in Note C  Business
combinations.

On March 4, 2004 and August 3, 2003,
Ferrellgas Partners issued approximately 32 thousand and approximately 30 thousand common
units, respectively, pursuant to a purchase and non-competition agreement as a portion of
the consideration for our acquisition of propane-related assets from third parties.

On December 1, 2003, Ferrellgas
Partners issued, in a public offering, 2.0 million of common units at a price of $24.75
per unit, less commissions and underwriting expenses. After commissions and underwriting
expenses, Ferrellgas Partners received net proceeds of $47.2 million for the issuance of
these common units. Ferrellgas Partners contributed the proceeds to the operating
partnership to reduce borrowings outstanding under its bank credit facility and for
general partnership purposes, including the repayment of debt incurred to fund prior
acquisitions.

Ferrellgas Partners partnership
agreement generally provides that it must use the cash proceeds of any offering of common
units to redeem a portion of its outstanding senior units, otherwise a Material
Event would be deemed to have occurred and JEF Capital Management, Inc. (JEF
Capital) as the holder of the senior units, would thereafter have specified rights,
such as the right to convert the senior units into common units or the right to register
the senior units. The number of common units issuable upon conversion of a senior unit is
equal to the senior unit liquidation preference, currently $40 plus any accrued and
unpaid distributions, divided by the then current market price of a common unit. By
letter agreement dated November 20, 2003, JEF Capital agreed to waive the occurrence of a
Material Event if Ferrellgas Partners issues common units at any time and
from time to time on or prior to March 31, 2004, and does not use the cash proceeds from
such offering or offerings to redeem a portion of the outstanding senior units. In
consideration of the granting of the waiver, Ferrellgas Partners agreed not to redeem any
outstanding senior units prior to March 31, 2004, and to reimburse JEF Capital for its
reasonable legal fees incurred in connection with the execution of the waiver. On
February 25, 2004, JEF Capital and Ferrellgas Partners extended the letter agreement
through December 31, 2004. Other Material Events include (i) a change in
control, (ii) Ferrellgas treatment as an association taxable as a corporation for
federal income tax purposes or (iii) the failure to pay the senior unit distribution in
full for any fiscal quarter. These other types of Material Events are not
affected by the JEF Waiver. The conversion of these senior units into common units upon
the occurrence of a Material Event may be dilutive to Ferrellgas Partners existing
common unitholders.

During August 2004, Ferrellgas
Partners issued additional common units to the public. See Note S  Subsequent event
 for further discussion.

K. Derivatives

SFAS No. 133 Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, SFAS No.
138 and SFAS No. 149, requires all derivatives (with certain exceptions), whether
designated in hedging relationships or not, to be recorded on the consolidated balance
sheets at fair value. Ferrellgas records changes in the fair value of positions
qualifying as cash flow hedges in accumulated other comprehensive income and changes in
the fair value of other positions in the consolidated statements of earnings. Ferrellgas overall
objective for entering into derivative contracts for the purchase of product is related
to hedging, risk reduction and to anticipate market movements. Other derivatives are
entered into to reduce interest rate risk associated with long term debt and lease
obligations. Fair value hedges are derivative financial instruments that hedge the
exposure to changes in the fair value of an asset or a liability or an identified portion
thereof attributable to a particular risk. Cash flow hedges are derivative financial
instruments that hedge the exposure to variability in expected future cash flows
attributable to a particular risk. Ferrellgas uses cash flow hedges to manage exposures
to product purchase price risk and uses both fair value and cash flow hedges to manage
exposure to interest rate risks.

Fluctuations in the wholesale cost
of propane expose Ferrellgas to purchase price risk. Ferrellgas purchases propane at
various prices that are eventually sold to its customers, exposing Ferrellgas to future
product price fluctuations. Also, certain forecasted transactions expose Ferrellgas to
purchase price risk. Ferrellgas monitors its purchase price exposures and utilizes
product hedges to mitigate the risk of future price fluctuations. Propane is the only
product hedged with the use of product hedge positions. Ferrellgas uses derivative
contracts to hedge a portion of its forecasted purchases for up to 18 months in the
future. These derivatives are designated as cash flow hedging instruments. Because these
derivatives are designated as cash flow hedges, the effective portions of changes in the
fair value of the derivatives are recorded in other comprehensive income (OCI)
and are recognized in the consolidated statements of earnings when the forecasted
transaction impacts earnings. As of July 31, 2004, Ferrellgas had a fair value adjustment
classified as OCI and a reclassification of net gains of $1.9 million and $(0.1) million,
respectively, on the consolidated statements of partners capital. Ferrellgas did
not have any product hedge positions outstanding as of July 31, 2003, therefore there was
no fair value adjustment classified as OCI on the consolidated statements of partners capital
at July 31, 2003. The risk management fair value adjustments of $(0.2) million included
in OCI at July 31, 2002, were reclassified into earnings during fiscal year 2003. Changes
in the fair value of cash flow hedges due to hedge ineffectiveness, if any, are
recognized in cost of product sold. During fiscal years ended July 31, 2004, 2003, and
2002, Ferrellgas did not recognize any gain or loss in earnings related to hedge
ineffectiveness and did not exclude any component of the derivative contract gain or loss
from the assessment of hedge effectiveness related to these cash flow hedges. The fair
value of the derivatives related to purchase price risk are classified on the
consolidated balance sheets as inventories.

Through its risk management trading
activities, Ferrellgas also purchases and sells derivatives that are not designated as
accounting hedges to manage other risks associated with commodity prices. The types of
contracts utilized in these activities include energy commodity forward contracts,
options and swaps traded on the over-the-counter financial markets, and futures and
options traded on the New York Mercantile Exchange. Ferrellgas utilizes published
settlement prices for exchange traded contracts, quotes provided by brokers and estimates
of market prices based on daily contract activity to estimate the fair value of these
contracts. The changes in fair value of these risk management trading activities are
recognized as they occur in cost of product sold in the consolidated statements of
earnings. During fiscal years ended July 31, 2004, 2003 and 2002, Ferrellgas recognized
risk management trading gains (losses) related to derivatives not designated as
accounting hedges of $0.5 million, $5.9 million, and $(6.1) million, respectively.

Estimates related to our risk
management trading activities are sensitive to uncertainty and volatility inherent in the
energy commodities markets and actual results could differ from these estimates. Assuming
a hypothetical 10% adverse change in prices for the delivery month of all energy
commodities, the potential loss in future earnings of such a change was estimated at $0.6
million for risk management trading activities as of July 31, 2004. For other risk
management activities, the potential loss in future earnings was estimated at $1.4
million at July 31, 2004. The preceding hypothetical analysis is limited because changes
in prices may or may not equal 10%.

The following table summarizes the
change in the unrealized fair value of contracts from risk management trading activities
for the fiscal years ended July 31, 2004, 2003 and 2002.

|                                                                  | For the year ended July 31,
|----------------------------------------------------------------- | ---------------------------
|
|Unrealized losses in fair value of contracts outstanding          |                            
|at beginning of year                                              |                            
|Unrealized gains and (losses) recognized at inception of          |                            
|a contract                                                        |                            
|Unrealized gains and (losses) recognized as a result of           |                            
|changes in valuation techniques or assumptions                    |                            
|Other unrealized gains and (losses) recognized                    |                            
|Less:  realized gains and (losses) recognized                     |                            
|                                                                  |                            
|                                                                  |                            
|Unrealized gains (losses) in fair value of contracts  outstanding |                            
|at end of year                                                    |                            
|                                                                  |                            

The following table summarizes
the maturity of these contracts for the valuation methodologies Ferrellgas utilized as of
July 31, 2004 and 2003. This table summarizes the contracts where settlement had not yet
occurred.

|                                                             | Fair value of contracts
at period-end
|------------------------------------------------------------ | -------------------------------------
|
|Prices actively quoted                                       |                                      
|Prices provided by other external sources                    |                                      
|Prices based on models and other valuation methods           |                                      
|                                                             |                                      
|Unrealized  gains in fair value of contracts  outstanding at |                                      
|July 31, 2004                                                |                                      
|                                                             |                                      
|Prices actively quoted                                       |                                      
|Prices provided by other external sources                    |                                      
|Prices based on models and other valuation methods           |                                      
|                                                             |                                      
|Unrealized  (losses) in fair value of contracts  outstanding |                                      
|at July 31, 2003                                             |                                      
|                                                             |                                      

The following table summarizes the
gross transaction volumes in barrels (one barrel equals 42 gallons) for risk management
trading contracts that were physically settled for the years ended July 31, 2004, 2003
and 2002:

(in
thousands)

|                                 | 
|-------------------------------- | 
|For the year ended July 31, 2004 | 
|For the year ended July 31, 2003 | 
|For the year ended July 31, 2002 | 

Ferrellgas also uses forward
contracts, not designated as accounting hedges under SFAS No. 133, to help reduce the
price risk related to sales made to its propane customers. These forward contracts meet
the requirement to qualify as normal purchases and normal sales as defined in SFAS No.
133, as amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149, and thus are not adjusted
to fair market value.

As of July 31, 2004, Ferrellgas
holds $1,063.6 million in fixed rate debt and $92.9 million in variable rate debt.
Fluctuations in interest rates subject Ferrellgas to interest rate risk. Decreases in
interest rates increase the fair value of Ferrellgas fixed rate debt, while
increases in interest rates subject Ferrellgas to the risk of increased interest expense
related to its variable rate debt.

Ferrellgas enters into fair value
and cash flow hedges to help reduce its overall interest rate risk. Interest rate swaps
were used to hedge the exposure to changes in the fair value of fixed rate debt due to
changes in interest rates. The fair value of interest rate derivatives that are
considered fair value or cash flow hedges are classified either as other current or
long-term assets or as other current or long-term liabilities on the consolidated balance
sheets. Changes in the fair value of the fixed rate debt and any related fair value
hedges are recognized as they occur in interest expense in the consolidated statements of
earnings. During fiscal years ended July 31, 2004, 2003, and 2002 Ferrellgas did not
recognize any gain or loss in earnings related to hedge ineffectiveness and did not
exclude any component of the derivative contract gain or loss from the assessment of
hedge effectiveness related to fair value hedges. There were no such fair value hedges
outstanding at July 31, 2004 and 2003. Interest rate caps are used to hedge the risk
associated with rising interest rates and their effect on forecasted transactions related
to variable rate debt and lease obligations. These interest rate caps were designated as
cash flow hedges and were outstanding until June 2003. The effective portions of changes
in the fair value of the hedges were recorded in OCI at interim periods and were
recognized as interest expense in the consolidated statements of earnings when the
forecasted transaction impacted earnings. During fiscal years ended July 31, 2004, 2003,
and 2002, Ferrellgas did not recognize any gain or loss in earnings related to hedge
ineffectiveness and did not exclude any component of the derivative contract gain or loss
from the assessment of hedge effectiveness related to these cash flow hedges. Cash flow
hedges are assumed to hedge the risk of changes in cash flows of the hedged risk.

L.    
Transactions with related parties

General
and administrative expenses

Ferrellgas has no employees and is
managed and controlled by its general partner. Pursuant to Ferrellgas partnership
agreements, the general partner is entitled to reimbursement for all direct and indirect
expenses incurred or payments it makes on behalf of Ferrellgas, and all other necessary
or appropriate expenses allocable to Ferrellgas or otherwise reasonably incurred by its
general partner in connection with operating Ferrellgas business. These costs,
which totaled $211.5 million, $201.3 million and $197.9 million for the years ended July
31, 2004, 2003, and 2002, respectively, include compensation and benefits paid to
employees of the general partner who perform services on Ferrellgas behalf, as well
as general and administrative costs.

Partnership distributions

JEF Capital is beneficially owned by
Mr. Ferrell and thus is an affiliate. JEF Capital directly owns 100% of the senior units.
Ferrellgas paid senior unit distributions of $8.0 million, $11.6 million and $11.2
million to JEF Capital during the years ended July 31, 2004, 2003 and 2002, respectively.
Ferrellgas paid JEF Capital $31.5 million and $0.8 million in the years ended July 31,
2003 and July 31, 2002 to redeem 0.8 million senior units and 19 thousand senior units,
respectively.

Ferrell Companies is the sole
shareholder of the general partner and owns 17.8 million common units of Ferrellgas
Partners. FCI Trading owns 0.2 million common units of Ferrellgas Partners, while Ferrell
Propane owns 0.1 million common units. During the year ended July 31, 2004, Ferrellgas
Partners paid common unit distributions of $35.6 million, $0.1 million and $0.1 million
to Ferrell Companies, FCI Trading and Ferrell Propane, respectively. During the years
ended July 31, 2003 and 2002, Ferrellgas Partners paid common unit distributions of $35.6
million and $0.1 million to Ferrell Companies and Ferrell Propane, respectively. On
August 23, 2004, Ferrellgas declared distributions to Ferrell Companies, FCI Trading and
Ferrell Propane of $8.9 million, $0.1 million and $26 thousand, respectively, that was
paid on September 14, 2004.

See Note J  Partners capital
 for disclosure of related party transactions among Ferrellgas, FCI Trading, the
general partner, JEF Capital and Mr. Ferrell in connection with the issuance of common
units on December 1, 2003, April 14, 2004 and April 21, 2004.

Operations

Ferrell International Limited (Ferrell
International) is beneficially owned by Mr. Ferrell and thus is an affiliate.
Ferrellgas enters into transactions with Ferrell International in connection with
Ferrellgas risk management activities and does so at market prices in accordance
with Ferrellgas affiliate trading policy approved by the general partners
Board of Directors. These transactions include forward, option and swap contracts and are
all reviewed for compliance with the policy. Ferrellgas also provides limited accounting
services for Ferrell International. Ferrellgas recognized the following net receipts
(disbursements) from purchases, sales and commodity derivative transactions and from
providing limited accounting services to Ferrell International:

|                                            | For the year ended July 31,
|------------------------------------------- | ---------------------------
|
|Net receipts (disbursements)                |                            
|Receipts from providing accounting services |                            

These net purchases, sales and
commodity derivative transactions with Ferrell International are classified as cost of
product sold on the consolidated statements of earnings. There were no amounts due from
or to Ferrell International at July 31, 2004, except for 75 thousand barrels of propane
to be delivered from Ferrell International valued at $2.1 million.

See additional discussions about
transactions with related parties in Note J Partners capital.

M.    
Contingencies and commitments

Litigation

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

Equity redemption and conversion

The 2.0 million senior units
outstanding as of July 31, 2004 have a liquidating value of $40 per unit or $79.8
million. The senior units are redeemable by Ferrellgas Partners at any time, in whole or
in part, upon payment in cash of the liquidating value of the senior units, currently $40
per unit, plus the amount of any accrued and unpaid distributions. The holder of the
senior units has the right, subject to certain events and conditions, to convert any
outstanding senior units into common units at the earlier of December 31, 2005 or upon
the occurrence of a material event as defined by Ferrellgas Partnerspartnership
agreement. Such conversion rights are contingent upon Ferrellgas Partners not previously
redeeming such securities. See Note J  Partners capital  for a
discussion of the agreement by JEF Capital regarding its waiver of a material event for a
limited time.

Long-term debt-related commitments

Ferrellgas has long and short-term
payment obligations under agreements such as senior notes and credit facilities. Amounts
shown in the table below represent Ferrellgas scheduled future maturities of
long-term debt (including current maturities thereof) for the periods indicated. See Note
H  Long-term debt  for a description of these debt obligations.

Operating lease commitments and
buyouts

Ferrellgas leases certain property,
plant and equipment under noncancelable and cancelable operating leases. Amounts shown in
the table below represent minimum lease payment obligations under Ferrellgas third-party
operating leases with terms in excess of one year for the periods indicated. These
off-balance sheet arrangements include the leasing of transportation equipment, property,
computer equipment and propane tanks. Ferrellgas accounts for these arrangements as
operating leases. These off-balance sheet arrangements enable Ferrellgas to lease
equipment from third parties rather than, among other options, purchasing the equipment
using on-balance sheet financing. Most of the operating leases involving Ferrellgas transportation
equipment contain residual value guarantees. These transportation equipment lease
arrangements are scheduled to expire over the next seven years. Most of these
arrangements provide that the fair value of the equipment will equal or exceed a
guaranteed amount, or Ferrellgas will be required to pay the lessor the difference.
Although the fair values of the underlying equipment at the end of the lease terms have
historically exceeded these guaranteed amounts, the maximum potential amount of aggregate
future payments Ferrellgas could be required to make under these leasing arrangements,
assuming the equipment is worthless at the end of the lease term, is currently $14.0
million. Ferrellgas does not know of any event, demand, commitment, trend or uncertainty
that would result in a material change to these arrangements.

Operating  lease buyouts
represent the maximum amount Ferrellgas would pay if it were to exercise its right to
buyout the assets at the end of their lease term.

The following table summarizes
Ferrellgas contractual obligations as of July 31, 2004:

|                        | Future minimum rental and buyout amounts by fiscal year
|----------------------- | -------------------------------------------------------
|
|Long-term debt,         |                                                        
|including               |                                                        
|current portion         |                                                        
|Capital lease           |                                                        
|obligations             |                                                        
|Operating lease         |                                                        
|obligations             |                                                        
|Operating lease buyouts |                                                        

Certain property and equipment is
leased under noncancelable operating leases, which require fixed monthly rental payments
and which expire at various dates through 2021. Rental expense under these leases totaled
$27.0 million, $30.0 million, and $37.0 million for the years ended July 31, 2004, 2003,
and 2002, respectively.

N. Employee benefits

Ferrellgas has no employees and is
managed and controlled by its general partner. Ferrellgas assumes all liabilities, which
include specific liabilities related to the following employee benefit plans for the
benefit of the officers and employees of the general partner.

Ferrell Companies makes
contributions to the ESOT, which causes a portion of the shares of Ferrell Companies
owned by the ESOT to be allocated to employees accounts over time. The allocation
of Ferrell Companies shares to employee accounts causes a non-cash compensation
charge to be incurred by Ferrellgas, equivalent to the fair value of such shares
allocated. This non-cash compensation charge is reported separately in Ferrellgas consolidated
statements of earnings and thus excluded from operating and general and administrative
expenses. The non-cash compensation charge increased during fiscal years 2004 and 2003
primarily due to the increase in the fair value of the Ferrell Companies shares allocated
to employees. Ferrellgas is not obligated to fund or make contributions to the ESOT.

The general partner and its parent,
Ferrell Companies, have a defined contribution profit-sharing plan which includes both
profit sharing and matching contributions. The plan covers substantially all employees
with more than one year of service. With the establishment of the ESOP in July 1998,
Ferrellgas suspended future contributions to the profit sharing plan beginning with
fiscal year 1998. The plan, which qualifies under section 401(k) of the Internal Revenue
Code, also provides for matching contributions under a cash or deferred arrangement based
upon participant salaries and employee contributions to the plan. Unlike the profit
sharing contributions, these matching contributions were not eliminated with the
establishment of the ESOP. Contributions for fiscal years ended July 31, 2004, 2003, and
2002, were $3.1 million, $2.9 million, and $2.8 million, respectively, under the 401(k)
provisions.

The general partner has a defined
benefit plan that provides participants who were covered under a previously terminated
plan with a guaranteed retirement benefit at least equal to the benefit they would have
received under the terminated plan. Until July 31, 1999, benefits under the terminated
plan were determined by years of credited service and salary levels. As of July 31, 1999,
years of credited service and salary levels were frozen. The general partners
funding policy for this plan is to contribute amounts deductible for Federal income tax
purposes and invest the plan assets primarily in corporate stocks and bonds, U.S.
Treasury bonds and short-term cash investments. During fiscal years 2004, 2003 and 2002,
other comprehensive income and other liabilities were adjusted by $(0.9) million, $(0.7)
million and $0.5 million, respectively, because the accumulated benefit obligation of
this plan exceeded the fair value of plan assets.

O.    
Unit options of Ferrellgas Partners and stock options of Ferrell Companies

Prior to April 19, 2001, the Second
Amended and Restated Ferrellgas Unit Option Plan (the unit option plan)
authorized the issuance of options (the unit options) covering up to 850,000
of Ferrellgas Partners common units to employees of the general partner or its
affiliates. Effective April 19, 2001, the unit option plan was amended to authorize the
issuance of options covering an additional 500,000 common units. The unit option plan is
intended to meet the requirements of the New York Stock Exchange equity holder approval
policy for option plans not approved by the equity holders of a company, and thus
approval of the plan from the unitholders of Ferrellgas Partners was not required. The
Board of Directors of the general partner administers the unit option plan, authorizes
grants of unit options thereunder and sets the unit option price and vesting terms of
unit options in accordance with the terms of the unit option plan. No single officer or
director of the general partner may acquire more than 314,895 common units under the unit
option plan. The unit options outstanding as of July 31, 2004, are exercisable at
exercise prices ranging from $16.80 to $21.67 per unit, which was an estimate of the fair
market value of the units at the time of the grant. In general, the options currently
outstanding under the unit option plan vest over a five-year period, and expire on the
tenth anniversary of the date of the grant.

|                                   | Number
of
units | Weighted average exercise
price
|---------------------------------- | --------------- | -------------------------------
|Outstanding, August 1, 2001        |                 |                                
|Exercised                          |                 |                                
|Forfeited                          |                 |                                
|                                   |                 |                                
|Outstanding, July 31, 2002         |                 |                                
|Exercised                          |                 |                                
|Forfeited                          |                 |                                
|                                   |                 |                                
|                                   |                 |                                
|Outstanding, July 31, 2003         |                 |                                
|Exercised                          |                 |                                
|Forfeited                          |                 |                                
|                                   |                 |                                
|Outstanding, July 31, 2004         |                 |                                
|                                   |                 |                                
|Options exercisable, July 31, 2004 |                 |                                
|                                   |                 |                                
|Options exercisable, July 31, 2003 |                 |                                
|                                   |                 |                                
|                                   |                 |                                
|Options exercisable, July 31, 2002 |                 |                                
|                                   |                 |                                

|                                            | Options outstanding at July 31, 2004
|------------------------------------------- | ------------------------------------
|Range of option prices at end of year       |                                     
|Weighted average remaining contractual life |                                     

The ICP was established by Ferrell
Companies to allow upper middle and senior level managers of the general partner to
participate in the equity growth of Ferrell Companies. The shares underlying the stock
options are common shares of Ferrell Companies, therefore, there is no potential dilution
of Ferrellgas. The ICP stock options vest ratably in 5% to 10% increments over 12 years
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 options are exercisable in
increments based on the timing of the payoff of Ferrell Companiesdebt, but in no
event later than 20 years from the date of issuance.

P.    
Disclosures about fair value of financial instruments

The carrying amount of short-term
financial instruments approximates fair value because of the short maturity of the
instruments. The estimated fair value of Ferrellgas long-term debt was $1,175.7
million and $921.0 million as of July 31, 2004 and 2003, respectively. The fair value is
estimated based on quoted market prices.

Interest rate collar, cap and
swap agreements.Ferrellgas from time to time has entered into various interest rate
collar, cap and swap agreements involving, among others, the exchange of fixed and
floating interest payment obligations without the exchange of the underlying principal
amounts. During the year ended July 31, 2003, an interest rate cap agreement with a large
financial institution expired.

Q.    
Earnings per common unit

In fiscal years 2004, 2003 and 2002,
0.1 million, 90 thousand and 71 thousand unit options, respectively, were considered
dilutive, however, these additional units caused less than a $0.01 change between the
basic and dilutive earnings per common unit. Below is a calculation of the basic and
diluted earnings per common unit in the consolidated statements of earnings for the
periods indicated. For diluted earnings per common unit purposes, the senior units were
excluded as they are considered contingently issuable common units for which all
necessary conditions for their issuance have not been satisfied as of the end of the
reporting period. Distributions to the senior unitholder decrease net earnings available
to common unitholders.

|                                             | For the year ended July 31,
|-------------------------------------------- | ---------------------------
|
|Net earnings available to common unitholders |                            
|before cumulative effect of change in        |                            
|accounting principle                         |                            
|Cumulative effect of change in accounting    |                            
|principle, net of minority interest and      |                            
|general partner interest of $56              |                            
|                                             |                            
|                                             |                            
|Net earnings available to common unitholders |                            
|                                             |                            
|                                             |                            

---

|                                                         |  |  | 
|-------------------------------------------------------- |  |  | 
|Weighted average common units outstanding (in thousands) |  |  | 

---

|                                             |  |  |  
|-------------------------------------------- |  |  | -
|Basic and diluted earnings per common unit:  |  |  |  
|Net earnings available to common unitholders |  | 
|before cumulative change in accounting       |  | 
|principle                                    |  |  | $
|Cumulative effect of change in accounting    |  | 
|principle, net of minority interest and      |  | 
|general partner interest of $56              |  |  |  
|                                             |  |  |  
|                                             |  |  |  
|Net earnings available to common unitholders |  | 
|                                             |  |  | $
|                                             |  |  |  

R.    
Quarterly data (unaudited)

The following summarized unaudited
quarterly data includes all adjustments (consisting only of normal recurring
adjustments), which Ferrellgas considers necessary for a fair presentation. Due to the
seasonality of the propane distribution industry, first and fourth quarter revenues,
gross profit and net earnings are consistently less than the second and third quarter
results. Other factors affecting the results of operations include competitive
conditions, demand for product, timing of acquisitions, variations in the weather and
fluctuations in propane prices. The sum of net earnings (loss) per common unit by quarter
may not equal the net earnings (loss) per common unit for the year due to variations in
the weighted average units outstanding used in computing such amounts.

Fiscal year ended July
31, 2004

|                              | First quarter | Second quarter | Third quarter | Fourth quarter
|----------------------------- | ------------- | -------------- | ------------- | --------------
|Revenues                      |               |                | $             | 255,414       
|Gross profit                  |               |                |               | 96,165        
|Net earnings (loss) available |               |               
|to common unitholders         |               |                |               | (20,434       
|Net earnings (loss) available |               |               
|to common unitholders:        |               |               
|per basic common unit         |               |                |               | (0.54         
|per diluted common unit       |               |                |               | (0.54         
|Net earnings (loss)           |               |                |               | (18,646       

Fiscal year ended July
31, 2003

|                              | First quarter | Second quarter | Third quarter | Fourth quarter
|----------------------------- | ------------- | -------------- | ------------- | --------------
|Revenues                      |               |                | $             | 216,314       
|Gross profit                  |               |                |               | 92,642        
|Net earnings (loss) available |               |               
|to common unitholders         |               |               
|before cumulative effect of   |               |               
|change in accounting          |               |               
|principle                     |               |                |               | (24,744       
|Net earnings (loss) available |               |               
|to common unitholders         |               |               
|before cumulative effect of   |               |               
|change in accounting          |               |               
|principle:                    |               |               
|per basic common unit         |               |                |               | (0.69         
|per diluted common unit       |               |                |               | (0.69         
|Net earnings (loss)           |               |                |               | (24,966       

S.     Subsequent
event

During August 2004, Ferrellgas
Partners received $55.1 million pursuant to the issuance of 2.9 million common units to
the public. If this transaction would have occurred prior to July 31, 2004, the number of
common units outstanding at the end of July 31, 2004 would have been 51.6 million common
units. In connection with this transaction, the general partner contributed $1.1 million
to maintain its effective 2% general partner interest in Ferrellgas. Ferrellgas Partners
contributed the proceeds to the operating partnership to reduce borrowings outstanding
under its bank credit facility.

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of DirectorsFerrellgas
 Partners Finance Corp.Liberty, Missouri

We have audited the accompanying
balance sheets of Ferrellgas Partners Finance Corp. (a wholly-owned subsidiary of
Ferrellgas Partners, L.P.) as of July 31, 2004 and 2003 and the related statements of
earnings, stockholders equity and cash flows for each of the three years in the
period ended July 31, 2004. These financial statements are the responsibility of the
Ferrellgas Partners Finance Corp.s management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance
with standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 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
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial
statements present fairly, in all material respects, the financial position of Ferrellgas
Partners Finance Corp. as of July 31, 2004 and 2003 and the results of its operations and
its cash flows for each of the three years in the period ended July 31, 2004 in conformity
with accounting principles generally accepted in the United States of America.

/s/ DELIOTTE & TOUCHE LLP

Kansas City, MissouriOctober
12, 2004

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

# BALANCE SHEETS

|                                                | July 31,
|----------------------------------------------- | --------
|
|Cash                                            |         
|                                                |         
|                                                |         
|Total assets                                    |         
|                                                |         
|                                                |         
|STOCKHOLDER'S EQUITY                            |         
|                                                |         
|Common stock, $1.00 par value; 2,000 shares     |         
|authorized; 1,000 shares issued and outstanding |         
|Additional paid in capital                      |         
|Accumulated deficit                             |         
|                                                |         
|                                                |         
|Total stockholder's equity                      |         
|                                                |         
|                                                |         

See notes to financial
statements.



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

# STATEMENTS OF EARNINGS

|                                   | For the year ended July 31,
|---------------------------------- | ---------------------------
|
|Revenues                           |                            
|General and administrative expense |                            
|                                   |                            
|                                   |                            
|Net loss                           |                            
|                                   |                            

See notes to financial
statements.



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

# STATEMENTS OF
STOCKHOLDER'S EQUITY

|                     | Common stock | 
|-------------------- | ------------ | 
|
|August 1, 2001       |              | 
|Capital contribution |              | 
|Net loss             |              | 
|                     |              | 
|July 31, 2002        |              | 
|Capital contribution |              | 
|Net loss             |              | 
|                     |              | 
|July 31, 2003        |              | 
|Capital contribution |              | 
|Net loss             |              | 
|                     |              | 
|July 31, 2004        |              | 
|                     |              | 

See notes to financial
statements.



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

# STATEMENTS OF CASH
FLOWS

|                                      | For the year ended July 31,
|------------------------------------- | ---------------------------
|
|Cash flows from operating activities: |                            
|Net loss                              |                            
|                                      |                            
|                                      |                            
|Cash used by operating activities     |                            
|                                      |                            
|                                      |                            
|Cash flows from financing activities: |                            
|Capital contribution                  |                            
|                                      |                            
|Cash provided by financing activities |                            
|                                      |                            
|Change in cash                        |                            
|Cash - beginning of year              |                            
|                                      |                            
|Cash - end of year                    |                            
|                                      |                            

See notes to financial
statements.



# FERRELLGAS PARTNERS
FINANCE CORP.

# (a wholly-owned
subsidiary of Ferrellgas Partners, L.P.)

# NOTES TO FINANCIAL
STATEMENTS

A.        Formation

| | Ferrellgas
Partners Finance Corp. (the Finance Corp.), a Delaware corporation, was formed
on March 28, 1996 and is a wholly-owned subsidiary of Ferrellgas Partners, L.P. (the
Partnership).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Partnership contributed $1,000 to the Finance Corp. on April 8, 1996 in exchange for 1,000
shares of common stock.
| | ----------------------------------------------------------------------------------------------------------------------

B.        Commitment

| | On
April 26, 1996, the Partnership issued $160.0 million of 9 3/8% senior secured notes due
2006 (the senior notes). The senior notes became redeemable at the option of
the Partnership, in whole or in part, at any time on or after June 15, 2001. On September
24, 2002, the Partnership redeemed the Senior Notes with the proceeds from $170.0 million
of 8 3/4% senior notes due 2012. On December 18, 2002, the Partnership issued an
additional $48.0 million of 8 3/4% senior notes due 2012.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Finance Corp. serves as a co-obligor for the senior notes.
| | --------------------------------------------------------------

C.        Income
taxes

| | Income
taxes have been computed as though the Finance Corp. files its own income tax return.
Deferred income taxes are provided as a result of temporary differences between financial
and tax reporting using the asset/liability method. Deferred income taxes are recognized
for the tax consequences of temporary differences between the financial statement carrying
amounts and tax basis of existing assets and liabilities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Due
to the inability of the Finance Corp. to utilize the deferred tax benefit of $1,134
associated with the current year net operating loss carryforward of $2,914, which expire
at various dates through July 31, 2024, a valuation allowance has been provided on the
full amount of the deferred tax asset. Accordingly, there is no net deferred tax benefit
for the years ended July 31, 2004, 2003 or 2002, and there is no net deferred tax asset as
of July 31, 2004 and 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Ferrellgas, L.P. and Subsidiaries
Liberty, Missouri

We have audited the accompanying
consolidated balance sheets of Ferrellgas, L.P. and subsidiaries (the
Partnership) as of July 31, 2004 and 2003 and the related consolidated
statements of earnings, partners capital and cash flows for each of the three years
in the period ended July 31, 2004. These financial statements are the responsibility of
the Partnerships management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance
with standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 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
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated
financial statements present fairly, in all material respects, the financial position of
Ferrellgas, L.P. and subsidiaries as of July 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended July 31,
2004, in conformity with accounting principles generally accepted in the United States of
America.

As discussed in Note B(11) to the
consolidated financial statements, the Partnership changed its method of accounting for
asset retirement obligations with the adoption of Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations, in
fiscal 2003 and, as discussed in Note B(8) to the consolidated financial statements,
changed its method of accounting for goodwill and other intangible assets with the
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and
Other IntangibleAssets, in fiscal 2002.

/s/ DELOITTE & TOUCHE LLP

Kansas City, MissouriOctober
12, 2004

# FERRELLGAS, L.P. AND
SUBSIDIARIES

# CONSOLIDATED BALANCE
SHEETS                     (in thousands)

|                                              | July 31,
|--------------------------------------------- | --------
|
|Current assets:                               |         
|Cash and cash equivalents                     |         
|Accounts and notes receivable (net of         |         
|allowance for doubtful accounts of $2,523 and |         
|$2,672 in 2004 and 2003, respectively)        |         
|Inventories                                   |         
|Prepaid expenses and other current assets     |         
|                                              |         
|Total current assets                          |         
|Property, plant and equipment, net            |         
|Goodwill                                      |         
|Intangible assets, net                        |         
|Other assets, net                             |         
|                                              |         
|Total assets                                  |         
|                                              |         
|LIABILITIES AND PARTNERS' CAPITAL             |         
|                                              |         
|Current liabilities:                          |         
|Accounts payable                              |         
|Other current liabilities                     |         
|                                              |         
|Total current liabilities                     |         
|Long-term debt                                |         
|Other liabilities                             |         
|Contingencies and commitments (Note M)        |         
|Partners' capital                             |         
|Limited partner                               |         
|General partner                               |         
|Accumulated other comprehensive income (loss) |         
|                                              |         
|Total partners' capital                       |         
|                                              |         
|Total liabilities and partners' capital       |         
|                                              |         

See notes to
consolidated financial statements.



# FERRELLGAS, L.P. AND
SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF EARNINGS                                                     (in thousands)

|                                                    | For the year ended July 31,
|--------------------------------------------------- | ---------------------------
|
|Revenues:                                           |                            
|Propane and other gas liquids sales                 |                            
|Other                                               |                            
|                                                    |                            
|                                                    |                            
|Total revenues                                      |                            
|Cost of product sold (exclusive of                  |                            
|depreciation, shown with amortization below)        |                            
|                                                    |                            
|                                                    |                            
|Gross profit                                        |                            
|Operating expense                                   |                            
|Depreciation and amortization expense               |                            
|General and administrative expense                  |                            
|Equipment lease expense                             |                            
|Employee stock ownership plan compensation charge   |                            
|Loss on disposal of assets and other                |                            
|                                                    |                            
|                                                    |                            
|Operating income                                    |                            
|Interest expense                                    |                            
|Interest income                                     |                            
|                                                    |                            
|                                                    |                            
|                                                    |                            
|Earnings before income tax benefit and cumulative   |                            
|effect of change in accounting principle            |                            
|Income tax benefit                                  |                            
|                                                    |                            
|Earnings before cumulative effect of change in      |                            
|accounting principle                                |                            
|Cumulative effect of change in accounting principle |                            
|                                                    |                            
|Net earnings                                        |                            
|                                                    |                            

See notes to
consolidated financial statements.



# FERRELLGAS, L.P. AND
SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF PARTNERS' CAPITAL                       (in thousands)

|                                                    | Accumulated other
comprehensive income (loss) | 
|--------------------------------------------------- | --------------------------------------------- | 
|
|August 1, 2001                                      |                                               | 
|Contributions in connection with                    |                                               | 
|ESOP compensation charge                            |                                               | 
|Quarterly cash and accrued distributions            |                                               | 
|Net assets contributed by Ferrellgas Partners and   |                                               | 
|the general partner in connection with acquisitions |                                               | 
|Comprehensive income:                               |                                               | 
|Net earnings                                        |                                               | 
|Other comprehensive income (loss):                  |                                               | 
|Net losses on risk management derivatives           |                                               | 
|Reclassification of net losses on                   |                                               | 
|derivatives                                         |                                               | 
|Pension liability adjustment                        |                                               | 
|                                                    |                                               | 
|Comprehensive income                                |                                               | 
|                                                    |                                               | 
|July 31, 2002                                       |                                               | 
|Contributions in connection with                    |                                               | 
|ESOP compensation charge                            |                                               | 
|Quarterly cash and accrued distributions            |                                               | 
|Cash contributed by Ferrellgas Partners and         |                                               | 
|the general partner                                 |                                               | 
|Net assets contributed by Ferrellgas Partners and   |                                               | 
|the general partner in connection with acquisitions |                                               | 
|Comprehensive income:                               |                                               | 
|Net earnings                                        |                                               | 
|Other comprehensive income:                         |                                               | 
|Reclassification of net gains on                    |                                               | 
|derivatives                                         |                                               | 
|Pension liability adjustment                        |                                               | 
|                                                    |                                               | 
|Comprehensive income                                |                                               | 
|                                                    |                                               | 
|July 31, 2003                                       |                                               | 
|Contributions in connection with                    |                                               | 
|ESOP compensation charge                            |                                               | 
|Quarterly cash and accrued distributions            |                                               | 
|Cash contributed by Ferrellgas Partners and         |                                               | 
|the general partner                                 |                                               | 
|Net assets contributed by Ferrellgas Partners and   |                                               | 
|the general partner in connection with acquisitions |                                               | 
|Comprehensive income:                               |                                               | 
|Net earnings                                        |                                               | 
|Other comprehensive income:                         |                                               | 
|Net gains on risk management derivatives            |                                               | 
|Reclassification of net gains on                    |                                               | 
|derivatives                                         |                                               | 
|Foreign currency translation adjustments            |                                               | 
|Pension liability adjustment                        |                                               | 
|                                                    |                                               | 
|                                                    |                                               | 
|Comprehensive income                                |                                               | 
|                                                    |                                               | 
|July 31, 2004                                       |                                               | 
|                                                    |                                               | 

See notes to
consolidated financial statements.



# FERRELLGAS, L.P. AND
SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF CASH FLOWS                                         (in thousands)

|                                                            | For the year ended July 31,
|----------------------------------------------------------- | ---------------------------
|
|Cash flows from operating activities:                       |                            
|Net earnings                                                |                            
|Reconciliation of net earnings to net cash provided         |                            
|by operating activities:                                    |                            
|Cumulative effect of change in accounting principle         |                            
|Depreciation and amortization expense                       |                            
|Employee stock ownership plan compensation charge           |                            
|Loss on disposal of assets                                  |                            
|Other                                                       |                            
|Changes in operating assets and liabilities, net of effects |                            
|from business acquisitions:                                 |                            
|Accounts and notes receivable, net of securitization        |                            
|Inventories                                                 |                            
|Prepaid expenses and other current assets                   |                            
|Accounts payable                                            |                            
|Accrued interest expense                                    |                            
|Other current liabilities                                   |                            
|Other liabilities                                           |                            
|Accounts receivable securitization:                         |                            
|Proceeds from new accounts receivable securitizations       |                            
|Proceeds from collections reinvested in revolving           |                            
|period accounts receivable securitizations                  |                            
|Remittances of amounts collected as servicer of             |                            
|accounts receivable securitizations                         |                            
|                                                            |                            
|Net cash provided by operating activities                   |                            
|                                                            |                            
|Cash flows from investing activities:                       |                            
|Cash paid for assumed merger and related obligations        |                            
|Business acquisitions, net of cash acquired                 |                            
|Cash paid for acquisition transaction fees                  |                            
|Capital expenditures - tank lease buyout                    |                            
|Capital expenditures - technology initiative                |                            
|Capital expenditures - other                                |                            
|Other                                                       |                            
|                                                            |                            
|Net cash used in investing activities                       |                            
|                                                            |                            
|Cash flows from financing activities:                       |                            
|Distributions                                               |                            
|Contributions from partners                                 |                            
|Proceeds from issuance of debt                              |                            
|Principal payments on debt                                  |                            
|Net reductions to short-term borrowings                     |                            
|Cash paid for financing costs                               |                            
|                                                            |                            
|Net cash provided by (used in) financing activities         |                            
|                                                            |                            
|Effect of exchange rate changes on cash                     |                            
|Increase (decrease) in cash and cash equivalents            |                            
|Cash and cash equivalents - beginning of period             |                            
|                                                            |                            
|Cash and cash equivalents - end of period                   |                            
|                                                            |                            
|                                                            |                            
|Supplemental disclosures of cash flow information:          |                            
|Cash paid for:                                              |                            
|Interest                                                    |                            
|                                                            |                            
|Income taxes                                                |                            
|                                                            |                            

See notes to
consolidated financial statements.



# FERRELLGAS, L.P.AND
SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

# (Dollars in thousands,
unless otherwise designated)

A.    Partnership
organization and formation

Ferrellgas, L.P. was formed April
22, 1994, and is a Delaware limited partnership. Ferrellgas, L.P. was formed to acquire,
own and operate the propane business and assets of Ferrellgas, Inc. (general partner),
a wholly-owned subsidiary of Ferrell Companies, Inc. (Ferrell Companies). The
general partner holds an approximate 1% general partner interest in Ferrellgas, L.P. and
performs all management functions. Ferrellgas Partners, L.P. (Ferrellgas Partners),
a publicly traded limited partnership, holds an approximate 99% limited partner interest
in and consolidates Ferrellgas, L.P. Ferrellgas Partners and Ferrellgas, L.P. are
governed by their respective partnership agreements. These agreements contain specific
provisions for the allocation of net earnings and loss to each of the partners for
purposes of maintaining the partner capital accounts.

On July 17, 1998, 100% of the
outstanding common stock of Ferrell Companies was purchased primarily from Mr. James E.
Ferrell (Mr. Ferrell) and his family by a newly created leveraged employee
stock ownership trust (ESOT) established pursuant to the Ferrell Companies
Employee Stock Ownership Plan (ESOP). The purpose of the ESOP is to provide
employees of the general partner an opportunity for ownership in Ferrell Companies and
indirectly in Ferrellgas, L.P. As contributions are made by Ferrell Companies to the ESOT
in the future, shares of Ferrell Companies are allocated to the employees ESOP
accounts.

On June 5, 2000, Ferrellgas, L.P.s
partnership agreement was amended to allow the general partner to have an option in
maintaining its 1.0101% general partner interest in Ferrellgas, L.P. concurrent with the
issuance of other additional equity. Prior to this amendment, the general partner was
required to make capital contributions to Ferrellgas, L.P. in order to maintain its
1.0101% general partner interest concurrent with the issuance of any additional equity.

B.      Summary
of significant accounting policies

(1)        Nature of operations: Ferrellgas, L.P. is engaged primarily in the
                    distribution of propane and related equipment and supplies in the United States.
                    The propane distribution market is seasonal because propane is used primarily
                    for heating in residential and commercial buildings. Ferrellgas, L.P. serves
                    more than one million residential, industrial/commercial, portable tank
                    exchange, agricultural and other customers. As of April 21, 2004, Ferrellgas,
                    L.P. became the leading national provider of portable tank exchange see Note C
                     Business combinations  for additional discussion about the Blue
                    Rhino contribution.

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

(3)              Principles of consolidation:The accompanying consolidated financial
                    statements present the consolidated financial position, results of operations
                    and cash flows of Ferrellgas, L.P. and its subsidiaries after elimination of all
                    material intercompany accounts and transactions. In connection with the Blue
                    Rhino contribution, Ferrellgas, L.P. also consolidates the following
                    wholly-owned taxable corporations: Uniflame Corporation, UniAsia, Ltd.,
                    QuickShip, Inc., Blue Rhino Global Sourcing, LLC and Blue Rhino Canada, Inc.
                    Ferrellgas Receivables, LLC (Ferrellgas Receivables), a wholly owned
                    unconsolidated subsidiary, is a qualifying special purpose entity. Ferrellgas,
                    L.P. also consolidates R-4 Technical Center-NC, LLC based on its ability to
                    exert control over this subsidiary.

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

(5)       Inventories:Inventories are stated at the lower of cost or market using
                    weighted average cost and actual cost methods. Ferrellgas, L.P. enters into
                    commodity derivative contracts involving propane and related products to hedge,
                    reduce risk and anticipate market movements. The fair value of these derivative
                    contracts is classified as inventory.

(6)        Accounts receivable securitization: Ferrellgas, L.P. has agreements to
                    transfer, on an ongoing basis, certain of its trade accounts receivable through
                    an accounts receivable securitization facility and retains servicing
                    responsibilities as well as a retained interest related to a portion of the
                    transferred receivables. Ferrellgas, L.P. accounts for the securitization of
                    accounts receivable in accordance with Statement of Financial Accounting
                    Standards (SFAS) No. 140, Accounting for Transfers and
                    Servicing of Financial Assets and Extinguishments of Liabilities. As a
                    result, the related receivables are removed from the consolidated balance sheet
                    and a retained interest is recorded for the amount of receivables sold in excess
                    of cash received. The retained interest is included in Accounts and notes
                    receivable in the consolidated balance sheets.

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

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

(8) Goodwill: Goodwill is not amortized and is tested for impairment
                    each January 31 on an annual basis or more frequently if
circumstances dictate. Beginning in the first quarter of fiscal year 2002,
Ferrellgas adopted SFAS No. 142 Goodwill and Other Intangible Assets
which modified the financial accounting and reporting for acquired goodwill and
other intangible assets, including the requirement that goodwill and some
intangible assets no longer be amortized.
                    Ferrellgas, L.P. did not recognize any impairment losses as a result of these
                    tests. Ferrellgas, L.P. assesses the carrying value of goodwill at a reporting
                    unit level, at least annually, based on an estimate of the fair value of the
                    respective reporting unit. Fair value of the reporting unit is estimated using a
                    market value approach taking into consideration the quoted market price of
                    Ferrellgas Partners common units. For purposes of Ferrellgas, L.P.s
                    goodwill impairment test, Ferrellgas, L.P. has determined that it has one
                    reporting unit.

(9)           Intangible assets:Intangible assets with definite lives, consisting
                    primarily of customer lists, noncompete agreements and and patented technology, are
                    stated at cost, net of amortization calculated using either straight-line or
                    accelerated methods over periods ranging from two to 15 years. Tradenames and
                    trademarks have indefinite lives and are not amortized, are also stated at cost.
                    Ferrellgas, L.P. reviews identifiable intangibles for impairment in a similar
                    manner as with long-lived assets. Ferrellgas, L.P., using its best estimates
                    based on reasonable and supportable assumptions and projections, reviews
                    long-lived assets for impairment whenever events or changes in circumstances
                    indicate that the carrying amount of its assets might not be recoverable. When
                    necessary, the intangible assets useful lives are revised and the impact
                    on amortization will be reflected on a prospective basis. See Note G 
                    Intangible assets, net  for further discussion of intangible assets.

(10)            Accounting for derivative commodity contracts:Ferrellgas, L.P. enters
                    into commodity options involving propane to specifically hedge certain price
                    risks. Any changes in the fair value of these specific cash flow hedge positions
                    are deferred and included in other comprehensive income and recognized as an
                    adjustment to cost of product sold in the month the forecasted price risk is
                    settled. Ferrellgas, L.P. also enters into other commodity forward and futures
                    purchase/sale agreements and commodity swaps and options involving propane and
                    related products, which are not specific hedges to a certain product cost risk,
                    but are used for risk management purposes. To the extent such contracts are
                    entered into at fixed prices and thereby subject Ferrellgas, L.P. to market
                    risk, the contracts are accounted for using the fair value method. Under this
                    valuation method, derivatives are carried on the consolidated balance sheets at
                    fair value with changes in that value recognized in earnings. Ferrellgas, L.P.
                    classifies all gains and losses from these derivative commodity contracts
                    entered into for product risk management purposes as cost of product sold in the
                    consolidated statements of earnings. See Note K  Deivatives  for
                    further discussion.

(11)           Asset retirement obligation:SFAS No. 143
"Accounting for Asset Retirement Obligations" provides accounting requirements
          for retirement obligations associated with tangible long-lived assets, including
          the requirement that a liability be recognized if there is a legal or financial
          obligation associated with the retirement of the assets. Ferrellgas, L.P.
          adopted SFAS No. 143 beginning in fiscal year 2003. This cumulative effect of a
          change in accounting principle resulted in a one-time charge to earnings of $2.8
          million during fiscal year 2003, together with the recognition of a $3.1 million
          long-term liability and a $0.3 million long-term asset. Ferrellgas, L.P.
          believes the implementation will not have a material ongoing effect on
its consolidated
          financial position, results of operations and cash flows. These obligations
          relate primarily to the estimated future expenditures required to retire
          Ferrellgas, L.P.s underground storage facilities. The remaining period
          until these facilities will require closure and remediation expenditures is
          approximately 50 years.

(12)        Revenue recognition: Revenues from the distribution of propane are
                    recognized by Ferrellgas, L.P. at the time product is delivered to its
                    customers. Revenue from the sale of propane appliances and equipment is
                    recognized at the time of delivery or installation. Revenues from repairs and
                    maintenance are recognized upon completion of the service. Ferrellgas, L.P.
                    recognizes shipping and handling revenues and expenses for sales of propane,
                    appliances and equipment at the time of delivery or installation. Shipping and
                    handling revenues are included in the price of propane charged to customers, and
                    are classified as revenue.

(13)        Shipping and handling expenses:Shipping and handling expenses related to
                    delivery personnel, vehicle repair and maintenance and general liability
                    expenses are classified within operating expense on the statement of earnings.
                    Depreciation expenses on delivery vehicles Ferrellgas, L.P. owns are classified
                    within depreciation and amortization expense. Lease expenses on delivery
                    vehicles Ferrellgas, L.P. leases are classified within equipment lease expense.
                    See Note E  Supplemental financial statement information  for the
                    financial statement presentation of shipping and handling expenses.

(14)        Cost of product sold: Cost of product sold includes all costs to acquire
                    propane, other gas liquids and non-gas items, including the results from all
                    risk management activities and the costs of storing and transporting inventory
                    to Ferrellgas L.P.s customers. Cost of product sold also includes costs
                    related to the refurbishment of Ferrellgas, L.P.s portable propane tanks.

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

(16)         Income taxes:Ferrellgas, L.P. is a limited partnership and owns seven
                    subsidiaries that are taxable corporations. As a result, except for the taxable
                    corporations, Ferrellgas, L.P.s earnings or losses for Federal income tax
                    purposes are included in the tax returns of the individual partners.
                    Accordingly, except for the effect from the taxable corporations, no recognition
                    has been given to income taxes in the accompanying consolidated financial
                    statements of Ferrellgas, L.P. Net earnings for financial statement purposes may
                    differ significantly from taxable income reportable to partners as a result of
                    differences between the tax basis and financial reporting basis of assets and
                    liabilities and the taxable income allocation requirements under Ferrellgas,
                    L.P.s partnership agreement.

(17)          Unit and stock-based compensation: Ferrellgas, L.P. accounts for the
                    Ferrellgas Partners Unit Option Plan (unit option plan) and the
                    Ferrell Companies, Inc. Incentive Compensation Plan (ICP) using the
                    intrinsic value method under the provisions of Accounting Principles Board
                    (APB) No. 25, Accounting for Stock Issued to Employees,
                    for all periods presented and makes the fair value method pro forma disclosures
                    required under the provisions of SFAS No. 123, Accounting for Stock-Based
                    Compensation, as amended by SFAS No. 148 Accounting for Stock-Based
                    Compensation  Transition and Disclosure. Accordingly, no
                    compensation cost has been recognized for the unit option plan, or for the ICP.
                    Had compensation cost for these plans been determined based upon the fair value
                    at the grant date for awards under these plans, consistent with the methodology
                    prescribed under SFAS No. 123, Ferrellgas, L.P.s net earnings and earnings
                    per unit would have been adjusted as noted in the table below:

|                                            | 2004 | 2003 | 2002
|------------------------------------------- | ---- | ---- | ----
|Net earnings as reported                    |      |      | $   
|Deduct: Total stock-based employee          |      |     
|compensation expenses determined under fair |      |     
|value based method for all awards           |      |      |     
|                                            |      |      |     
|                                            |      |      |     
|Pro forma net earnings                      |      |      | $   
|                                            |      |      |     

The fair value of the ICP stock
options granted during the 2004, 2003 and 2002 fiscal years were determined using a
binomial option valuation model with the following assumptions: a) a one percent
dividend, b) average stock price volatility of 17.9%, 18.6% and 19.2% used in 2004, 2003
and 2002, respectively, c) the risk-free interest rate used was 3.8%, 4.0% and 4.3% in
2004, 2003 and 2002, respectively and d) expected life of the options between five and 12
years.

See Note O  Unit options of
Ferrellgas Partners and stock options of Ferrell Companies  for further discussion
and disclosure of stock-based compensation.

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

(19)          Adoption of New Accounting Standards:The Financial Accounting Standards
                    Board (FASB) recently issued SFAS No. 150 Accounting for
                    Certain Financial Instruments with Characteristics of both Liabilities and
                    Equity, FASB Financial Interpretation No. 46 Consolidation of
                    Variable Interest Entities, Emerging Issues Task Force (EITF)
                    00-21 Accounting for Revenue Arrangements with Multiple Deliverables
                    and SFAS No. 132R EmployersDisclosures
about Pensions and Other Postretirement Benefits.

SFAS No. 150 establishes standards
for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity. This
statement is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective for fiscal year 2004. SFAS No. 150 did not have a
material effect on Ferrellgas, L.P.s consolidated financial position, results of operations and
cash flows.

FASB Financial Interpretation No. 46
(FIN 46) clarified Accounting Research Bulletin No. 51, Consolidated
Financial Statements. If certain conditions are met, this interpretation requires
the primary beneficiary to consolidate certain variable interest entities in which equity
investors lack the characteristics of a controlling financial interest or do not have
sufficient equity investment at risk to permit the variable interest entity to finance
its activities without additional subordinated financial support from other parties. In
December 2003, the FASB issued a revision to FIN 46, which addresses new effective dates
and certain implementation issues. The interpretation is generally effective for the
periods ending after December 15, 2003. Among these issues is the addition of a scope
exception for certain entities that meet the definition of a business, provided certain
criteria are met. Ferrellgas, L.P. does not have any variable interest entities that
would be subject to this revised interpretation.

EITF No. 00-21 addresses how to
account for arrangements that may involve multiple revenue-generating activities, such as
the delivery or performance of multiple products, services, and/or rights to use assets.
In applying this guidance, separate contracts with the same party, entered into at or
near the same time, will be presumed to be a bundled transaction, and the consideration
will be measured and allocated to the separate units based on their relative fair values.
This consensus guidance is applicable to agreements entered into in quarters beginning
after June 15, 2003. Ferrellgas, L.P. adopted this new accounting pronouncement beginning
August 1, 2003. The implementation of this pronouncement did not have a material impact
on Ferrellgas, L.P.s consolidated financial position, results of operations and cash flows,
because it does not enter into a significant number of arrangements that may involve
multiple revenue-generating activities.

SFAS No. 132R revises and improves
employers financial statement disclosures about defined benefit pension plans and
other postretirement benefit plans. This revised statement does not change the
measurement or recognition of those plans and retains the disclosures required by the
original SFAS No. 132. This revised statement also requires additional disclosures about
the assets, obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. This revised statement is
effective for fiscal year 2004. SFAS No. 132R did not have a material effect on
Ferrellgas, L.P.s consolidated financial position, results of operations and cash flows.

C.    Business
combinations

During the year ended July 31, 2004,
Ferrellgas, L.P. completed one material business combination and ten smaller business
combinations. Each of the business combinations was accounted for under the purchase
method and the assets acquired and liabilities assumed were recorded at their estimated
fair market values as of the acquisition date. The preliminary allocation of assets and
liabilities may be adjusted to reflect the final determined amounts during a period of
time following each business combination. The Blue Rhino contribution allocation is
preliminary pending the completion of the valuation of tangible and intangible assets and
the calculation of other costs. The results of operations from these business
combinations are included in Ferrellgas, L.P.s consolidated financial statements
from the date of the business combinations.

|                        | Allocation of Purchase Price
|----------------------- | ----------------------------
|
|Blue Rhino (April 2004) |                             
|                        |                             
|Others (various)        |                             
|                        |                             
|                        |                             
|                        |                             
|                        |                             

Intangible assets subject to
amortization include:

| | o |  | $95.5
million assigned to customer lists, to be amortized over 15 years;
| | - |  | ------------------------------------------------------------------------

| | o |  | $3.3
million assigned to non-compete agreements, to be amortized over three years; and
| | - |  | --------------------------------------------------------------------------------------

| | o |  | others
totaling $6.3 million to be amortized over a weighted average period of seven years.
| | - |  | -------------------------------------------------------------------------------------------

Intangible assets not subject to
amortization include $59.0 million assigned to tradenames and trademarks.

The other ten smaller propane
distribution businesses acquired during the year ended July 31, 2004, included the
following:

| | o |  | Chapman's
Propane Co., Inc, based in Illinois, acquired August 2003;
| | - |  | --------------------------------------------------------------------

| | o |  | Bud's
Propane Service, Inc., based in Oregon, acquired September 2003;
| | - |  | ----------------------------------------------------------------------

| | o |  | Prairie
Land Coop, based in Iowa, acquired October 2003;
| | - |  | --------------------------------------------------------

| | o |  | Aeropres
Propane, Inc., based in Louisiana and Arkansas, acquired December 2003;
| | - |  | --------------------------------------------------------------------------------

| | o |  | Suburban
 Propane's Midwest Retail Operations,  based in Texas,  Oklahoma,  Missouri and Kansas,
 acquired          January 2004;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

| | o |  | Crow's
LP Gas Co, based in Iowa, acquired March 2004;
| | - |  | -----------------------------------------------------

| | o |  | Hilltop
Supply Company, based in Southern California, acquired March 2004;
| | - |  | --------------------------------------------------------------------------

| | o |  | Blue
Ribbon Propane, based in Canada, acquired May 2004;
| | - |  | --------------------------------------------------------

| | o |  | C.
Barron & Sons, Inc., based in Michigan, acquired June 2004; and
| | - |  | ------------------------------------------------------------------

| | o |  | Tri-Counties
Gas Companies, based in Northern California, acquired July 2004.
| | - |  | -----------------------------------------------------------------------------

These purchases of the ten smaller
propane distribution businesses and additional expenditures for prior year acquisitions
were funded by $41.0 million in cash payments, the contribution of net assets of $1.5
million from Ferrellgas Partners and $0.8 million of notes payable to the seller. The
estimated fair values and useful lives of assets acquired are based on a preliminary
valuation and are subject to final valuation adjustments. Ferrellgas, L.P. intends to
continue its analysis of the net assets of these acquired businesses to determine the
final allocation of the total purchase price to the various assets acquired.

Blue
Rhino contribution

On April 20, 2004, FCI Trading Corp.
(FCI Trading), an affiliate of the general partner, acquired all of the
outstanding common stock of Blue Rhino Corporation in an all-cash merger. Pursuant to an
Agreement and Plan of Merger dated February 8, 2004, a subsidiary of FCI Trading merged
with and into Blue Rhino Corporation whereby the then current stockholders of Blue Rhino
Corporation were granted the right to receive a payment from FCI Trading of $17.00 in
cash for each share of Blue Rhino Corporation common stock outstanding on April 20, 2004.
FCI Trading thereafter became the sole stockholder of Blue Rhino Corporation and
immediately after the merger, FCI Trading converted Blue Rhino Corporation into a limited
liability company, Blue Rhino LLC.

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

|                                                                    | 
|------------------------------------------------------------------- | 
|Assumption of obligations under the contribution agreement          | 
|Common units and general partner interest issued                    | 
|Assumption of Blue Rhino's bank credit facility outstanding balance | 
|Assumption of other liabilities and acquisition costs               | 
|                                                                    | 
|                                                                    | 
|                                                                    | 
|                                                                    | 

In consideration of this
contribution, Ferrellgas Partners issued 0.2 million common units to FCI Trading. Both
Ferrellgas Partners and FCI Trading have agreed to indemnify the general partner from any
damages incurred by the general partner in connection with the assumption of any of the
obligations described above. Also on April 21, 2004, subsequent to the contribution
described above, Blue Rhino LLC merged with and into the Ferrellgas, L.P. The former
operations of Blue Rhino LLC will hereafter be referred to as Blue Rhino.

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

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

Ferrellgas, L.P.s valuation of
the tangible and intangible assets of the Blue Rhino contribution resulted in the
recognition of goodwill of $137.3 million. This preliminary valuation of goodwill was
based on Ferrellgas, L.P.s belief that the contributions of Blue Rhino will be
beneficial to Ferrellgas, L.P.s and Blue Rhinos operations as Blue Rhinos
counter-seasonal business activities and anticipated future growth is expected to provide
Ferrellgas, L.P. with the ability to better utilize its seasonal resources to complement
Ferrellgas, L.P.s retail distribution locations with Blue Rhinos existing
distributor network. Ferrellgas, L.P. has not yet obtained all information required to
complete the evaluation and allocation of the purchase price for the Blue Rhino
contribution. The final evaluation and allocation will be completed in fiscal year
2005.

The results of operations of Blue
Rhino for the period from April 21, 2004 through July 31, 2004 are included in the
statement of earnings of the combined entity for the year ended July 31, 2004.

Pro
forma results of operations

The following summarized unaudited
pro forma results of operations for the year ended July 31, 2004 and 2003, assumes that
the Blue Rhino contribution had occurred as of the beginning of the period presented.
These unaudited pro forma financial results have been prepared for comparative purposes
only and may not be indicative of (i) the results that would have occurred if Ferrellgas,
L.P. had completed the Blue Rhino contribution as of the beginning of the periods
presented or (ii) the results that will be attained in the future. Nonrecurring items
included in the reported pro forma results of operations for the year ended July 31,
2003, include $2.5 million of income related to net proceeds from a litigation settlement
in March 2003. Items not included in the reported pro forma results of operations for the
year ended July 31, 2004, are $3.3 million of nonrecurring charges incurred by Blue Rhino
Corporation in the period from February 1, 2004 through April 20, 2004, that are directly
attributable to the Blue Rhino contribution.

|                                                          | For the year ended July 31,
|--------------------------------------------------------- | ---------------------------
|
|                                                          |                            
|Revenues                                                  |                            
|Earnings before cumulative effect of change in accounting |                            
|principle                                                 |                            
|Net earnings                                              |                            

During the year ended July 31, 2003,
Ferrellgas, L.P. acquired, or had contributed to it, the following propane distribution
businesses with an aggregate value at $51.1 million:

| | o |  | ProAm,
Inc., based primarily in Georgia and Texas, acquired December 2002;
| | - |  | --------------------------------------------------------------------------

| | o |  | a
branch of Cenex Propane Partners Co., based in Iowa, acquired November 2002;
| | - |  | ------------------------------------------------------------------------------

| | o |  | Northstar
Propane, based in Nevada, acquired November 2002;
| | - |  | -----------------------------------------------------------

| | o |  | Pettit
Oil Company, Inc., based in Washington, acquired May 2003; and
| | - |  | ---------------------------------------------------------------------

| | o |  | Wheeler's
Bottled Gas, Inc., based in Ohio, acquired July 2003.
| | - |  | ---------------------------------------------------------------

These purchases were funded by $9.0
million of cash payments, the contribution of net assets of $41.6 million from Ferrellgas
Partners and $0.5 million in the issuance of notes payable to the seller and other costs
and consideration.

The aggregate value of these five
propane distribution businesses were allocated as follows: $29.6 million for assets such
as customer tanks, buildings and land, $1.1 million for non-compete agreements, $12.5
million for customer lists and $7.9 million for net working capital. Net working capital
was comprised of $8.7 million of current assets and $0.8 million of current liabilities.
The estimated fair values and useful lives of assets acquired are based on a valuation
and include final valuation adjustments. The weighted average amortization period for
non-compete agreements and customer lists are five and 15 years, respectively.

During the year ended July 31, 2002,
Ferrellgas, L.P. acquired the following propane distribution businesses with an aggregate
value at $10.8 million:

| | o |  | Blue
Flame Bottle Gas, based in southern Arizona, acquired December 2001;
| | - |  | -------------------------------------------------------------------------

| | o |  | Alabama
Butane Co., based in central and south Alabama, acquired November 2001; and
| | - |  | -----------------------------------------------------------------------------------

| | o |  | Alma
Farmers Union Co-op, based in western Wisconsin, acquired September 2001.
| | - |  | ------------------------------------------------------------------------------

The purchases were funded by $6.3
million of cash payments, the issuance of 0.1 million common units by Ferrellgas Partners
valued at an aggregate of $2.3 million, and $2.2 million of notes payable to the seller.
The aggregate value was allocated as follows: $7.1 million for assets such as customer
tanks, buildings and land, $2.7 million for non-compete agreements, $1.2 million for
customer lists, $32 thousand for other assets and $(0.2) million for net working capital.
Net working capital was comprised of $0.5 million of current assets and $0.7 million of
current liabilities. The weighted average amortization period for non-compete agreements
and customer lists are five and 15 years, respectively.

D.     Quarterly
distributions of available cash

Ferrellgas, L.P. makes quarterly
cash distributions of all of its available cash.Available cash is defined in
the partnership agreement of Ferrellgas, L.P. as, generally, the sum of its consolidated
cash receipts less consolidated cash disbursements and net changes in reserves
established by the general partner for future requirements. Reserves are retained in
order to provide for the proper conduct of Ferrellgas, L.P.s business, or to
provide funds for distributions 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 quarter
ending October, January, April, and July.

Distributions by Ferrellgas, L.P. in
an amount equal to 100% of its available cash, as defined in its partnership agreement,
will be made as an approximate 99% to Ferrellgas Partners and an approximate 1% to the
general partner.

E.     Supplemental
financial statement information

Inventories consist of:

|                                 | 2004 | 2003
|-------------------------------- | ---- | ----
|Propane gas and related products |      |     
|Appliances, parts and supplies   |      |     
|                                 |      |     
|                                 |      |     
|                                 |      |     
|                                 |      |     

In addition to inventories on hand,
Ferrellgas, L.P. enters into contracts to buy product for supply purposes. Nearly all of
these contracts have terms of less than one year and most call for payment based on
market prices at the date of delivery. All fixed price contracts have terms of less than
one year.

Property, plant and equipment consist
of:

|                                          | Estimated
useful lives | 2004 | 2003      
|----------------------------------------- | ---------------------- | ---- | ----------
|Land                                      |                        |      | indefinite
|Land improvements                         |                        |      | 2-20      
|Buildings and improvements                |                        |      | 20        
|Vehicles, including transport trailers    |                        |      | 8-20      
|Furniture and fixtures                    |                        |      | 5         
|Bulk equipment and district facilities    |                        |      | 5-30      
|Tanks and customer equipment              |                        |      | 2-30      
|Computer equipment and software           |                        |      | 2-5       
|Computer software development in progress |                        |      | n/a       
|Construction in progress                  |                        |      | n/a       
|                                          |                        |      |           
|                                          |                        |      |           
|                                          |                        |      |           
|Less:  accumulated depreciation           |                        |      |           
|                                          |                        |      |           
|                                          |                        |      |           
|                                          |                        |      |           
|                                          |                        |      |           

During fiscal year 2004, Ferrellgas,
L.P. placed in service $49.0 million of computer software, which will be depreciated
using the straight-line method over its estimated useful life of 5 years.

Ferrellgas, L.P. capitalized $0.6
million, 2.2 million and $0.7 million of interest expense related to the development of
computer software for the years ended July 31, 2004, 2003 and 2002, respectively. During
fiscal year 2003, $7.0 million was paid related to the development of new computer
software that was acquired during fiscal year 2002. Depreciation expense totaled $41.2
million, $28.2 million and $27.9 million for the fiscal years ended July 31, 2004, 2003,
and 2002, respectively.

Other current liabilities consist
of:

|                  | 2004 | 2003
|----------------- | ---- | ----
|Accrued interest  |      |     
|Accrued payroll   |      |     
|Accrued insurance |      |     
|Other             |      |     
|                  |      |     
|                  |      |     
|                  |      |     
|                  |      |     

Loss on disposal of assets and other
consist of:

|                                                       | For the year ended July 31,
|------------------------------------------------------ | ---------------------------
|
|Loss on disposal of assets                             |                            
|Loss on transfer of accounts receivable related to the |                            
|accounts receivable securitization                     |                            
|Service income related to the accounts receivable      |                            
|securitization                                         |                            
|                                                       |                            
|                                                       |                            
|Loss on disposal of assets and other                   |                            
|                                                       |                            

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

|                                      | For the year ended July 31,
|------------------------------------- | ---------------------------
|
|Operating expense                     |                            
|Depreciation and amortization expense |                            
|Equipment lease expense               |                            
|                                      |                            
|                                      |                            
|                                      |                            

---

F.     Accounts
receivable securitization

On September 26, 2000, Ferrellgas,
L.P. entered into an accounts receivable securitization facility with Bank One, NA. As
part of this renewable 364-day facility, Ferrellgas, L.P. transfers an interest in a pool
of its trade accounts receivable to Ferrellgas Receivables, a wholly-owned
unconsolidated, special purpose entity, which sells its interest to a commercial paper
conduit of Banc One, NA. Ferrellgas, L.P. does not provide any guarantee or similar
support to the collectibility of these receivables. Ferrellgas, L.P. structured the
facility using a wholly-owned unconsolidated, qualifying special purpose entity in order
to facilitate the transaction as required by Banc One, NA and to comply with Ferrellgas
L.P.s various debt covenants. As a servicer, Ferrellgas, L.P. remits daily to this
special purpose entity funds collected on the pool of trade receivables held by
Ferrellgas Receivables. Ferrellgas, L.P. renewed the facility for an additional 364-day
commitment on September 21, 2004.

Ferrellgas, L.P. transfers certain
of its trade accounts receivable to Ferrellgas Receivables and retains an interest in a
portion of these transferred receivables. As these transferred receivables are
subsequently collected and the funding from the accounts receivable securitization
facility is reduced, Ferrellgas, L.P.s retained interest in these receivables is
reduced. As of July 31, 2004 and 2003, the balance of the retained interest was $5.2
million and $8.1 million, respectively and was classified as accounts receivable on the
consolidated balance sheets. At July 31, 2004, $27.1 million had been transferred
compared with $42.5 million at July 31, 2003.Ferrellgas, L.P. had the ability to
transfer, at its option, an additional $40.4 million of its trade accounts receivable at
July 31, 2004. The net non-cash activity relating to this retained interest was $0.7
million, $1.8 million and $3.3 million during the years ended July 31, 2004, 2003, and
2002, respectively. These amounts reported in the consolidated statements of earnings
approximate the financing cost of issuing commercial paper backed by these accounts
receivable plus an allowance for doubtful accounts associated with the outstanding
receivables transferred to Ferrellgas Receivables. The weighted average discount rate
used to value the retained interest in the transferred receivables was 2.0%, 1.6% and
3.6% during the years ended July 31, 2004, 2003 and 2002, respectively. Bad debt expense
for these transferred receivables totaled $0.3 million, $0.3 million and $0.2 million
during the years ended July 31, 2004, 2003 and 2002, respectively.

G.     Intangible
assets, net

Intangible
assets, net consist of:

|                              | July 31, 2004 | July 31, 2003
|----------------------------- | ------------- | -------------
|
|Amortized intangible assets   |               |              
|Customer lists                |               |              
|Non-compete agreements        |               |              
|Other                         |               |              
|                              |               |              
|                              |               |              
|                              |               |              
|Unamortized intangible assets |               |              
|Tradenames & trademarks       |               |              
|                              |               |              
|Total                         |               |              
|                              |               |              

On April 21, 2004, intangible
assets, net increased $164.1 million in connection with the Blue Rhino contribution. See
Note C  Business combinations  for additional discussion about the Blue Rhino
contribution.

Customer lists have estimated lives
of 15 years, while non-compete agreements have estimated lives ranging from two to 10
years. Ferrellgas, L.P. believes that trademarks and tradenames have an indefinite useful
life due to Ferrellgas, L.P.s intention to utilize all acquired trademarks and
tradenames. Other intangible assets have estimated lives ranging from 2 to 10 years.



Aggregate
amortization expense:

|                             | 2004 | 2003 | 2002
|---------------------------- | ---- | ---- | ----
|For the years ended July 31, |      |      | $   

Estimated amortization expense:

|For the years ended July 31 | 
|--------------------------- | 
|2005                        | 
|2006                        | 
|2007                        | 
|2008                        | 
|2009                        | 

H.     Long-term
debt

Long-term debt consists of:

|                                                                                  | 2004 | 2003
|--------------------------------------------------------------------------------- | ---- | ----
|Senior notes                                                                      |      |     
|Fixed rate, 7.16% due 2005-2013 (1)                                               |      |     
|Fixed rate, 8.8%, due 2006-2009 (2)                                               |      |     
|Fixed rate, 6.75% due 2014, net of unamortized discount of $882 (3)               |      |     
|Credit agreement, variable interest rates, expiring 2006                          |      |     
|Notes payable, 7.3% and 7.5% weighted average interest rates,                     |      |     
|respectively, due 2004 to 2011                                                    |      |     
|Capital lease obligations                                                         |      |     
|                                                                                  |      |     
|                                                                                  |      |     
|Less:  current portion, included in other current liabilities on the consolidated |      |     
|balance sheets                                                                    |      |     
|                                                                                  |      |     
|                                                                                  |      |     
|                                                                                  |      |     

|(1) |  | Ferrellgas,
L.P. fixed rate senior notes, issued in August 1998, are general                unsecured
obligations of Ferrellgas, L.P. and rank on an equal basis in right of
               payment with all senior indebtedness of Ferrellgas, L.P. and senior to all
               subordinated indebtedness of Ferrellgas, L.P. The outstanding principal
amount                of the series A, B, C, D and E notes shall be due on August 1,
2005,                2006, 2008, 2010, and 2013, respectively. In general, Ferrellgas,
L.P. does not                have the option to prepay the notes prior to maturity
without incurring                prepayment penalties.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Ferrellgas,
L.P. fixed rate senior notes, issued in February 2000, are general
               unsecured obligations of Ferrellgas, L.P. and rank on an equal basis in
right of                payment with all senior indebtedness of Ferrellgas, L.P. and
senior to all                subordinated indebtedness of Ferrellgas, L.P. The
outstanding principal amount                of the series A, B and C notes are due
on August 1, 2006, 2007 and                2009, respectively. In general,
Ferrellgas, L.P. does not have the option to                prepay the notes prior to
maturity without incurring prepayment penalties.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | On
Ferrellgas, L.P. fixed rate senior notes, issued in April 2004 are general
               unsecured obligations of the Ferrellgas, L.P. and rank on an equal basis
in                right of payment with all senior indebtedness of the Ferrellgas, L.P.
and senior                to all subordinated indebtedness of the Ferrellgas, L.P. The
outstanding                principal amount is due on May 1, 2014. In general, the
Ferrellgas, L.P.                does not have the option to prepay the notes prior to
maturity without incurring                prepayment penalties.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On April 20, 2004, subsidiaries of
Ferrellgas, L.P. completed a private placement of $250.0 million in principal amount of
6.75% senior notes due 2014 at a price to the noteholders of 99.637% per note. In the
offering, the subsidiaries received proceeds, net of underwriting discounts and
commissions, of $243.5 million. The subsidiaries then merged into Ferrellgas, L.P. and
Ferrellgas Finance Corp., a subsidiary of Ferrellgas, L.P., on April 20, 2004 with
Ferrellgas, L.P. and Ferrellgas Finance Corp. assuming the payment obligation of the
notes. The proceeds of the notes were used to pay a portion of the merger consideration
assumed by the operating partnership of $17.00 per share to the then former common
stockholders of Blue Rhino Corporation in connection with the contribution of Blue Rhino
to Ferrellgas, L.P. by an affiliate of the general partner. See additional discussion
about the Blue Rhino contribution in Note C  Business combinations.

Interest on the 6.75% senior notes
due 2014 is payable semi-annually in arrears on May 1 and November 1 of each year,
commencing on November 1, 2004.

On December 10, 2002, Ferrellgas,
L.P. refinanced its $157.0 million bank credit facility with a $307.5 million amended
bank credit facility, using $155.6 million of the funds available thereunder to purchase
propane tanks and related assets that it previously leased, plus making a $1.2 million
payment of related accrued lease expense. The remaining portion of the amended bank
credit facility is available for working capital, acquisition, capital expenditure and
general partnership purposes and will terminate on April 28, 2006, unless extended or
renewed. The credit facility has a letter of credit sub-facility with availability of
$80.0 million. As of July 31, 2004, Ferrellgas, L.P. had borrowings of $92.9 million, at
a weighted average interest rate of 3.7%, under this amended bank credit facility.

All borrowings under the amended
bank credit facility bear interest, at Ferrellgas L.P.s option, at a rate equal to
either:

| | o |  | the
base rate, which is defined as the higher of the federal funds rate plus 0.50% or Bank of
Americas prime rate (as of July 31, 2004, the federal funds rate and Bank of Americas
prime rate were 1.29% and 4.25%, respectively); or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | the
Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of July 31, 2004, the
one-month Eurodollar Rate was 1.44%).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

In addition, an annual commitment
fee is payable on the daily unused portion of the credit facility at a per annum rate
varying from 0.375% to 0.625% (as of July 31, 2004, the commitment fee per annum rate was
0.5%).

Letters of credit outstanding, used
primarily to secure obligations under certain insurance arrangements, totaled $55.3
million and $44.7 million at July 31, 2004 and 2003, respectively. At July 31, 2004,
Ferrellgas, L.P. had $159.3 million of funding available. Ferrellgas, L.P. incurred
commitment fees of $0.6 million, $0.5 million and $0.4 million in fiscal years 2004, 2003
and 2002, respectively.

The senior notes and the credit
facility agreement contain various restrictive covenants applicable to Ferrellgas, L.P.
and its subsidiaries, the most restrictive relating to additional indebtedness. In
addition, Ferrellgas, L.P. is prohibited from making cash distributions if a default or
event of default exists or would exist upon making such distribution, or if Ferrellgas,
L.P. fails to meet certain coverage tests. Ferrellgas, L.P. is in compliance with all
requirements, tests, limitations and covenants related to these debt agreements.

I.     Guarantees

FASB Financial Interpretation No.
45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, requires recognition of a
liability for the fair value of guarantees issued after December 31, 2002. As of July 31,
2004, the only material guarantees that Ferrellgas, L.P. had outstanding were associated
with residual value guarantees of operating leases. These operating leases are related to
transportation equipment with remaining lease periods scheduled to expire over the next
seven fiscal years. Upon completion of the lease period, Ferrellgas, L.P. guarantees that
the fair value of the equipment will equal or exceed the guaranteed amount, or
Ferrellgas, L.P. will pay the lessor the difference. The fair value of these residual
value guarantees entered into after December 31, 2002 was $1.1 million as of July 31,
2004. Although the fair values at the end of the lease terms have historically exceeded
these guaranteed amounts, the maximum potential amount of aggregate future payments
Ferrellgas, L.P. could be required to make under these leasing arrangements, assuming the
equipment is worthless at the end of the lease term, is $14.0 million.

J.     Partners
capital

Partners capital consists of a
98.9899% limited partner interest held by Ferrellgas Partners and a 1.0101% general
partner interest held by the general partner. Limited partner interests in Ferrellgas
L.P. give the holder thereof the right to participate in distributions made by Ferrellgas
L.P. and to exercise the other rights and privileges available to such holders under the
Third Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. dated
April 7, 2004 (the OLP Partnership Agreement). Limited partner interests in
Ferrellgas L.P. are not represented by units and, under the terms of the OLP Partnership
Agreement, give the holder thereof limited voting rights on matters affecting the
business of Ferrellgas L.P.

During April 2004, in connection
with the Blue Rhino contribution and related transactions, Ferrellgas Partners made a
cash contribution of $192.5 million and a non-cash contribution of $9.8 million. See
additional discussion about the Blue Rhino contribution in Note F  Business
combinations. On June 10, 2004, Ferrellgas Partners made a capital contribution of $51.0
million in cash to Ferrellgas, L.P. and these proceeds were used to reduce borrowings
outstanding under its bank credit facility. On December 1, 2003, Ferrellgas Partners made
a capital contribution of $37.9 million in cash to Ferrellgas, L.P. and these proceeds
were used to reduce borrowings outstanding under its bank credit facility and for general
partnership purposes, including the repayment of debt incurred to fund prior
acquisitions.

During fiscal year 2003, Ferrellgas,
L.P. received a cash contribution of $17.8 million and a net asset contribution of $42.2
million from Ferrellgas Partners and the general partner. See Note C  Business
combinations  for further discussion of the net asset transaction. During fiscal
year 2002, Ferrellgas, L.P. received a net asset contribution of $2.4 million from
Ferrellgas Partners and the general partner.

During August 2004, Ferrellgas
Partners and the general partner made contributions of $55.3 million and $0.5 million,
respectively to the operating partnership. See Note R Subsequent event  for
further discussion.

K.     Derivatives

SFAS No. 133 Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, SFAS No.
138 and SFAS No. 149, requires all derivatives (with certain exceptions), whether
designated in hedging relationships or not, to be recorded on the consolidated balance
sheets at fair value. Ferrellgas, L.P. records changes in the fair value of positions
qualifying as cash flow hedges in accumulated other comprehensive income and changes in
the fair value of other positions in the consolidated statements of earnings. Ferrellgas
L.P.s overall objective for entering into derivative contracts for the purchase of
product is related to hedging, risk reduction and to anticipate market movements. Other
derivatives are entered into to reduce interest rate risk associated with long term debt
and lease obligations. Fair value hedges are derivative financial instruments that hedge
the exposure to changes in the fair value of an asset or a liability or an identified
portion thereof attributable to a particular risk. Cash flow hedges are derivative
financial instruments that hedge the exposure to variability in expected future cash
flows attributable to a particular risk. Ferrellgas, L.P. uses cash flow hedges to manage
exposures to product purchase price risk and uses both fair value and cash flow hedges to
manage exposure to interest rate risks.

Fluctuations in the wholesale cost
of propane expose Ferrellgas, L.P. to purchase price risk. Ferrellgas, L.P. purchases
propane at various prices that are eventually sold to its customers, exposing Ferrellgas,
L.P. to future product price fluctuations. Also, certain forecasted transactions expose
Ferrellgas, L.P. to purchase price risk. Ferrellgas, L.P. monitors its purchase price
exposures and utilizes product hedges to mitigate the risk of future price fluctuations.
Propane is the only product hedged with the use of product hedge positions. Ferrellgas,
L.P. uses derivative contracts to hedge a portion of its forecasted purchases for up to
one year in the future. These derivatives are designated as cash flow hedging
instruments. Because these derivatives are designated as cash flow hedges, the effective
portions of changes in the fair value of the derivatives are recorded in other
comprehensive income (OCI) and are recognized in the consolidated statements
of earnings when the forecasted transaction impacts earnings. As of July 31, 2004,
Ferrellgas, L.P. had a fair value adjustment classified as OCI and a reclassification of
net gains of $1.9 million and $(0.1) million, respectively, on the consolidated statement
of partners capital. Ferrellgas, L.P. did not have any product hedge positions
outstanding as of July 31, 2003, therefore there was no fair value adjustment classified
as OCI on the consolidated statements of partners capital at July 31, 2003. The
risk management fair value adjustments of $(0.2) million included in OCI at July 31,
2002, was reclassified into earnings during fiscal year 2003. Changes in the fair value
of cash flow hedges due to hedge ineffectiveness, if any, are recognized in cost of
product sold. During fiscal years ended July 31, 2004, 2003, and 2002, Ferrellgas, L.P.,
did not recognize any gain or loss in earnings related to hedge ineffectiveness and did
not exclude any component of the derivative contract gain or loss from the assessment of
hedge effectiveness related to these cash flow hedges. The fair value of the derivatives
related to purchase price risk are classified on the consolidated balance sheets as
inventories.

Through its risk management trading
activities, Ferrellgas, L.P., also purchases and sells derivatives that are not
designated as accounting hedges to manage other risks associated with commodity prices.
The types of contracts utilized in these activities include energy commodity forward
contracts, options and swaps traded on the over-the-counter financial markets, and
futures and options traded on the New York Mercantile Exchange. Ferrellgas, L.P.,
utilizes published settlement prices for exchange traded contracts, quotes provided by
brokers and estimates of market prices based on daily contract activity to estimate the
fair value of these contracts. The changes in fair value of these risk management trading
activities are recognized as they occur in cost of product sold in the consolidated
statements of earnings. During fiscal years ended July 31, 2004, 2003 and 2002,
Ferrellgas, L.P., recognized risk management trading gains (losses) related to
derivatives not designated as accounting hedges of $0.5 million, $5.9 million, and $(6.1)
million, respectively.

Estimates related to our risk
management trading activities are sensitive to uncertainty and volatility inherent in the
energy commodities markets and actual results could differ from these estimates. Assuming
a hypothetical 10% adverse change in prices for the delivery month of all energy
commodities, the potential loss in future earnings of such a change was estimated at $0.6
million for risk management trading activities as of July 31, 2004. For other risk
management activities, the potential loss in future earnings was estimated at $1.4
million at July 31, 2004. The preceding hypothetical analysis is limited because changes
in prices may or may not equal 10%.

The following table summarizes the
change in the unrealized fair value of contracts from risk management trading activities
for the fiscal years ended July 31, 2004, 2003 and 2002.

|                                                                  | For the year ended July 31,
|----------------------------------------------------------------- | ---------------------------
|
|Unrealized losses in fair value of contracts outstanding          |                            
|at beginning of year                                              |                            
|Unrealized gains and (losses) recognized at inception of          |                            
|a contract                                                        |                            
|Unrealized gains and (losses) recognized as a result of           |                            
|changes in valuation techniques or assumptions                    |                            
|Other unrealized gains and (losses) recognized                    |                            
|Less:  realized gains and (losses) recognized                     |                            
|                                                                  |                            
|                                                                  |                            
|Unrealized gains (losses) in fair value of contracts  outstanding |                            
|at end of year                                                    |                            
|                                                                  |                            

| | The
following table summarizes the maturity of these contracts for the valuation methodologies
Ferrellgas, L.P. utilized as of July 31, 2004 and 2003. This table summarizes the
contracts where settlement had not yet occurred.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                             | Fair value of contracts
at period-end
|------------------------------------------------------------ | -------------------------------------
|
|Prices actively quoted                                       |                                      
|Prices provided by other external sources                    |                                      
|Prices based on models and other valuation methods           |                                      
|                                                             |                                      
|Unrealized  gains in fair value of contracts  outstanding at |                                      
|July 31, 2004                                                |                                      
|                                                             |                                      
|                                                             |                                      
|Prices actively quoted                                       |                                      
|Prices provided by other external sources                    |                                      
|Prices based on models and other valuation methods           |                                      
|                                                             |                                      
|Unrealized losses in fair value of contracts  outstanding at |                                      
|July 31, 2003                                                |                                      
|                                                             |                                      

The following table summarizes the
gross transaction volumes in barrels (one barrel equals 42 gallons) for risk management
trading contracts that were physically settled for the years ended July 31, 2004, 2003
and 2002:

|(in thousands)                   | 
|-------------------------------- | 
|For the year ended July 31, 2004 | 
|For the year ended July 31, 2003 | 
|For the year ended July 31, 2002 | 

Ferrellgas, L.P. also uses forward
contracts, not designated as accounting hedges under SFAS No. 133, to help reduce the
price risk related to sales made to its propane customers. These forward contracts meet
the requirement to qualify as normal purchases and normal sales as defined in SFAS No.
133, as amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149, and thus are not adjusted
to fair market value.

As of July 31, 2004, Ferrellgas,
L.P. holds $792.6 million in fixed rate debt and $92.9 million in variable rate debt.
Fluctuations in interest rates subject Ferrellgas, L.P. to interest rate risk. Decreases
in interest rates increase the fair value of Ferrellgas, L.P.s fixed rate debt,
while increases in interest rates subject Ferrellgas, L.P. to the risk of increased
interest expense related to its variable rate debt.

Ferrellgas, L.P. enters into cash
flow hedges to help reduce its overall interest rate risk. Interest rate caps were used
to hedge the risk associated with rising interest rates and their effect on forecasted
transactions related to variable rate debt and lease obligations. These interest rate
caps were designated as cash flow hedges and were outstanding until June 2003. The
effective portions of changes in the fair value of the hedges were recorded in OCI at
interim periods and were recognized as interest expense in the consolidated statements of
earnings when the forecasted transaction impacted earnings. During fiscal years ended
July 31, 2004, 2003, and 2002, Ferrellgas, L.P. did not recognize any gain or loss in
earnings related to hedge ineffectiveness and did not exclude any component of the
derivative contract gain or loss from the assessment of hedge effectiveness related to
these cash flow hedges. Cash flow hedges are assumed to hedge the risk of changes in cash
flows of the hedged risk.

L.     Transactions
with related parties

General and administrative
expenses

Ferrellgas, L.P. has no employees
and is managed and controlled by its general partner. Pursuant to Ferrellgas, L.P.s
partnership agreement, the general partner is entitled to reimbursement for all direct
and indirect expenses incurred or payments it makes on behalf of Ferrellgas, L.P., and
all other necessary or appropriate expenses allocable to Ferrellgas, L.P. or otherwise
reasonably incurred by its general partner in connection with operating Ferrellgas, L.P.s
business. These costs, which totaled $211.5 million, $201.3 million and $197.9 million
for the years ended July 31, 2004, 2003, and 2002, respectively, include compensation and
benefits paid to employees of the general partner who perform services on Ferrellgas, L.P.s
behalf, as well as general and administrative costs.

Partnership distributions paid

Ferrellgas, L.P. paid to Ferrellgas
Partners and the general partner distributions of $111.0 million, $101.2 million and
$99.1 million, respectively, during fiscal years 2004, 2003 and 2002. Ferrellgas, L.P.
paid general partner distributions of $1.1 million, 1.0 million and $1.0 million,
respectively, during fiscal years 2004, 2003 and 2002. On August 23, 2004, Ferrellgas,
L.P. declared distributions to Ferrellgas Partners and the general partner of $26.6
million and $0.3 million, respectively, that was paid on September 14, 2004.

Operations

Ferrell International Limited (Ferrell
International) is beneficially owned by Mr. Ferrell and thus is an affiliate.
Ferrellgas, L.P. enters into transactions with Ferrell International in connection with
Ferrellgas, L.P.s risk management activities and does so at market prices in
accordance with Ferrellgas, L.P.s affiliate trading policy approved by the general
partners Board of Directors. These transactions include forward, option and swap
contracts and are all reviewed for compliance with the policy. Ferrellgas also provides
limited accounting services for Ferrell International. Ferrellgas recognized the
following net receipts (disbursements) from purchases, sales and commodity derivative
transactions and from providing limited accounting services to Ferrell International:

|                                            | For the year ended July 31,
|------------------------------------------- | ---------------------------
|
|Net receipts (disbursements)                |                            
|Receipts from providing accounting services |                            

These net purchases, sales and
commodity derivative transactions with Ferrell International are classified as cost of
product sold on the consolidated statements of earnings. There were no amounts due from
or due to Ferrell International at July 31, 2004, except for 75 thousand barrels of
propane to be delivered from Ferrell International valued at $2.1 million.

See additional discussions about
transactions with related parties in Note J Partners capital.

M.     Contingencies
and commitments

Litigation

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

Long-term debt-related commitments

Ferrellgas, L.P. has long and
short-term payment obligations under agreements such as senior notes and credit
facilities. Amounts shown in the table below represent Ferrellgas, L.P. scheduled future
maturities of long-term debt (including current maturities thereof) for the periods
indicated. See Note H  Long-term debt  for a description of these debt
obligations.

Operating lease commitments and
buyouts

Ferrellgas, L.P. leases certain
property, plant and equipment under noncancelable and cancelable operating leases.
Amounts shown in the table below represent minimum lease payment obligations under
Ferrellgas, L.P.s third-party operating leases with terms in excess of one year for
the periods indicated. These off-balance sheet arrangements include the leasing of
transportation equipment, property, computer equipment and propane tanks. Ferrellgas,
L.P. accounts for these arrangements as operating leases. These off-balance sheet
arrangements enable Ferrellgas, L.P. to lease equipment from third parties rather than,
among other options, purchasing the equipment using on-balance sheet financing. Most of
the operating leases involving Ferrellgas, L.P.s transportation equipment contain
residual value guarantees. These transportation equipment lease arrangements are
scheduled to expire over the next seven years. Most of these arrangements provide that
the fair value of the equipment will equal or exceed a guaranteed amount, or Ferrellgas,
L.P. will be required to pay the lessor the difference. Although the fair values at the
end of the lease terms have historically exceeded these guaranteed amounts, the maximum
potential amount of aggregate future payments Ferrellgas, L.P. could be required to make
under these leasing arrangements, assuming the equipment is worthless at the end of the
lease term, is currently $14.0 million. Ferrellgas, L.P. does not know of any event,
demand, commitment, trend or uncertainty that would result in a material change to these
arrangements.

Operating  lease buyouts
represent the maximum amount Ferrellgas, L.P. would pay if it were to exercise its right
to buyout the assets at the end of their lease term.

The following table summarizes
Ferrellgas, L.P.s contractual obligations as of July 31, 2004:

|                        | Future minimum rental and buyout amounts by fiscal year
|----------------------- | -------------------------------------------------------
|
|Long-term debt,         |                                                        
|including               |                                                        
|current portion         |                                                        
|Capital lease           |                                                        
|obligations             |                                                        
|Operating lease         |                                                        
|obligations             |                                                        
|Operating lease buyouts |                                                        
|                        |                                                        

Certain property and equipment is
leased under noncancelable operating leases, which require fixed monthly rental payments
and which expire at various dates through 2021. Rental expense under these leases totaled
$27.0 million, $30.0 million, and $37.0 million for the years ended July 31, 2004, 2003,
and 2002, respectively.

N.     Employee
benefits

Ferrellgas, L.P. has no employees
and is managed and controlled by its partners. Ferrellgas, L.P. assumes all liabilities,
which include specific liabilities related to the following employee benefit plans for
the benefit of the officers and employees of the general partner.

Ferrell Companies makes
contributions to the ESOT, which causes a portion of the shares of Ferrell Companies
owned by the ESOT to be allocated to employees accounts over time. The allocation
of Ferrell Companies shares to employee accounts causes a non-cash compensation
charge to be incurred by Ferrellgas, L.P., equivalent to the fair value of such shares
allocated. This non-cash compensation charge is reported separately in Ferrellgas, L.P.s
consolidated statements of earnings and thus excluded from operating and general and
administrative expenses. The non-cash compensation charge increased during fiscal years
2004 and 2003 primarily due to the increase in the fair value of the Ferrell Companies
shares allocated to employees. Ferrellgas, L.P. is not obligated to fund or make
contributions to the ESOT.

The general partner and its parent,
Ferrell Companies, have a defined contribution profit-sharing plan which includes both
profit sharing and matching contributions. The plan covers substantially all employees
with more than one year of service. With the establishment of the ESOP in July 1998,
Ferrellgas, L.P. suspended future contributions to the profit sharing plan beginning with
fiscal year 1998. The plan, which qualifies under section 401(k) of the Internal Revenue
Code, also provides for matching contributions under a cash or deferred arrangement based
upon participant salaries and employee contributions to the plan. Unlike the profit
sharing contributions, these matching contributions were not eliminated with the
establishment of the ESOP. Contributions for fiscal years ended July 31, 2004, 2003, and
2002, were $3.1 million, $2.9 million, and $2.8 million, respectively, under the 401(k)
provisions.

The general partner has a defined
benefit plan that provides participants who were covered under a previously terminated
plan with a guaranteed retirement benefit at least equal to the benefit they would have
received under the terminated plan. Until July 31, 1999, benefits under the terminated
plan were determined by years of credited service and salary levels. As of July 31, 1999,
years of credited service and salary levels were frozen. The general partners
funding policy for this plan is to contribute amounts deductible for Federal income tax
purposes and invest the plan assets primarily in corporate stocks and bonds, U.S.
Treasury bonds and short-term cash investments. During fiscal years 2004, 2003 and 2002,
other comprehensive income and other liabilities were adjusted by $(0.9) million, $(0.7)
million and $0.5 million, respectively, because the accumulated benefit obligation of
this plan exceeded the fair value of plan assets.

O.    Unit
options of Ferrellgas Partners and stock options of Ferrell Companies

Prior to April 19, 2001, the Second
Amended and Restated Ferrellgas Unit Option Plan (the unit option plan)
authorized the issuance of options (the unit options) covering up to 850,000
of Ferrellgas Partners common units to employees of the general partner or its
affiliates. Effective April 19, 2001, the unit option plan was amended to authorize the
issuance of options covering an additional 500,000 common units. The unit option plan is
intended to meet the requirements of the New York Stock Exchange equity holder approval
policy for option plans not approved by the equity holders of a company, and thus
approval of the plan from the unitholders of Ferrellgas Partners was not required. The
Board of Directors of the general partner administers the unit option plan, authorizes
grants of unit options thereunder and sets the unit option price and vesting terms of
unit options in accordance with the terms of the unit option plan. No single officer or
director of the general partner may acquire more than 314,895 common units under the unit
option plan. The unit options outstanding as of July 31, 2004, are exercisable at
exercise prices ranging from $16.80 to $21.67 per unit, which was an estimate of the fair
market value of the units at the time of the grant. In general, the options currently
outstanding under the unit option plan vest over a five-year period, and expire on the
tenth anniversary of the date of the grant.

|                                   | Number
of
units | Weighted average
exercise price
|---------------------------------- | --------------- | -------------------------------
|Outstanding, August 1, 2001        |                 |                                
|Exercised                          |                 |                                
|Forfeited                          |                 |                                
|                                   |                 |                                
|Outstanding, July 31, 2002         |                 |                                
|Exercised                          |                 |                                
|Forfeited                          |                 |                                
|                                   |                 |                                
|Outstanding, July 31, 2003         |                 |                                
|Exercised                          |                 |                                
|Forfeited                          |                 |                                
|                                   |                 |                                
|Outstanding, July 31, 2004         |                 |                                
|                                   |                 |                                
|                                   |                 |                                
|Options exercisable, July 31, 2004 |                 |                                
|                                   |                 |                                
|Options exercisable, July 31, 2003 |                 |                                
|                                   |                 |                                
|Options exercisable, July 31, 2002 |                 |                                
|                                   |                 |                                

|                                            | Options outstanding at July 31, 2004
|------------------------------------------- | ------------------------------------
|Range of option prices at end of year       |                                     
|Weighted average remaining contractual life |                                     

The ICP was established by Ferrell
Companies to allow upper middle and senior level managers of the general partner to
participate in the equity growth of Ferrell Companies. The ICP stock options vest ratably
in 5% to 10% increments over 12 years 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 options are exercisable in increments based on the timing of the payoff of Ferrell
Companies debt, but in no event later than 20 years from the date of issuance.

P.     Disclosures
about fair value of financial instruments

The carrying amount of short-term
financial instruments approximates fair value because of the short maturity of the
instruments. The estimated fair value of Ferrellgas, L.P.s long-term debt
instruments was $888.9 million and $685.6 million as of July 31, 2004 and 2003,
respectively. The fair value is estimated based on quoted market prices.

Interest rate collar, cap and
swap agreements. Ferrellgas, L.P. from time to time has entered into various interest
rate collar and cap agreements involving, among others, the exchange of fixed and
floating interest payment obligations without the exchange of the underlying principal
amounts. During the year ended July 31, 2003, an interest rate cap agreement with a large
financial institution expired.

Q.    
          Quarterly data (unaudited)

The following summarized unaudited
quarterly data includes all adjustments (consisting only of normal recurring
adjustments), which Ferrellgas, L.P. considers necessary for a fair presentation. Due to
the seasonality of the propane distribution industry, first and fourth quarter revenues,
gross profit and net earnings are consistently less than the second and third quarter
results. Other factors affecting the results of operations include competitive
conditions, demand for product, timing of acquisitions, variations in the weather and
fluctuations in propane prices.

Fiscal year ended July 31, 2004

|                    | First quarter | Second quarter | Third quarter | Fourth quarter
|------------------- | ------------- | -------------- | ------------- | --------------
|Revenues            |               |                | $             | 255,414       
|Gross profit        |               |                |               | 96,165        
|Net earnings (loss) |               |                |               | (13,691       

Fiscal year ended July 31, 2003

|                       | First quarter | Second quarter | Third quarter | Fourth quarter
|---------------------- | ------------- | -------------- | ------------- | --------------
|Revenues               |               |                | $             | 216,314       
|Gross profit           |               |                |               | 92,642        
|Earnings (loss) before |               |               
|cumulative change in   |               |               
|accounting principle   |               |               
|                       |               |                |               | (11,338       
|Net earnings (loss)    |               |                |               | (14,120       

R.    
          Subsequent Event

During August, 2004, Ferrellgas,
L.P. received $55.3 million and $0.5 million in contributions from Ferrellgas Partners
and the general partner, respectively. Ferrellgas, L.P. used the net proceeds to reduce
borrowings outstanding under its bank credit facility.

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of DirectorsFerrellgas
Finance Corp.Liberty, Missouri

We have audited the accompanying
balance sheet of Ferrellgas Finance Corp. (a wholly-owned subsidiary of Ferrellgas, L.P.),
as of July 31, 2004 and 2003, and the related statements of earnings, stockholders
equity and cash flows for the year ended July 31, 2004 and the period ended July 31, 2003.
These financial statements are the responsibility of the Ferrellgas Finance Corp.s
management. Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance
with standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 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
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial
statements present fairly, in all material respects, the financial position of Ferrellgas
Finance Corp. as of July 31, 2004 and 2003, and the results of its operations and its cash flows
for the year ended July 31, 2004 and the period ended July 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Kansas City, MissouriOctober
12, 2004

# 

# FERRELLGAS FINANCE
CORP.             (a wholly-owned subsidiary of Ferrellgas, L.P.)

# BALANCE SHEET

|                                                | July 31,
|----------------------------------------------- | --------
|
|Cash                                            |         
|                                                |         
|                                                |         
|Total assets                                    |         
|                                                |         
|                                                |         
|STOCKHOLDER'S EQUITY                            |         
|                                                |         
|Common stock, $1.00 par value; 2,000 shares     |         
|authorized; 1,000 shares issued and outstanding |         
|Additional paid in capital                      |         
|Accumulated deficit                             |         
|                                                |         
|                                                |         
|Total stockholder's equity                      |         
|                                                |         

See notes to financial
statements.



# 

# FERRELLGAS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas, L.P.)STATEMENT OF EARNINGS

|                                   | For the year ended
July 31, 2004 | From inception to
to July 31, 2003
|---------------------------------- | -------------------------------- | ----------------------------------
|Revenues                           |                                  |                                   
|General and administrative expense |                                  |                                   
|                                   |                                  |                                   
|                                   |                                  |                                   
|                                   |                                  |                                   
|Net loss                           |                                  |                                   
|                                   |                                  |                                   

See notes to financial
statements.



# 

# FERRELLGAS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas, L.P.)  STATEMENT OF STOCKHOLDER'S EQUITY

|                       | Common stock |  |  |      
|---------------------- | ------------ |  |  | -----
|
|January 16, 2003       |              |  |  | --   
|Initial capitalization |              |  |  | 1,000
|Capital contribution   |              |  |  | --   
|Net loss               |              |  |  | --   
|                       |              |  |  |      
|                       |              |  |  |      
|July 31, 2003          |              |  |  | 1,000
|Capital contribution   |              |  |  | --   
|Net loss               |              |  |  | --   
|                       |              |  |  |      
|                       |              |  |  |      
|July 31, 2004          |              |  |  | 1,000
|                       |              |  |  |      

See notes to financial
statements.



# FERRELLGAS FINANCE CORP.
 (a wholly-owned subsidiary of Ferrellgas, L.P.)

# STATEMENT OF CASH FLOWS

|                                      | For the year ended
July 31, 2004 | From inception to
to July 31, 2003
|------------------------------------- | -------------------------------- | ----------------------------------
|Cash flows from operating activities: |                                  |                                   
|Net loss                              |                                  |                                   
|                                      |                                  |                                   
|                                      |                                  |                                   
|Cash used by operating activities     |                                  |                                   
|                                      |                                  |                                   
|                                      |                                  |                                   
|                                      |                                  |                                   
|Cash flows from financing activities: |                                  |                                   
|Capital contribution                  |                                  |                                   
|                                      |                                  |                                   
|                                      |                                  |                                   
|Cash provided by financing activities |                                  |                                   
|                                      |                                  |                                   
|                                      |                                  |                                   
|Change in cash                        |                                  |                                   
|Cash - beginning of year              |                                  |                                   
|                                      |                                  |                                   
|                                      |                                  |                                   
|Cash - end of year                    |                                  |                                   
|                                      |                                  |                                   

See notes to financial
statements.

# FERRELLGAS FINANCE
CORP. (a wholly-owned
subsidiary of Ferrellgas, L.P.)

# NOTES TO FINANCIAL
STATEMENTS

A.        Formation

| | Ferrellgas
Finance Corp. (the "Finance Corp."), a Delaware corporation, was formed on January 16,
2003 and          is a wholly-owned subsidiary of Ferrellgas, L.P. (the "Partnership").
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Partnership contributed $1,000 to the Finance Corp. on January 24, 2003 in exchange for
1,000 shares of common stock.
| | -------------------------------------------------------------------------------------------------------------------------

B.        Commitment

| | On April 20, 2004, the Partnership issued $250.0 million of 6 3/4% senior notes due 2014. The Partnership may redeem up to 35%
of the aggregate principal amount of the notes on or prior to May 1, 2007 with the net proceeds from specified equity offerings.
We may also redeem some or all of the notes at any time on or after May 1, 2009. The Finance Corp. serves
as co-obligor for the senior notes.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

C.
       Income Taxes

| | Income taxes have been computed as though the Finance Corp. files its own income
tax return. Deferred income taxes are provided as a result of temporary
differences between financial and tax reporting using the asset/liability
method. Deferred income taxes are recognized for the tax consequences of
temporary differences between the financial statement carrying amounts and tax
basis of existing assets and liabilities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Due
to the inability of the Finance Corp. to utilize the deferred tax benefit of $361
associated with the current year net operating loss carryforward of $929, which expire at
various dates through July 31, 2024, a valuation allowance has been provided on the full
amount of the deferred tax asset. Accordingly, there is no net deferred tax benefit for
the years ended July 31, 2004 and 2003, and there is no net deferred tax asset as of July
31, 2004 and 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# INDEX TO FINANCIAL
STATEMENT SCHEDULES

Ferrellgas Partners, L.P.
and SubsidiariesIndependent Registered Public Accounting Firm's Report on Schedules

|            |                                                                                                                                                           
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Schedule I  | Parent Company Only Balance Sheets as of July 31, 2004 and 2003 and
Statements of Earnings and Cash Flows for the years ended July 31, 2004,
2003 and 2002
|Schedule II | Valuation and Qualifying Accounts for the years ended July 31, 2004, 2003
and 2002                                                                        

Ferrellgas, L.P. and
SubsidiariesIndependent Registered Public Accounting Firm's Report on Schedules

|            |                                                                                   
|----------- | ----------------------------------------------------------------------------------
|Schedule II | Valuation and Qualifying Accounts for the years ended July 31, 2004, 2003
and 2002

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Ferrellgas Partners, L.P.
and SubsidiariesLiberty, Missouri

We have audited the consolidated
financial statements of Ferrellgas Partners, L.P. and subsidiaries (the
Partnership) as of July 31, 2004 and 2003 and for each of the three years in
the period ended July 31, 2004 and have issued our report thereon, which expressed an
unqualified opinion and included an explanatory paragraph for changes in accounting
principles relating to the adoption of Statement of Financial Accounting Standard (SFAS)
No. 143, Accounting for Asset Retirement Obligations in fiscal 2003 and
SFAS No. 142, Goodwill and Other Intangible Assets in fiscal 2002,
dated October 12, 2004. Our audit also included the financial statement schedule listed in
Item 15 of this Form 10-k. This financial statement schedule is the responsibility of the
Partnerships management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ DELOITTE & TOUCHE
LLP

Kansas City, MissouriOctober
12, 2004

Schedule I

# FERRELLGAS PARTNERS,
L.P. PARENT ONLY

# BALANCE SHEETS (in
thousands, except unit data)

|                                                          | July 31,
|--------------------------------------------------------- | --------
|
|Cash and cash equivalents                                 |         
|Prepaid expenses and other current assets                 |         
|Investment in Ferrellgas, L.P.                            |         
|Other assets, net                                         |         
|                                                          |         
|Total assets                                              |         
|                                                          |         
|LIABILITIES AND PARTNERS' CAPITAL                         |         
|                                                          |         
|Accounts payable                                          |         
|Other current liabilities                                 |         
|Long term debt                                            |         
|Other liabilities                                         |         
|Partners' capital                                         |         
|Senior unitholder (1,994,146 units outstanding            |         
|at both 2004 and 2003 - liquidation preference $79,766)   |         
|Common unitholders (48,772,875 and 37,673,455 units       |         
|outstanding in 2004 and 2003, respectively)               |         
|General partner (512,798 and 400,683 units outstanding at |         
|2004 and 2003, respectively)                              |         
|Accumulated other comprehensive income(loss)              |         
|                                                          |         
|                                                          |         
|Total partners' capital                                   |         
|                                                          |         
|                                                          |         
|Total liabilities and partners' capital                   |         
|                                                          |         

# FERRELLGAS PARTNERS,
L.P. PARENT ONLY

# STATEMENTS OF EARNINGS
(in thousands)

|                                       | For the year ended July 31,
|-------------------------------------- | ---------------------------
|
|Equity in earnings of Ferrellgas, L.P. |                            
|Operating expense                      |                            
|                                       |                            
|                                       |                            
|Operating income                       |                            
|Interest expense                       |                            
|Interest income                        |                            
|Early extinguishment of debt expense   |                            
|Other income(expense)                  |                            
|                                       |                            
|                                       |                            
|Net earnings                           |                            
|                                       |                            

# FERRELLGAS PARTNERS,
L.P. PARENT ONLY

# STATEMENTS OF CASH
FLOWS (in thousands)

|                                                    | For the year ended July 31,
|--------------------------------------------------- | ---------------------------
|
|Cash flows from operating activities:               |                            
|Net earnings                                        |                            
|Early extinguishment of debt expenses               |                            
|Reconciliation of net earnings to                   |                            
|net cash used in operating activities:              |                            
|Other                                               |                            
|Equity in earnings of Ferrellgas, L.P.              |                            
|                                                    |                            
|                                                    |                            
|Net cash used in operating activities               |                            
|                                                    |                            
|                                                    |                            
|Cash flows from investing activities:               |                            
|Distributions received from Ferrellgas, L.P.        |                            
|Business acquisitions, net of cash acquired         |                            
|Cash contributed to Ferrellgas, L.P.                |                            
|                                                    |                            
|                                                    |                            
|Net cash (used in) provided by investing activities |                            
|                                                    |                            
|                                                    |                            
|Cash flows from financing activities:               |                            
|Distributions                                       |                            
|Proceeds from issuance of debt                      |                            
|Principal payments on debt                          |                            
|Cash paid for financing costs                       |                            
|Issuance of common units, net of issuance costs     |                            
|of $676 and $195 in 2004 and 2003, respectively     |                            
|Redemption of senior units                          |                            
|Proceeds from exercise of common unit options       |                            
|Other                                               |                            
|                                                    |                            
|                                                    |                            
|Net cash provided by (used in) financing activities |                            
|                                                    |                            
|                                                    |                            
|Increase (decrease) in cash and cash equivalents    |                            
|Cash and cash equivalents - beginning of year       |                            
|                                                    |                            
|                                                    |                            
|Cash and cash equivalents - end of year             |                            
|                                                    |                            

Schedule II

# FERRELLGAS PARTNERS,
L.P. AND SUBSIDIARIESVALUATION AND QUALIFYING ACCOUNTS

# (in thousands)

|                                |  | Additions |  
|------------------------------- |  | --------- | -
|
|Year ended July 31, 2004        |  |           |  
|Allowance for doubtful accounts |  |           | $
|Year ended July 31, 2003        |  |          
|Allowance for doubtful accounts |  |           | $
|Year ended July 31, 2002        |  |          
|Allowance for doubtful accounts |  |           | $

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners ofFerrellgas,
L.P. and SubsidiariesLiberty, Missouri

We have audited the consolidated
financial statements of Ferrellgas, L.P. and subsidiaries (the Partnership) as
of July 31, 2004 and 2003 and for each of the three years in the period ended July 31,
2004 and have issued our report thereon, which expressed an unqualified opinion and
included an explanatory paragraph for changes in accounting principles relating to the
adoption of Statement of Financial Accounting Standard (SFAS) No. 143, Accounting
for Asset Retirement Obligations in fiscal 2003 and SFAS No. 142,
Goodwill and Other Intangible Assets in fiscal 2002, dated October 12,
2004. Our audit also included the financial statement schedule listed in Item 15 of this
Form 10-k. This financial statement schedule is the responsibility of the
Partnerships management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ DELOITTE & TOUCHE
LLP

Kansas City, MissouriOctober
12, 2004

Schedule II

# FERRELLGAS,
L.P. AND SUBSIDIARIESVALUATION AND QUALIFYING ACCOUNTS

# (in thousands)

|                                |  | Additions |  
|------------------------------- |  | --------- | -
|
|Year ended July 31, 2004        |  |           |  
|Allowance for doubtful accounts |  |           | $
|Year ended July 31, 2003        |  |          
|Allowance for doubtful accounts |  |           | $
|Year ended July 31, 2002        |  |          
|Allowance for doubtful accounts |  |           | $