**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

----

**Form 10-K**

 

**(Mark One)**
| **x**  | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|--------|---------------------------------------------------------------------------------------------------------|
|   |                                                                                                    |
|   | **For the  fiscal year ended July 31, 2009**                                                       |
|   |                                                                                                    |
|   | **or**                                                                                                  |
|   |                                                                                                    |
| **o**  | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from          to          **

 

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

 

**Ferrellgas Partners, L.P.**

**Ferrellgas Partners Finance Corp.**

**Ferrellgas, L.P.**

**Ferrellgas Finance Corp.**

(Exactname of registrants as specified in their charters)

 

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

 

Registrants’telephone number, including area code:

**(913) 661-1500**

 

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

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

 

Securitiesregistered pursuant to section 12(g) of the Act:

 

**Limited Partner Interests of Ferrellgas, L.P.**

**Common Stock of Ferrellgas Partners Finance Corp.**

**Common Stock of Ferrellgas Finance Corp.**

(Title of class)

 

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

Ferrellgas Partners, L.P.:Yes  o Nox

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

Indicate by check mark ifthe registrants are not required to file reports pursuant to Section 13 orSection 15(d) of the Act. Yes o Nox

Indicate by check mark whether the registrants (1) havefiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrants were required to file such reports), and (2) havebeen subject to such filing requirements for the past 90 days. Yes  x No o

Indicate by check mark whether the registrants havesubmitted electronically and posted on their corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrants were required to submit and postsuch files). Yes  o No x*

* The registrants have notyet been phased into the interactive data requirements.

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is notcontained herein, and will not be contained, to the best of registrants’knowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.x

Indicate by check mark whether the registrants arelarge accelerated filers, accelerated filers, non-accelerated filers, orsmaller reporting companies. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

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

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

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

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

Ferrellgas PartnersFinance Corp. and Ferrellgas Finance Corp. Yes x No o

The aggregate market value as of January 30, 2009,of Ferrellgas Partners, L.P.’s common units held by nonaffiliates of FerrellgasPartners, L.P., based on the reported closing price of such units on the NewYork Stock Exchange on such date, was approximately $588,374,000. There is noaggregate market value of the common equity of Ferrellgas Partners FinanceCorp., Ferrellgas, L.P. and Ferrellgas Finance Corp. as their common equity isnot sold or traded.

At August 31, 2009,the registrants had common units or shares of common stock outstanding asfollows:
| Ferrellgas Partners, L.P.          | 68,236,755 |   | Common Units |
|------------------------------------|------------|--------|--------------|
| Ferrellgas Partners  Finance Corp. | 1,000      |   | Common Stock |
| Ferrellgas, L.P.                   | n/a        |   | n/a          |
| Ferrellgas Finance Corp.           | 1,000      |   | Common Stock |

**DocumentsIncorporated by Reference**: None

EACH OF FERRELLGAS PARTNERS FINANCE CORP. ANDFERRELLGAS FINANCE CORP. MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONI(1)(A) AND (B) OF FORM 10-K AND ARE THEREFORE, WITH RESPECT TOEACH SUCH REGISTRANT, FILING THIS FORM 10-K WITH THE REDUCED DISCLOSUREFORMAT.

 

 

 

----

Tableof Contents

 

**FERRELLGAS PARTNERS, L.P.**

**FERRELLGASPARTNERS FINANCE CORP.**

**FERRELLGAS,L.P.**

**FERRELLGASFINANCE CORP.**

 

**2009 FORM 10-KANNUAL REPORT**

 

**Table of Contents**

 
| ** **        | ** ** | ** **                                                                                                                         | **Page** |
|-------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART I**   |
| ITEM              | 1.         | BUSINESS                                                                                                                           | 1        |
| ITEM              | 1A.        | RISK FACTORS                                                                                                                       | 11       |
| ITEM              | 1B.        | UNRESOLVED STAFF  COMMENTS                                                                                                         | 33       |
| ITEM              | 2.         | PROPERTIES                                                                                                                         | 33       |
| ITEM              | 3.         | LEGAL  PROCEEDINGS                                                                                                                 | 35       |
| ITEM              | 4.         | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                               | 35       |
|              |       |                                                                                                                               |     |
| **PART II**  |
|              |       |                                                                                                                               |     |
| ITEM              | 5.         | MARKET FOR  REGISTRANTS’ COMMON EQUITY, RELATED UNITHOLDER AND STOCKHOLDER MATTERS AND  ISSUER PURCHASES OF EQUITY SECURITIES | 35       |
| ITEM              | 6.         | SELECTED  FINANCIAL DATA                                                                                                           | 38       |
| ITEM              | 7.         | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                        | 39       |
| ITEM              | 7A.        | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                        | 58       |
| ITEM              | 8.         | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                                       | 59       |
| ITEM              | 9.         | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                              | 59       |
| ITEM              | 9A.        | CONTROLS AND  PROCEDURES                                                                                                           | 60       |
| ITEM              | 9B.        | OTHER INFORMATION                                                                                                                  | 63       |
|              |       |                                                                                                                               |     |
| **PART III** |
|              |       |                                                                                                                               |     |
| ITEM              | 10.        | DIRECTORS  AND EXECUTIVE OFFICERS                                                                                                  | 63       |
| ITEM              | 11.        | EXECUTIVE  COMPENSATION                                                                                                            | 68       |
| ITEM              | 12.        | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER  MATTERS                                    | 81       |
| ITEM              | 13.        | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                                    | 85       |
| ITEM              | 14.        | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                                            | 85       |
|              |       |                                                                                                                               |     |
| **PART IV**  |
|              |       |                                                                                                                               |     |
| ITEM              | 15.        | EXHIBITS  AND FINANCIAL STATEMENT SCHEDULES                                                                                        | 86       |

 

----

Tableof Contents

 

**PART I**

 

**ITEM 1.****     ****BUSINESS.**

 

FerrellgasPartners, L.P. is a Delaware limited partnership. Our common units are listedon the New York Stock Exchange and our activities are primarily conductedthrough our operating partnership, Ferrellgas, L.P., a Delaware limitedpartnership. We are the sole limited partner of Ferrellgas, L.P. with anapproximate 99% limited partner interest.

 

In this AnnualReport on Form 10-K, unless the context indicates otherwise:

 

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

 

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

 

·      the “operating partnership” refers toFerrellgas, L.P., together with its consolidated subsidiaries, includingFerrellgas Finance Corp.;

 

·      our “general partner” refers toFerrellgas, Inc.;

 

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

 

·      “unitholders” refers to holders of commonunits of Ferrellgas Partners;

 

·      “customers” refers to customers otherthan our wholesale customers or our other bulk propane distributors or marketers;

 

·      “retail sales” refers to Propane andother gas liquid sales: Retail — Sales to End Users, the volume of propane soldprimarily to our residential, industrial/commercial and agricultural customers;

 

·      “wholesale sales” refers to Propane andother gas liquid sales: Wholesale — Sales to Resellers, the volume of propanesold primarily to our portable tank exchange customers and bulk propane sold towholesale customers;

 

·      “other gas sales” refers to Propane andother gas liquid sales: Other Gas Sales, primarily the volume of bulk propanesold to other third party propane distributors or marketers;

 

·      “propane sales volume” refers to thevolume of propane sold to our retail sales and wholesale sales customers; and

 

·      “Notes” refers to the notes of theconsolidated financial statements of Ferrellgas Partners or the operatingpartnership, as applicable.

 

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

 

The operatingpartnership was formed on April 22, 1994, and accounts for substantiallyall of our consolidated assets, sales and operating earnings, except forinterest expense related to $268.0 million in the aggregate principal amount of8.75% senior notes due 2012 co-issued by Ferrellgas Partners and FerrellgasPartners Finance Corp.

 

1

----

Tableof Contents

 

Our general partnerperforms all management functions for us and our subsidiaries and holds a 1%general partner interest in Ferrellgas Partners and an approximate 1% generalpartner interest in the operating partnership. The parent company of ourgeneral partner, Ferrell Companies, beneficially owns approximately 30% of ouroutstanding common units. Ferrell Companies is owned 100% by an employee stockownership trust.

 

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

 

**General**

 

We are a leadingdistributor of propane and related equipment and supplies to customersprimarily in the United States and conduct our business as a single reportable operatingsegment. We believe that we are the second largest retail marketer of propanein the United States, and the largest national provider of propane by portabletank exchange, as measured by our propane sales volumes in fiscal 2009.

 

We serve approximatelyone million residential, industrial/commercial, portable tank exchange,agricultural, wholesale and other customers in all 50****states,the District of Columbia and Puerto Rico. Our operations primarily include thedistribution and sale of propane and related equipment and supplies withconcentrations in the Midwest, Southeast, Southwest and Northwest regions ofthe United States. Our propane distribution business consists principally oftransporting propane purchased from third parties to propane distribution locationsand then to tanks on customers’ premises or to portable propane tanks deliveredto nationwide and local retailers. Our portable tank exchange operations, nationallybranded under the name Blue Rhino, are conducted through a network ofindependent and partnership-owned distribution outlets.

 

In the residentialand industrial/commercial markets, propane is primarily used for space heating,water heating, cooking and other propane fueled appliances. In the portabletank exchange market, propane is used primarily for outdoor cooking using gasgrills. In the agricultural market, propane is primarily used for crop drying,space heating, irrigation and weed control. In addition, propane is used for avariety of industrial applications, including as an engine fuel which is burnedin internal combustion engines that power vehicles and forklifts, and as aheating or energy source in manufacturing and drying processes.

 

2

----

Tableof Contents

 

In our past three fiscal years, our total annual propane sales volumes were:

 
| **Fiscal year ended** | ** ** | **Propane sales  volumes  (in millions)** | ** ** |
|-----------------------|------------|-------------------------------------------|------------|
| July 31, 2009    |       | 875                                       |       |
| July 31, 2008    |       | 839                                       |       |
| July 31, 2007    |       | 892                                       |       |

 

**Our History**

 

We were formed in1994 in connection with our initial public offering. Our operations began in1939 as a single location propane distributor in Atchison, Kansas. Our initialgrowth largely resulted from small acquisitions in rural areas of easternKansas, northern and central Missouri, Iowa, western Illinois, southernMinnesota, South Dakota and Texas. Since 1986, we have acquired approximately 179propane distributors. As of July 31, 2009, we distribute product to ourpropane customers from 996 propane distribution locations. See Item 2. “Properties”for more information about our propane distribution locations.

 

In April 2004,through a series of transactions, substantially all of the assets andliabilities of Blue Rhino Corporation were contributed to us. As a result, we believewe are the largest national provider of propane by portable tank exchange aswell as a leading supplier of related propane and non-propane products toconsumers through many of the nation’s largest retailers. This transaction expandedour operations to all 50 states, the District of Columbia and Puerto Rico.

 

**BusinessStrategy**

 

Ourbusiness strategy is to:

 

·      expand our operations through disciplined acquisitionsand internal growth;

·      capitalize on our national presence and economies ofscale;

·      maximizeoperating efficiencies through utilization of our technology platform; and

·      alignemployee interests with our investors through significant employee ownership.

 

Expandour operations through disciplined acquisitions and internal growth.

 

We expect tocontinue the expansion of our propane customer base through the acquisition ofother propane distributors. We intend to concentrate on acquisition activitiesin geographical areas within or adjacent to our existing operating areas, andon a selected basis in areas that broaden our geographic coverage. We alsointend to focus on acquisitions that can be efficiently combined with ourexisting propane operations to provide an attractive return on investment aftertaking into account the economies of scale and cost savings we anticipate willresult from those combinations. Our goal is to improve the operations andprofitability of the businesses we acquire by integrating them into ourestablished national organization and leveraging our technology platforms tohelp reduce costs and enhance customer service. We believe that our enhancedoperational synergies, improved customer service and ability to better trackthe financial performance of acquired operations provide us a distinctcompetitive advantage and better analysis as we consider future acquisitionopportunities.

 

We believe that weare positioned to successfully compete for growth opportunities within ourexisting operating regions. Our efforts will be focused on adding density toour existing customer base, providing propane and complementary services tonational accounts and other product offerings to existing customerrelationships. We also intend to continue expanding our propane distributionoperations in fiscal 2010 into several areas to which we have not historicallyprovided propane service. This continued expansion will give us new growthopportunities by leveraging the capabilities of our operating platforms.

 

3

----

Tableof Contents

 

Capitalize on our nationalpresence and economies of scale.

 

We believe ournational presence of 996 propane distribution locations in the United States asof July 31, 2009 gives us advantages over our smaller competitors. Theseadvantages include economies of scale in areas such as:

 

·      productprocurement;

·      transportation;

·      fleet purchases;

·      propane customer administration; and

·      general administration.

 

Webelieve that our national presence allows us to be one of the few propanedistributors that can competitively serve commercial and portable tank exchangecustomers on a nationwide basis, including the ability to serve such propanecustomers through leading home-improvement centers, mass merchants andhardware, grocery and convenience stores. In addition, we believe that ournational presence provides us opportunities to make acquisitions of otherpropane distribution companies whose operations overlap with ours, providing economies of scale and significant costsavings in these markets.

 

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

 

Maximize operating efficiencies through utilization ofour technology platform.

 

We believe our significant investments in technologygive us a competitive advantage to operate more efficiently and effectively ata lower cost compared to most of our competitors. We do not believe that manyof our competitors will be able to justify similar investments in the nearterm. Our technology advantage has resulted from significant investments madein our retail propane distribution operating platform together with ourstate-of-the-art tank exchange operating platform.

 

Our technology platform allows us to efficiently routeand schedule our customer deliveries, customer administration and operationalworkflow for the retail sale and delivery of bulk propane. Our service centers arestaffed to provide oversight and management to multiple distribution locations,referred to as service units. Currently we operate a retail distributionnetwork using a structure of 131 service centers and 844 service units. Theservice unit locations utilize hand-held computers and satellite technology tocommunicate with management personnel who are typically located at theassociated service center. We believe this structure and our technologyplatform allow us to more efficiently route and schedule customer deliveries andsignificantly reduce the need for daily on-site management.

 

The efficiencies gained from operating our technologyplatform allow us to consolidate our management teams at fewer locations,quickly adjust the sales prices to our customers and manage our personnel andvehicle costs more effectively to meet customer demand.

 

The technology platform has substantially improved theforecasting of our customers’ demand and our routing and scheduling. We also utilizea call center to accept emergency customer calls 24 hours a day, seven days aweek. These combined capabilities provide us cost savings while improvingcustomer service by reducing customer inconvenience associated with multiple,unnecessary deliveries.

 

Align employee interestswith our investors through significant employee ownership.

 

In 1998, weestablished an employee benefit plan that we believe aligns the interests ofour employees with those of our investors. Through the Ferrell Companies, Inc.Employee Stock Ownership Trust, our employees beneficially own approximately 30%of our outstanding common units, allowing them to participate directly in ouroverall success. We believe this plan is unique in the propane distribution

 

4

----

Table of Contents

 

industry and that theentrepreneurial culture fostered by employee-ownership provides us with anotherdistinct competitive advantage.

 

**Distributionof Propane and Related Equipment and Supplies**

 

Our propane distributionbusiness consists principally of transporting propane purchased from thirdparties to our propane distribution locations and then to tanks on customers’premises and to portable propane tanks. We also distribute bulk propane towholesale customers. Our market areas for our residential and agriculturalcustomers are generally rural, but also include urban areas for industrialapplications. Our market area for our industrial/commercial and portable tankexchange customers is generally urban; however, our portable tank exchangecustomer base continues to grow in both urban and rural areas. We utilizemarketing programs targeting both new and existing customers by emphasizing:

 

·      ourefficiency in delivering propane to customers;

·      ouremployee training and safety programs;

·      our enhanced customer service,facilitated by our technology platform and our 24 hours a day, seven days aweek retail customer call support capabilities; and

·      ournational distributor network for our commercial and portable tank exchangecustomers.

 

The distribution of propane toresidential customers generally involves large numbers of small volumedeliveries. Our retail deliveries of propane are typically transported from ourretail propane distribution locations to our customers by our fleet of bulkdelivery trucks, which are generally fitted with a 3,000 gallon tank. Propanestorage tanks located on our customers’ premises are then filled from thesebulk delivery trucks. We also deliver propane to our industrial/commercial andportable tank exchange customers using our fleet of portable tank and portabletank exchange delivery trucks, truck tractors and portable tank exchangedelivery trailers.

 

A substantialmajority of our gross margin from propane and other gas liquids sales isderived from the distribution and sale of propane and related risk managementactivities, and is derived primarily from five customer groups:

 

·      residential;

·      industrial/commercial;

·      portable tank exchange;

·      agricultural;

·      wholesale; and

·      other.

 

Ourgross margin from the distribution of propane is primarily based on the cents-per-gallondifference between the sales price we charge our customers and our costs topurchase and deliver propane to our propane distribution locations. Ourresidential and portable tank exchange customers typically provide us a greatercents-per-gallon margin than our industrial/commercial, agricultural, wholesaleand other customers. We track “Propane sales volumes,” “Revenues — Propane andother gas liquids sales” and “Gross Margin — Propane and other gas liquidssales” by customer; however, we are not able to specifically allocate operatingand other costs in a manner that would determine their specific profitabilitywith a high degree of accuracy. The wholesale propane price per gallon issubject to various market conditions and may fluctuate based on changes in demand,supply and other energy commodity prices, primarily crude oil and natural gas,as propane prices tend to correlate with the fluctuations of these underlyingcommodities.

 

Residentialcustomers typically rent their storage tanks from their distributors. Approximately65% of our residential customers rent their tanks from us. Our rental terms andthe fire safety regulations in some states require rented bulk tanks to befilled only by the propane supplier owning the tank. The cost and inconvenienceof switching bulk tanks helps minimize a customer’s tendency to switchsuppliers of propane on the basis of minor variations in price, helping usminimize customer loss.

 

5

----

Table of Contents

 

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

 

Some of our propanedistribution locations also conduct the retail sale of propane appliances andrelated parts and fittings, as well as other retail propane related servicesand consumer products. We also sell gas grills, patio heaters, fireplace andgarden accessories, mosquito traps and other outdoor products through BlueRhino Global Sourcing, Inc.

 

In fiscal 2009, noone customer accounted for 10% or more of our consolidated revenues.

 

Effect of Weather andSeasonality

 

Weather conditionshave a significant impact on demand for propane for heating purposes during thewinter heating season of November through March. Accordingly, the volumeof propane used by our customers for this purpose is directly affected by theseverity of the winter weather in the regions we serve and can varysubstantially from year to year. In any given region, sustainedwarmer-than-normal temperatures will tend to result in reduced propane usage,while sustained colder-than-normal temperatures will tend to result in greaterusage.

 

The market forpropane is seasonal because of increased demand during the winter heatingseason  primarily for the purpose ofproviding heating in residential and commercial buildings. Consequently, salesand operating profits are concentrated in our second and third fiscal quarters,which are during the winter heating season. However, our propane by portabletank exchange sales volume provides us increased operating profits during ourfirst and fourth fiscal quarters due to its counter-seasonal businessactivities. These sales also provide us the ability to better utilize ourseasonal resources at our retail propane distribution locations.

 

Propane salesvolumes traditionally fluctuate from year to year in response to variations inweather, volatility in energy commodity prices and other factors includingcompetitive conditions, demand for propane, timing of acquisitions and generaleconomic conditions in the United States. We believe that our broad geographicdistribution helps us minimize exposure to regional weather and economicpatterns. During times of colder-than-normal winter weather, we have been ableto take advantage of our large, efficient distribution network to avoid supplydisruptions, thereby providing us a competitive advantage in the markets weserve.

 

Risk ManagementActivities

 

Our riskmanagement activities primarily attempt to mitigate price risks related to thepurchase, storage, transport and sale of propane generally in the contract andspot markets from major domestic energy companies on a short-term basis. Weattempt to mitigate these price risks through the use of financial derivativeinstruments and forward propane purchase and sales contracts.

 

Our risk managementstrategy involves taking positions in the forward or financial markets that areequal and opposite to our positions in the physical products market in order tominimize the risk of financial loss from an adverse price change. This riskmanagement strategy is successful when its gains or losses in the physicalproduct markets are offset by its losses or gains in the forward or financialmarkets. These financial derivatives are designated as cash flow hedges.

 

Our risk managementactivities include the use of financial derivative instruments including, butnot limited to, price swaps, options, futures and basis swaps to seekprotection from adverse price movements and to minimize potential losses. Weenter into these financial derivative instruments directly with third partiesin the over-the-counter market and with brokers who are clearing members withthe New York Mercantile Exchange. We also enter into forward propane purchaseand sales contracts with counterparties. These forward contracts qualify forthe normal purchase normal sales exception within Statement of FinancialAccounting Standards (“SFAS”) 133 and are therefore not recorded by us prior to

 

6

----

Tableof Contents

 

settlement.

 

Throughour supply procurement activities, we purchase propane primarily from majordomestic energy companies. Supplies of propane from these sources havetraditionally been readily available, although no assurance can be given thatthey will be readily available in the future. We may purchase and storeinventories of propane to avoid delivery interruptions during the periods ofincreased demand and to take advantage of favorable commodity prices. As aresult of our ability to buy large volumes of propane and utilize our nationaldistribution system, we believe we are in a position to achieve product costsavings and avoid shortages during periods of tight supply to an extent notgenerally available to other propane distributors. During fiscal 2009, BritishPetroleum (22%) and Enterprise Products, L.P. (14%) accounted for approximately36% of our total propane purchases. Because there are numerous alternativesuppliers available, we do not believe it is reasonably possible that thissupplier concentration could cause a near-term severe impact on our ability toprocure propane. No other single supplier accounted for more than 10% of ourtotal propane purchases during fiscal 2009. If supplies were interrupted ordifficulties in obtaining alternative transportation were to arise, the cost ofprocuring replacement supplies may materially increase. These transactions areaccounted for at cost in “Cost of product sold — propane and other gas liquidssales” in our consolidated statement of earnings.

 

A portion of ourpropane inventory is purchased under supply contracts that typically have aone-year term and a price that fluctuates based on the spot market prices. Inorder to limit overall price risk, we will enter into fixed priceover-the-counter energy commodity forward and swap contracts that generallyhave terms of less than 24 months. We may also use options to hedge a portionof our forecasted purchases for up to 24 months in the future.

 

We also incurrisks related to the price and availability of propane during periods of muchcolder-than-normal weather, temporary supply shortages concentrated in certaingeographic regions and commodity price distortions between geographic regions. Weattempt to mitigate these risks through our transportation activities byutilizing our transport truck and railroad tank car fleet to distribute propanebetween supply or storage locations and propane distribution locations. Thepropane we sell to our customers is generally transported from petrochemical processingplants and refineries, pipeline terminals and storage facilities to propane distributionlocations or storage facilities by our leased railroad tank cars and our ownedor leased highway transport trucks. We use common carrier and owner-operated transporttrucks during the peak delivery season in the winter months or to provideservice in areas where economic considerations favor their use. We also use aportion of our transport truck fleet during the spring and summer months to transportpropane to service our portable tank exchange customers.

 

**Industry**

 

Natural gasliquids are derived from petroleum products and are sold in compressed orliquefied form. Propane, the predominant natural gas liquid, is typicallyextracted from natural gas or separated during crude oil refining. Althoughpropane is gaseous at normal pressures, it is compressed into liquid form atrelatively low pressures for storage and transportation. Propane is a clean-burningenergy source, recognized for its transportability and ease of use relative toalternative forms of stand-alone energy sources.

 

Based uponindustry publications, propane accounts for approximately 3% to 4% of energyconsumption in the United States, a level which has remained relativelyconstant 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 gasin rural and urban areas where natural gas is unavailable or portability ofproduct is required. Propane is generally more expensive than natural gas on anequivalent British Thermal Unit (“BTU”) basis in locations served by naturalgas, although propane is often sold in such areas as a standby fuel for useduring peak demands and during interruption in natural gas service. Theexpansion of natural gas into traditional propane markets has historically beeninhibited by the capital costs required to expand distribution and pipelinesystems. Although the extension of natural gas pipelines tends to displace propanedistribution in

 

7

----

Table of Contents

 

the neighborhoodsaffected, we believe that new opportunities for propane sales arise as moregeographically remote neighborhoods are developed.

 

Propane hashistorically been less expensive to use than electricity for space heating,water heating and cooking and competes effectively with electricity in theparts of the country where propane is less expensive than electricity on anequivalent BTU basis. Although propane is similar to fuel oil in application,market demand and price, propane and fuel oil have generally developed theirown distinct geographic markets. Because residential furnaces and appliancesthat burn propane will not operate on fuel oil, a conversion from one fuel tothe other requires the installation of new equipment. Residential propanecustomers will have an incentive to switch to fuel oil only if fuel oil becomessignificantly less expensive than propane. Conversely, we may be unable toexpand our customer base in areas where fuel oil is widely used, particularlythe northeast United States, unless propane becomes significantly lessexpensive than fuel oil. However, many industrial customers who use propane asa heating fuel have the capacity to switch to other fuels, such as fuel oil, onthe basis of availability or minor variations in price.

 

**Competition**

 

In addition tocompeting with marketers of other fuels, we compete with other companiesengaged in the propane distribution business. Competition within the propanedistribution industry stems from two types of participants: the larger, multi-statemarketers, including farmers’ cooperatives, and the smaller, local independentmarketers, including rural electric cooperatives. Based on our propane salesvolumes in fiscal 2009, we believe that we are the second largest marketer ofpropane in the United States and the largest national provider of propane byportable tank exchange.

 

Most of our retailpropane distribution locations compete with three or more marketers ordistributors, primarily on the basis of reliability of service andresponsiveness to customer needs, safety and price. Each retail distributionoutlet operates in its own competitive environment because propane marketerstypically reside in close proximity to their customers to lower the cost ofproviding service.

 

**OtherActivities**

 

Our other activities primarilyinclude the following:

 

·      wholesale marketing of propaneappliances;

·      the sale of refined fuels; and

·      common carrier services.

 

Theseother activities comprised less than 10% of our total revenues in fiscal 2009,2008 and 2007.

 

**Employees**

 

We have noemployees and are managed by our general partner pursuant to our partnershipagreement. At August 31, 2009, our general partner had 3,637 full-timeemployees.

 

Our generalpartner employed its employees in the following areas:

 
| Propane  distribution locations                |   | 3,170 |   |
|------------------------------------------------|--------|-------|--------|
| Risk management,  transportation and wholesale |   | 144   |   |
| Centralized  corporate functions               |   | 323   |   |
| Total                                          |   | 3,637 |   |

 

Less than onepercent of these employees are represented by an aggregate of five differentlocal labor unions, which are all affiliated with the International Brotherhoodof Teamsters. Our general partner has not experienced any significant work stoppages orother labor problems.

 

8

----

Tableof Contents

 

**GovernmentalRegulation - Environmental and Safety Matters**

 

Propane is notcurrently subject to any price or allocation regulation and has not beendefined by any federal or state environment law as an environmentally hazardoussubstance.

 

In connection withall acquisitions of propane distribution businesses that involve the purchaseof real property, we conduct a due diligence investigation to attempt todetermine whether any substance other than propane has been sold from, storedon or otherwise come into contact with any such real property prior to itspurchase. At a minimum, due diligence includes questioning the sellers,obtaining representations and warranties concerning the sellers’ compliancewith environmental laws and visual inspections of the real property.

 

With respect tothe transportation of propane by truck, we are subject to regulationspromulgated under the Federal Motor Carrier Safety Act. These regulations coverthe transportation of flammable materials and are administered by the UnitedStates Department of Transportation. The National Fire Protection AssociationPamphlet No. 58 establishes a national standard for the safe handling andstorage of propane. Those rules and procedures have been adopted by us andserve as the industry standard by the states in which we operate.

 

We believe that we arein material compliance with all governmental regulations and industry standardsapplicable to environmental and safety matters.

 

**Trademarksand Service Marks**

 

We market our goods andservices under various trademarks and trade names, which we own or have a rightto use. Those trademarks and trade names include marks or pending marks beforethe United States Patent and Trademark Office such as Ferrellgas, Ferrell NorthAmerica, and Ferrellmeter. Our general partner has an option to purchase for anominal value the trade names “Ferrellgas” and “Ferrell North America” and thetrademark “Ferrellmeter” that it contributed to us during 1994, if it isremoved as our general partner other than “for cause.” If our general partnerceases to serve as our general partner for any reason other than “for cause,”it will have the option to purchase our other trade names and trademarks fromus for fair market value.

 

We believe thatthe Blue Rhino mark and Blue Rhino’s other trademarks, service marks andpatents are an important part of our consistent growth in both tank exchangeand outdoor living product categories. Included in the registered and pendingtrademarks and service marks are the designations Blue Rhino®, Blue Rhino & Design®, Rhino DesignTM,Grill Gas & Design®, A BetterWayTM, Spark Something Fun®, America’s Choice for Grill Gas®, RhinoTUFF®,Tri-Safe®, Drop, Swap and GoTM, Rhino PowerTM,Uniflame®, UniGrill®,Patriot®, Grill Aficionado®, Skeetervac®,Fine Tune®, Vac & Tac®, Wavedrawer®,It’s Your Backyard. Enjoy It More With Skeetervac®,Less Biting Insects. More Backyard Fun®,DuraClay®, Endless Summer® and EndlessSummer Comfort®. In addition, we have patents issued fora Method for Reconditioning a Propane Gas Tank and an Overflow Protection ValveAssembly, which expire in 2017 and 2018, respectively, as well as various otherpatents and patent applications pending. The protection afforded by our patentsfurthers our ability to cost-effectively service our customers and to maintainour competitive advantages.

 

**Businessesof Other Subsidiaries**

 

Ferrellgas Partners Finance Corp. is aDelaware corporation formed in 1996 and is our wholly-owned subsidiary.Ferrellgas Partners Finance Corp. has nominal assets, no employees other thanofficers and does not conduct any operations, but serves as a co-issuer andco-obligor for debt securities of Ferrellgas Partners. Institutional investorsthat might otherwise be limited in their ability to invest in debt securitiesof Ferrellgas Partners because it is a partnership are potentially able toinvest in debt securities of Ferrellgas Partners because Ferrellgas PartnersFinance Corp. acts as a co-issuer and co-obligor. Because of its structure andpursuant to the reduced disclosure format, a discussion of the results ofoperations, liquidity and capital resources of Ferrellgas Partners FinanceCorp. is not presented in this Annual Report on Form

 

9

----

Table ofContents

 

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

 

Ferrellgas Finance Corp. is a Delawarecorporation formed in 2003 and is a wholly-owned subsidiary of the operatingpartnership. Ferrellgas Finance Corp. has nominal assets, no employees otherthan officers and does not conduct any operations, but serves as a co-issuerand co-obligor for debt securities of the operating partnership. Institutionalinvestors that might otherwise be limited in their ability to invest in debtsecurities of the operating partnership because it is a partnership arepotentially able to invest in debt securities of the operating partnershipbecause Ferrellgas Finance Corp. acts as a co-issuer and co-obligor. Because ofits structure and pursuant to the reduced disclosure format, a discussion ofthe results of operations, liquidity and capital resources of FerrellgasFinance Corp. is not presented in this Annual Report on Form 10-K. SeeNote B — Commitment — to Ferrellgas Finance Corp.’s financial statements for adiscussion of the debt securities with respect to which Ferrellgas FinanceCorp. is serving as a co-issuer and co-obligor.

 

We have agreementsto transfer, on an ongoing basis, a portion of our trade accounts receivablethrough Ferrellgas Receivables, LLC (“Ferrellgas Receivables”), an accountsreceivable securitization facility that is a wholly-owned unconsolidatedspecial purpose entity. We retain servicing responsibilities as well as aretained interest in the transferred receivables. We also hold a notereceivable from Ferrellgas Receivables to the extent that expected cashproceeds from the sales of accounts receivable to Ferrellgas Receivables havenot been received. We have no other continuing involvement with the transferredreceivables, other than servicing the receivables. The related receivables aretransferred from the consolidated balance sheets and a retained interest andnote receivable are recorded for the amount of receivables sold in excess ofcash received and a related loss on the transfer is recorded, which representsthe discount on the sale. The retained interest and note receivable areincluded in “Accounts and notes receivable, net” in the consolidated balancesheets. The accounts receivable securitization facility is more fully describedin Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations — Liquidity and Capital Resources — Operating Activities”and in Note F — Accounts and notes receivable, net and accounts receivablesecuritization — to our consolidated financial statements provided herein.

 

We also sell gasgrills, patio heaters, fireplace and garden accessories, mosquito traps, andother outdoor products. These products are manufactured by independent thirdparties in Asia and are sold to mass market retailers in Asia or shipped to theUnited States, where they are sold under our various trade names. Theseproducts are sold through Blue Rhino Global Sourcing, Inc., a taxablecorporation that is a wholly-owned subsidiary of the operating partnership.

 

10

----

 

Tableof Contents

 

**ITEM 1A.   RISK FACTORS.**

 

**Risks Inherent in theDistribution of Propane**

** **

*Weather conditions mayreduce the demand for propane; our financial condition is vulnerable to warmwinters and poor weather in the grilling season.*

* *

Weather conditions have a significant impact on thedemand for propane for both heating and agricultural purposes. Many of ourcustomers rely heavily on propane as a heating fuel. Accordingly, our salesvolumes of propane are highest during the five-month winter-heating season of November throughMarch and are directly affected by the temperatures during these months.During fiscal 2009, approximately 56% of our propane sales volume wasattributable to sales during the winter-heating season. Actual weatherconditions can vary substantially from year to year, which may significantlyaffect our financial performance. Furthermore, variations in weather in one ormore regions in which we operate can significantly affect our total propanesales volume and therefore our realized profits. A negative effect on our salesvolume may in turn affect our financial position or results of operations. Theagricultural demand for propane is also affected by weather, as dry or warmweather during the harvest season may reduce the demand for propane used insome crop drying applications.

 

Our portable tankexchange operations experience higher volumes in the spring and summer, whichincludes the majority of the grilling season. Sustained periods of poorweather, particularly in the grilling season, can negatively affect ourportable tank exchange revenues. In addition, poor weather may reduce consumers’propensity to purchase and use grills and other propane-fueled appliancesthereby reducing demand for portable tank exchange as well as the demand forour outdoor products.

 

*Sudden and sharp propane wholesale price increases cannot be passed onto customers with contracted pricing arrangements and will adversely affect ourprofit margins if they are not immediately hedged with an offsetting propanepurchase commitment.*

 

Gross margin from the distribution of propane isprimarily based on the cents-per-gallon difference between the sales price wecharge our customers and our costs to purchase and deliver propane to ourpropane distribution locations. We enter into propane sales commitments with aportion of our customers that provide for a contracted price agreement for aspecified period of time. The wholesale propane price per gallon is subject tovarious market conditions and may fluctuate based on changes in demand, supplyand other energy commodity prices. Propane prices tend to correlate primarilywith crude oil and natural gas prices. We employ risk management activities thatattempt to mitigate risks related to the purchasing, storing, transporting, andselling of propane. However, sudden and sharp propane price increases cannot bepassed on to customers with contracted pricing arrangements. Therefore, thesecommitments expose us to product price risk and reduced profit margins if thosetransactions are not immediately hedged with an offsetting propane purchasecommitment.

 

***Sudden and sharp wholesale propane price decreases mayresult in customers not fulfilling their obligations under contracted pricingarrangements previously entered into with us. The decreased sales volumes ofthese higher sales price arrangements may adversely affect our profit margins.***

*** ***

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

 

*Thecounterparties to our commodity derivative and financial derivative contractsmay not be able to perform their obligations to us, which could materiallyaffect our cash flows and results of operations.*

 

The recent worldwide financial crisis has contributedto significant volatility in the oil and gas commodities sector. If thisvolatility continues for an extended period of time or intensifies in the nearterm, 

 

11

----

Tableof Contents

 

we could experience counterparty defaults on our commodity andfinancial derivative contracts. This could impair our ability to procureproduct or procure it at prices reasonable to us.

 

*Hurricanes and othernatural disasters could have a material adverse effect on our business,financial condition and results of operations.*

* *

Hurricanes and other natural disasters can potentiallydestroy thousands of business structures and homes and, if occurring in theGulf Coast region of the United States, could disrupt the supply chain for oiland gas products. Disruptions in supply could have a material adverse effect onour business, financial condition, results of operations and cash flow. Damagesand higher prices caused by hurricanes and other natural disasters could havean adverse effect on our financial condition due to the impact on the financialcondition of our customers.

 

*The propane distributionbusiness is highly competitive, which may negatively affect our sales volumesand/or our results of operations.*

* *

Our profitability is affected by the competition forcustomers among all of the participants in the propane distribution business.We compete with a number of large national and regional firms and severalthousand small independent firms. Because of the relatively low barriers toentry into the propane market, there is the potential for small independentpropane distributors, as well as other companies not previously engaged inpropane distribution, to compete with us. Some rural electric cooperatives andfuel oil distributors have expanded their businesses to include propanedistribution. As a result, we are subject to the risk of additional competitionin the future. Some of our competitors may have greater financial resourcesthan we do. Should a competitor attempt to increase market share by reducingprices, our operating margins and customer base may be negatively impacted.Generally, warmer-than-normal weather and increasing fuel prices furtherintensifies competition. We believe that our ability to compete effectivelydepends on our service reliability, our responsiveness to customers, and ourability to maintain competitive propane prices and control our operatingexpenses.

 

*The propane distributionindustry is a mature one, which may limit our growth.*

* *

The propane distribution industry is a mature one. Weforesee only limited growth in total national demand for propane in the nearfuture. Year-to-year industry volumes are primarily impacted by fluctuations intemperatures and economic conditions. Our ability to grow our sales volumeswithin the propane distribution industry is primarily dependent upon ourability to acquire other propane distributors, to integrate those acquisitionsinto our operations, and upon the success of our marketing efforts to acquirenew customers. If we are unable to compete effectively in the propanedistribution business, we may lose existing customers or fail to acquire newcustomers.

 

*The propane distributionbusiness faces competition from other energy sources, which may reduce the existingdemand for our propane.*

* *

Propane competes with other sources of energy, some ofwhich can be less costly for equivalent energy value. We compete for customersagainst suppliers of electricity, natural gas and fuel oil. Electricity is amajor competitor of propane, but propane has historically enjoyed a competitiveprice advantage over electricity. Except for some industrial and commercialapplications, propane is generally not competitive with natural gas in areaswhere natural gas pipelines already exist because such pipelines generally makeit possible for the delivered cost of natural gas to be less expensive than thebulk delivery of propane. The expansion of natural gas into traditional propanemarkets has historically been inhibited by the capital cost required to expanddistribution and pipeline systems, however, the gradual expansion of the nation’snatural gas distribution systems has resulted in the availability of naturalgas in areas that were previously dependent upon propane. Although propane issimilar to fuel oil in some applications and market demand, propane and fueloil compete to a lesser extent primarily because of the cost of converting fromone to the other and due to the fact that both fuel oil and propane havegenerally developed their own distinct geographic markets. We cannot predictthe effect that the development of alternative energy sources might have on ourfinancial position or results of operations.

 

12

----

*Tableof Contents*

 

*Energy efficiency andtechnology advances may affect demand for propane; inc**reases in propane prices may cause our residentialcustomers to increase their conservation efforts.***

* *

The national trend toward increased conservation andtechnological advances, including installation of improved insulation and thedevelopment of more efficient furnaces and other heating devices, has reducedthe demand for propane in our industry. We cannot predict the materiality ofthe effect of future conservation measures or the effect that any technologicaladvances in heating, conservation, energy generation or other devices mighthave on our operations. As the price of propane increases, some of our customerstend to increase their conservation efforts and thereby decrease theirconsumption of propane.

 

*If the recent world-widefinancial crisis continues for an extended period of time or intensifies in thenear term, potential disruptions in the capital and credit markets mayadversely affect our business, including the availability and cost of debt andequity issuances for liquidity requirements, our ability to meet long-termcommitments and our ability to hedge effectively; each could adversely affect ourresults of operations, cash flows and financial condition.*

 

We rely on our ability to access the capital andcredit markets at rates and terms reasonable to us. If the recent worldwidefinancial crisis continues for an extended period of time or intensifies in thenear term, our ability to access capital and credit markets at rates and termsreasonable to us may be significantly impaired. This could limit our ability toaccess capital or credit markets for working capital needs, risk managementactivities and long-term debt maturities, or could force us to access capitaland credit markets at rates or terms normally considered to be unreasonable orforce us to take other aggressive actions including the suspension of ourquarterly distribution.

 

*Current economic andpolitical conditions may harm the energy business disproportionately to otherindustries.*

* *

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

 

·                  impair our ability to effectively market or acquirepropane; or

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

 

*A significant increase inmotor fuel prices may adversely affect our profits.*

* *

Motor fuel is a significant operating expense for usin connection with the delivery of propane to our customers. A significantincrease in motor fuel prices will result in increased transportation costs tous. The price and supply of motor fuel is unpredictable and fluctuates based onevents we cannot control, such as geopolitical developments, supply and demandfor oil and gas, actions by oil and gas producers, war and unrest in oilproducing countries and regions, regional production patterns and weatherconcerns. As a result, any increases in these prices may adversely affect ourprofitability and competitiveness.

 

13

----

Table ofContents

 

*The revenues received from our portable tank exchange are concentratedwith a limited number of retailers under non-exclusive arrangements that may beterminated at will.*

 

The propane gallons sales that we generate from ourdelivery of propane by portable tank exchange are concentrated with a limitednumber of retailers. If one or more of these retailers were to materiallyreduce or terminate its business with us, the results from our delivery ofpropane by portable tank exchange operations may decline. For fiscal 2009,three retailers represented approximately 53% of our portable tank exchange’snet revenues. None of our significant retail accounts associated with ourportable tank exchange operations are contractually bound to offer portabletank exchange service or products. Therefore, retailers can discontinue ourdelivery of propane to them by portable tank exchange service, or sales of ourpropane related products, at any time and accept a competitor’s delivery of propaneby portable tank exchange, or its related propane products or none at all.Continued relations with a retailer depend upon various factors, includingprice, customer service, consumer demand and competition. In addition, most ofour significant retailers have multiple vendor policies and may seek to accepta competitor’s delivery of propane by portable tank exchange, or acceptproducts competitive with our propane related products, at new or existinglocations of these significant retailers. If any significant retailermaterially reduces, terminates or requires price reductions or other adversemodifications in our selling terms, our results from our delivery of propane byportable tank exchange operations may decline.

 

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

 

We rely in part on independently-owned distributors todeliver our propane for a retailer’s portable tank exchange service.Accordingly, our success depends on our ability to maintain and managedistributor relationships and operations and on the distributors’ ability toset up and adequately service accounts. We exercise only limited influence overthe resources that the independently-owned distributors devote to the deliveryof propane by portable tank exchange. National retailers impose demandingservice requirements on us, and we could experience a loss of consumer or retailergoodwill if our distributors do not adhere to our quality control and serviceguidelines or fail to ensure the timely delivery of an adequate supply ofpropane by portable tank exchange at retail locations. The poor performance ofa single distributor to a national retailer could jeopardize our entirerelationship with that retailer and cause our delivery of propane by portabletank exchange to that particular retailer to decline. In addition, the numberof retail locations accepting delivery of our propane by portable tank exchangeand, subsequently, the retailer’s corresponding sales have historically grownsignificantly along with the creation of our distributor network. Accordingly,our distributors must be able to adequately service an increasing number ofretail accounts. If we or our independent distributors fail to manage growtheffectively, our financial results from our delivery of propane by portabletank exchange may decline.

 

*Ifwe are unable to manage the impact of overfill prevention device valveguidelines, our delivery of propane by portable tank exchange may decline.*

 

Guidelines published by the National Fire ProtectionAssociation in the current form of Pamphlet 58 and adopted in many statesrequire that all portable propane tanks refilled after April 1, 2002 mustbe fitted with an overfill prevention valve. If we or our distributors cannotsatisfy the demand for compliant portable propane tanks such that our retailersmaintain an adequate supply, our retailer relationships and our delivery ofpropane by portable tank exchange may decline. In addition, for some of ourcustomers, we have fixed in advance the price of propane per portable tankexchange unit charged to our retailers. When pricing, we make assumptions withregard to the number of portable tanks that will already have an overfillprevention valve when presented for exchange, on which our margins will begreater, and the number of tanks that will need an overfill prevention valve.If our actual experience is inconsistent with our assumptions, our margins onsales to that retailer may be lower than expected, which may have an adverseeffect on our financial condition and results of operations of our delivery ofpropane by portable tank exchange.

 

14

----

*Tableof Contents*

* *

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

* *

Local ordinances, which vary from jurisdiction tojurisdiction, generally require retailers to obtain permits to store and sellpropane tanks. These ordinances influence retailers’ acceptance of propane byportable tank exchange, distribution methods, propane tank packaging andstorage. The ability and time required to obtain permits varies byjurisdiction. Delays in obtaining permits have from time to time significantlydelayed the installation of new retail locations. Some jurisdictions haverefused to issue the necessary permits, which has prevented some installations.Some jurisdictions may also impose additional restrictions on our ability tomarket and our distributors’ ability to transport propane tanks or otherwisemaintain its portable tank exchange services.

 

Risks Inherent toOur Business

 

***Our substantial debt and otherfinancial obligations could impair our financial condition and our ability tofulfill our obligations.***

* *

We have substantial indebtedness and other financialobligations. As of July 31, 2009:

 

·                  we had total indebtedness ofapproximately $1,077.7 million;

 

·                  Ferrellgas Partners had partners’ capitalof approximately $147.1 million;

 

·                  we had availability under our creditfacility of approximately $248.9 million; and

 

·                  we had aggregate future minimum rental commitmentsunder non-cancelable operating leases of approximately $67.6 million; provided,however, if we elect to purchase the underlying assets at the end of the leaseterms, such aggregate buyout would be $19.4 million.

 

We have long andshort-term payment obligations with maturity dates ranging from fiscal 2010 to2016 that bear interest at rates ranging from 2.19% to 8.87%. As of July 31,2009, these obligations do not contain any sinking fund provisions but dorequire the following aggregate principal payments, without premium, during thefollowing fiscal years:

 

·                  $1.4 million - 2010;

·                  $1.3 million - 2011;

·                  $269.2 million - 2012;

·                  $25.1 million - 2013;

·                  $450.6 million - 2014; and

·                  $290.5 million - thereafter.

 

On September 8,2009, we and several banks and other financial institutions executed intoescrow a Credit Agreement (“Credit Agreement”) which will be released fromescrow pending certain closing conditions, which we expect to occur prior tothe end of our fiscal first quarter ending October 31, 2009. The CreditAgreement is intended to replace our existing unsecured credit facility. TheCredit Agreement, at closing, will provide for a $400.0 million revolvingcredit facility with the entire amount available for loans and with a sublimitof $200.0 million for letters of credit. The obligations under such creditfacility will be secured by substantially all assets of the operatingpartnership, the general partner and certain subsidiaries of the operatingpartnership but specifically excluding (a) assets that are subject to theoperating partnership’s receivables securitization facility, (b) thegeneral partner’s equity interest in Ferrellgas Partners, L.P. and (c) equityinterest in certain unrestricted subsidiaries. Such obligations will also beguaranteed by the general partner and certain subsidiaries of the operatingpartnership. The secured revolving credit facility will mature on thethird anniversary of the closing date for such facility.

 

All of the indebtednessand other obligations described above are obligations of the operatingpartnership except for $268.0 million of senior debt due 2012 issued by FerrellgasPartners and Ferrellgas Partners Finance Corp. This $268.0 million in principalamount of senior notes also contains no sinking fund provisions.

 

15

----

Tableof Contents

 

Subject to therestrictions governing the operating partnership’s indebtedness and otherfinancial obligations and the indenture governing Ferrellgas Partners’outstanding senior notes due 2012, we may incur significant additionalindebtedness and other financial obligations, which may be secured and/orstructurally senior to any debt securities we may issue.

 

Our substantialindebtedness and other financial obligations could have important consequencesto our security holders. For example, it could:

 

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

 

·                  impair our ability to obtain additional financing inthe future for working capital, capital expenditures, acquisitions, generalcorporate purposes or other purposes;

 

·                  result in higher interest expense in the event ofincreases in interest rates since some of our debt is, and will continue to be,at variable rates of interest;

 

·                  impair our operating capacity and cash flows if wefail to comply with financial and restrictive covenants in our debt agreementsand an event of default occurs as a result of that failure that is not cured orwaived;

 

·                  require us to dedicate a substantial portion of ourcash 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 partnershiprequirements;

 

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

 

·                  place us at a competitive disadvantage compared to ourcompetitors that have proportionately less debt.

 

***Ferrellgas Partners or theoperating partnership may be unable to refinance their indebtedness or pay thatindebtedness if it becomes due earlier than scheduled.***

* *

If Ferrellgas Partners orthe operating partnership is unable to meet their debt service obligations orother financial obligations, they could be forced to:

 

·                  restructure or refinance their indebtedness;

·                  enter into other necessary financial transactions;

·                  seek additional equity capital; or

·                  sell their assets.

 

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

 

***Restrictive covenants in theagreements governing our indebtedness and other financial obligations mayreduce our operating flexibility.***

* *

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

 

·                  incur additional indebtedness;

 

·                  make distributions to our unitholders;

 

·                  purchase or redeem our outstanding equity interests orsubordinated debt;

 

·                  make specified investments;

 

·                  create or incur liens;

 

16

----

Table of Contents

 

·                  sell assets;

 

·                  engage in specified transactions with affiliates;

 

·                  restrict the ability of our subsidiaries to makespecified payments, loans, guarantees and transfers of assets or interests inassets;

 

·                  engage in sale-leaseback transactions;

 

·                  effect a merger or consolidation with or into othercompanies or a sale of all or substantially all of our properties or assets;and

 

·                  engage in other lines of business.

 

These restrictions couldlimit the ability of Ferrellgas Partners, the operating partnership and ourother subsidiaries:

 

·                  to obtain future financings;

·                  to make needed capital expenditures;

·                  to withstand a future downturn in our business or theeconomy in general; or

·                  to conduct operations or otherwise take advantage ofbusiness opportunities that may arise.

 

Some of the agreementsgoverning our indebtedness and other financial obligations also require themaintenance of specified financial ratios and the satisfaction of otherfinancial conditions. Our ability to meet those financial ratios and conditionscan be affected by unexpected downturns in business operations beyond ourcontrol, such as significantly warmer than normal weather, a volatile energycommodity cost environment or an economic downturn. Accordingly, we may beunable to meet these ratios and conditions. This failure could impair ouroperating capacity and cash flows and could restrict our ability to incur debtor to make cash distributions, even if sufficient funds were available.

 

Our breach of any ofthese covenants or the operating partnership’s failure to meet any of theseratios or conditions could result in a default under the terms of the relevantindebtedness, which could cause such indebtedness or other financialobligations, and by reason of cross-default provisions, any of FerrellgasPartners’ or the operating partnership’s other outstanding notes or future debtsecurities, to become immediately due and payable. If we were unable to repaythose amounts, the lenders could initiate a bankruptcy proceeding orliquidation proceeding or proceed against the collateral, if any. If thelenders of the operating partnership’s indebtedness or other financialobligations accelerate the repayment of borrowings or other amounts owed, wemay not have sufficient assets to repay our indebtedness or other financialobligations, including our outstanding notes and any future debt securities.

 

*Our results of operationsand our ability to make distributions or pay interest or principal on debtsecurities could be negatively impacted by price and inventory risk andmanagement of these risks.*

* *

The amount of gross profit we make dependssignificantly on the excess of the sales price over our costs to purchase anddistribute propane. Consequently, our profitability is sensitive to changes inenergy prices, in particular, changes in wholesale propane prices. Propane is acommodity whose market price can fluctuate significantly based on changes insupply, changes in other energy prices or other market conditions. We have nocontrol over these market conditions. In general, product supply contractspermit suppliers to charge posted prices plus transportation costs at the timeof delivery or the current prices established at major delivery points. Anyincrease in the price of product could reduce our gross profit because we maynot be able to immediately pass rapid increases in such costs, or costs todistribute product, on to our customers.

 

While we generally attempt to minimize our inventoryrisk by purchasing product on a short-term basis, we may purchase and storepropane or other natural gas liquids depending on inventory and price outlooks.We may purchase large volumes of propane at the then current market priceduring periods of low demand and low prices, which generally occurs during thesummer months. The market price for propane could fall below the price at whichwe made the purchases, which would adversely affect our profits or cause salesfrom that inventory to be unprofitable. A portion of our inventory is purchasedunder 

 

17

----

Table of Contents

 

supply contracts that typically have a one-year termand at a price that fluctuates based on the prevailing market prices. Ourcontracts with our independent portable tank exchange distributors provide fora portion of our payment to the distributor to be based upon a price thatfluctuates based on the prevailing propane market prices. To limit our overallprice risk, we may purchase and store physical product and enter into fixedprice over-the-counter energy commodity forward contracts, swaps and optionsthat have terms of up to 24 months. This strategy may not be effective inlimiting our price risk if, for example, weather conditions significantlyreduce customer demand, or market or weather conditions prevent the delivery ofphysical product during periods of peak demand, resulting in excess physicalproduct after the end of the winter heating season and the expiration ofrelated forward or option contracts.

 

Some of our sales are pursuant to commitments atcontracted price agreements. To manage these commitments, we may purchase andstore physical product and/or enter into fixed price-over-the-counter energycommodity forward contracts, swaps and options. We may enter into theseagreements at volume levels that we believe are necessary to mitigate the pricerisk related to our anticipated sales volumes under the commitments. If theprice of propane declines and our customers purchase less propane than we havepurchased from our suppliers, we could incur losses when we sell the excessvolumes. If the price of propane increases and our customers purchase morepropane than we have purchased from our suppliers, we could incur losses whenwe are required to purchase additional propane to fulfill our customers’orders. The risk management of our inventory and contracts for the futurepurchase of product could impair our profitability if the price of productchanges in ways we do not anticipate.

 

The Board of Directors of our general partner hasadopted a commodity risk management policy which places specified restrictionson all of our commodity risk management activities such as limits on the typesof commodities, loss limits, time limits on contracts and limitations on ourability to enter into derivative contracts. The policy also requires theestablishment of a risk management committee of senior executives. Thiscommittee is responsible for monitoring commodity risk management activities,establishing and maintaining timely reporting and establishing and monitoringspecific limits on the various commodity risk management activities. Theselimits may be waived on a case-by-case basis by a majority vote of the riskmanagement committee and/or Board of Directors, depending on the specific limitbeing waived. From time to time, for valid business reasons based on the factsand circumstances, authorization has been granted to allow specific commodityrisk management positions to exceed established limits. If we sustain materiallosses from our risk management activities due to our failure to anticipatefuture events, a failure of the policy, incorrect waivers or otherwise, ourability to make distributions to our unitholders or pay interest or principalof any debt securities may be negatively impacted as a result of such loss.

 

*We are dependent on ourprincipal suppliers, which increases the risks from an interruption in supplyand transportation.*

* *

Through our supply procurement activities, wepurchased approximately 56% of our propane from six suppliers during fiscal2009. In addition, during extended periods of colder-than-normal weather,suppliers may temporarily run out of propane necessitating the transportationof propane by truck, rail car or other means from other areas. If supplies fromthese sources were interrupted or difficulties in alternative transportationwere to arise, the cost of procuring replacement supplies and transportingthose supplies from alternative locations might be materially higher and, atleast on a short-term basis, our margins could be reduced.

 

***The availability of cash from ourcredit facility may be impacted by many factors beyond our control.***

* *

We typically borrow onthe operating partnership’s credit facility or sell accounts receivable underits accounts receivable securitization facility to fund our working capitalrequirements. We may also borrow on the operating partnership’s credit facilityto fund debt service payments, distributions to our unitholders, acquisitionand capital expenditures. We purchase product from suppliers and make paymentswith terms that are typically within five to ten days of delivery. We believethat the availability of cash from the operating partnership’s credit facilityand the accounts receivable securitization facility will be sufficient to meetour future working capital needs. However, if we were to experience an unexpectedsignificant increase in working capital requirements or have insufficient fundsto fund distributions, this need could 

 

18

----

Table of Contents

 

exceed our immediately available resources. Eventsthat could cause increases in working capital borrowings or letter of creditrequirements may include:

 

·                  a significant increase in the cost of propane;

·                  a significant delay in the collections of accountsreceivable;

·                  increased volatility in energy commodity pricesrelated to risk management activities;

·                  increased liquidity requirements imposed by insuranceproviders;

·                  a significant downgrade in our credit rating leadingto decreased trade credit; or

·                  asignificant acquisition.

 

As is typical in ourindustry, our retail customers generally do not pay upon receipt, but paybetween 30 and 60 days after delivery. During the winter heating season, weexperience significant increases in accounts receivable and inventory levelsand thus a significant decline in working capital availability. Although wehave the ability to fund working capital with borrowings from the operatingpartnership’s credit facility and sales of accounts receivable under itsaccounts receivable securitization facility, we cannot predict the effect thatincreases in propane prices and colder-than-normal winter weather may have onfuture working capital availability.

 

***We may not be successful in makingacquisitions and any acquisitions we make may not result in our anticipatedresults; in either case, this would potentially limit our growth, limit ourability to compete and impair our results of operations.***

* *

We have historicallyexpanded our business through acquisitions. We regularly consider and evaluateopportunities to acquire local, regional and national propane distributors. Wemay choose to finance these acquisitions through internal cash flow, externalborrowings or the issuance of additional common units or other securities. Wehave substantial competition for acquisitions of propane companies. Although webelieve there are numerous potential large and small acquisition candidates inour industry, there can be no assurance that:

 

·                  we will be able to acquire any of these candidates oneconomically acceptable terms;

 

·                  we will be able to successfully integrate acquiredoperations with any expected cost savings;

 

·                  any acquisitions made will not be dilutive to ourearnings and distributions;

 

·                  any additional equity we issue as consideration for anacquisition will not be dilutive to our unitholders; or

 

·                  any additional debt we incur to finance an acquisitionwill not affect the operating partnership’s ability to make distributions toFerrellgas Partners or service the operating partnership’s existing debt.

 

*We are subject tooperating and litigation risks, which may not be covered by insurance.*

* *

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

 

*Wedepend on particular management information systems to effectively manage allaspects of our delivery of propane.*

 

We depend on our management information systems toprocess orders, manage inventory and accounts receivable collections, maintaindistributor and customer information, maintain cost-efficient operations andassist in delivering propane on a timely basis. In addition, our staff ofmanagement information systems professionals relies heavily on the support ofseveral key personnel and vendors. Any disruption in the operation of thosemanagement information systems, loss of employees knowledgeable about suchsystems, termination of our relationship with one or more of these key vendorsor failure to 

 

19

----

Table ofContents

 

continue to modifysuch systems effectively as our business expands could negatively affect ourbusiness.

 

**Risks Inherent to an Investmentin Our Debt Securities**

** **

***Ferrellgas Partners and theoperating partnership are required to distribute all of their available cash totheir equity holders and Ferrellgas Partners and the operating partnership arenot required to accumulate cash for the purpose of meeting their futureobligations to holders of their debt securities, which may limit the cashavailable to service those debt securities.***

* *

Subject to thelimitations on restricted payments contained in the indenture that governsFerrellgas Partners’ outstanding notes, the instruments governing theoutstanding indebtedness of the operating partnership and any applicableindenture that will govern any debt securities Ferrellgas Partners or theoperating partnership may issue, the partnership agreements of both FerrellgasPartners and the operating partnership require us to distribute all of ouravailable cash each fiscal quarter to our limited partners and our generalpartner and **do not require usto accumulate cash for the purpose of meeting obligations to holders of anydebt securities of Ferrellgas Partners or the operating partnership**.Available cash is generally all of our cash receipts, less cash disbursementsand adjustments for net changes in reserves. As a result of these distributionrequirements, we do not expect either Ferrellgas Partners or the operatingpartnership to accumulate significant amounts of cash. Depending on the timingand amount of our cash distributions and because we are not required to **accumulate cash for the purpose of meetingobligations to holders of**any debt securities of FerrellgasPartners or the operating partnership, such distributions could significantlyreduce the cash available to us in subsequent periods to make payments on anydebt securities of Ferrellgas Partners or the operating partnership.

 

***Debt securities of FerrellgasPartners will be structurally subordinated to all indebtedness and otherliabilities of the operating partnership and its subsidiaries.***

* *

Debt securities of Ferrellgas Partners will beeffectively subordinated to all existing and future claims of creditors of theoperating partnership and its subsidiaries, including:

 

·                  the lenders under the operating partnership’sindebtedness;

·                  the claims of lessors under the operating partnership’soperating leases;

·                  the claims of the lenders and their affiliates underthe operating partnership’s accounts receivable securitization facility;

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

·                  all other possible future creditors of the operatingpartnership and its subsidiaries.

 

This subordination is dueto these creditors’ priority as to the assets of the operating partnership andits subsidiaries over Ferrellgas Partners’ claims as an equity holder in theoperating partnership and, thereby, indirectly, the claims of holders ofFerrellgas Partners’ debt securities. As a result, upon any distribution tothese creditors in a bankruptcy, liquidation or reorganization or similarproceeding relating to Ferrellgas Partners or its property, the operatingpartnership’s creditors will be entitled to be paid in full before any paymentmay be made with respect to Ferrellgas Partners’ debt securities. Thereafter,the holders of Ferrellgas Partners’ debt securities will participate with itstrade creditors and all other holders of its indebtedness in the assetsremaining, if any. In any of these cases, Ferrellgas Partners may haveinsufficient funds to pay all of its creditors, and holders of its debtsecurities may therefore receive less, ratably, than creditors of the operatingpartnership and its subsidiaries. As of July 31, 2009, the operatingpartnership had approximately $808.6 million of outstanding indebtedness andother liabilities to which any of the debt securities of Ferrellgas Partnerswill effectively rank junior.

 

*All payments on anysubordinated debt securities that we may issue will be subordinated to thepayments of any amounts due on any senior indebtedness that we may have issuedor incurred.*

* *

The right of the holdersof subordinated debt securities to receive payment of any amounts due to them,whether interest, premium or principal, will be subordinated to the right ofall of the holders of our senior indebtedness, as such term will be defined inthe applicable subordinated debt indenture, to receive payments of all amountsdue 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 makepayments of any amounts due 

 

20

----

Table of Contents

 

to the holders of our subordinated debt securities. Accordingly,in the event of insolvency, creditors who are holders of our seniorindebtedness may recover more, ratably, than the holders of our subordinateddebt securities.

 

***Debt securities of FerrellgasPartners are expected to be non-recourse to the operating partnership, whichwill limit remedies of the holders of***FerrellgasPartners’ **debt securities.**

* *

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

 

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

* *

Upon the occurrence of “changeof control” events as may be described from time to time in our filings withthe SEC and related to the issuance by Ferrellgas Partners or the operatingpartnership of debt securities, the applicable issuer or a third party may berequired to make a change of control offer to repurchase those debt securitiesat a premium to their principal amount, plus accrued and unpaid interest. Theapplicable issuer may not have the financial resources to purchase its debtsecurities in that circumstance, particularly if a change of control eventtriggers a similar repurchase requirement for, or results in the accelerationof, other indebtedness. The indenture governing Ferrellgas Partners’outstanding notes contains such a repurchase requirement. Some of theagreements governing the operating partnership’s indebtedness currently providethat specified change of control events will result in the acceleration of theindebtedness under those agreements. Future debt agreements of FerrellgasPartners or the operating partnership may also contain similar provisions. Theobligation to repay any accelerated indebtedness of the operating partnershipwill be structurally senior to Ferrellgas Partners’ obligations to repurchaseits debt securities upon a change of control. In addition, future debtagreements of Ferrellgas Partners or the operating partnership may containother restrictions on the ability of Ferrellgas Partners or the operatingpartnership to repurchase its debt securities upon a change of control. Theserestrictions could prevent the applicable issuer from satisfying itsobligations to purchase its debt securities unless it is able to refinance orobtain waivers under any indebtedness of Ferrellgas Partners or of theoperating partnership containing these restrictions. The applicable issuer’sfailure to make or consummate a change of control repurchase offer or pay thechange of control purchase price when due may give the trustee and the holdersof the debt securities particular rights as may be described from time to timein our filings with the SEC.

 

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

 

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

* *

We do not intend to listthe debt securities we may issue from time to time on any securities exchangeor to seek approval for quotations through any automated quotation system. Anestablished market for the debt securities may not develop, or if one doesdevelop, it may not be maintained. Although underwriters may advise us thatthey intend to make a market in the debt securities, they are not expected tobe obligated to do so and may discontinue such market making activity at anytime without notice. In addition, 

 

21

----

Table of Contents

 

market-making activity will be subject to the limitsimposed by the Securities Act and the Exchange Act. For these reasons, wecannot assure a debt holder that:

 

·                  a liquid market for the debt securities will develop;

·                  a debt holder will be able to sell its debtsecurities; or

·                  a debt holder will receive any specific price upon anysale of its debt securities.

 

If a public market forthe debt securities did develop, the debt securities could trade at prices thatmay be higher or lower than their principal amount or purchase price, dependingon many factors, including prevailing interest rates, the market for similardebt securities and our financial performance. Historically, the market fornon-investment grade debt, such as our debt securities, has been subject todisruptions that have caused substantial fluctuations in the prices of thesesecurities.

 

**Risks Inherent to an Investmentin Ferrellgas Partners’ Equity**

** **

*Ferrellgas Partners maysell additional limited partner interests, diluting existing interests ofunitholders.*

* *

The partnership agreement of Ferrellgas Partnersgenerally allows Ferrellgas Partners to issue additional limited partnerinterests and other equity securities. When Ferrellgas Partners issuesadditional equity securities, a unitholder’s proportionate partnership interestwill decrease. Such an issuance could negatively affect the amount of cashdistributed to unitholders and the market price of common units. The issuanceof additional common units will also diminish the relative voting strength ofthe previously outstanding common units.

 

*Cash distributions arenot guaranteed and may fluctuate with our performance and other externalfactors.*

* *

Although we are required to distribute all of our “availablecash,” we cannot guarantee the amounts of available cash that will bedistributed to the holders of our equity securities. Available cash isgenerally all of our cash receipts, less cash disbursements and adjustments fornet changes in reserves. The actual amounts of available cash will depend uponnumerous factors, including:

 

·                  cash flow generated by operations;

 

·                  weather in our areas of operation;

 

·                  borrowing capacity under our credit facility;

 

·                  principal and interest payments made on our debt;

 

·                  the costs of acquisitions, including related debtservice payments;

 

·                  restrictions contained in debt instruments;

 

·                  issuances of debt and equity securities;

 

·                  fluctuations in working capital;

 

·                  capital expenditures;

 

·                  adjustments in reserves made by our general partner inits discretion;

 

·                  prevailing economic conditions; and

 

·                  financial, business and other factors, a number ofwhich will be beyond our control.

 

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

 

22

----

 

Tableof Contents

 

*Our general partner hasbroad discretion to determine the amount of “available cash” for distributionto holders of our equity securities through the establishment and maintenanceof cash reserves, thereby potentially lessening and limiting the amount of“available cash” eligible for distribution.*

 

Our general partner determines the timing and amountof our distributions and has broad discretion in determining the amount offunds that will be recognized as “available cash.” Part of this discretioncomes from the ability of our general partner to establish and make additionsto our reserves. Decisions as to amounts to be placed in or released fromreserves have a direct impact on the amount of available cash for distributionsbecause increases and decreases in reserves are taken into account in computingavailable cash. Funds within or added to our reserves are not considered to be “availablecash” and are therefore not required to be distributed. Each fiscal quarter,our general partner may, in its reasonable discretion, determine the amounts tobe placed in or released from reserves, subject to restrictions on the purposesof the reserves. Reserves may be made, increased or decreased for any properpurpose, including, but not limited to, reserves:

 

·                  to comply with the terms of any of ouragreements or obligations, including the establishment of reserves to fund thepayment of interest and principal in the future of any debt securities ofFerrellgas Partners or the operating partnership;

 

·                  to provide for level distributions ofcash notwithstanding the seasonality of our business; and

 

·                  to provide for future capitalexpenditures and other payments deemed by our general partner to be necessaryor advisable.

 

The decision by ourgeneral partner to establish, increase or decrease our reserves may limit theamount of cash available for distribution to holders of our equity securities.Holders of our equity securities will not receive payments required by suchsecurities unless we are able to first satisfy our own obligations and theestablishment of any reserves. See the first risk factor under “Risks Arisingfrom Our Partnership Structure and Relationship with Our General Partner.”

 

*The debt agreements of Ferrellgas Partners and theoperating partnership may limit their ability to make distributions to holdersof their equity securities.*

 

The debt agreements governing Ferrellgas Partners’ andthe operating partnership’s outstanding indebtedness contain restrictivecovenants that may limit or prohibit distributions to holders of their equitysecurities under various circumstances. Ferrellgas Partners’ existing indenturegenerally prohibits it from:

 

·                  making any distributions to unitholders if an event ofdefault exists or would exist when such distribution is made;

 

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

 

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

 

See the first risk factor under “Risks Arising fromOur Partnership Structure and Relationship with Our General Partner” for a descriptionof the restrictions on the operating partnership’s ability to distribute cashto Ferrellgas Partners. Any indenture applicable to future issuances of debtsecurities by Ferrellgas Partners or the operating partnership may containrestrictions that are the same as or similar to those in their existing debtagreements.

 

23

----

Tableof Contents

 

*The distribution priority to our common units owned bythe public terminates no later than April 30, 2010.*

* *

Assuming that the restrictions under our debtagreements are met, our partnership agreements require us to distribute 100% ofour available cash to our unitholders on a quarterly basis. Available cash isgenerally all of our cash receipts, less cash disbursements and adjustments fornet changes in reserves. Currently, the common units owned by the public have aright to receive distributions of available cash before any distributions ofavailable cash are made on the common units owned by Ferrell Companies. We mustpay a distribution on the publicly-held common units before we pay adistribution on the common units held by Ferrell Companies. If there exists anoutstanding amount of deferred distributions on the common units held byFerrell Companies of $36.0 million, the common units held by Ferrell Companieswill be paid in the same manner as the publicly-held common units. While thereare any deferred distributions outstanding on common units held by FerrellCompanies, we may not increase the distribution to our public commonunitholders above the highest quarterly distribution paid on our common unitsfor any of the immediately preceding four fiscal quarters. After payment of allrequired distributions, we will use remaining available cash to reduce anyamount previously deferred on the common units held by Ferrell Companies.

 

This distributionpriority right is scheduled to end April 30, 2010, or earlier if there isa change of control, we dissolve or Ferrell Companies sells all of our commonunits held by it. Whether an extension of the expiration of the distributionpriority is likely or unlikely involves several factors that are not currentlyknown and/or cannot be assessed until a time closer to the expiration date. Thetermination of this distribution priority may lower the market price for ourcommon units.

 

*Persons owning 20% ormore of Ferrellgas Partners’ common units cannot vote. This limitation does notapply to common units owned by Ferrell Companies, our general partner and itsaffiliates.*

* *

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

 

·                  discourage a person or group fromattempting to remove our general partner or otherwise change management; and

·                  reduce the price at which our commonunits will trade under various circumstances.

 

This limitation does not apply to our general partnerand its affiliates. Ferrell Companies, the parent of our general partner,beneficially owns all of the outstanding capital stock of our general partnerin addition to approximately 30% of our common units.

 

**Risks Arising from OurPartnership Structure and Relationship with Our General Partner**

** **

***Ferrellgas Partners is a holdingentity and has no material operations or assets. Accordingly, FerrellgasPartners is dependent on distributions from the operating partnership toservice its obligations. These distributions are not guaranteed and may berestricted.***

* *

Ferrellgas Partners is aholding 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 financesubsidiary, serves as a co-obligor on any of its debt securities, conducts nobusiness and has nominal assets. Accordingly, Ferrellgas Partners is dependenton cash distributions from the operating partnership and its subsidiaries toservice obligations of Ferrellgas Partners. The operating partnership isrequired to distribute all of its available cash each fiscal quarter, less theamount of cash reserves that our general partner determines is necessary orappropriate in its reasonable discretion to provide for the proper conduct ofour business, to provide funds for distributions over the next four fiscalquarters or to comply with applicable law or with any of our debt or otheragreements. This discretion may limit the amount of available cash theoperating partnership may distribute to Ferrellgas Partners each fiscalquarter. Holders of Ferrellgas Partners’ securities will not receive paymentsrequired by those securities unless the operating partnership is able to makedistributions to Ferrellgas Partners after the operating partnership firstsatisfies its obligations under the terms of its own borrowing arrangements andreserves any necessary amounts to meet its own financial obligations.

 

24

----

Tableof Contents

 

In addition, the variousagreements governing the operating partnership’s indebtedness and otherfinancing transactions permit quarterly distributions only so long as eachdistribution does not exceed a specified amount, the operating partnershipmeets a specified financial ratio and no default exists or would result fromsuch distribution. Those agreements include the indentures governing theoperating partnership’s existing notes, credit facility and an accountsreceivable securitization facility. Each of these agreements contains variousnegative and affirmative covenants applicable to the operating partnership andsome of these agreements require the operating partnership to maintainspecified financial ratios. If the operating partnership violates any of thesecovenants or requirements, a default may result and distributions would belimited. These covenants limit the operating partnership’s ability to, amongother things:

 

·                  incur additional indebtedness;

·                  engage in transactions with affiliates;

·                  create or incur liens;

·                  sell assets;

·                  make restricted payments, loans andinvestments;

·                  enter into business combinations andasset sale transactions; and

·                  engage in other lines of business.

 

*The ownership of ourgeneral partner could change if Ferrell Companies defaults on its outstandingindebtedness.*

* *

Ferrell Companies owns all of the outstanding capitalstock of our general partner and beneficially owns approximately 30% of ouroutstanding common units. Ferrell Companies has pledged the majority of itsbeneficially owned common units against its variable interest debt, whichtotaled $3.0 million at July 31, 2009, with a scheduled maturity of December 2011.Ferrell Companies’ primary sources of income to pay its debt are dividends thatit receives from our general partner and distributions received on the commonunits. For fiscal 2009, Ferrell Companies received approximately $43.6 millionfrom these sources. If Ferrell Companies defaults on its debt, its lenderscould acquire control of our general partner and the common units beneficiallyowned by it. In that case, the lenders could change management of our generalpartner and operate the general partner with different objectives than currentmanagement.

 

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

* *

Our general partner manages and operates us. Unlikethe holders of common stock in a corporation, unitholders have only limitedvoting rights on matters affecting our business. Amendments to the agreement oflimited partnership of Ferrellgas Partners may be proposed only by or with theconsent of our general partner. Proposed amendments must generally be approvedby holders of at least a majority of our outstanding common units.

 

Unitholders will have no right to elect our generalpartner, or any directors of our general partner on an annual or othercontinuing basis, nor will any proxies be received for such voting. Our generalpartner may not be removed except pursuant to:

 

·                  the vote of the holders of at least 662/3% of the outstanding units entitled to vote thereon, which includes thecommon units owned by our general partner and its affiliates; and

 

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

 

Because Ferrell Companies is the parent of our generalpartner and beneficially owns approximately 30% of our outstanding common unitsand James E. Ferrell, Executive Chairman and Chairman of the Board of Directorsof our general partner, indirectly owns approximately 6% of our outstandingcommon units, amendments to the agreement of limited partnership of FerrellgasPartners or the removal of our general partner may not be made if neitherFerrell Companies nor Mr. Ferrell consent to such action.

 

25

----

Tableof Contents

 

*Our general partner has a limited call right withrespect to the limited partner interests of Ferrellgas Partners.*

* *

If at any time less than 20% of the then-issued andoutstanding limited partner interests of any class of Ferrellgas Partners areheld by persons other than our general partner and its affiliates, our generalpartner 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 partnerinterests of such class held by such unaffiliated persons at a price generallyequal 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 atime when the unitholder may not desire to sell them or at a price that is lessthan the price desired to be received upon such sale.

 

*Unitholders maynot have limited liability in specified circumstances and may be liable for thereturn of distributions.*

* *

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

 

·                  remove or replace our general partner;

 

·                  make specified amendments to ourpartnership agreements; or

 

·                  take other action pursuant to ourpartnership agreements that constitutes participation in the “control” of ourbusiness,

 

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

 

In addition, under some circumstances a unitholder maybe liable to us for the amount of a distribution for a period of three yearsfrom the date of the distribution. Unitholders will not be liable forassessments in addition to their initial capital investment in our commonunits. Under Delaware General Corporate Law, we may not make a distribution toour unitholders if the distribution causes all our liabilities to exceed thefair value of our assets. Liabilities to partners on account of theirpartnership interests and liabilities for which recourse is limited to specificproperty are not counted for purposes of determining whether a distribution is permitted.Delaware law provides that a limited partner who receives such a distributionand knew at the time of the distribution that the distribution violated theDelaware law will be liable to the limited partnership for the distributionamount for three years from the distribution date. Under Delaware law, anassignee that becomes a substituted limited partner of a limited partnership isliable for the obligations of the assignor to make contributions to thepartnership. However, such an assignee is not obligated for liabilities unknownto that assignee at the time such assignee became a limited partner if theliabilities could not be determined from the partnership agreements.

 

*Our general partner’s liability to us and ourunitholders may be limited.*

* *

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

 

·                  the general partner does not breach anyduty 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 borrowingis to increase incentive distributions to our general partner;

 

·                  our general partner does not breach anyduty to us or our unitholders by taking any actions consistent with thestandards of reasonable discretion outlined in the definitions of availablecash and cash from operations contained in our partnership agreements; and

 

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

 

26

----

Tableof Contents

 

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

 

*Our general partner and its affiliates may haveconflicts with us.*

* *

The directors and officers of our general partner andits affiliates have fiduciary duties to manage itself in a manner that is beneficialto its stockholder. At the same time, our general partner has fiduciary dutiesto 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 ofits officers and directors to its stockholder.

 

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

 

·                  decisions of our general partner withrespect to the amount and timing of our cash expenditures, borrowings,acquisitions, issuances of additional securities and changes in reserves in anyquarter may affect the amount of incentive distributions we are obligated topay our general partner;

 

·                  borrowings do not constitute a breach ofany duty owed by our general partner to our unitholders even if theseborrowings have the purpose or effect of directly or indirectly enabling us tomake distributions to the holder of our incentive distribution rights,currently our general partner, or to hasten the expiration of the deferralperiod with respect to the common units held by Ferrell Companies;

 

·                  we do not have any employees and relysolely on employees of our general partner and its affiliates;

 

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

 

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

 

·                  neither our partnership agreements norany of the other agreements, contracts and arrangements between us, on the onehand, and our general partner and its affiliates, on the other, are or will bethe result of arms-length negotiations;

 

·                  whenever possible, our general partnerlimits our liability under contractual arrangements to all or a portion of ourassets, with the other party thereto having no recourse against our general partneror its assets;

 

·                  our partnership agreements permit ourgeneral partner to make these limitations even if we could have obtained morefavorable terms if our general partner had not limited its liability;

 

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

 

·                  our general partner may exercise itsright to call for and purchase common units as provided in the partnershipagreement of Ferrellgas Partners or assign that right to one of its affiliatesor to us;

 

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

 

·                  our general partner and its affiliateshave no obligation to present business opportunities to us;

 

27

----

Tableof Contents

 

·                  our general partner selects theattorneys, accountants and others who perform services for us. These personsmay also perform services for our general partner and its affiliates. Ourgeneral partner is authorized to retain separate counsel for us or our unitholders,depending on the nature of the conflict that arises; and

 

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

 

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

 

*Ferrell Companies maytransfer the ownership of our general partner which could cause a change of ourmanagement and affect the decisions made by our general partner regardingresolutions of conflicts of interest.*

* *

Ferrell Companies, the ownerof our general partner, may transfer the capital stock of our general partnerwithout the consent of our unitholders. In such an instance, our generalpartner will remain bound by our partnership agreements. If, however, throughshare ownership or otherwise, persons not now affiliated with our generalpartner were to acquire its general partner interest in us or effective controlof our general partner, our management and resolutions of conflicts ofinterest, such as those described above, could change substantially.

 

*Our general partner may voluntarilywithdraw or sell its general partner interest.*

 

Our general partner maywithdraw as the general partner of Ferrellgas Partners and the operatingpartnership without the approval of our unitholders. Our general partner mayalso sell its general partner interest in Ferrellgas Partners and the operatingpartnership without the approval of our unitholders. Any such withdrawal orsale could have a material adverse effect on us and could substantially changethe management and resolutions of conflicts of interest, as described above.

 

*Our general partner can protectitself against dilution.*

 

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

 

**Tax Risks**

** **

*The IRS could treat us as a corporation for taxpurposes or changes in federal or state laws could subject us to entity leveltaxation, which would substantially reduce the cash available for distributionto our unitholders.*

* *

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

 

If we were classified asa corporation for federal income tax purposes, we would pay tax on our incomeat corporate rates, currently 35% at the federal level, and we would probablypay additional state income taxes as well. In addition, distributions wouldgenerally be taxable to the recipient as corporate 

 

28

----

Tableof Contents

 

distributions and no income, gains, losses ordeductions would flow through to our unitholders. Because a tax would beimposed upon us as a corporation, the cash available for distribution to ourunitholders would be substantially reduced. Therefore, treatment of us as acorporation would result in a material reduction in the anticipated cash flowand after-tax return to our unitholders and thus would likely result in asubstantial reduction in the value of our common units.

 

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

 

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

* *

The IRS may adoptpositions that differ from those expressed herein or from the positions wetake. It may be necessary to resort to administrative or court proceedings inan effort to sustain some or all of the positions we take, and some or all ofthese positions ultimately may not be sustained. Any contest with the IRS maymaterially reduce the market value of our common units and the prices at whichour common units trade. In addition, our costs of any contest with the IRS willbe borne by us and therefore indirectly by our unitholders and our generalpartner.

 

*Unitholders may berequired to pay taxes on income from us even if unitholders do not receive anycash distributions from us.*

* *

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

 

*The ratio of taxable income to cashdistributions could be higher or lower than our estimates, which could resultin a material reduction of the market value of our common units*.

 

We estimate that a personwho acquires common units in the 2009 calendar year and owns those common unitsthrough the record dates for all cash distributions payable for all periodswithin the 2009 calendar year will be allocated, on a cumulative basis, anamount of federal taxable income that will be less than 10% of the cumulativecash distributed to such person for those periods. The taxable income allocableto a unitholder for subsequent periods may constitute an increasing percentageof distributable cash. These estimates are based on several assumptions andestimates that are subject to factors beyond our control. Accordingly, theactual percentage of distributions that will constitute taxable income could behigher or lower and any differences could result in a material reduction in themarket value of our common units.

 

*There are limits on thedeductibility of losses*

* *

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

 

29

----

Tableof Contents

 

*Tax gain or losson the disposition of our common units could be different than expected.*

* *

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

 

*Tax-exemptentities, regulated investment companies, and foreign persons face unique taxissues from owning common units that may result in additional tax liability orreporting requirements for them.*

 

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

 

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

 

Treasury regulationsrequire taxpayers to report particular information on Form 8886 if theyparticipate in a “reportable transaction.” Unitholders may be required to filethis form with the IRS. A transaction may be a reportable transaction based uponany of several factors. The IRS may impose significant penalties on aunitholder for failure to comply with these disclosure requirements. Disclosureand information maintenance obligations are also imposed on “material advisors”that organize, manage or sell interests in reportable transactions, which mayrequire us or our material advisors to maintain and disclose to the IRS certaininformation relating to unitholders.

 

*Anaudit of us may result in an adjustment or an audit of a unitholder’s own taxreturn.*

 

We may be audited by theIRS and tax adjustments could be made. The rights of a unitholder owning lessthan a 1% interest in us to participate in the income tax audit process arevery limited. Further, any adjustments in our tax returns will lead toadjustments in the unitholders’ tax returns and may lead to audits ofunitholders’ tax returns and adjustments of items unrelated to us. A unitholderwill bear the cost of any expenses incurred in connection with an examinationof its personal tax return.

 

*Reportingof partnership tax information is complicated and subject to audits; we cannotguarantee conformity to IRS requirements.*

 

We will furnish eachunitholder with a Schedule K-1 that sets forth that unitholder’s allocableshare of income, gains, losses and deductions. In preparing these schedules, wewill use various accounting and reporting conventions and adopt variousdepreciation and amortization methods. We cannot guarantee that these scheduleswill yield a result that conforms to statutory or regulatory requirements or toadministrative pronouncements of the IRS. If any of the information on theseschedules is successfully challenged by the IRS, the character and amount ofitems of income, gain, loss or deduction previously 

 

30

----

Tableof Contents

 

reported by unitholdersmight change, and unitholders might be required to adjust their tax liabilityfor prior years and incur interest and penalties with respect to thoseadjustments.

 

*Unitholdersmay lose tax benefits as a result of nonconforming depreciation conventions.*

 

Because we cannot matchtransferors and transferees of common units, uniformity of the economic and taxcharacteristics of our common units to a purchaser of common units of the sameclass must be maintained. To maintain uniformity and for other reasons, we haveadopted certain depreciation and amortization conventions which we believeconform to Treasury Regulations under 743(b) of the Internal Revenue Code.A successful IRS challenge to those positions could reduce the amount of taxbenefits available to our unitholders. A successful challenge could also affectthe timing of these tax benefits or the amount of gain from the sale of commonunits and could have a negative impact on the value of our common units orresult in audit adjustments to a unitholder’s tax returns.

 

*As aresult of investing in our common units, a unitholder will likely be subject tostate and local taxes and return filing requirements in jurisdictions where itdoes not live.*

 

In addition to federalincome taxes, unitholders will likely be subject to other taxes, such as stateand local taxes, unincorporated business taxes and estate, inheritance orintangible taxes that are imposed by the various jurisdictions in which we dobusiness or own property. A unitholder will likely be required to file state andlocal income tax returns and pay state and local income taxes in some or all ofthe various jurisdictions in which we do business or own property and may besubject to penalties for failure to comply with those requirements. Wecurrently conduct business in all 50 states, the District of Columbia andPuerto Rico. It is a unitholder’s responsibility to file all required UnitedStates federal, state and local tax returns.

 

*Statesmay subject partnerships to entity-level taxation in the future; thereby decreasingthe amount of cash available to us for distributions and potentially causing adecrease in our distribution levels, including a decrease in the minimumquarterly distribution.*

 

Several states haveenacted or are evaluating ways to subject partnerships to entity-level taxationthrough the imposition of state income, franchise or other forms of taxation.If additional states were to impose a tax upon us as an entity, the cashavailable for distribution to unitholders would be reduced. The partnership agreementsof Ferrellgas Partners and the operating partnership each provide that if a lawis enacted or existing law is modified or interpreted in a manner that subjectsone or both partnerships to taxation as a corporation or otherwise subjects oneor both partnerships to entity-level taxation for federal, state or localincome tax purposes, provisions of one or both partnership agreements will besubject to change. These changes would include a decrease in the minimumquarterly distribution and the target distribution levels to reflect the impactof those taxes.

 

*Unitholders may have negative tax consequences ifwe default on our debt or sell assets.*

 

Ifwe default on any of our debt, the lenders will have the right to sue us fornon-payment. That action could cause an investment loss and negative taxconsequences for our unitholders through the realization of taxable income byunitholders without a corresponding cash distribution. Likewise, if we were todispose of assets and realize a taxable gain while there is substantial debtoutstanding and proceeds of the sale were applied to the debt, our unitholders could haveincreased taxable income without a corresponding cash distribution.

 

**Conflictsof Interest**

 

Conflicts ofinterest could arise as a result of the relationships between us, on the onehand, and our general partner and its affiliates, on the other. The directorsand officers of our general partner have fiduciary duties to manage our generalpartner in a manner beneficial to its stockholder. At the same time, ourgeneral partner has fiduciary duties to manage us in a manner beneficial to usand our unitholders. The duties of our general partner to us and ourunitholders, therefore, may conflict with the duties of the

 

31

----

Tableof Contents

 

directors and officers ofour general partner to its stockholder.

 

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

 

·                  decisions of our general partner withrespect to the amount and timing of our cash expenditures, borrowings,acquisitions, issuances of additional securities and changes in reserves in anyquarter may affect the amount of incentive distributions we are obligated topay our general partner;

 

·                  borrowings do not constitute a breach of any duty owed by our generalpartner to our unitholders even if these borrowings have the purpose or effectof directly or indirectly enabling us to make distributions to the holder ofour incentive distribution rights, currently our general partner, or to hastenthe expiration of the deferral period with respect to the common units held byFerrell Companies;

 

·                  we do not have any employees and relysolely on employees of our general partner and its affiliates;

 

·                  under the terms of our partnership agreements, we mustreimburse our general partner and its affiliates for costs incurred in managingand operating us, including costs incurred in rendering corporate staff andsupport services to us;

 

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

 

·                  neither our partnership agreements nor any of the other agreements,contracts and arrangements between us, on the one hand, and our general partnerand its affiliates, on the other, are or will be the result of arms-lengthnegotiations;

 

·                  whenever possible, our general partnerlimits our liability under contractual arrangements to all or a portion of ourassets, with the other party thereto having no recourse against our generalpartner or its assets;

 

·                  our partnership agreements permit ourgeneral partner to make these limitations even if we could have obtained morefavorable terms if our general partner had not limited its liability;

 

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

 

·                  our general partner may exercise itsright to call for and purchase common units as provided in the partnershipagreement of Ferrellgas Partners or assign that right to one of its affiliatesor to us;

 

·                  our partnership agreements provide that it will not constitute a breachof our general partner’s fiduciary duties to us for its affiliates to engage inactivities of the type conducted by us, other than retail propane sales to endusers in the continental United States in the manner engaged in by our generalpartner immediately prior to our initial public offering, even if theseactivities are in direct competition with us;

 

·                  our general partner and its affiliateshave no obligation to present business opportunities to us;

 

·                  our general partner selects theattorneys, accountants and others who perform services for us. These personsmay also perform services for our general partner and its affiliates. Ourgeneral partner is authorized to retain separate counsel for us or ourunitholders, depending on the nature of the conflict that arises; and

 

32

----

Tableof Contents

 

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

 

**Fiduciary Responsibilities**

 

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

 

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

 
| **ITEM 1B.** | **UNRESOLVED STAFF COMMENTS.** |
|--------------|--------------------------------|

 

None.

 
| **ITEM 2.** | **PROPERTIES.** |
|-------------|-----------------|

 

We own or lease thefollowing transportation equipment that is utilized primarily in propanedistribution operations:

** **
| ** **                                | ** ** | **Owned** | ** ** | **Leased** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|-----------|------------|------------|------------|-----------|------------|
| Truck tractors                            |       | 118       |       | 55         |       | 173       |       |
| Propane transport  trailers               |       | 275       |       | 30         |       | 305       |       |
| Portable tank delivery  trucks            |       | 286       |       | 213        |       | 499       |       |
| Portable tank exchange  delivery trailers |       | 166       |       | 116        |       | 282       |       |
| Bulk propane delivery  trucks             |       | 1,089     |       | 588        |       | 1,677     |       |
| Pickup and service  trucks                |       | 961       |       | 345        |       | 1,306     |       |
| Railroad tank cars                        |       | —    |       | 97         |       | 97        |       |

 

33

----

Tableof Contents

 

The propane transporttrailers have an average capacity of approximately 10,000 gallons. The bulkpropane delivery trucks are generally fitted with 3,000 gallon tanks. Eachrailroad tank car has a capacity of approximately 30,000 gallons.

 

We typically manage our retail propane distributionlocations using a structure where one location, referred to as a servicecenter, is staffed to provide oversight and management to multiple distributionlocations, referred to as service units. Our retail propane distributionlocations are comprised of 131 service centers and 844 service units. Theservice unit locations utilize hand-held computers and satellite technology tocommunicate with management typically located in the associated service center.We believe this structure together with our technology platform allows us tomore efficiently route and schedule customer deliveries and significantlyreduces the need for daily on-site management.

 

In addition to our retail propane distributionlocations, we also distribute propane for our portable tank exchange operationsfrom 21 partnership-owned propane distribution locations and 22independently-owned distributors.

 

We own approximately 48.0 million gallons of propanestorage capacity at our propane distribution locations. We own our land andbuildings in the local markets of approximately half of our operating locationsand lease the remaining facilities on terms customary in the industry.

 

We ownapproximately 1.0 million propane tanks, most of which are located on customerproperty and rented to those customers. We also own approximately 3.5 millionportable propane tanks, most of which are used by us to deliver propane to ourportable tank exchange customers and to deliver propane to ourindustrial/commercial customers.

 

Welease approximately 46.5 million gallons of propane storage capacity located atunderground storage facilities and pipelines at various locations around theUnited States.

 

Welease 109,312 square feet of office space at separate locations that compriseour corporate headquarters in the Kansas City metropolitan area. We also lease64,219 square feet of office and warehouse space in Winston-Salem, NorthCarolina in connection with our portable tank exchange operations.

 

Wesublease approximately 3,500 square feet of office space in the Kansas Citymetropolitan area to Samson Dental Practice Management, LLC, a companywholly-owned by James E. Ferrell. For further discussion of related partytransactions, see Item 7. “Management’s Discussion and Analysis of FinancialCondition and Results of Operations — Disclosures about Effects of Transactionswith Related Parties” and Note K — Transactions with related parties — to ourconsolidated financial statements.

 

Webelieve that we have satisfactory title to or valid rights to use all of ourmaterial properties. Although some of those properties may be subject toliabilities and leases, liens for taxes not yet currently due and payable andimmaterial encumbrances, easements and restrictions, we do not believe that anysuch burdens will materially interfere with the continued use of suchproperties in our business. We believe that we have obtained, or are in theprocess of obtaining, all required material approvals. These approvals includeauthorizations, orders, licenses, permits, franchises, consents of, registrations,qualifications and filings with, the various state and local governmental andregulatory authorities which relate to our ownership of properties or to ouroperations.

 

34

----

Tableof Contents

 
| **ITEM 3.** | **LEGAL PROCEEDINGS.** |
|-------------|------------------------|

 

Our operations aresubject to all operating hazards and risks normally incidental to handling,storing, transporting and otherwise providing for use by consumers ofcombustible liquids such as propane. As a result, at any given time, we arethreatened with or named as a defendant in various lawsuits arising in theordinary course of business. Currently, we are not a party to any legalproceedings other than various claims and lawsuits arising in the ordinarycourse of business. It is not possible to determine the ultimate disposition ofthese matters; however, management is of the opinion that there are no knownclaims or contingent claims that are reasonably expected to have a materialadverse effect on our financial condition, results of operations and cashflows.

 

We have been named as adefendant in lawsuits filed in multiple federal and state courts that seek tocertify nationwide or statewide classes. The plaintiffs in each case generallyallege that we failed to inform consumers of the amount of propane contained inpropane tanks they purchased related to our Blue Rhino branded propane tankexchange activities. The cases have generally been stayed until motions areheard regarding coordination for multidistrict treatment in a single courtprior to trial. Based on our business and consumer notification practices inthe Blue Rhino tank exchange operations, we believe that all of these claimsare without merit and intend to defend the claims vigorously.

 
| **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 unitsrepresent limited partner interests in Ferrellgas Partners and are listed andtraded on the New York Stock Exchange under the symbol “FGP.” As of August 31,2009, we had 952 common unitholders of record. The following table sets forththe high and low sales prices for our common units on the New York StockExchange and the cash distributions declared per common unit for our fiscalperiods indicated.

 
| ** **      | ** ** | **Common Unit Price Range** | ** ** | **Distributions** | ** ** |
|-----------------|------------|--------------------------------------------|------------|-------------------|------------|
| ** **      | ** ** | **High**                                   | ** ** | **Low**           | ** ** | **Declared Per Unit** | ** ** |
| ** **      | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** ** | ** ** |
| 2008            | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** ** | ** ** |
| First  Quarter  |       | $                                          | 24.20      |              | $          | 21.37 |   | $ | 0.50 |   |
| Second  Quarter |       | 23.10                                      |       | 20.13             |       | 0.50 |   |
| Third  Quarter  |       | 22.96                                      |       | 20.36             |       | 0.50 |   |
| Fourth  Quarter |       | 22.28                                      |       | 18.35             |       | 0.50 |   |
| ** **      | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** ** | ** ** |
| 2009            | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** ** | ** ** |
| First  Quarter  |       | $                                          | 20.78      |              | $          | 11.27 |   | $ | 0.50 |   |
| Second  Quarter |       | 16.95                                      |       | 11.23             |       | 0.50 |   |
| Third  Quarter  |       | 15.57                                      |       | 11.30             |       | 0.50 |   |
| Fourth  Quarter |       | 18.37                                      |       | 14.61             |       | 0.50 |   |

 

We make quarterlycash distributions of our available cash. Available cash is defined in our

 

35

----

Tableof Contents

 

partnershipagreement as, generally, the sum of our consolidated cash receipts lessconsolidated cash disbursements and changes in cash reserves established by ourgeneral partner for future requirements. To the extent necessary and due to theseasonal nature of our operations, we will generally reserve cash inflows fromour second and third fiscal quarters for distributions during our first andfourth fiscal quarters. Based upon our current financial condition and resultsof operations, our general partner currently believes that during fiscal 2010we will be able to make quarterly cash distributions per common unit comparableto those quarterly distributions made during our last two fiscal years;however, no assurances can be given that such distributions will be made or theamount of such distributions. See Item 7. “Management’s Discussion and Analysisof Financial Condition and Results of Operations - Liquidity and CapitalResources” for a discussion of the financial tests and covenants which placelimits on the amount of cash that we can use to pay distributions.

 

**RecentSales of Unregistered Securities**

 

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

 

OnSeptember 14, 2009, the operating partnership issued $300.0 million inaggregate principal amount of its 9.125% senior notes due 2017 at an offeringprice equal to 98.6% of par. The net proceeds after commissions and fees of$289.0 million will be used to redeem $152.0 million of existing senior notesand related prepayment penalties with remaining proceeds to be used to reduceborrowings on our unsecured credit facility due April 2010. The notes werenot registered and were offered and sold only to qualified institutional buyersas defined in Rule 144A under the Securities Act.

 

**Ferrellgas Partners Tax Matters**

 

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

 

**Common Equity of Other Registrants**

 

There is no established public tradingmarket for the common equity of the operating partnership, Ferrellgas PartnersFinance Corp. or Ferrellgas Finance Corp. All of the common equity of theoperating partnership and Ferrellgas Partners Finance Corp. is held byFerrellgas Partners and all of the common equity of Ferrellgas Finance Corp. isheld by the operating partnership. There are no equity securities of theoperating partnership, Ferrellgas Partners Finance Corp. or Ferrellgas FinanceCorp. authorized for issuance under any equity compensation plan. During fiscal2009, there were no issuances of securities of the operating partnership,Ferrellgas Partners Finance Corp. or Ferrellgas Finance Corp.

 

Neither Ferrellgas Partners Finance Corp.nor Ferrellgas Finance Corp. declared or paid any cash dividends on its commonequity during fiscal 2008 or 2009. The operating partnership distributes cashdeclared on its common equity four times per fiscal year. See Item 7. “Management’sDiscussion and Analysis of Financial Condition and Results of Operations -Liquidity and Capital Resources — Financing Activities — Distributions paid bythe operating partnership” for a discussion of its distributions during fiscal2009. See “Management’s Discussion and Analysis of Financial Condition andResults of Operations - Liquidity and Capital Resources” for a discussion ofthe financial tests and covenants which place limits on the amount of cash thatthe operating partnership can use to pay distributions.

 

36

----

Tableof Contents

 

**EquityCompensation Plan Information**

 

See****Item 12. “SecurityOwnership of Certain Beneficial Owners and Management and Related UnitholderMatters — Securities Authorized for Issuance Under Equity Compensation Plans.”

 

37

----

Tableof Contents

 

**ITEM 6.****         ****SELECTED FINANCIAL DATA.**

 

The following tables present selected consolidatedhistorical financial and operating data for Ferrellgas Partners and the operatingpartnership.

 

(inthousands, except per unit data)

 
| ** **                                                                    | ** ** | **Ferrellgas Partners, L.P.** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                    | ** ** | **Year Ended July 31,**  | ** ** |
| ** **                                                                    | ** ** | **2009**                                | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Income Statement Data:**                                                    |       |                                    |       |   |   |   |   |   |   |   |   |
| Total  revenues                                                               |       | $                                       | 2,069,522  |   | $ | 2,290,689 |   | $ | 1,992,440 |   | $ | 1,895,470 |   | $ | 1,754,114 |   |
| Interest  expense                                                             |       | 89,519                                  |       | 86,712 |   | 87,953 |   | 84,235 |   | 91,518 |   |
| Earnings  (loss) from continuing operations                                   |       | 52,572                                  |       | 24,689 |   | 34,800 |   | 25,009 |   | (15,375 | ) |
| Basic  and diluted earnings (loss) per common unit from continuing operations |       | $                                       | 0.79       |   | $ | 0.39 |   | $ | 0.55 |   | $ | 0.41 |   | $ | (0.41 | ) |
| Cash  distributions declared per common unit                                  |       | $                                       | 2.00       |   | $ | 2.00 |   | $ | 2.00 |   | $ | 2.00 |   | $ | 2.00 |   |
|                                                                          |       |                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                                                       |       |                                    |       |   |   |   |   |   |   |   |   |
| Working  capital (1)                                                          |       | $                                       | 34,556     |   | $ | 46,075 |   | $ | 42,503 |   | $ | 27,244 |   | $ | 38,885 |   |
| Total  assets                                                                 |       | 1,404,977                               |       | 1,529,231 |   | 1,503,403 |   | 1,549,500 |   | 1,508,973 |   |
| Long-term  debt                                                               |       | 1,010,073                               |       | 1,034,719 |   | 1,011,751 |   | 983,545 |   | 948,977 |   |
| Partners’  capital                                                       |       | 147,073                                 |       | 162,124 |   | 236,657 |   | 265,745 |   | 333,678 |   |
|                                                                          |       |                                    |       |   |   |   |   |   |   |   |   |
| **Operating Data:**                                                           |       |                                    |       |   |   |   |   |   |   |   |   |
| Propane  sales volumes (in thousands of gallons)                              |       | 874,826                                 |       | 838,847 |   | 891,888 |   | 910,755 |   | 1,063,107 |   |
|                                                                          |       |                                    |       |   |   |   |   |   |   |   |   |
| **Capital expenditures :**                                               |       |                                    |       |   |   |   |   |   |   |   |   |
| Maintenance                                                                   |       | $                                       | 21,082     |   | $ | 21,139 |   | $ | 16,935 |   | $ | 13,003 |   | $ | 17,259 |   |
| Growth                                                                        |       | 32,046                                  |       | 23,407 |   | 29,732 |   | 29,448 |   | 25,089 |   |
| Technology  initiative                                                        |       | —                                  |       | — |   | — |   | 915 |   | 10,466 |   |
| Acquisition                                                                   |       | 9,944                                   |       | 191 |   | 35,466 |   | 38,057 |   | 31,699 |   |
| Total                                                                         |       | $                                       | 63,072     |   | $ | 44,737 |   | $ | 82,133 |   | $ | 81,423 |   | $ | 84,513 |   |

 

----

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

 
| ** **                                       | ** ** | **Ferrellgas, L.P.**              | ** ** |
|--------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                       | ** ** | **Year Ended July 31,** | ** ** |
| ** **                                       | ** ** | **2009**                               | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Income Statement Data:**                       |       |                                   |       |   |   |   |   |   |   |   |   |
| Total  revenues                                  |       | $                                      | 2,069,522  |   | $ | 2,290,689 |   | $ | 1,992,440 |   | $ | 1,895,470 |   | $ | 1,754,114 |   |
| Interest  expense                                |       | 65,785                                 |       | 63,001 |   | 64,201 |   | 60,537 |   | 67,430 |   |
| Earnings  from continuing operations             |       | 77,501                                 |       | 49,232 |   | 59,427 |   | 49,465 |   | 9,128 |   |
|                                             |       |                                   |       |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                          |       |                                   |       |   |   |   |   |   |   |   |   |
| Working  capital (1)                             |       | $                                      | 36,967     |   | $ | 48,397 |   | $ | 44,737 |   | $ | 28,874 |   | $ | 41,078 |   |
| Total  assets                                    |       | 1,403,049                              |       | 1,526,621 |   | 1,499,951 |   | 1,544,051 |   | 1,504,271 |   |
| Long-term  debt                                  |       | 740,982                                |       | 765,248 |   | 741,900 |   | 713,316 |   | 678,367 |   |
| Partners’  capital                          |       | 421,610                                |       | 436,269 |   | 511,356 |   | 539,910 |   | 608,987 |   |
|                                             |       |                                   |       |   |   |   |   |   |   |   |   |
| **Operating Data:**                              |       |                                   |       |   |   |   |   |   |   |   |   |
| Propane  sales volumes (in thousands of gallons) |       | 874,826                                |       | 838,847 |   | 891,888 |   | 910,755 |   | 1,063,107 |   |
|                                             |       |                                   |       |   |   |   |   |   |   |   |   |
| **Capital expenditures:**                        |       |                                   |       |   |   |   |   |   |   |   |   |
| Maintenance                                      |       | $                                      | 21,082     |   | $ | 21,139 |   | $ | 16,935 |   | $ | 13,003 |   | $ | 17,259 |   |
| Growth                                           |       | 32,046                                 |       | 23,407 |   | 29,732 |   | 29,448 |   | 25,089 |   |
| Technology  initiative                           |       | —                                 |       | — |   | — |   | 915 |   | 10,466 |   |
| Acquisition                                      |       | 9,944                                  |       | 191 |   | 35,466 |   | 38,057 |   | 32,430 |   |
| Total                                            |       | $                                      | 63,072     |   | $ | 44,737 |   | $ | 82,133 |   | $ | 81,423 |   | $ | 85,244 |   |

 

----

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

 

38

----

Table ofContents

 

Our capitalexpenditures fall generally into four categories:

 

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

·      growth capital expenditures, whichinclude expenditures for purchases of both bulk and portable propane tanks andother equipment to facilitate expansion of our customer base and operatingcapacity;

·      technology initiative capitalexpenditures, which include expenditures for purchases of computer hardware andsoftware for the development of new software; and

·      acquisition capital expenditures, whichinclude expenditures related to the acquisition of retail distribution propaneoperations; acquisition capital expenditures represent the total cost ofacquisitions less working capital acquired.

 

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

 

Ourmanagement’s discussion and analysis of financial condition and results ofoperations relates to Ferrellgas Partners and the operating partnership.

 

FerrellgasPartners Finance Corp. and Ferrellgas Finance Corp. have nominal assets, do notconduct any operations and have no employees other than officers. FerrellgasPartners Finance Corp. serves as co-issuer and co-obligor for debt securities ofFerrellgas Partners and Ferrellgas Finance Corp. serves as co-issuer andco-obligor for debt securities of the operating partnership. Accordingly, anddue to the reduced disclosure format, a discussion of the results ofoperations, liquidity and capital resources of Ferrellgas Partners FinanceCorp. and Ferrellgas Finance Corp. is not presented in this section.

 

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

 

The discussionsset forth in the “Results of Operations” and “Liquidity and Capital Resources”sections generally refer to Ferrellgas Partners and its consolidatedsubsidiaries. However, in these discussions there exist two materialdifferences between Ferrellgas Partners and the operating partnership. Thosematerial differences are:

 

·      because Ferrellgas Partners has issued $268.0 millionin aggregate principal amount of 8.75% senior notes due fiscal 2012, the twopartnerships incur different amounts of interest expense on their outstandingindebtedness; see the statements of earnings in their respective consolidatedfinancial statements and Note H —Debt — in the respective notes to theirconsolidated financial statements; and

 

·      Ferrellgas Partners issued common units during bothfiscal 2008 and 2009.

 

**Overview**

 

We are a leading distributorof propane and related equipment and supplies to customers primarily in theUnited States and conduct our business as a single reportable operatingsegment. We believe that we are the second largest retail marketer of propanein the United States, and the largest national provider of propane by portabletank exchange, as measured by our propane sales volumes in fiscal 2009.

 

We serve approximatelyone million residential, industrial/commercial, portable tank exchange,agricultural, wholesale and other customers in all 50 states, the District ofColumbia and Puerto Rico. Our operations primarily include the distribution andsale of propane and related equipment and supplies with concentrations in theMidwest, Southeast, Southwest and Northwest regions of the United States. Our 

 

39

----

Table of Contents

 

propane distributionbusiness consists principally of transporting propane purchased from thirdparties to propane distribution locations and then to tanks on customers’premises or to portable propane tanks delivered to nationwide and localretailers. Our portable tank exchange operations, nationally branded under thename Blue Rhino, are conducted through a network of independent andpartnership-owned distribution outlets. Our market areas for our residentialand agricultural customers are generally rural, but also include urban areasfor industrial applications. Our market area for our industrial/commercial andportable tank exchange customers is generally urban.

 

In the residential andindustrial/commercial markets, propane is primarily used for space heating,water heating, cooking and other propane fueled appliances. In the portable tankexchange market, propane is used primarily for outdoor cooking using gasgrills. In the agricultural market, propane is primarily used for crop drying,space heating, irrigation and weed control. In addition, propane is used for avariety of industrial applications, including as an engine fuel which is burnedin internal combustion engines that power vehicles and forklifts, and as aheating or energy source in manufacturing and drying processes.

 

The market for propane isseasonal because of increased demand during the months of November throughMarch (the “winter heating season”) primarily for the purpose of providingheating in residential and commercial buildings. Consequently, sales andoperating profits are concentrated in our second and third fiscal quarters,which are during the winter heating season. However, our propane by portabletank exchanges sales volume provides us increased operating profits during ourfirst and fourth fiscal quarters due to its counter-seasonal businessactivities. These sales also provide us the ability to better utilize ourseasonal resources at our propane distribution locations. Other factorsaffecting our results of operations include competitive conditions, volatilityin energy commodity prices, demand for propane, timing of acquisitions andgeneral economic conditions in the United States.

 

We use information ontemperatures to understand how our results of operations are affected bytemperatures that are warmer or colder than normal. We use the definition of “normal”temperatures based on information published by the National Oceanic andAtmospheric Administration (“NOAA”). Based on this information we calculate aratio of actual heating degree days to normal heating degree days. Heatingdegree days are a general indicator of weather impacting propane usage.

 

Weather conditions have asignificant impact on demand for propane for heating purposes during the winterheating season. Accordingly, the volume of propane used by our customers forthis purpose is directly affected by the severity of the winter weather in theregions we serve and can vary substantially from year to year. In any givenregion, sustained warmer-than-normal temperatures will tend to result inreduced propane usage, while sustained colder-than-normal temperatures willtend to result in greater usage. Although there is a direct correlation betweenweather and customer usage, there is a natural time lag between the onset ofcold weather and increased sales to customers. Nationwide temperatures during thefiscal year were 2% warmer than normal but 1% cooler than one year ago.

 

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

 

We employ risk managementactivities that attempt to mitigate price risks related to the purchase,storage, transport and sale of propane. We enter into propane sales commitmentswith a portion of our customers that provide for a contracted price agreementfor a specified period of time. These 

 

40

----

Table of Contents

 

commitments can expose usto product price risk if not immediately hedged with an offsetting propanepurchase commitment. Due to the significant price decrease in propane since thebeginning of fiscal 2009, most financial derivative purchase commitments weentered into to hedge fiscal 2009 propane sales commitments experiencedsignificant losses when they settled in fiscal 2009. These losses were offsetby margins on propane sales commitments that had qualified for the normalpurchase normal sale exception under SFAS 133.

 

Our open financialderivative purchase commitments are designated as hedges for fiscal 2010 salescommitments and, as of July 31, 2009, have experienced a net mark tomarket loss of approximately $1.0 million. Because these financial derivativepurchase commitments qualify for hedge accounting treatment under SFAS 133, theresulting asset, liability and related net mark to market losses are recordedon the balance sheet as price risk management assets, other current liabilitiesand accumulated other comprehensive income (loss), respectively, until settled.Upon settlement, realized gains or losses on these contracts will bereclassified to “Cost of product sold-propane and other gas liquid sales” inthe condensed consolidated statements of earnings. These financial derivativepurchase commitment net losses are expected to be offset by margins on propanesales commitments that qualify for the normal purchase normal sale exceptionunder SFAS 133. At July 31, 2009 we estimate 100% of currently openfinancial derivative purchase commitments, the related propane salescommitments, and the resulting gross margin will be realized into earningsduring fiscal 2010.

 

Ourbusiness strategy is to:

 

·      expand our operations through disciplined acquisitionsand internal growth;

·      capitalize on our national presence and economies ofscale;

·      maximize operating efficiencies through utilization ofour technology platform; and

·      align employee interests with our investors throughsignificant employee ownership.

 

Net earnings in fiscal2009 were $52.6 million compared to net earnings in fiscal 2008 of $24.7million. The increase in net earnings of $27.9 million was primarily due togross margin from “Propane and other gas liquids sales” increasing by $58.9million primarily due to higher propane sales volumes, and increased grossmargin per gallon compared to the prior year. These increases were partiallyoffset by “Operating expense” increasing $28.7 million primarily due to anincrease in personnel cost.

 

**Forward-looking Statements**

 

Statementsincluded in this report include forward-looking statements. Theseforward-looking statements are identified as any statement that does not relatestrictly to historical or current facts. These statements often use words suchas “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,”“position,” “continue,” “estimate,” “expect,” “may,” “will,” or the negative of those terms or other variations ofthem or comparable terminology. These statements often discuss plans,strategies, events or developments that we expect or anticipate will or mayoccur in the future and are based upon the beliefs and assumptions of ourmanagement and on the information currently available to them. In particular,statements, express or implied, concerning our future operating results or ourability to generate sales, income or cash flow are forward-looking statements.

 

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

 

Some of ourforward-looking statements include the following:

 

·      whether the operating partnership,will have sufficient funds to meet its obligations, including its obligationsunder its debt securities, and to enable it to distribute to FerrellgasPartners sufficient funds to permit Ferrellgas Partners to meet its obligationswith respect to its existing debt and equity 

 

41

----

Table of Contents

 

securities;

 

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

 

·      our expectation that “Operating income”and “Net earnings” during fiscal 2010 will be higher than fiscal 2009.

 

When considering anyforward-looking statement, you should also keep in mind the risk factors setforth in “Item 1A. Risk Factors.” Any of these risks could impair our business,financial condition or results of operations. Any such impairment may affect ourability to make distributions to our unitholders or pay interest on theprincipal of any of our debt securities. In addition, the trading price, ifany, of our securities could decline as a result of any such impairment.

 

Except for our ongoingobligations to disclose material information as required by federal securitieslaws, we undertake no obligation to update any forward-looking statements orrisk factors after the date of this annual report.

 

In addition, the classification of Ferrellgas Partners and theoperating partnership as partnerships for federal income tax purposes meansthat we do not generally pay federal income taxes. We do, however, pay taxes onthe income of our subsidiaries that are corporations. We rely on a legalopinion from our counsel, and not a ruling from the Internal Revenue Service,as to our proper classification for federal income tax purposes. See thesection entitled “Item 1A. Risk Factors — Tax Risks.” The IRS could treat us asa corporation for tax purposes or changes in federal or state laws couldsubject us to entity-level taxation, which would substantially reduce the cashavailable for distribution to our unitholders.

 

**Resultsof Operations**

 

**FiscalYear Ended July 31, 2009 compared to July 31, 2008**

 

*(amounts in thousands)*

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

 

----

(a) Gross margin frompropane and other gas liquids sales represents “Propane and other gas liquidssales” less “Cost of product sold — propane and other gas liquids sales.”

 

NM- Not meaningful

 

42

----

Table of Contents

 

Propane sales volumes during fiscal 2009 increased36.0 million gallons from that of the prior year period due primarily to 40.0million of increased gallon sales to our wholesale customers. This increase waspartially offset by a 4.0 million decrease in gallon sales to our retailcustomers. Wholesale sale volumes increased due to our emphasis on expandingthis portion of our business.

 

The wholesale market price at one of the major supplypoints, Mt. Belvieu, Texas, during fiscal 2009 averaged 42% less than the prioryear period. The wholesale market price averaged $0.88 and $1.53 per gallonduring fiscal 2009 and 2008, respectively.

 

*Revenues - Propane and other gas liquids sales*

 

Retail sales decreased $153.6 million compared to theprior year period. This decrease resulted primarily from a $144.7 milliondecrease in sales price per gallon as discussed above and an $8.9 milliondecrease due to lower propane sales volumes.

 

Wholesale sales increased $28.3 million compared tothe prior year period. This increase resulted primarily from a $100.2 millionincrease due to higher propane sales volumes. This increase was significantlyoffset by a $71.9 million decrease in sales price per gallon, both as discussedabove.

 

Other gas sales decreased $100.4 million compared tothe prior year period. This decrease resulted primarily from an $80.0 milliondecrease due to lower propane sales volumes and a $15.8 million decrease insales price per gallon.

 

*Gross margin - Propane and other gas liquids sales*

 

Retail sales gross marginincreased $41.4 million compared to the prior year period. This increaseresulted primarily from a $44.0 million increase in gross margin per gallonpartially offset by a $2.6 million decrease in propane sales volumes.

 

Wholesale sales grossmargin increased $21.5 million compared to the prior year period. This increaseresulted primarily from a $29.2 million increase in propane sales volumes,partially offset by a $7.7 million decrease in gross margin per gallon.

 

*Operating income*

 

Operating incomeincreased $35.5 million compared to the prior year period primarily due to the$58.9 million increase in “Gross margin - Propane and other gas liquids sales”as discussed above, a $6.1 million decrease in “Equipment lease expense”, a$5.7 million decrease in “Employee stock ownership plan ownership charges,” anda $4.2 million decrease in “General and administrative expense.” Theseincreases were partially offset by a $28.7 million increase in “Operatingexpense” and an $11.9 million decrease in gross margin from “Revenues: Other.”Equipment lease expense decreased primarily due to $3.7 million in computerrelated lease expense. Employee stock ownership plan ownership chargesdecreased primarily due to the effect of lower Ferrellgas common unit pricesduring the current year period. General and administrative expense decreasedprimarily due to $2.4 million in other corporate overhead expenses incurred infiscal 2008 that were not repeated in fiscal 2009. Operating expense increasedprimarily due to $29.8 million personnel costs, $4.0 million in plant andoffice expenses, $3.0 million in selling expenses and $2.2 million in vehiclerepair costs, which were partially offset by a $4.4 million decrease in fuelcosts and a $3.5 million decrease in bad debt expense. Revenue: Other decreasedprimarily due to $8.2 million of miscellaneous fees billed to customers in theprior year period that were not repeated during the current year period.

 

43

----

Table of Contents

 

*Interestexpense - consolidated*

 

Interest expenseincreased $2.8 million primarily due to a $4.7 million increase in discountamortization on the debt issuance in August 2008 at 85% of par, anincrease of $2.4 million due to an increase in interest rates primarily fromthe debt issuance in August 2008 and a $2.1 million increase in letter ofcredit and related fees. These increases were partially offset by a $6.4million reduction in expense due to decreased borrowings on our unsecuredcredit facility.

 

*Interestexpense - operating partnership*

 

Interest expenseincreased $2.8 million primarily due to a $4.7 million increase in discountamortization on the debt issuance in August 2008 at 85% of par, anincrease of $2.4 million due to an increase in interest rates primarily fromthe debt issuance in August 2008 and a $2.1 million increase in letter ofcredit and related fees. These increases were partially offset by a $6.4million reduction in expense due to decreased borrowings on our unsecuredcredit facility.

 

*Forward looking statements*

 

Weexpect increases during fiscal 2010 for “Operating income” and “Net earnings”as compared to fiscal 2009 primarily due to improved gross margins duringfiscal 2010.

 

44

----

Table of Contents

 

**Fiscalyear ended July 31, 2008 compared to July 31, 2007**

 

*(amounts in thousands)*

 
| **Fiscal year ended July 31,**       | ** ** | **2008** | ** ** | **2007** | ** ** | **Favorable  (unfavorable)  Variance** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|----------------------------------------|------------|
| Propane  sales volumes (gallons):         |       |     |       |     |       |                                   |       |   |   |
| Retail  – Sales to End Users         |       | 656,832  |       | 702,716  |       | (45,884                                | )          | (7 | )% |
| Wholesale  – Sales to Resellers      |       | 182,015  |       | 189,172  |       | (7,157                                 | )          | (4 | )% |
|                                      |       | 838,847  |       | 891,888  |       | (53,041                                | )          | (6 | )% |
|                                      |       |     |       |     |       |                                   |       |   |   |
| Revenues  -                               |       |     |       |     |       |                                   |       |   |   |
| Propane  and other gas liquids sales:     |       |     |       |     |       |                                   |       |   |   |
| Retail  – Sales to End Users         |       | $        | 1,451,054  |     | $          | 1,279,975                              |       | $ | 171,079 |   | 13 | % |
| Wholesale  – Sales to Resellers      |       | 455,794  |       | 396,185  |       | 59,609                                 |       | 15 | % |
| Other  Gas Sales                          |       | 148,433  |       | 81,263   |       | 67,170                                 |       | 83 | % |
|                                      |       | $        | 2,055,281  |     | $          | 1,757,423                              |       | $ | 297,858 |   | 17 | % |
|                                      |       |     |       |     |       |                                   |       |   |   |
| Gross  margin –                      |       |     |       |     |       |                                   |       |   |   |
| Propane  and other gas liquids sales: (a) |       |     |       |     |       |                                   |       |   |   |
| Retail  – Sales to End Users         |       | $        | 427,701    |     | $          | 482,878                                |       | $ | (55,177 | ) | (11 | )% |
| Wholesale  – Sales to Resellers      |       | 132,858  |       | 133,109  |       | (251                                   | )          | — | % |
| Other  Gas Sales                          |       | 2,804    |       | (5,733   | )          | 8,537                                  |       | NM |   |
|                                      |       | $        | 563,363    |     | $          | 610,254                                |       | $ | (46,891 | ) | (8 | )% |
|                                      |       |     |       |     |       |                                   |       |   |   |
| Operating income                          |       | $        | 110,941    |     | $          | 126,768                                |       | $ | (15,827 | ) | (12 | )% |
| Interest expense                          |       | $        | 86,712     |     | $          | 87,953                                 |       | $ | 1,241 |   | 1 | % |
| Interest expense - operating partnership  |       | $        | 63,001     |     | $          | 64,201                                 |       | $ | 1,200 |   | 2 | % |

 

----

(a) Gross margin frompropane and other gas liquids sales represents “Propane and other gas liquidssales” less “Cost of product sold — propane and other gas liquids sales.”

 

NM- Not meaningful

 

Propane sales volumes during fiscal 2008 decreased53.0 million gallons from that of the prior year period. Although temperaturesduring the period were 2% colder than those of the prior year, we believe theincreasing propane prices have led to lower customer usage due to increasedconservation. The average wholesale market price of propane has increased 47%since fiscal 2007. The wholesale market price at one of the major supplypoints, Mt. Belvieu, Texas averaged $1.53 and $1.04 per gallon during fiscal2008 and 2007, respectively.

 

*Revenues - Propane and other gas liquids sales*

 

Retail sales increased $171.1 million compared to theprior year period. Approximately $254.1 million of this increase was primarilydue to the effect of increased sales price per gallon, partially offset by a$95.8 million decrease due to lower propane sales volumes, as discussed above.

 

Wholesale sales increased $59.6 million compared tothe prior year period. Approximately $66.8 million of this increase was due toincreased sales price per gallon, partially offset by a $7.2 million decreasedue to lower propane sales volumes, as discussed above.

 

Other gas sales increased $67.2 million primarily dueto both a $50.4 million increase in sales price per gallon and a $15.1 millionincrease in propane sales volume of lower-margin other third-party sales.

 

*Gross margin - Propane and other gas liquids sales*

 

Retail sales gross margindecreased $55.2 million compared to the prior year period. This decrease

 

45

----

Table of Contents

 

was primarily due to the $31.1 million impact oflower propane salesvolumes as discussed above and $26.6 million due to a decrease in gross marginper gallon.

 

Other gas salesgross margin increased $8.5 million primarily due to prior year sales of excessinventory to lower margin third party customers at a loss that were notrepeated in the current year.

 

*Operating income*

 

Operating income decreased $15.8 million compared to the prior yearperiod primarily due to the $46.9 million decrease in “Gross margin-propane andother gas liquids sales,” which was partially offset by a $21.1 millionincrease in gross margin from “Revenues: Other” and an $8.8 million decrease in“Operating expense.” Gross margin from “Revenues: Other” increased primarilydue to $14.3 million of increased fee income billed to customers. Operatingexpense decreased primarily due to a $7.7 million decrease in labor expense anda $7.2 million decrease in incentive and other compensation expense, partiallyoffset by increases in fuel costs of $7.0 million.

 

*Interest expense - consolidated*

 

Interest expensedecreased $1.2 million primarily due to a $3.9 million decrease due to areduction in interest rates on variable rate indebtedness and a $0.6 milliondecrease in letter of credit and commitment fees, offset primarily by a $3.5million increase resulting from additional borrowings on our unsecured creditfacility to fund working capital needs.

 

*Interestexpense - operating partnership*

 

Interest expensedecreased $1.2 million primarily due to a $3.9 million decrease due to areduction in interest rates on variable rate indebtedness and a $0.6 milliondecrease in letter of credit and commitment fees, offset primarily by a $3.5million increase resulting from additional borrowings on our unsecured creditfacility to fund working capital needs.

 

**Liquidity and Capital Resources**

 

**General**

 

Our liquidity and capital resources enable us to fundour working capital requirements, letter of credit requirements, debt servicepayments, acquisition and capital expenditures and distributions to ourunitholders. Our liquidity may be affected by an inability to access thecapital markets or by unforeseen demands on cash. This situation may arise dueto circumstances beyond our control, such as a general market disruption.During fiscal year 2009, there was unprecedented uncertainty in the financialand commodity markets that brought potential additional risks to us. Theserisks included limited access to capital markets which limited our ability toissue debt and equity at yields acceptable to us, less availability and highercosts of credit, margin calls on risk management activities in excess of ourability to fund, potential counterparty defaults, and further commercial bankfailures.

 

Our access tocapital markets has improved as we successfully renewed our accounts receivablesecuritization facility and completed a public offering of 5.0 million commonunits during our third quarter of fiscal 2009. During our first quarter offiscal 2010, we completed a $300.0 million debt offering, gave early redemptionnotice to the holders of $152.0 million of our Senior Notes and executed intoescrow a Credit Agreement (“Credit Agreement”) which will be released fromescrow pending certain closing conditions which we expect to occur prior to theend of our fiscal first quarter ending October 31, 2009. The Credit Agreementis intended to replace our existing unsecured credit facility and will providefor a $400.0 million revolving credit facility with the entire amount availablefor loans and with a sublimit of $200.0 million for letters of credit.

 

If this access to capital markets continues, webelieve we will continue to have sufficient access to capital markets at yieldsacceptable to us to support our expected growth expenditures and refinancing ofdebt maturities. Our disciplined approach to fund necessary capital spendingand other partnership needs,

 

46

----

Table ofContents

 

combinedwith sufficient trade credit to operate our business efficiently and availablecredit under our credit facility should provide us the means to meet ouranticipated liquidity and capital resource requirements.

 

During periods of high volatility our risk managementactivities expose us to the risk of counterparty margin calls in amountsgreater than we have the capacity to fund. Likewise our counterparties may notbe able to fulfill their margin calls to us or may default on the settlement ofpositions with us.

 

Our working capitalrequirements are subject to, among other things, the price of propane, delaysin the collection of receivables, volatility in energy commodity prices,liquidity imposed by insurance providers, downgrades in our credit ratings,decreased trade credit, significant acquisitions, the weather and other changesin the demand for propane. Relatively colder weather or higher propane pricesduring the winter heating season are factors that could significantly increaseour working capital requirements.

 

Ourability to satisfy our obligations is dependent upon our future performance,which will be subject to prevailing economic, financial, business and weatherconditions and other factors, many of which are beyond our control. Due to theseasonality of the retail propane distribution business, a significant portionof our cash flow from operations is generated during the winter heating season.Our net cash provided by operating activities primarily reflects earnings fromour business activities adjusted for depreciation and amortization and changesin our working capital accounts. Historically, we generate significantly lowernet cash from operating activities in our first and fourth fiscal quarters ascompared to the second and third fiscal quarters due to the seasonality of ourbusiness. Subject to meeting the financial tests discussed below, our generalpartner believes that the operating partnership will have sufficient fundsavailable to meet its obligations, and to distribute to Ferrellgas Partnerssufficient funds to permit Ferrellgas Partners to meet its obligations infiscal 2010.

 

Subjectto the risk factors identified in “Item 1A. Risk Factors” of this report, ourgeneral partner believes the operating partnership will have sufficient fundsavailable to distribute to Ferrellgas Partners sufficient cash to pay theminimum quarterly distribution on all of its common units in fiscal 2010. Aquarterly distribution of $0.50 was paid on September 14, 2009, to allcommon units that were outstanding on September 7, 2009. This representsthe sixtieth consecutive minimum quarterly distribution paid to our commonunitholders dating back to October 1994.

 

Ourunsecured credit facility, public debt, private debt and accounts receivablesecuritization facility contain several financial tests and covenantsrestricting our ability to pay distributions, incur debt and engage in certainother business transactions. In general, these tests are based on ourdebt-to-cash flow ratio and cash flow-to-interest expense ratio.****Our general partner currently believes that the mostrestrictive of these tests are debt incurrence limitations under the terms ofour credit and accounts receivable securitization facilities and limitations onthe payment of distributions within our 8.75% senior notes due 2012. The creditand accounts receivable securitization facilities generally limit the operatingpartnership’s ability to incur debt if it exceeds prescribed ratios of eitherdebt to cash flow or cash flow to interest expense. Our 8.75% senior notesrestrict payments if a minimum ratio of cash flow to interest expense is notmet, assuming certain exceptions to this ratio limit have previously beenexhausted. This restriction places limitations on our ability to makerestricted payments such as the payment of cash distributions to ourunitholders. The cash flow used to determine these financial tests generally isbased upon our most recent cash flow performance giving pro forma effect foracquisitions and divestitures made during the test period. Our secured creditfacility, public debt, private debt and accounts receivable securitizationfacility do not contain early repayment provisions related to a potentialdecline in our credit rating.

 

Asof July 31, 2009, we met all the required quarterly financial tests andcovenants. Based upon current estimates of our cash flow, our general partnerbelieves that we will be able to continue to meet all of the required quarterlyfinancial tests and covenants in fiscal 2010. However, we may not meet theapplicable financial tests in future quarters if we were to experience:

 

·      significantlywarmer than normal winter temperatures;

·      acontinued volatile energy commodity cost environment;

·      anunexpected downturn in business operations;

·      asustained general economic downturn in the United States; or

·      amaterial downturn in the credit and/or equity markets.

 

47

----

Table ofContents

 

Failureto meet applicable financial tests could have a materially adverse effect onour operating capacity and cash flows and could restrict our ability to incurdebt or to make cash distributions to our unitholders, even if sufficient fundswere available. Depending on the circumstances, we may consider alternatives topermit the incurrence of debt or the continued payment of the quarterly cashdistribution to our unitholders. No assurances can be given, however, that suchalternatives can or will be implemented with respect to any given quarter.

 

We expect our future capital expendituresand working capital needs to be provided by a combination of cash generatedfrom future operations, existing cash balances, the unsecured credit facilityor the accounts receivable securitization facility. See additional informationabout the accounts receivable securitization facility in “Operating Activities —Accounts receivable securitization.” In order to reduce existing indebtedness,fund future acquisitions and expansive capital projects, we may obtain fundsfrom our facilities, we may issue additional debt to the extent permitted underexisting financing arrangements or we may issue additional equity securities,including, among others, common units.

 

Towardthis purpose, the following registration statements were effective upon filingor declared effective by the SEC:

 

·      ashelf registration statement for the periodic sale of up to $750.0 millioncommon units, debt securities and/or other securities; Ferrellgas PartnersFinance Corp. may, at our election, be the co-issuer and co-obligor on any debtsecurities issued by Ferrellgas Partners under this shelf registrationstatement; as of July 31, 2009, we had $750.0 million available under thisshelf registration statement;

 

·      an“acquisition” shelf registration statement for the periodic sale of up to$250.0 million of common units to fund acquisitions; as of July 31, 2009we had $234.5 million available under this shelf agreement; and

 

·      ashelf registration statement for the periodic sale of up to $200.0 million ofcommon units in connection with Ferrellgas Partners’ direct purchase anddistribution reinvestment plan; as of July 31, 2009 we had $200.0 millionavailable under this shelf agreement.

 

**Operating Activities**

 

Netcash provided by operating activities was $201.8 million for fiscal 2009,compared to net cash provided by operating activities of $70.9 million for theprior year period. This increase in cash provided by operating activities wasprimarily due to a $158.0 million decrease in working capital requirements anda $22.1 million increase in cash flow from operations. These increases werepartially offset by a $48.0 million decrease in net funding from our accountsreceivable securitization facility. The decrease in working capitalrequirements was primarily due to $114.1 million from the impact of decreasedsales price per gallon of propane and the timing of billings and collections onaccounts receivable and $63.4 million from the timing and decreased cost pergallon of inventory purchases, partially offset by a $29.6 million increase dueto the timing of accounts payable disbursements. The increase in cash flow fromoperations is primarily due to a $27.9 million increase in net earnings. The$48.0 million decrease in net funding from our accounts receivablesecuritization facility is primarily due to a decrease in working capitalrequirements.

 

48

----

Tableof Contents

 

*Accounts receivable securitization*

 

Cashflows from our accounts receivable securitization facility decreased $48.0million. We remitted net funding of $36.0 million to this facility duringfiscal 2009 as compared to receiving net funding of $12.0 million from thisfacility in the prior year period.

 

Ourstrategy is to maximize liquidity by utilizing the accounts receivablesecuritization facility along with borrowings under the operating partnership’scredit facility. See additional discussion about the operating partnership’scredit facility in “Financing Activities — credit facility.” Our utilization ofthe accounts receivable securitization facility is limited by the amount ofaccounts receivable that we are permitted to transfer according to the facilityagreement. This arrangement allows for the proceeds of up to $145.0 millionfrom the sale of accounts receivable, depending on the available undividedinterests in our accounts receivable from certain customers. We renewed thisfacility effective April 20, 2009, for a 364-day commitment with JPMorganChase Bank, N.A., JS Siloed Trust and Fifth Third Bank. At July 31, 2009,we had received cash proceeds of $37.0 million related to the transfer of ourtrade accounts receivable to the accounts receivable securitization facilitywith the ability to receive cash proceeds, at our option, of an additional $4.0million. As our trade accounts receivable increase during the winter heatingseason, the securitization facility permits us to receive greater proceeds aseligible trade accounts receivable increases, thereby providing additional cashfor working capital needs. This transaction is reflected in our consolidatedfinancial statements as a sale of accounts receivable and a retained interestin transferred accounts receivable in accordance with SFAS 140.

 

The operating partnership

 

Netcash provided by operating activities was $225.6 million for fiscal 2009,compared to net cash provided by operating activities of $94.8 million for theprior year period. This increase in cash provided by operating activities wasprimarily due to a $157.8 million decrease in working capital requirements anda $22.2 million increase in cash flow from operations. These increases werepartially offset by a $48.0 million decrease in net funding from our accountsreceivable securitization facility. The decrease in working capitalrequirements was primarily due to $114.1 million from the impact of decreasedsales price per gallon of propane and the timing of billings and collections onaccounts receivable and $63.4 million from the timing and decreased cost per gallonof inventory purchases, partially offset by a $29.6 million increase due to thetiming accounts payable disbursements. The increase in cash flow fromoperations is primarily due to a $28.3 million increase in net income. The$48.0 million decrease in net funding from our accounts receivablesecuritization facility is primarily due to a decrease in working capitalrequirements.

 

**Investing Activities**

 

Net cash used ininvesting activities was $53.2 million for fiscal 2009, compared to net cashused in investing activities of $36.1 million for the prior year period. Thisincrease in net cash used in investing activities is primarily due to increasedcapital expenditures related to cylinder exchange activity.

 

*Capital expenditures*

 

We incurred $54.1 millionin cash capital expenditures during fiscal 2009 as compared to $43.8 million inthe prior year period for maintenance and growth capital expenditures.

 

*Acquisition expenditures*

 

During fiscal 2009, weused $2.7 million in cash for costs associated with acquisitions as compared to$0.2 million in the prior year period.

 

**Financing Activities**

 

During fiscal 2009, netcash used in financing activities was $158.1 million compared to net cash usedin financing activities of $38.8 million for the prior year period. Theincrease in net cash used in financing

 

49

----

Table ofContents

 

activitieswas primarily due to a $127.5 decrease in the need for short term borrowings tofund working capital requirements and a $53.6 million reduction in long-termborrowings, which were somewhat offset by $69.4 million of proceeds from theissuance of common units.

 

*Distributions*

 

FerrellgasPartners paid a $0.50 per unit quarterly distribution on all common units, aswell as the related general partner distributions, totaling $132.6 millionduring fiscal 2009 in connection with the distributions declared for the threemonths ended July 31, 2008, October 31, 2008 January 31, 2009and April 30, 2009. The quarterly distribution on all common units and therelated general partner distributions for the three months ended July 31,2009 of $34.5 million were paid on September 14, 2009 to holders of recordon September 7, 2009.

 

*UnsecuredCredit facility*

 

Due to a significant drop in propaneprices during the first quarter of fiscal 2009, we experienced an increase inmargin calls related to unfavorable risk management hedging positions. In orderto continue to fulfill these margin calls with cost effective letters ofcredit, we amended our unsecured credit facility due April 2010 whichincreased the letter of credit sublimit from $90.0 million to $200.0 millionthrough February 28, 2009 and to $150.0 million thereafter. The letter ofcredit sublimit is part of, and not in addition to, the aggregate unsecuredcredit facility commitment. The amendment also requires us to cashcollateralize any outstanding letter of credit obligations in an amount equalto the pro rata share of any defaulting lender.

 

During April 2009,we terminated the $150.0 million unsecured credit facility due August 1,2009. In conjunction with this termination, we paid down the total borrowingsoutstanding under this facility of $95.0 million using borrowing capacityavailable under the $448.0 million unsecured credit facility due April 2010.

 

Availability under our unsecured credit facilities isshown below.

 
| ** **                   | ** **                          | **July 31,  2009** | ** ** | **July 31,  2008** | ** ** |
|------------------------------|-------------------------------------|-------------------------|------------|-------------------------|------------|
| Total borrowing capacity     |                                | $                       | 448,000    |                    | $          | 598,000 |   |
| Less:                        |  Letters of credit outstanding |                    | (44,444    | )                       | (42,312    | ) |
|                         |  Cash borrowings outstanding   |                    | (154,700   | )                       | (360,999   | ) |
| Credit facility availability |                                | $                       | 248,856    |                    | $          | 194,689 |   |

 

Allcash borrowings under our unsecured credit facility due April 2010 bearinterest, at our option, at a rate equal to either:

 

·      abase rate, which is defined as the higher of the federal funds rate plus 0.5%or Bank of America’s prime rate (as of July 31,2009, the federal funds rate and Bank of America’s prime rate were 0.18% and3.25%, respectively); or

·      theEurodollar Rate plus a margin varying from 1.5% to 2.5% (as of July 31,2009, the one-month and three-month Eurodollar Rates were 0.45% and 0.75%,respectively).

 

In addition, an annual commitment fee is payable onthe daily unused portion of our unsecured credit facility due April 2010at a per annum rate varying from 0.375% to 0.5% (as of July 31, 2009, thecommitment fee per annum rate was 0.375%).

 

All standby letter of credit commitmentsunder our unsecured credit facility due April 2010 bear fees equal to anapplicable rate (as of July 31, 2009, the rate was 1.75%) times the dailymaximum amount available to be drawn under such letter of credit. Letter ofcredit fees are computed on a quarterly basis in arrears.

 

50

----

Table ofContents

 

On September 8, 2009, we and several banks and other financialinstitutions executed into escrow a Credit Agreement (“Credit Agreement”) whichwill be released from escrow pending certain closing conditions which we expectto occur prior to the end of our fiscal first quarter ending October 31, 2009.The Credit Agreement is intended to replace our existing unsecured creditfacility. The Credit Agreement, at closing, will provide for a $400.0 millionrevolving credit facility with the entire amount available for loans and with asublimit of $200.0 million for letters of credit. The obligations under suchcredit facility will be secured by substantially all assets of the operatingpartnership, the general partner and certain subsidiaries of the operatingpartnership but specifically excluding (a) assets that are subject to theoperating partnership’s receivables securitization facility, (b) thegeneral partner’s equity interest in Ferrellgas Partners, L.P. and (c) equityinterest in certain unrestricted subsidiaries. Such obligations will also beguaranteed by the general partner and certain subsidiaries of the operatingpartnership. The secured revolving credit facility will mature on thethird anniversary of the closing date for such facility.

 

*February 2009 common unit offering*

 

InFebruary 2009, we completed a registered public offering of 5.0 millioncommon units representing limited partner interests. This transaction wascomprised of both an original offering of 4.5 million common units and anoverallotment offering of 0.5 million common units. The net proceeds receivedfrom this offering of $69.4 million were used to reduce long term borrowingsunder our unsecured credit facility.

 

*Debt issuances and repayments*

 

DuringSeptember 2009, the operating partnership issued $300.0 million inaggregate principal amount of new 9.125% senior notes due 2017 at an offeringprice equal to 98.6% of par. We then gave early redemption notice to theholders of our $82.0 million 7.24% series D notes due August 1, 2010 andour $70.0 million 7.42% series E notes due August 1, 2013. The principalamount of these senior notes and the related prepayment penalties are expectedto be funded with the proceeds from the new senior notes offering withremaining proceeds used to reduce borrowings on our unsecured credit facilitydue April 2010.

 

DuringAugust 2009 and 2008, the operating partnership made scheduled principalpayments of $73.0 million on the 8.87% Series C senior notes and $52.0million on the 7.12% Series C senior notes, respectively, using proceedsfrom borrowings on the unsecured credit facility due April 2010.

 

DuringAugust 2008, the operating partnership issued $200.0 million in aggregateprincipal amount of its 6.75% senior notes due 2014 at an offering price equalto 85% of par. The proceeds from this offering were used to reduce outstandingindebtedness under our unsecured credit facility due April 2010.

 

Webelieve that the liquidity available from our new Credit Agreement and theaccounts receivable securitization facility will be sufficient to meet ourcapital expenditure, working capital, debt service and letter of creditrequirements for fiscal 2010. See “Operating Activities” for discussion aboutour accounts receivable securitization facility. However, if we were toexperience an unexpected significant increase in these requirements, our needscould exceed our immediately available resources. Events that could causeincreases in these requirements include, but are not limited to the following:

 

·      asignificant increase in the wholesale cost of propane;

·      a significant delay in the collections of accountsreceivable;

·      increasedvolatility in energy commodity prices related to risk management activities;

·      increasedliquidity requirements imposed by insurance providers;

·      a significant downgrade in our creditrating leading to decreased trade credit; or

·      asignificant acquisition.

 

Ifone or more of these or other events caused a significant use of availablefunding, we may consider alternatives to provide increased liquidity andcapital funding. No assurances can be given, however, that such alternativeswould be available, or, if available, could be implemented. See discussion ofrelated risk factors in “Item 1A. Risk Factors.”

 

51

----

Table of Contents

 

The operatingpartnership

 

Thefinancing activities discussed above also apply to the operating partnershipexcept for cash flows related to distributions and contributions received, asdiscussed below.

 

*Distributions*

 

Theoperating partnership paid cash distributions of $157.6 million during fiscal2009. The operating partnership paid cash distributions of $34.8 million on September 14,2009.

 

*Contributionsreceived by the operating partnership*

 

In February 2009,the operating partnership received cash contributions of $69.4 million and $0.7million from Ferrellgas Partners and the general partner, respectively,primarily in connection with the issuance by Ferrellgas Partners of 5.0 millioncommon units. The net proceeds received from this offering were used to reducelong term borrowings under its unsecured credit facility due April 2010.

 

**Disclosures about Effects ofTransactions with Related Parties**

 

Wehave no employees and are managed and controlled by our general partner.Pursuant to our partnership agreement, our general partner is entitled toreimbursement for all direct and indirect expenses incurred or payments itmakes on our behalf, and all other necessary or appropriate expenses allocableto us or otherwise reasonably incurred by our general partner in connectionwith operating our business. These reimbursable costs, which totaled $241.2million for fiscal 2009, include operating expenses such as compensation andbenefits paid to employees of our general partner who perform services on ourbehalf, as well as related general and administrative expenses.

 

Relatedparty common unitholder information consisted of the following:

 
| ** **                     | ** ** | **Common unit  ownership at  July 31, 2009** | ** ** | **Distributions paid  during  the year ended  July 31, 2009** | ** ** |
|--------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| Ferrell Companies (1)          |       | 20,081                                            |       | $                                                                  | 40,160     |   |
| FCI Trading Corp. (2)          |       | 196                                               |       | 392                                                                |       |
| Ferrell Propane, Inc. (3) |       | 51                                                |       | 104                                                                |       |
| James E. Ferrell (4)           |       | 4,353                                             |       | 8,678                                                              |       |
|                                |            |                                                   |            |                                                                    |            |  |

 

----

(1)  FerrellCompanies is the sole shareholder of our general partner.

(2)  FCITrading Corp. is an affiliate of the general partner and is wholly-owned byFerrell Companies.

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

(4)  JamesE. Ferrell is the Executive Chairman and Chairman of the Board of Directors ofour general partner.

 

Duringfiscal 2009, Ferrellgas Partners and the operating partnership together paidthe general partner distributions of $2.9 million.

 

OnSeptember 14, 2009 Ferrellgas Partners paid distributions to FerrellCompanies, FCI Trading Corp., Ferrell Propane, Inc. and James E. Ferrell(indirectly) of $10.0 million, $0.1 million, $26 thousand, and $2.2 million,respectively.

 

During fiscal 2009 we received payments totaling$0.3 million for services provided to and sublease revenue receipts from SamsonDental Practice Management, LLC, a company wholly-owned by James E. Ferrell.

 

Duringfiscal 2009 we paid Fleishman-Hillard Inc. $0.2 million for marketing andcommunications services. Elizabeth Solberg, a member of our general partner’sBoard of Directors, served as the General

 

52

----

Table ofContents

 

Managerof Fleishman-Hillard Inc.

 

See Note K —Transactions with related parties — and Note I — Partners’ capital — to ourconsolidated financial statements for additional discussion regarding theeffects of transactions with related parties.

 

**Contractual Obligations**

 

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

 

The following tablesummarizes our contractual obligations at July 31, 2009, adjusted for theeffect of our September 2009 issuance of $300.0 million in aggregate principalamount of new 9.125% senior notes due 2017 at an offering price equal to 98.6%of par and our early redemption notice to the holders of our $82.0 million7.24% series D notes due August 1, 2010 and our $70.0 million 7.42% series Enotes due August 1, 2013.

* *
| *(in  thousands)* |
|-------------------|

 
| ** **                                                   | ** ** | **Payment or settlement due by fiscal year** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2010**                                                                   | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Long-term debt, including current portion (1)                |       | $                                                                          | 1,422      |   | $ | 1,271 |   | $ | 269,191 |   | $ | 25,131 |   | $ | 450,621 |   | $ | 290,527 |   | $ | 1,038,163 |   |
| Fixed rate interest  obligations (2)                         |       | 78,010                                                                     |       | 81,725 |   | 81,723 |   | 58,165 |   | 58,117 |   | 96,790 |   | 454,530 |   |
| Operating lease obligations (3)                              |       | 22,246                                                                     |       | 15,475 |   | 8,431 |   | 5,590 |   | 4,734 |   | 11,137 |   | 67,613 |   |
| Operating lease buyouts (4)                                  |       | 8,641                                                                      |       | 5,323 |   | 2,827 |   | 357 |   | 784 |   | 1,418 |   | 19,350 |   |
| Purchaseobligations: (5)                                     |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Product purchase  commitments: (6)                           |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Estimated payment  obligations                               |       | 1,226,785                                                                  |       | — |   | — |   | — |   | — |   | — |   | 1,226,785 |   |
| Employment agreements (7)                                    |       | —                                                                     |       | — |   | — |   | — |   | — |   | 1,088 |   | 1,088 |   |
| Total                                                        |       | $                                                                          | 1,337,104  |   | $ | 103,794 |   | $ | 362,172 |   | $ | 89,243 |   | $ | 514,256 |   | $ | 400,960 |   | $ | 2,807,529 |   |
| Underlying product purchase  volume commitments (in gallons) |       | 770,884                                                                    |       | — |   | — |   | — |   | — |   | — |   | 770,884 |   |

 

----

| (1)    |   | We have long and  short-term payment obligations under agreements such as our senior notes and  our credit facility. Amounts shown in the table represent our scheduled  future maturities of long-term debt (including current maturities thereof)  for the periods indicated. For additional information regarding our debt  obligations, please see “ — Liquidity and Capital Resources — Financing  Activities.”                                                                            |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (2)    |   | Fixed rate interest  obligations represent the amount of interest due on fixed rate long-term  debt. These amounts do not include interest on our credit facility, a  variable rate debt obligation. As of July 31, 2009, variable rate interest  on our outstanding balance of variable rate debt of $154.7 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 credit facility. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (3)    |   | We lease certain  property, plant and equipment under noncancelable and cancelable operating  leases. Amounts shown in the table represent minimum lease payment  obligations under our third-party operating leases for the periods indicated.                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (4)    |   | Operating lease buyouts  represent the maximum amount we would pay if we were to exercise our right to  buyout the assets at the end of their lease term. Historically, we have been  successful in                                                                                                                                                                                                                                                                                                                 |

 

53

----

Tableof Contents

 
|   |   | 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, 2009 market price of the applicable  commodity applied to future volume commitments. Actual future payment  obligations may vary depending on market prices at the time of delivery.The  purchase prices that we are obligated to pay under fixed price contracts are  established at the inception of the contract. Our estimated future fixed  price contract payment obligations are based on the contracted fixed price  under each commodity contract. Quantities shown in the table represent our  volume commitments and estimated payment obligations under these contracts  for the periods indicated. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (7)    |   | We have an incentive  bonus payable to James E. Ferrell of $1.1 million upon his termination of  employment with us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

Theoperating partnership

 

Thecontractual obligation table above also applies to the operating partnership,except for long-term debt, including current portion and fixed rate interestobligations, which are summarized in the table below:

 
| *(in thousands)*                               |
|------------------------------------------------|
| ** **                                     | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **Payment or settlement due by fiscal year** | ** ** |
| ** **                                     | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Long-term  debt, including current portion (1) |   | $ | 1,422 |   | $ | 1,271 |   | $ | 1,191 |   | $ | 25,131 |   | $ | 450,621 |   | $ | 290,527 |   | $ | 770,163 |   |
| Fixed  rate interest obligations (2)           |   | 54,560 |   | 58,275 |   | 58,273 |   | 58,165 |   | 58,117 |   | 96,790 |   | 384,180 |   |
| Total                                          |   | $ | 55,982 |   | $ | 59,546 |   | $ | 59,464 |   | $ | 83,296 |   | $ | 508,738 |   | $ | 387,317 |   | $ | 1,154,343 |   |

 

----

| (1)    |   | The operating  partnership has long and short-term payment obligations under agreements such  as the operating partnership’s senior notes and credit facility. Amounts  shown in the table represent the operating partnership’s scheduled future  maturities of long-term debt (including current maturities thereof) for the  periods indicated. For additional information regarding the operating  partnership’s debt obligations, please see “ — Liquidity and Capital  Resources — Financing Activities.” |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (2)    |   | Fixed rate  interest obligations represent the amount of interest due on fixed rate  long-term debt. These amounts do not include interest on our credit facility,  a variable rate debt obligation. As of July 31, 2009, variable rate  interest on our outstanding balance of variable rate debt of $154.7 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 credit facility.                                |

 

**Off-balance Sheet FinancingArrangements**

 

In this section we discussour off-balance sheet arrangements that have or are reasonably likely to have acurrent or future material effect on our financial condition, changes in financialcondition, revenues

 

54

----

Table of Contents

 

or expenses, results ofoperations, liquidity, capital expenditures or capital resources. Anoff-balance sheet arrangement is any transaction, agreement or othercontractual arrangement involving an unconsolidated entity under which acompany has:

 

·      made guarantees;

·      a retained or a contingentinterest in transferred assets;

·      an obligation underderivative instruments classified as equity; or

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

 

In September 2000, we formed aqualified special purpose entity as a bankruptcy-remote subsidiary and enteredinto a receivables facility arrangement, which we renewed in April 2009.This arrangement with a financial institution allows for the proceeds of up to$145.0 million from the sale of accounts receivable, depending upon the time ofyear and available undivided interests in our accounts receivable from certaincustomers. We believe this facility improves cash flows while serving as asource of liquidity for our operations. See Note B — Summary of significantaccounting policies — and Note F — Accounts and notes receivable, net andaccounts receivable securitization — to our consolidated financial statementsfor additional discussion about this arrangement.

 

Our off-balancesheet arrangements also include the leasing of transportation equipment,property, computer equipment and propane tanks. We account for thesearrangements as operating leases. We believe these arrangements are acost-effective method for financing our equipment needs. These off-balancesheet arrangements enable us to lease equipment from third parties rather than,among other options, purchasing the equipment using on-balance sheet financing.

 

Most of theoperating leases involving our transportation equipment contain residual valueguarantees. These transportation equipment lease arrangements are scheduled toexpire over the next seven years. Most of these arrangements provide that thefair value of the equipment will equal or exceed a guaranteed amount, or wewill be required to pay the lessor the difference. Although the fair values atthe end of the lease terms have historically exceeded these guaranteed amounts,the maximum potential amount of aggregate future payments we could be requiredto make under these leasing arrangements, assuming the equipment is worthlessat the end of the lease term, was $10.0 million as of July 31, 2009. We donot know of any event, demand, commitment, trend or uncertainty that wouldresult in a material change to these arrangements.

 

**Adoption of New AccountingStandards**

 

Below is a listingof recently issued accounting pronouncements that we have not yet adopted as ofJuly 31, 2009. See Note B — Summary of significant accounting policies —to our consolidated financial statements for additional discussion of thesepronouncements.

 
| **Title of Guidance**                                                                                                                                                                   | ** ** | **Effective Date** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|
| SFAS No. 166, “Accounting for Transfers of  Financial Assets, an Amendment of FASB Statement No. 140”                                                               |       |               | Fiscal years  beginning after November 15, 2009 |
|                                                                                                                                                                                    |       |               |   |
| SFAS No. 167, “Amendments to FASB  Interpretation No. 46(R)”                                                                                                        |       |               | Fiscal years  beginning after November 15, 2009 |
|                                                                                                                                                                                    |       |               |   |
| SFAS No. 168, “The FASB Accounting Standards Codification  and the Hierarchy of Generally Accepted Accounting Principles, a Replacement  of FASB Statement No. 162” |       |               | Interim and annual periods ending after  September 15, 2009 |
|                                                                                                                                                                                    |       |               |   |
| SFAS No. 141(R) , “Business Combinations”  (a Replacement of SFAS No. 141, “Business Combinations”)                                                  |       |               | Fiscal years  beginning after December 15, 2008 |
|                                                                                                                                                                                    |       |               |   |
| SFAS No. 160, “Noncontrolling Interests in  Consolidated Financial Statements”                                                                                           |       |               | Fiscal years  beginning after December 15, 2008 |
|                                                                                                                                                                                    |       |               |   |
| EITF No. 07-4, “Application of the Two-Class Method  Under FASB Statement No. 128, Earnings Per Share, to Master Limited  Partnerships”                        |       |               | Fiscal years  beginning after December 15, 2008 |

 

55

----

Tableof Contents

 

**Critical Accounting Estimates**

 

Thepreparation of financial statements in conformity with GAAP requires us toestablish accounting policies and make estimates and assumptions that affectour reported amounts of assets and liabilities at the date of the consolidatedfinancial statements. These financial statements include some estimates andassumptions that are based on informed judgments and estimates of management.We evaluate our policies and estimates on an on-going basis and discuss thedevelopment, selection and disclosure of critical accounting policies with theAudit Committee of the Board of Directors of our general partner. Predictingfuture events is inherently an imprecise activity and as such requires the useof judgment. Our consolidated financial statements may differ based upondifferent estimates and assumptions.

 

Wediscuss our significant accounting policies in Note B — Summary of significantaccounting policies — to our consolidated financial statements. Our significantaccounting policies are subject to judgments and uncertainties that affect theapplication of such policies. We believe these financial statements include themost likely outcomes with regard to amounts that are based on our judgment andestimates. Our financial position and results of operations may be materiallydifferent when reported under different conditions or when using differentassumptions in the application of such policies. In the event estimates orassumptions prove to be different from the actual amounts, adjustments are madein subsequent periods to reflect more current information. We believe thefollowing accounting policies are critical to the preparation of ourconsolidated financial statements due to the estimation process and businessjudgment involved in their application:

 

# **Depreciationof property, plant and equipment**

# ** **

Wecalculate depreciation on property, plant and equipment using the straight-linemethod based on the estimated useful lives of the assets ranging from two to 30years. Changes in the estimated useful lives of our property, plant andequipment could have a material effect on our results of operations. Theestimates of the assets’ useful lives require our judgment regardingassumptions about the useful life of the assets being depreciated. Whennecessary, the depreciable lives are revised and the impact on depreciation istreated on a prospective basis. There were no such revisions to depreciablelives in fiscal 2009, 2008 or 2007.

 

# **Residualvalue of customer and storage tanks**

# ** **

Weuse an estimated residual value when calculating depreciation for our customerand bulk storage tanks. Customer and bulk storage tanks are classified asproperty, plant and equipment on our consolidated balance sheets. Thedepreciable basis of these tanks is calculated using the original cost less theresidual value. Depreciation is calculated using straight-line method based onthe tanks’ estimated useful life of 30 years. Changes in the estimated residualvalue could have a material effect on our results of operations. The estimatesof the tanks’ residual value require our judgment of the value of the tanks atthe end of their useful life or retirement. When necessary, the tanks’ residualvalues are revised and the impact on depreciation is treated on a prospectivebasis. There were no such revisions to residual values in fiscal 2009, 2008 or2007.

 

Valuation methods, amortization methods andestimated useful lives of intangible assets

 

Thespecific, identifiable intangible assets of a business enterprise dependlargely upon the nature of its operations. Potential intangible assets includeintellectual property such as trademarks and trade names, customer lists andrelationships, and non-compete agreements, as well as other intangible assets.The approach to the valuation of each intangible asset will vary depending uponthe nature of the asset, the business in which it is utilized, and the economicreturns it is generating or is expected to generate.

 

56

----

Tableof Contents

 

During fiscal 2009 wedid not find it necessary to adjust the valuation methods used for any acquiredintangible assets.

 

Our recorded intangibleassets primarily include the estimated value assigned to certaincustomer-related and contract-based assets representing the rights we ownarising from the acquisition of propane distribution companies and relatedcontractual agreements. A customer-related or contract-based intangible with afinite useful life is amortized over its estimated useful life, which is theperiod over which the asset is expected to contribute directly or indirectly tothe future cash flows of the entity. We believe that trademarks and trade nameshave an indefinite useful life due to our intention to utilize all acquiredtrademarks and trade names. Whennecessary, the intangible assets’ useful lives are revised and the impact onamortization will be reflected on a prospective basis. Thedetermination of the fair market value of the intangible asset and theestimated useful life are based on an analysis of all pertinent factorsincluding (1) the use of widely-accepted valuation approaches, the incomeapproach or the cost approach, (2) the expected use of the asset by theentity, (3) the expected useful life of related assets, (4) anylegal, regulatory or contractual provisions, including renewal or extensionperiods that would not cause substantial costs or modifications to existing agreements,(5) the effects of obsolescence, demand, competition, and other economicfactors and (6) the level of maintenance required to obtain the expectedfuture cash flows.

 

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

 

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

 

Asof July 31, 2009 and 2008, the carrying value of our intangible assetportfolio was $212.0 million and $225.3 million, respectively. We did notrecognize any impairment losses related to our intangible assets during fiscal2009 or 2008. For additional information regarding our intangible assets, seeNote B - Summary of significant accounting policies - and Note G - Goodwill andintangible assets, net - to ourconsolidated financial statements.

 

Fair value ofderivative commodity contracts

 

We enter into commodityforward, futures, swaps and options contracts involving propane and relatedproducts to hedge exposures to price risk. These contracts are accounted forusing the fair value method. Under this valuation method, derivatives arecarried in the consolidated balance sheets at fair value with changes in valuerecognized in cost of product sold in the consolidated statements of earningsor in other comprehensive income in the consolidated statement of partners’capital. We utilize published settlement prices for exchange-traded contracts,quotes provided by brokers and estimates of market prices based on dailycontract activity to estimate the fair value of these contracts. Changes in themethods used to determine the fair value of these contracts could have amaterial effect on our consolidated balance sheets and consolidated statementsof earnings. For further discussion of derivative commodity contracts, see “Quantitativeand Qualitative Disclosures about Market Risk,” Note B — Summary of significantaccounting policies — and Note J — Derivatives — to our consolidated financialstatements. We do not anticipate future changes in the methods used todetermine the fair value of these derivative contracts.

 

Unit and stock-basedcompensation

 

We utilize a binomialoption valuation tool to compute an estimated fair value of option awards attheir grant date. This option valuation tool requires a number of inputs, someof which require an estimate to be

 

57

----

Table ofContents

 

made by management.Significant estimates include our computation of volatility, the number ofgroups of employees, the expected term of awards and the forfeiture rate ofawards.

 

·      Ourstock-based awards plan grants stock awards out of Ferrell Companies. FerrellCompanies is not a publicly-traded company and management does not believe itcan be categorized within any certain industry group. As a result, ourvolatility computation is highly subjective. If a different volatility factorwere used, it could significantly change the fair value assigned to stock-basedawards at their grant date.

 

·      Dueto the limited number of employees eligible to participate in our unit andstock-based compensation plans, management believes we have only one group ofemployees. If a determination were made that we have multiple groups ofemployees, that determination could significantly change the expected term andforfeiture rate assigned to our unit and stock-based awards.

 

·      Ourmethod for computing the expected term of our unit and stock based awardsutilizes historical exercise patterns. This method could assign a term to ourunit and stock-based awards that is significantly different from their actualterms, which could result in a significant difference in the fair valueassigned to the awards at the grant date.

 

·      Weutilize historical forfeiture rates to estimate the expected forfeiture rateson our unit and stock-based awards grant dates. If actual forfeiture rates wereto differ significantly from our estimates, it could result in significantdifferences between actual and reported compensation expense for our unit andstock-based awards.

 

**ITEM 7A.****      ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK.**

 

We did not enter into anyrisk management trading activities during fiscal 2009. Our remaining marketrisk sensitive instruments and positions have been determined to be “other thantrading.”

 

*Commodity Price Risk Management*

 

Our risk management activities primarily attempt tomitigate price risks related to the purchase, storage, transport and sale ofpropane generally in the contract and spot markets from major domestic energycompanies on a short-term basis. We attempt to mitigate these price risksthrough the use of financial derivative instruments and forward propanepurchase and sales contracts.

 

Our risk management strategy involves taking positionsin the forward or financial markets that are equal and opposite to ourpositions in the physical products market in order to minimize the risk offinancial loss from an adverse price change. This risk management strategy issuccessful when our gains or losses in the physical product markets are offsetby our losses or gains in the forward or financial markets. These financialderivatives are designated as cash flow hedges.

 

Our risk management activities include the use offinancial derivative instruments including, but not limited to, price swaps,options, futures and basis swaps to seek protection from adverse pricemovements and to minimize potential losses. We enter into these financialderivative instruments directly with third parties in the over-the-countermarket and with brokers who are clearing members with the New York MercantileExchange. We also enter into forward propane purchase and sales contracts withcounterparties. These forward contracts qualify for the normal purchase normalsales exception within SFAS 133 and are therefore not recorded prior tosettlement on our financial statements.

 

Marketrisks associated with energy commodities are monitored daily by seniormanagement for compliance with our commodity risk management policy. This policyincludes an aggregate dollar loss limit and limits on the term of variouscontracts. We also utilize volume limits for various energy commodities andreview our positions daily where we remain exposed to market risk, so as tomanage exposures to changing market prices.

 

58

----

Table of Contents

 

We have prepared asensitivity analysis to estimate the exposure to market risk of our energycommodity positions. Forward contracts, futures, swaps and options outstandingas of July 31, 2009 and 2008, that were used in our risk managementactivities were analyzed assuming a hypothetical 10% adverse change in pricesfor the delivery month for all energy commodities. The potential loss in futureearnings from these positions due to a 10% adverse movement in market prices ofthe underlying energy commodities was estimated at $7.2 million and $1.3million as of July 31, 2009 and 2008, respectively. The precedinghypothetical analysis is limited because changes in prices may or may not equal10%, thus actual results may differ.

 

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

 

*Credit Risk*

 

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

 

These counterpartiesconsist of major energy companies who are suppliers, wholesalers, retailers,end users and financial institutions. The overall impact due to certain changesin economic, regulatory and other events may impact our overall exposure tocredit risk, either positively or negatively in that counterparties may besimilarly impacted. Based on our policies, exposures, credit and otherreserves, management does not anticipate a material adverse effect on financialposition or result of operations as a result of counterparty performance.

 

*Interest Rate Risk*

 

At July 31, 2009and 2008, we had $154.7 million and $361.0 million, respectively, in variablerate credit facility borrowings. Thus, assuming a one percent increase in ourvariable interest rate, our interest rate risk related to the borrowings on ourvariable rate credit facility would result in a loss in future earnings of $1.5million for fiscal 2009. The preceding hypothetical analysis is limited becausechanges in interest rates may or may not equal one percent, thus actual resultsmay differ.

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

 

Ourconsolidated financial statements and the Independent Registered PublicAccounting Firm’s Reports thereon and the Supplementary Financial Informationlisted on the accompanying Index to Financial Statements and FinancialStatement Schedules are hereby incorporated by reference. See Note O —Quarterly data (unaudited) — to our consolidated financial statements forSelected Quarterly Financial Data.

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

 

None.

 

59

----

Tableof Contents

 

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

 

An evaluation wasperformed by the management of Ferrellgas Partners, L.P., Ferrellgas PartnersFinance Corp., Ferrellgas, L.P., and Ferrellgas Finance Corp., with theparticipation of the principal executive officer and principal financialofficer of our general partner, of the effectiveness of our disclosure controlsand procedures. Based on that evaluation, our management, including ourprincipal executive officer and principal financial officer, concluded that ourdisclosure controls and procedures, as defined in Rules 13a-15(e) or15d-15(e) under the Exchange Act, were effective.

 

Themanagement of Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp.,Ferrellgas, L.P., and Ferrellgas Finance Corp. does not expect that ourdisclosure controls and procedures will prevent all errors and all fraud. Thedesign of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Based on the inherent limitations in all control systems, no evaluationof controls can provide absolute assurance that all control issues andinstances of fraud, if any, within the above mentioned Partnerships andCorporations have been detected. These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple errors or mistakes. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the controls. The design of anysystem of controls also is based in part upon certain assumptions about thelikelihood of future events. Therefore, a control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met. Our disclosure controls andprocedures are designed to provide such reasonable assurances of achieving ourdesired control objectives, and the principal executive officer and principalfinancial officer of our general partner have concluded, as of July 31,2009, that our disclosure controls and procedures are effective in achievingthat level of reasonable assurance.

 

**Management’s Report on InternalControl Over Financial Reporting**

 

The management of Ferrellgas Partners, L.P.,Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas FinanceCorp. is responsible for establishing and maintaining adequate internal controlover financial reporting, as such term is defined in Rules 13a-15(f) or15d-15(f) of the Exchange Act. Under the supervision and with theparticipation of our management, including our principal executive officer andprincipal financial officer, we conducted an evaluation of the effectiveness ofour internal control over financial reporting based on the framework in *Internal Control — Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. Basedon our evaluation under the framework in *InternalControl — Integrated Framework*, our management concluded that ourinternal control over financial reporting was effective as of July 31,2009.

 

The effectiveness of ourinternal control over financial reporting for Ferrellgas Partners, L.P. andFerrellgas, L.P., as of July 31, 2009, has been audited by Deloitte &Touche LLP, an independent registered public accounting firm, as stated intheir reports which are included herein.

 

During the most recentfiscal quarter ended July 31, 2009, there have been no changes in ourinternal control over financial reporting (as defined in Rule 13a–15(f) orRule 15d–15(f) of the Exchange Act) that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

60

----

**Table ofContents**

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

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

 

We have auditedthe internal control over financial reporting of Ferrellgas Partners, L.P. andsubsidiaries (the “Partnership”) as of July 31, 2009, based on criteria established in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. The Partnership’s management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control Over Financial Reporting.  Ourresponsibility is to express an opinion on the Partnership’s internal controlover financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether effective internal control over financial reporting was maintained inall material respects.  Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists,testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances.  We believe that our audit providesa reasonable basis for our opinion.

 

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

 

Because of the inherent limitations of internal control over financialreporting, including the possibility of collusion or improper managementoverride of controls, material misstatements due to error or fraud may not beprevented or detected on a timely basis.  Also, projections of anyevaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In ouropinion, the Partnership maintained, in all material respects, effectiveinternal control over financial reporting as of July 31, 2009, based onthe criteria established in *Internal Control— Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

We have also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated financialstatements and financial statement schedules as of and for the year ended July 31,2009 of the Partnership and our report dated September 28, 2009 expressedan unqualified opinion on those financial statements and financialstatement schedules**.**

 

/s/ DELOITTE &TOUCHE LLP

Kansas City, Missouri

September 28, 2009

 

61

----

**Table ofContents**

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

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

 

We have auditedthe internal control over financial reporting of Ferrellgas, L.P. andsubsidiaries (“Ferrellgas”) as of July 31, 2009, based on criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.  Ferrellgas’ management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting, included in the accompanying Management’s Report on Internal ControlOver Financial Reporting.  Our responsibility is to express anopinion on Ferrellgas’ internal control over financial reporting based on ouraudit.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether effective internal control over financial reporting was maintained inall material respects.  Our audit included obtaining an understanding ofinternal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk, andperforming such other procedures as we considered necessary in thecircumstances.  We believe that our audit provides a reasonable basis forour opinions.

 

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

 

Because of the inherent limitations of internal control over financialreporting, including the possibility of collusion or improper managementoverride of controls, material misstatements due to error or fraud may not beprevented or detected on a timely basis.  Also, projections of anyevaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In ouropinion, Ferrellgas maintained, in all material respects, effective internalcontrol over financial reporting as of July 31, 2009, based on thecriteria established in *Internal Control —Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

We have also audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the consolidated financialstatements and financial statement schedule as of and for the year ended July 31,2009 of Ferrellgas and our report dated September 28, 2009 expressed anunqualified opinion on those financial statements and financialstatement schedule.

 

/s/ DELOITTE &TOUCHE LLP

Kansas City, MissouriSeptember 28, 2009

 

62

----

Table of Contents

 

**ITEM 9B.****                   ****OTHER INFORMATION.**

 

None.

 

**PART III**

 

**ITEM 10.****                     ****DIRECTORS AND EXECUTIVE OFFICERS.**

 

**Directors and Executive Officersof our General Partner**

 

The following table sets forth certain informationwith respect to the directors and executive officers of our general partner asof September 25, 2009. Officers are appointed to their respective officeor offices either annually or as needed. Directors are appointed to theirrespective office or offices annually.

** **
| **Name**             | ** ** | **Age** | ** ** | **Director  Since** | ** ** | **Executive  Officer Since** | ** ** | **Position**                                                          |
|----------------------|------------|---------|------------|---------------------|------------|------------------------------|------------|-----------------------------------------------------------------------|
| James E. Ferrell     |       | 69      |       | 1984                |       | 2000                         |       | Executive Chairman and Chairman of the Board of  Directors            |
|                 |       |    |       |                |       |                         |       |                                                                  |
| Stephen L. Wambold   |       | 41      |       | 2009                |       | 2005                         |       | Chief Executive Officer  and President                                |
|                 |       |    |       |                |       |                         |       |                                                                  |
| J. Ryan VanWinkle    |       | 36      |       | N/A                 |       | 2008                         |       | Senior Vice President  and Chief Financial Officer; Treasurer         |
|                 |       |    |       |                |       |                         |       |                                                                  |
| Jennifer A. Boren    |       | 40      |       | N/A                 |       | 2008                         |       | Vice President,  Information Technology                               |
|                 |       |    |       |                |       |                         |       |                                                                  |
| Tod D. Brown         |       | 46      |       | N/A                 |       | 2006                         |       | Senior Vice President,  Sales and Marketing and President, Blue Rhino |
|                 |       |    |       |                |       |                         |       |                                                                  |
| Eugene D. Caresia    |       | 45      |       | N/A                 |       | 2006                         |       | Vice President, Human  Resources                                      |
|                 |       |    |       |                |       |                         |       |                                                                  |
| George L. Koloroutis |       | 48      |       | N/A                 |       | 2006                         |       | President, Ferrell  North America; Senior Vice President, Ferrellgas  |
|                 |       |    |       |                |       |                         |       |                                                                  |
| William K. Hoskins   |       | 74      |       | 2003                |       | N/A                          |       | Director                                                              |
|                 |       |    |       |                |       |                         |       |                                                                  |
| A. Andrew Levison    |       | 53      |       | 1994                |       | N/A                          |       | Director                                                              |
|                 |       |    |       |                |       |                         |       |                                                                  |
| John R. Lowden       |       | 52      |       | 2003                |       | N/A                          |       | Director                                                              |
|                 |       |    |       |                |       |                         |       |                                                                  |
| Michael F. Morrissey |       | 67      |       | 1999                |       | N/A                          |       | Director                                                              |
|                 |       |    |       |                |       |                         |       |                                                                  |
| Elizabeth T. Solberg |       | 70      |       | 1998                |       | N/A                          |       | Director                                                              |

 

*James E.Ferrell*— Mr. Ferrell has been with Ferrell Companies or its predecessorsand its affiliates in various executive capacities since 1965, includingChairman of the Board of Directors of Ferrellgas, Inc. Under his leadership,Ferrellgas has grown from a small, independently owned propane company to oneof the nation’s largest propane retailers. An active member of the retailpropane industry, Mr. Ferrell is a past President of the World LP GasAssociation and a former Chairman of the Propane Vehicle Council.

 

*StephenL. Wambold* — Mr. Wambold joined our general partner as aGeneral Manager in 1997, became Region Vice President in 2003, became SeniorVice President of Operations in 2005, became President and Chief Operating Officerin 2006 and became Chief Executive Officer and President and was appointed tothe board of directors in 2009. Mr. Wambold obtained his Bachelors degreefrom Purdue University.

 

*J. RyanVanWinkle* — Mr. VanWinklejoined our general partner in 1999 as a Senior Corporate Financial Analyst,became Manager of Acquisitions and Corporate Finance in 2001, became Manager of

 

63

----

Table of Contents

 

Finance and InvestorRelations in 2003, became Director of Finance and Treasury in 2004, became VicePresident, Finance and Corporate Development in 2007, became Chief FinancialOfficer, Vice President, Corporate Development and Treasurer in 2008 and becameSenior Vice President and Chief Financial Officer; Treasurer in 2009. Mr. VanWinkleobtained his Bachelor of Science degree in Accounting from the University ofMissouri — Kansas City.

 

*Jennifer A. Boren* — Ms. Boren joined our generalpartner in 2006 as Director of Technical Services and became Vice President,Information Technology in 2008. Prior to joining Ferrellgas, Ms. Borenworked in Information Technology at U.S. Central from 2001 to 2006, serving asDirector of Information Technology Services and an officer of the company. Ms. Borenobtained a Bachelor of Business Administration degree in Management fromPittsburg State University.

 

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

 

*Eugene D. Caresia*—**Mr. Caresiajoined our general partner as Director, Employee Development in 2002, becameDirector, Human Resources in 2004 and became Vice President, Human Resources in2006. Mr. Caresia obtained a Master’s degree in Organizational Developmentand a Bachelor of Science degree, both from Brigham Young University.

 

*George L. Koloroutis* —**Mr. Koloroutisjoined our general partner in 1991 as Market Manager, became District Managerin 1995, became Area Manager in 1996, became Director of Wholesale and Supplyin 1998, became Vice President, Supply and Distribution Supply in 1999, becameVice President, Ferrell North America in 2005 and became President, FerrellNorth America; Senior Vice President, Ferrellgas in 2009. Mr. Koloroutisis an active member of the propane industry, serving as a Councilor on thePropane Education & Research Council and a member of the NationalPropane Gas Association’s Infrastructure Task Force.

 

*WilliamK. Hoskins*— Mr. Hoskinswas appointed to the Board of Directors in 2003. He chairs the Board’sCorporate Governance and Nominating Committee, and also serves on its AuditCommittee. He is a Partner of Resolution Strategies, LLP, a Portland,Oregon-based law firm and is President of Hoskins & Associates, apharmaceutical and biotech consulting firm. Mr. Hoskins also serves on theBoard of Directors of Sequella, Inc.

 

*A. Andrew Levison*— Mr. Levison has served on theBoard of Directors since 1994 and is a member of the Board’s CompensationCommittee. He is the Managing Partner of Southfield Capital Advisors, LLC, aGreenwich, Connecticut-based, private merchant banking firm and serves on theBoards of Directors of Presidio Partners, LLC, and the Levison/PresentFoundation at Mount Sinai Hospital in New York City.

 

*John R. Lowden*— Mr. Lowdenwas appointed to the Board of Directors in 2003 and is a member of the Board’sAudit, Compensation and Corporate Governance and Nominating Committees. He isthe President of NewCastle Partners, LLC, a Greenwich, Connecticut-basedprivate investment firm. Mr. Lowden also serves as Chairman of World DryerCorporation and Metpar Industries, Inc., serves on the Board of Directorsof Apparel Ventures Inc. and serves on the Board of Trustees of Wake ForestUniversity.

 

64

----

Table ofContents

 

*MichaelF. Morrissey*— Mr. Morrisseyhas served on the Board of Directors since 1999 and chairs the Board’s AuditCommittee. Mr. Morrissey has been selected as the presiding director fornon-management executive sessions of the Board. He is the retired ManagingPartner of Ernst & Young’s Kansas City, Missouri office. Mr. Morrisseycurrently serves on the Board of Directors and as Audit Committee Chairman ofWestar Energy, Inc. and the boards of several private companies andnot-for-profit organizations.

 

*Elizabeth T. Solberg*— Ms. Solberg has served on theBoard of Directors since 1998. She chairs the Board’s Compensation Committeeand also serves on its Corporate Governance and Nominating Committee. Ms. Solbergserves as General Manager at Fleishman-Hillard, Inc., the largest publicrelations firm in North America. Ms. Solberg also serves on numerous civicorganizations.

 

**CorporateGovernance**

 

The limitedpartnership agreements of Ferrellgas Partners and the operating partnershipprovide for each partnership to be governed by a general partner rather than aboard of directors. Through these partnership agreements, Ferrellgas, Inc.acts as the general partner of both Ferrellgas Partners and the operatingpartnership and thereby manages and operates the activities of FerrellgasPartners and the operating partnership. Ferrellgas, Inc. anticipates thatits activities will be limited to the management and operation of thepartnerships. Neither Ferrellgas Partners nor the operating partnershipdirectly employs any of the persons responsible for the management oroperations of the partnerships, rather, these individuals are employed by thegeneral partner.

 

The Board of Directors of our general partner hasadopted a set of Corporate Governance Guidelines for the Board and charters forits Audit Committee, Corporate Governance and Nominating Committee andCompensation Committee. A current copy of these Corporate Governance Guidelinesand charters, each of which were adopted and approved by the entire Board, areavailable, free of charge, to our security holders and other interested partieson our website at www.ferrellgas.com (under the caption “Corporate Governance”within “Investor Information”) and are also available in print to anyunitholder or other interested parties who request it. Requests for printcopies should be directed to:

 

Ferrellgas, Inc.

Attention: Investor Relations

7500 College Boulevard, Suite 1000

Overland Park, Kansas 66210

913-661-1533

investors@ferrellgas.com.

 

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

 

Additionally, the Board has affirmatively determinedthat Messrs. Hoskins, Levison, Lowden, Morrissey and Ms. Solberg, whoconstitute a majority of its Directors, are “independent” as described by theNew York Stock Exchange’s (“NYSE”) corporate governance rules. In conjunctionwith regular Board meetings, these five non-management directors also meet in aregularly scheduled executive session without members of management present. Anon-management director presides over each executive session of non-managementdirectors. Mr. Morrissey has been selected as the presiding director fornon-management executive sessions. If Mr. Morrissey is not present thenthe other non-management directors shall select the presiding director.Additional executive sessions may be scheduled by a majority of thenon-management directors in consultation with the presiding director and theChairman of the Board.

 

The NYSE requires the Chief Executive Officer of eachlisted company to submit a certification indicating that the company is not inviolation of the Corporate Governance listing standards of the NYSE on anannual basis. The CEO certification to the NYSE was submitted on November 3,2008.

 

65

----

**Table of Contents**

** **

**Audit Committee**

** **

The Board has a designated Audit Committee establishedin accordance with the Exchange Act comprised of Messrs. Morrissey,Hoskins and Lowden. Mr. Morrissey is the chairman of the Audit Committeeand has been determined by the board to be an “audit committee financialexpert.” The Audit Committee charter, as well as the rules of the New YorkStock Exchange and the SEC, requires that members of the Audit Committeesatisfy “independence” requirements as set out by the New York Stock Exchange.The Board has determined that all of the members of the Audit Committee areindependent as described under the relevant standards.

 

The Audit Committee charter requires the Audit Committee topre-approve all engagements with any independent auditor, including allengagements regarding the audit of the financial statements of each FerrellgasParty and all permissible non-audit engagements with the independent auditor.

 

**Limitationon Directors Participating on Audit Committees**

 

The Board hasadopted a policy limiting the number of public-company audit committees itsdirectors may serve on to three at any point in time. If a director desires toserve on more than three public-company audit committees, he or she must firstobtain the written permission of the Board.

 

**CorporateGovernance and Nominating Committee**

 

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

 

**CompensationCommittee**

 

The Board has a designated Compensation Committee,comprised of Ms. Solberg, Messrs. Levison and Lowden. Ms. Solbergis chair of the Compensation Committee. The Compensation Committee charterrequires that members of the Compensation Committee satisfy particular “independence”requirements. The Board has determined that all of the members of theCompensation Committee are “independent” as described under relevant standards.The Compensation Committee has the authority to assist the Board of Directorsin fulfilling its responsibility to effectively compensate the seniormanagement of the general partner in a manner consistent with the growthstrategy of the general partner. Toward that end, the Compensation Committeeoversees the review process of all compensation, equity and benefit plans ofFerrellgas. In discharging this oversight role, the Compensation Committee hasfull power to consult with, retain and compensate independent legal, financialand/or other advisors as it deems necessary or appropriate.

 

**Disclosure about our Security Holders’ andInterested Parties’ Ability to Communicate with the Board of Directors of ourGeneral Partner**

 

The Board of Directors ofour general partner has a process by which security holders and interestedparties can communicate with it. Security holders and interested parties cansend communications to the Board by contacting our Investor Relationsdepartment by mail, telephone or e-mail at:

 

Ferrellgas, Inc.

Attention: Investor Relations

7500 College Boulevard, Suite 1000

Overland Park, Kansas  66210

913-661-1533

investors@ferrellgas.com.

 

66

----

Tableof Contents

 

Any communications directed to the Board of Directors from employees orothers that concern complaints regarding accounting, internal controls orauditing matters will be handled in accordance with procedures adopted by theAudit Committee. All other communications directed to the Board of Directorsare initially reviewed by the Investor Relations Department. The Chairman ofthe Corporate Governance Committee is advised promptly of any suchcommunication that alleges misconduct on the part of management or raiseslegal, ethical or compliance concerns about the policies or practices of thegeneral partner. On a periodic basis, the Chairman of the Corporate GovernanceCommittee receives updates on other communications that raise issues related tothe affairs of the Partnership but do not fall into the two prior categories.The Chairman of the Corporate Governance Committee determines which of thesecommunications require further review. The Corporate Secretary maintains a logof all such communications that is available for review for one year uponrequest of any member of the Board. Typically, the general partner does notforward to the Board of Directors communications from unitholders or otherparties which are of a personal nature or are not related to the duties andresponsibilities of the Board, including junk mail, customer complaints, jobinquiries, surveys and polls, and business solicitations.

 

**Codeof Ethics for Principal Executive and Financial Officers and Code of BusinessConduct and Ethics**

 

The Board has adopted a Code of Ethics for our generalpartner’s principal executive officer, principal financial officer, principalaccounting officer or those persons performing similar functions. Additionally,the Board has adopted a general Code of Business Conduct and Ethics for all ofour general partner’s directors, officers and employees. These codes, whichwere adopted and approved by the entire Board, are available to our securityholders and other interested parties at no charge on our website atwww.ferrellgas.com (under the caption “Corporate Governance” within “InvestorInformation”) and are also available in print to any security holder or otherinterested parties who requests it. Requests for print copies should bedirected to:

 

Ferrellgas, Inc.

Attention: Investor Relations

7500 College Boulevard, Suite 1000

Overland Park, Kansas 66210

913-661-1533

investors@ferrellgas.com.

 

Please note thatthe information and materials found on our website, except for SEC filingsexpressly incorporated by reference into this report herein, are not part ofthis report and are not incorporated by reference into this report.

 

We intend todisclose, within four business days, any amendment to the code of businessconduct and the Code of Ethics on our website. Any waivers from the Code ofEthics will also be disclosed on our website.

 

**Compensation of our General Partner**

 

Our generalpartner receives no management fee or similar compensation in connection withits management of our business and receives no remuneration other than:

 

·                  distributions on its combined approximate2% general partner interest in Ferrellgas Partners and the operatingpartnership; and

 

·                  reimbursement for:

 

·                        all direct and indirect costs andexpenses incurred on our behalf;

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

·                        all other expenses necessary orappropriate to the conduct of our business and allocable to us.

 

The selling, general andadministrative expenses reimbursed include specific employee benefits andincentive plans for the benefit of the executive officers and employees of ourgeneral partner.

 

67

----

Table of Contents

 

**Section 16(a) Beneficial OwnershipReporting Compliance**

 

Section 16(a) ofthe Exchange Act requires our general partner’s officers and directors, andpersons who beneficially own more than 10% of our common units, to file reportsof beneficial ownership and changes in beneficial ownership of our common unitswith the SEC. These persons are also required by the rules and regulationspromulgated by the SEC to furnish our general partner with copies of all Section 16(a) formsfiled by them. These forms include Forms 3, 4 and 5 and any amendments thereto.

 

Based solely on its review of the copiesof such Section 16(a) forms received by our general partner and, tothe extent applicable, written representations from certain reporting personsthat no Annual Statement of Beneficial Ownership of Securities on Form 5were required to be filed by those persons, our general partner believes thatduring fiscal 2009 all Section 16(a) filing requirements applicableto the officers, directors of our general partner and beneficial owners of morethan 10% of our common units were met in a timely manner.

 

**ITEM 11.****                     ****EXECUTIVE COMPENSATION.**

 

**Compensation Committee Report**

 

The Compensation Committee has reviewed and discussedthe following Compensation Discussion and Analysis with management. Based onits review and discussion with management, the compensation committee hasdetermined that this Compensation Discussion and Analysis should be included inthis report.

 

Submittedby:

A. Andrew Levison

John R. Lowden

Elizabeth T. Solberg

** **

**Compensation Discussion and Analysis**

 

***Overview of Executive Officer Compensation***

 

Throughout this section, each person who served as thePrincipal Executive Officer (“PEO”) during fiscal 2009, each person who servedas the Principal Financial Officer (“PFO”) during fiscal 2009, the three mosthighly compensated executive officers other than the PEO and PFO serving at July 31,2009 and up to two additional individuals for whom disclosure would have beenprovided but for the fact that the individual was not serving as an executiveofficer at July 31, 2009 are referred to as the Named Executive Officers (“NEOs”).We do not directly employ our NEOs. Rather, we are managed by our generalpartner who serves as the employer of our NEOs. We reimburse our general partnerfor all NEO compensation.

 

***Compensation Objectives***

 

We believe an effective executive compensation packageshould link total compensation to overall financial performance and to theachievement of both short and long term strategic, operational and financialgoals. The elements of our compensation program are intended to provide a totalreward package to our NEOs that (i) provides competitive compensationopportunities, (ii) recognizes individual contribution, (iii) attracts,motivates and retains highly-talented executives, and (iv) alignsexecutive performance toward the creation of sustained unitholder value ratherthan the achievement of short-term

 

68

----

Table ofContents

 

goalsthat might be inconsistent with the creation of long-term unitholder value.

 

***Components of Named ExecutiveOfficer Compensation***

 

James E. Ferrell and Stephen L. Wambold, with theassistance of the Vice President of Human Resources, formulate preliminarycompensation recommendations for all NEOs, including themselves. Theserecommendations are subject to review and approval by the CompensationCommittee. To assist James E. Ferrell, Stephen L. Wambold and the CompensationCommittee, the Vice President of Human Resources utilizes compensation surveydata provided by the consulting firms of Hewitt Associates, Towers Perrin, andMercer Human Resources Consulting to provide market data that is used to createbenchmarks for overall NEO compensation.

 

We use the following benchmarking components insetting compensation levels, determining awards under our option plans andsetting director compensation levels:

 

·                  companies in our industry or related industries (oil and gas, gasutilities, master limited partnerships);

·                  companies identified as our peer group of competitors;

·                  companies with similar total sales;

·                  companies with similar net income; and

·                  companies with similar market value.

 

Companiesincluded in the above benchmarking groups are as follows:

 
| ·                  WPS Resources Corp.          |
|-------------------------------------------------------------------------------------------------------------------------------------------|
| ·                  Enbridge Energy Partners     |
| ·                  Energy Transfer Partners     |
| ·                  UGI Corp.                    |
| ·                  Sunoco Logistics Partners    |
| ·                  New Jersey Resources Corp.   |
| ·                  Amerigas Partners            |
| ·                  Piedmont Natural Gas Co.     |
| ·                  Suburban Propane Partners    |
| ·                  Laclede Group Inc.           |
| ·                  WGL Holdings Inc.            |
| ·                  Star Gas Partners            |
| ·                  Inergy L.P.                  |
| ·                  South Jersey Industries Inc. |
| ·                  Alliance Resource Partners   |
| ·                  Oneok Partners               |

 

During fiscal 2009, elements of compensation for ourNEOs consisted of the following:

 

·                  base salary;

·                  discretionary bonus;

·                  non-equity incentive plan;

·                  stock and unit option plans;

·                  employee stock ownership plan;

·                  deferred compensation plans; and

·                  employment and change-in-control agreements.

 

***Base Salary***

 

James E. Ferrell and Stephen L. Wambold, with theassistance of the Vice President of Human Resources, formulate preliminary basesalary recommendations for all NEOs, including themselves. Theserecommendations are subject to review and approval by the CompensationCommittee. To assist James E. Ferrell, Stephen L. Wambold and the CompensationCommittee, the Vice President of Human Resources utilizes compensation surveydata provided by the consulting firms of Hewitt Associates, Towers Perrin, andMercer Human Resources Consulting to provide market data that is used to createbenchmarks for each NEO’s base salary. The amount of salary paid to each NEOduring fiscal year 2009 is displayed in the “Salary” column of the SummaryCompensation Table.

 

69

----

Table of Contents

 

***Discretionary Bonus***

 

James E. Ferrell and Stephen L. Wambold have theauthority to recommend for Compensation Committee review and approval,discretionary cash bonuses to any NEO, including themselves. These awards aredesigned to reward performance by an NEO that James E. Ferrell and Stephen L.Wambold believe exceeded expectations in operational or strategic objectivesduring the last fiscal year. The amount of discretionary bonus paid to each NEOfor fiscal 2009 is displayed in the “Bonus” column of the Summary CompensationTable.

 

***Non-Equity Incentive Plan***

 

Each NEO participates in the general partner’sCorporate Incentive Plan. The purpose of this plan is to provide an incentivefor NEOs to meet or exceed annual profitability targets that are consistentwith the company’s overall long term strategy to increase unitholder value. OurCompensation Committee utilizes compensation survey data provided by theconsulting firms of Hewitt Associates, Towers Perrin, and Mercer HumanResources Consulting to assist in assigning an appropriate incentive target foreach NEO. The amount of corporate incentive plan paid to each NEO for fiscal2009 is displayed in the “Non-Equity Incentive Plan Compensation” column of theSummary Compensation Table.

 

This plan awards a cash payment to the NEO ifoperating cash flow before incentive expense (“Incentive OCF”) targets areachieved for the fiscal year. Each NEO’s incentive target is computed as apercentage of their base salary. For fiscal 2009 this percentage was asfollows:

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

 

For James E. Ferrell, J. Ryan VanWinkle and Stephen L.Wambold, awards under the plan are based on total company Incentive OCF. Totalcompany actual Incentive OCF as a percentage of total company target IncentiveOCF will result in incentive target potential payouts as provided in the tablebelow. No payout will be made if actual Incentive OCF is less than 85% oftargeted Incentive OCF.

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

 

For George L. Koloroutis, awards under the plan arebased on Incentive OCF performance of the internal departments under hiscontrol. The internal departments’ actual Incentive OCF as a percentage of theinternal departments’ target Incentive OCF will result in incentive targetpotential payouts as provided in the table below. No payout will be made ifactual Incentive OCF is less than 85% of targeted Incentive OCF.

 

70

----

Tableof Contents

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

 

For Tod D. Brown, awards under the plan are based onIncentive OCF performance of the internal departments under his control. Theinternal departments’ actual Incentive OCF as a percentage of the internaldepartments’ target Incentive OCF will result in incentive target potentialpayouts as provided in the table below. No payout will be made if actualIncentive OCF is less than 85% of targeted Incentive OCF.

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

 

For fiscal 2009, the percent of targeted total companyIncentive OCF achieved fell within the 100% range, resulting in a potentialcorporate incentive plan payout of 100% for James E. Ferrell, J. Ryan VanWinkleand Stephen L. Wambold. For Incentive Plan purposes, total company actualIncentive OCF was computed as follows:

 
| ** **                                         | ** ** | **(in  thousands)** | ** ** |
|----------------------------------------------------|------------|---------------------|------------|
| Net earnings                                       |       | $                   | 52,572     |   |
| Add:                                               |       |                |       |
| Depreciation &  amortization expense      |       | 82,494              |       |
| Interest expense &  income                |       | 90,840              |       |
| Employee stock  ownership plan compensation charge |       | 6,755               |       |
| Loss on disposal of  assets and other              |       | 13,042              |       |
| Unit and stock based  compensation charge          |       | 2,312               |       |
| Income tax expense                                 |       | 2,292               |       |
| Minority interest                                  |       | 783                 |       |
| Operating cash flow                                |       | 251,090             |       |
| Incentive expense                                  |       | 13,368              |       |
| Incentive OCF                                      |       | $                   | 264,458    |   |

 

George L. Koloroutis’internal departments’ percent of targeted Incentive OCF achieved was over 110%of plan, resulting in an incentive target potential of 150%

 

Tod D. Brown’s internaldepartments’ percent of targeted Incentive OCF achieved fell within the 105%range, resulting in an incentive target potential of 125%.

 

Other than James E.Ferrell, each NEO’s manager has the authority to withhold up to 50% of the NEO’sincentive payout at the manager’s sole discretion.

 

***Stock and Unit Option Plans***

 

We have two option plans available for participationby our NEOs, the “Ferrell Companies Incentive

 

71

----

Table ofContents

 

CompensationPlan” and the “Ferrellgas Unit Option Plan.” The amount of compensation costrelated to these plans incurred for each NEO during fiscal 2009 is displayed inthe “Option Awards” column of the Summary Compensation Table.

 

*Ferrell Companies Incentive Compensation Plan (“ICP”)* — TheFerrell Companies, Inc. 1998 Incentive Compensation Plan was establishedby Ferrell Companies to allow upper-middle and senior level managers, includingNEOs, of our general partner toparticipate in the equity growth of Ferrell Companies. Pursuant to this ICP,eligible participants may be granted stock options to purchase shares of commonstock of Ferrell Companies. Neither Ferrellgas Partners nor theoperating partnership contributes, directly or indirectly, to the ICP. TheFerrell Companies stock options vest over periods ranging from 0 to 12 years or100% upon a change of control of Ferrell Companies, or the death, disability orretirement at the age of 65 of the participant. Vested options are exercisablein increments based on the timing of the payoff of Ferrell Companies debt, butin no event later than 20 years from the date of issuance.

 

The ICP option granting policy allows for the grantingof options on September 1 and March 1 of each year. These datescorrespond with a semi-annual valuation that is performed on Ferrell Companies,which is a privately held company, by an independent third party valuationfirm. The strike price of options granted on these dates is based upon thesesemi-annual valuations. All other terms of option awards including the quantityawarded, vesting life and expiration date of awards are discretionary and mustbe approved by the ICP Option Committee, which consists of James E. Ferrell,Stephen L. Wambold, J. Ryan VanWinkle, and the Vice President of HumanResources. Awards granted to NEOs must also be approved by the CompensationCommittee of the Board of Directors. Generally, awards granted to NEOs vestover five years and expire ten years from grant date. To assist the ICP OptionCommittee and the Compensation Committee of the Board of Directors indetermining the quantity of options to grant to an NEO, the Vice President ofHuman Resources utilizes compensation survey data provided by the consultingfirms of Hewitt Associates, Towers Perrin, and Mercer Human ResourcesConsulting to provide market data that is used to create recommended ranges oftotal option ownership by executive position. For fiscal 2009 the range oftotal option ownership recommended levels were as follows:

 
| **Executive  Position Description**   | ** ** | **Recommended  Range  of Options** | ** ** |
|---------------------------------------|------------|------------------------------------|------------|
| Chairman and Chief  Executive Officer |       | 500,000 – 1,000,000           |       |
| President                             |       | 250,000 – 750,000             |       |
| Executive Officers                    |       | 125,000 – 500,000             |       |

 

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

 

This plan is authorized to issue options in commonunits to employees of the general partner or its affiliates. The Board ofDirectors of the general partner in its sole discretion administers theauthorization of grants and sets the unit option price and vesting terms. Ingeneral, the options currently outstanding vest over a five year period andexpire on the tenth anniversary date of the grant.

 

***EmployeeStock Ownership Plan (“ESOP”)***

 

On July 17,1998, pursuant to the Ferrell Companies, Inc. Employee Stock OwnershipPlan, an employee stock ownership trust purchased all of the outstanding commonstock of Ferrell Companies. The purpose of the ESOP is to provide all employeesof our general partner, including NEOs, an opportunity for ownership in FerrellCompanies, and indirectly, in us. Ferrell Companies makes contributions to theESOP, which allows a portion of the shares of Ferrell Companies owned by theESOP to be allocated to employees’ accounts over time. The value of the totalshares allocated to each NEO for fiscal 2009 is included in the “All OtherCompensation” column of the Summary Compensation Table.

 

Twice per year andin accordance with the ESOP, each NEO’s ESOP account receives an allocation

 

72

----

Table of Contents

 

of Ferrell Companiesshares. This allocation, as determined by the ESOP, is based on thefollowing:  a) the percentage of the NEO’sbase salary, discretionary bonus, and corporate incentive plan paid during theperiod, subject to certain Section 415 IRS limitations, and b) sharesowned from previous allocations. NEOs vest in their account balances asfollows:

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

 

NEOsare entitled to receive a distribution for the vested portion of their accountsat specified times in accordance with the ESOP for normal or late retirement,disability, death, resignation, or dismissal.

 

***Deferred Compensation Plans***

 

Two deferredcompensation plans are available for participation by our NEOs, the “DefinedContribution Profit Sharing Plan” and the “Supplemental Savings Plan.” Theamount of company match related to these plans paid to each NEO during fiscal2009 is included in the “All Other Compensation” column of the SummaryCompensation Table.

 

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

 

Our contributions to the profit sharing portion ofthis plan have been suspended since 1998, however, this plan also provides formatching contributions under a cash or deferred arrangement based upon theparticipant salary and employee contributions to this plan. Due to InternalRevenue Code “Highly Compensated Employee” rules and regulations, NEOs mayonly contribute up to approximately 5% of their eligible compensation to this plan.We will provide a 50% matching contribution of the first 8% of all eligiblecontributions made to this plan and the Supplemental Savings Plan (see below)combined. Employee contributions are 100% vested, while the company’s matchingcontribution vests ratably over the first 5 years of employment. Employee andour matching contributions can be directed, at the employee’s option, to beinvested in a number of investment options that are offered by this plan.

 

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

 

This non-qualified plan is available to all employeeswho have been designated as “Highly Compensated” as defined in the InternalRevenue Code. NEOs are allowed to make, subject to Internal Revenue Codelimitations, pre-tax contributions to the SSP of up to 25% of their eligiblecompensation. We will provide a 50% matching contribution of the first 8% ofall eligible contributions made to this plan and the 401(k) Plan (seeabove) combined. Employee contributions are 100% vested, while our matchingcontribution vests ratably over the first 5 years of employment. Employee andour matching contributions can be directed, at the employee’s option, to beinvested in a number of investment options that are

 

73

----

Table ofContents

 

offeredby the SSP.

 

***Employment and Change-in-Control Agreements***

 

The independent members of the Board of Directors ofour general partner have authorized the general partner to enter into anEmployment, Confidentiality and Non-compete agreement and a Change-in-Controlagreement with James E. Ferrell. The purpose for entering into these agreementsis to secure James E. Ferrell’s employment and protect the confidentiality ofour proprietary information.

 

The independent members of the Board of Directors ofour general partner have authorized the general partner to enter intoEmployment Agreements with each of our NEOs other than James E. Ferrell. Thepurpose for entering into these agreements is to (i) encourage andmotivate NEOs to remain employed and focused on the business during a potentialchange in control, (ii) motivate NEOs to make business decisions that arein the best interest of the company, (iii) ensure that NEOs conductappropriate due diligence and effectively integrate companies in the event ofan acquisition, and (iv) secure the long-term employment of the NEO. Theinitial term of these agreements ends on December 31, 2012. Thereafter,each agreement automatically renews for successive 12-month periods, unless oneparty to the agreement provides notice of non-renewal to the other at least 180days before the last day of then current agreement term.

 

74

----

Table ofContents

** **

**Summary Compensation Table**

 

Thefollowing table sets forth the compensation for the last three fiscal years ofour general partner’s NEOs:

 
| **Name and Principal  Position**                              | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **(1)  Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **(2)  All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|------------------------------|------------|---------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| James E. Ferrell                                              |       | 2009     |       | 825,032         | (3)        | —         |       | 56,727                       |       | —                                            |       | 12,548                                |       | 894,307        |       |
| Chairman and Chief Executive Officer                          |       | 2008     |       | 810,448         | (3)        | —         |       | 85,752                       |       | —                                            |       | 5,500                                 |       | 901,700        |       |
|                                                          | 2007       |     | 648,775    | (3)             | —     |           | 114,417    |                         | —     |                                              | 60,773     |                                  | 823,965    |           |
|                                                          |       |     |       |            |       |           |       |                         |       |                                              |       |                                  |       |           |       |
| J. Ryan VanWinkle                                             |       | 2009     |       | 275,010         |       | 75,000         |       | 258,095                      |       | 275,000                                           |       | 25,507                                |       | 908,612        |       |
| Senior Vice President and Chief Financial Officer;  Treasurer |       | 2008     |       | 227,492         |       | 100,000        |       | 117,889                      |       | —                                            |       | 27,826                                |       | 473,207        |       |
|                                                          |       |     |       |            |       |           |       |                         |       |                                              |       |                                  |       |           |       |
| Stephen L. Wambold                                            |       | 2009     |       | 500,019         |       | 100,000        |       | 352,883                      |       | 500,000                                           |       | 25,465                                |       | 1,478,367      |       |
| President and Chief                                           |       | 2008     |       | 491,685         |       | 300,000        |       | 424,742                      |       | —                                            |       | 42,159                                |       | 1,258,586      |       |
| Operating Officer                                             |       | 2007     |       | 407,115         |       | 150,000        |       | 307,467                      |       | 150,000                                           |       | 19,282                                |       | 1,033,864      |       |
|                                                          |       |     |       |            |       |           |       |                         |       |                                              |       |                                  |       |           |       |
| George L. Koloroutis                                          |       | 2009     |       | 250,010         |       | 150,000        |       | 206,134                      |       | 375,000                                           |       | 28,027                                |       | 1,009,171      |       |
| President, Ferrell  North                                     |       | 2008     |       | 248,426         |       | 100,000        |       | 244,394                      |       | —                                            |       | 30,565                                |       | 623,385        |       |
| America and Senior Vice President, Ferrellgas                 |       | 2007     |       | 226,253         |       | 16,113         |       | 73,855                       |       | 233,888                                           |       | 65,035                                |       | 615,144        |       |
|                                                          |       |     |       |            |       |           |       |                         |       |                                              |       |                                  |       |           |       |
| Tod D. Brown                                                  |       | 2009     |       | 270,404         |       | 87,500         |       | 239,145                      |       | 337,500                                           |       | 23,069                                |       | 957,618        |       |
| Senior Vice President,                                        |       | 2008     |       | 242,115         |       | 125,000        |       | 306,500                      |       | —                                            |       | 37,837                                |       | 711,452        |       |
| Sales and Marketing and President, Blue Rhino                 |       | 2007     |       | 215,446         |       | 50,500         |       | 116,095                      |       | 49,500                                            |       | 22,982                                |       | 454,523        |       |

 

----

(1)          See Note B — Summary of significantaccounting policies (16) Unit and stock-based compensation — to ourconsolidated financial statements for information concerning these awards.

(2)          All Other Compensation consisted of thefollowing:

 
| **Name**              | ** ** | **Year** | ** ** | **ESOP  Allocations  ($)** | ** ** | **401(k) Plan    Match  ($)** | ** ** | **SSP  Match  ($)** | ** ** | **Relocation  Reimbursements  ($)** | ** ** | **Total  All Other  Compensation  ($)** | ** ** |
|-----------------------|------------|----------|------------|----------------------------|------------|------------------------------------|------------|---------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|
| James E. Ferrell      |       | 2009     |       | —                     |       | 9,848                              |       | 2,700               |       | —                              |       | 12,548                                  |       |
|                  |       | 2008     |       | —                     |       | 5,500                              |       | —              |       | —                              |       | 5,500                                   |       |
|                  |       | 2007     |       | —                     |       | 5,417                              |       | 55,356              |       | —                              |       | 60,773                                  |       |
|                  |       |     |       |                       |       |                               |       |                |       |                                |       |                                    |       |
| J.  Ryan VanWinkle    |       | 2009     |       | 16,153                     |       | 8,323                              |       | 1,031               |       | —                              |       | 25,507                                  |       |
|                  |       | 2008     |       | 18,047                     |       | 6,112                              |       | 3,667               |       | —                              |       | 27,826                                  |       |
|                  |       |     |       |                       |       |                               |       |                |       |                                |       |                                    |       |
| Stephen  L. Wambold   |       | 2009     |       | 17,715                     |       | 7,750                              |       | —              |       | —                              |       | 25,465                                  |       |
|                  |       | 2008     |       | 25,075                     |       | 9,250                              |       | 7,834               |       | —                              |       | 42,159                                  |       |
|                  |       | 2007     |       | 9,782                      |       | 7,500                              |       | 2,000               |       | —                              |       | 19,282                                  |       |
|                  |       |     |       |                       |       |                               |       |                |       |                                |       |                                    |       |
| George  L. Koloroutis |       | 2009     |       | 17,629                     |       | 9,919                              |       | 479                 |       | —                              |       | 28,027                                  |       |
|                  |       | 2008     |       | 25,669                     |       | 3,646                              |       | 1,250               |       | —                              |       | 30,565                                  |       |
|                  |       | 2007     |       | 9,613                      |       | 2,981                              |       | 4,025               |       | 48,416                              |       | 65,035                                  |       |
|                  |       |     |       |                       |       |                               |       |                |       |                                |       |                                    |       |
| Tod  D. Brown         |       | 2009     |       | 15,756                     |       | 7,313                              |       | —              |       | —                              |       | 23,069                                  |       |
|                  |       | 2008     |       | 22,666                     |       | 8,063                              |       | 7,108               |       | —                              |       | 37,837                                  |       |
|                  |       | 2007     |       | 9,197                      |       | 7,619                              |       | 6,166               |       | —                              |       | 22,982                                  |       |

 

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

 

75

----

Table ofContents

 

**Grants ofPlan-Based Awards**

 

Thefollowing table lists information on our general partner’s NEOs grants of planbased awards during the fiscal year ended July 31, 2009:

 

**FerrellCompanies Incentive Compensation Plan**

 
| **Name**             | ** ** | ** ** | ** ** | **Grant   Date** | ** ** | **All Other  Option   Awards:   Number of   Securities   Underlying   Options  (#)** | ** ** | **Exercise or   Base Price   of Option   Awards  ($/Share)** | ** ** | **Grant Date Fair  Value of Award  ($)** | ** ** |
|----------------------|------------|------------|------------|------------------|------------|--------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|------------------------------------------|------------|
| J. Ryan VanWinkle    |       | (1)        |       | 3/1/2009         |       | 100,000                                                                              |       | 14.95                                                        |       | 293,000                                  |       |
| Stephen L. Wambold   |       | (1)        |       | 3/1/2009         |       | 75,000                                                                               |       | 14.95                                                        |       | 219,750                                  |       |
| George L. Koloroutis |       | (1)        |       | 3/1/2009         |       | 50,000                                                                               |       | 14.95                                                        |       | 146,500                                  |       |
| Tod D. Brown         |       | (1)        |       | 3/1/2009         |       | 50,000                                                                               |       | 14.95                                                        |       | 146,500                                  |       |

 

----

(1)                      Grant vests ratably over five years andexpires in ten years.

 

**Ferrellgas Unit Option Plan**

 
| **Name**             | ** ** | ** ** | ** ** | **Grant    Date** | ** ** | **All  Other   Option   Awards:   Number of   Securities   Underlying   Options  (#)** | ** ** | **Exercise  or   Base Price   of Option   Awards  ($/Share)** | ** ** | **Grant  Date Fair   Value of Award  ($)** | ** ** |
|----------------------|------------|------------|------------|-------------------|------------|----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------|------------|
| J. Ryan VanWinkle    |       | (1)        |       | 2/20/2009         |       | 50,000                                                                                 |       | 11.63                                                         |       | 22,805                                     |       |
| Stephen L. Wambold   |       | (1)        |       | 2/20/2009         |       | 75,000                                                                                 |       | 11.63                                                         |       | 34,208                                     |       |
| George L. Koloroutis |       | (1)        |       | 2/20/2009         |       | 45,000                                                                                 |       | 11.63                                                         |       | 20,525                                     |       |
| Tod D. Brown         |       | (1)        |       | 2/20/2009         |       | 45,000                                                                                 |       | 11.63                                                         |       | 20,525                                     |       |

 

----

(1)                      Grant vests ratably over five years andexpires in ten years.

 

76

----

Table of Contents

 

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

 

The following tables listinformation concerning our general partner’s NEOs outstanding equity awards asof July 31, 2009:

 

**FerrellCompanies Incentive Compensation Plan**

 

**Option Awards**

 
| **Name**             | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#) Exercisable** |   | **Number of  Securities  Underlying  Unexercised  Options  (#) Unexercisable** |   | **Option   Exercise   Price ($)** |   | **Option  Expiration Date** |   |
|----------------------|------------|------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------------|--------|
| James E. Ferrell     |       | —                                                                       |   | 750,000                                                                        |   | 4.28                              |   | 1/31/2020                   |   |
|                 |       | —                                                                       |   | 200,000                                                                        |   | 12.80                             |   | 8/15/2015                   |   |
|                 |       |                                                                         |   |                                                                           |   |                              |   |                        |   |
| J. Ryan VanWinkle    |       | 3,500                                                                        |   | 6,500                                                                          |   | 8.02                              |   | 3/12/2018                   |   |
|                 |       | 1,500                                                                        |   | 6,000                                                                          |   | 11.78                             |   | 9/15/2019                   |   |
|                 |       | 6,000                                                                        |   | 4,000                                                                          |   | 12.80                             |   | 8/15/2015                   |   |
|                 |       | 5,000                                                                        |   | 20,000                                                                         |   | 16.60                             |   | 9/1/2017                    |   |
|                 |       | 20,000                                                                       |   | 80,000                                                                         |   | 17.01                             |   | 3/1/2018                    |   |
|                 |       | —                                                                       |   | 100,000                                                                        |   | 14.95                             |   | 3/1/2019                    |   |
|                 |       |                                                                         |   |                                                                           |   |                              |   |                        |   |
| Stephen L. Wambold   |       | —                                                                       |   | 17,500                                                                         |   | 4.10                              |   | 12/2/2013                   |   |
|                 |       | —                                                                       |   | 5,000                                                                          |   | 8.02                              |   | 1/31/2018                   |   |
|                 |       | —                                                                       |   | 52,500                                                                         |   | 11.78                             |   | 5/1/2019                    |   |
|                 |       | —                                                                       |   | 131,250                                                                        |   | 12.80                             |   | 8/15/2015                   |   |
|                 |       | —                                                                       |   | 200,000                                                                        |   | 14.87                             |   | 9/15/2016                   |   |
|                 |       | —                                                                       |   | 150,000                                                                        |   | 16.60                             |   | 9/1/2017                    |   |
|                 |       | —                                                                       |   | 75,000                                                                         |   | 14.95                             |   | 3/1/2019                    |   |
|                 |       |                                                                         |   |                                                                           |   |                              |   |                        |   |
| George L. Koloroutis |       | 26,250                                                                       |   | 8,750                                                                          |   | 4.10                              |   | 8/19/2013                   |   |
|                 |       | 7,500                                                                        |   | 2,500                                                                          |   | 4.75                              |   | 7/31/2014                   |   |
|                 |       | 8,750                                                                        |   | 16,250                                                                         |   | 8.02                              |   | 1/31/2018                   |   |
|                 |       | 22,000                                                                       |   | 33,000                                                                         |   | 14.87                             |   | 9/15/2016                   |   |
|                 |       | 25,000                                                                       |   | 100,000                                                                        |   | 16.60                             |   | 9/1/2017                    |   |
|                 |       | —                                                                       |   | 50,000                                                                         |   | 14.95                             |   | 3/1/2019                    |   |
|                 |       |                                                                         |   |                                                                           |   |                              |   |                        |   |
| Tod D. Brown         |       | —                                                                       |   | 4,000                                                                          |   | 11.78                             |   | 9/15/2014                   |   |
|                 |       | —                                                                       |   | 10,000                                                                         |   | 12.80                             |   | 8/15/2015                   |   |
|                 |       | —                                                                       |   | 15,000                                                                         |   | 14.04                             |   | 4/15/2016                   |   |
|                 |       | —                                                                       |   | 46,000                                                                         |   | 14.87                             |   | 9/15/2016                   |   |
|                 |       | —                                                                       |   | 50,000                                                                         |   | 15.04                             |   | 2/1/2017                    |   |
|                 |       | —                                                                       |   | 125,000                                                                        |   | 16.60                             |   | 9/1/2017                    |   |
|                 |       | —                                                                       |   | 50,000                                                                         |   | 14.95                             |   | 3/1/2019                    |   |

 

**FerrellgasUnit Option Plan**

 

**Option Awards**

 
| **Name**             | ** ** | **Number of   Securities   Underlying   Unexercised   Options  (#) Exercisable** | ** ** | **Number of  Securities   Underlying   Unexercised   Options  (#) Unexercisable** | ** ** | ** **

**Option   Exercise   price ($)** | ** ** | **Option  Expiration Date** | ** ** |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------|------------|
| J. Ryan VanWinkle    |       | —                                                                                                         |       | 50,000                                                                                                     |       | 11.63                                                        |       | 2/20/2019                        |       |
| Steven L. Wambold    |       | —                                                                                                         |       | 75,000                                                                                                     |       | 11.63                                                        |       | 2/20/2019                        |       |
| George L. Koloroutis |       | —                                                                                                         |       | 45,000                                                                                                     |       | 11.63                                                        |       | 2/20/2019                        |       |
| Tod D. Brown         |       | —                                                                                                         |       | 45,000                                                                                                     |       | 11.63                                                        |       | 2/20/2019                        |       |

 

77

----

Table of Contents

 

**Option Exercises**

 

There were no unit orstock based options exercised by NEOs during fiscal 2009.

 

**Nonqualified Deferred Compensation**

 

The following table listsinformation concerning our general partner’s NEOs nonqualified SSP accountactivity during the fiscal year ended July 31, 2009:

 
| **Name**             | ** ** | **Executive  Contributions  in Last FY  ($)** | ** ** | **Registrant  Contributions  in Last FY (1)  ($)** | ** ** | **Aggregate  Earnings   in Last FY  ($)** | ** ** | **Aggregate  Withdrawals/  Distributions  ($)** | ** ** | **Aggregate  Balance at   Last FYE  (2)  ($)** | ** ** |
|----------------------|------------|-----------------------------------------------|------------|----------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| James E. Ferrell     |       | 133,036                                       |       | 2,700                                              |       | 17,971                                    |       | —                                          |       | 1,264,311                                      |       |
| J. Ryan VanWinkle    |       | 14,803                                        |       | 1,031                                              |       | (2,819                                    | )          | —                                          |       | 34,371                                         |       |
| Stephen L. Wambold   |       | 43,418                                        |       | —                                             |       | (9,860                                    | )          | —                                          |       | 96,919                                         |       |
| George L. Koloroutis |       | 12,959                                        |       | 479                                                |       | (11,495                                   | )          | —                                          |       | 145,076                                        |       |
| Tod D. Brown         |       | 11,982                                        |       | —                                             |       | (4,222                                    | )          | —                                          |       | 55,846                                         |       |

 

----

(1)          Amounts are included in the Summary Compensation Tableabove.

(2)          The portion of this amount representing registrantcontributions made in years prior was previously reported as compensation to theNEO in the Summary Compensation Table for previous years.

 

**Other Potential Post-Employment Payments**

 

Theindependent members of the Board of Directors of our general partner haveauthorized our general partner to enter into an employment agreement with JamesE. Ferrell. Pursuant to the employment agreement Mr. Ferrell is entitledto:

 

·                  hisannual salary;

 

·                  anannual bonus, the amount to be determined at the sole discretion of theindependent members of the Board of Directors of our general partner; and

 

·                  anincentive bonus equal to 0.5% of the increase in the equity value of FerrellCompanies from July 31, 1998 to July 31, 2005.

 

Theincentive bonus is payable upon the termination of Mr. Ferrell’semployment agreement. The value of this bonus at July 31, 2009 was $1.1million.

 

Inaddition to the compensation described above, Mr. Ferrell participates inour various employee benefit plans, with the exception of the Employee StockOwnership Plan.

 

Pursuant to theterms of Mr. Ferrell’s employment agreement, in the event of death,permanent disability, a termination without cause, resignation for cause or achange of control of Ferrell Companies or our general partner, Mr. Ferrellis entitled to health, accident and life insurance benefits for a period of sixmonths, a cash termination benefit payable within 30 days equal to three timesthe greater of 125% of his current base salary or the average compensation paidto him for the prior three fiscal years and is entitled to additional gross-uppayments on any payment subject to excise tax. The value of this terminationbenefit at July 31, 2009 was approximately $3.1 million.

 

Mr. Ferrell’sagreement also contains a non-compete provision for the period of time,following his termination of employment, equal to the greater of five years orthe time in which certain outstanding debt of Ferrell Companies is paid infull. The non-compete provision provides that he shall not directly orindirectly own, manage, control, or engage in any business with any person whosebusiness is substantially similar to ours and that he shall not directly orindirectly attempt to induce any employee (subject to modifications made forcertain employees in the Waiver to Employment Confidentiality, and

 

78

----

Table ofContents

 

Non-CompeteAgreement dated December 19, 2006) of Ferrellgas to leave the employ ofFerrellgas or in any way interfere with the relationship between Ferrellgas andany employee.

 

The members of theBoard of Directors Compensation Committee have authorized us and our generalpartner to enter into a Change-in-Control Agreement with Mr. Ferrell.Pursuant to the terms of the agreement, a change in control is defined as:

 
| (i)   |   | any merger or  consolidation of Ferrell Companies in which such entity is not the survivor;                            |
|-------|--------|------------------------------------------------------------------------------------------------------------------------|
| (ii)  |   | any sale of all or  substantially all of the common stock of Ferrell Companies by the Employee  Stock Ownership Trust; |
| (iii) |   | a sale of all or  substantially all of the common stock of Ferrellgas, Inc.;                                      |
| (iv)  |   | a replacement of  Ferrellgas, Inc. as the general partner of Ferrellgas Partners, L.P.; or                        |
| (v)   |   | a public sale of at  least 51 percent of the equity of Ferrell Companies.                                              |

 

Should a terminationof employment occur resulting from a change in control, Mr. Ferrell willbe entitled to:

 
| (a)    |   | a payment equal to two  times his annual base salary in effect immediately prior to the change in  control; this amount would be paid in substantially equal monthly  installments over a two year timeframe beginning within five days following  the termination date;                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                             |
| (b)    |   | a payment equal to two  times his target bonus, at his target bonus rate in effect immediately prior  to the change in control; this amount would be paid in substantially equal  monthly installments over a two year timeframe beginning within five days  following the termination date; and |
|   |   |                                                                                                                                                                                                                                                                                             |
| (c)    |   | COBRA reimbursements  for two years following the termination.                                                                                                                                                                                                                                   |

 

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

 
| (i)    |   | the NEO receives  base annual salary in accordance with the regular payroll practices of the  general partner;                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (ii)   |   | the NEO is  eligible to participate in employee benefit plans and programs maintained  from time to time by our general partner for the benefit of similarly  situated senior management employees, subject to the terms and conditions of  such plans;                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (iii)  |   | the NEO is  entitled to bonuses, the amount to be determined at the sole discretion of  the independent members of the Board of Directors of our general partner; and                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (iv)   |   | the NEO is reimbursed  by the general partner, on terms and conditions that are substantially  similar to those that apply to other similarly situated senior management  employees and in accordance with the general partner’s expense reimbursement  policy, for reasonable out-of-pocket expenses for entertainment, travel,  meals, lodging and similar items which are consistent with the general  partner’s expense reimbursement policy and actually incurred by the NEO in  the promotion of the general partner’s business. |

 

Pursuant to theterms of the employment agreements, if the NEO’s employment is terminated forany reason, the NEO will be entitled to the following payments:

 
| (i)   |   | the NEO’s earned but  unpaid salary for the period ending on the NEO’s termination date;        |
|-------|--------|-----------------------------------------------------------------------------------------------------------|
| (ii)  |   | the NEO’s accrued but  unpaid vacation pay for the period ending on the NEO’s termination date; |
| (iii) |   | the NEO’s unreimbursed  business expenses; and                                                       |
| (iv)  |   | any amounts payable to  the NEO under the terms of any employee benefit plan.                             |

 

 

79

----

Table of Contents

 

Pursuant to theterms of the employment agreements, in the event of death, disability, atermination for cause, voluntary resignation or mutual agreement, neither theNEO nor any other person will have any right to payments or benefits listedabove for periods after the NEO’s termination date.

 

Should atermination of employment occur resulting from a termination other than forcause or termination for good reason, each as defined in the employmentagreement, each of our NEOs will be entitled to:

 
| (i)    |   | a payment equal to two  times the NEO’s annual base salary in effect immediately prior to the  termination date; this amount would be paid in substantially equal monthly  installments over a two year timeframe beginning within five days following  the termination date;                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                   |
| (ii)   |   | a payment equal to two  times the NEO’s target bonus, at his target bonus rate in effect immediately  prior to the termination date; this amount would be paid in substantially  equal monthly installments over a two year timeframe beginning within five  days following the termination date; |
|   |   |                                                                                                                                                                                                                                                                                                   |
| (iii)  |   | receive continuing  group medical coverage for himself and his dependents for two years following  the termination date; and                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                   |
| (iv)   |   | a lump sum payment of  $12,000 for professional outplacement services.                                                                                                                                                                                                                                 |

 

The value ofpayments for items (a) and (b) for Mr. Ferrell and items (i) and(ii) for all other NEO’s above at September 1, 2009 would be:

 
| **NEO**               | ** ** | **Two times annual   base salary ($)** | ** ** | **Two times target   bonus ($)** | ** ** |
|-----------------------|------------|----------------------------------------|------------|----------------------------------|------------|
| James  E. Ferrell (1) |       | 1,650,000                              |       | 1,650,000                        |       |
| J.  Ryan VanWinkle    |       | 700,000                                |       | 700,000                          |       |
| Stephen  L. Wambold   |       | 1,000,000                              |       | 1,000,000                        |       |
| George  L. Koloroutis |       | 550,000                                |       | 550,000                          |       |
| Tod  D. Brown         |       | 540,000                                |       | 540,000                          |       |

 

----

(1) As discussed above, James E. Ferrell’semployment agreement contains a separate change-in-control provision which iscurrently valued at an additional $3.1 million.

 

**Compensation of Directors**

 

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

 

ICP option awards for members of the Board of Directors are determinedutilizing competitive compensation data that is gathered on an annual basis.Annually we compare the compensation of our Board of Directors with thecompensation levels and practices of companies that are of similar size andoperate in similar industries. We utilize that data to analyze the compensationof our Board of Directors and ensure that we are competitive in the marketplacefor compensating our Board. ICP option awards are one element of thatcompensation, and the actual awards that are granted are determined on adiscretionary basis. As a general rule and guideline, we target eachmember of our Board of Directors to have an aggregate total of between 25,000and 75,000 FCI options.

 

With the assistance of the Vice President of HumanResources, James E. Ferrell formulates preliminary annual director fee andoption awards recommendations for each board member. These

 

80

----

Tableof Contents

 

recommendations are subject to review and approval by the CompensationCommittee. To assist James E. Ferrell and the Compensation Committee, the VicePresident of Human Resources utilizes publicly available board of directorcompensation data within our industry, as compiled by Mercer Human ResourcesConsulting, to provide market data that is used to create benchmarks for eachdirector’s annual director fee and total compensation package.

 

The followingtable sets forth the compensation for the last completed fiscal year of ourgeneral partner’s Board of Directors.

 
| **Name**             | ** ** | ** ** | ** ** | **Fees  Earned or  Paid in  Cash  ($)** | ** ** | **Option   Awards (4)  ($)** | ** ** | ** **

**All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|----------------------|------------|------------|------------|---------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------------------|------------|----------------|------------|
| William K. Hoskins   |       | (1)        |       | 38,500                                            |       | 22,696                                 |       | —                                            |       | 61,196         |       |
| A. Andrew Levison    |       | (2)        |       | 36,000                                            |       | 22,696                                 |       | —                                            |       | 58,696         |       |
| John R. Lowden       |       | (2)        |       | 38,500                                            |       | 22,696                                 |       | —                                            |       | 61,196         |       |
| Michael F. Morrissey |       | (3)        |       | 46,000                                            |       | 22,696                                 |       | —                                            |       | 68,696         |       |
| Elizabeth T. Solberg |       | (1)        |       | 36,000                                            |       | 22,696                                 |       | —                                            |       | 58,696         |       |

 

----

(1)          At July 31, 2009 this director had35,000 ICP options outstanding.

(2)          At July 31, 2009 this director had30,000 ICP options outstanding.

(3)          At July 31, 2009 this director had40,000 ICP options outstanding.

(4)          See Note B — Summary of significantaccounting policies (16) Unit and stock-based compensation — to ourconsolidated financial statements for information concerning these awards.

 

**ITEM 12.****                     ****SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS.**

 

Thefollowing table sets forth certain information as of August 31, 2009,regarding the beneficial ownership of our common units by:

 

·         personsthat own more than 5% of our common units;

·         personsthat are directors, nominees or named executive officers of our generalpartner; and

·         alldirectors and executive officers of our general partner as a group.

 

Other than those personslisted below, our general partner knows of no other person beneficially owningmore than 5% of our common units.

 

81

----

Table ofContents

 

**Ferrellgas Partners, L.P.**

** **
| **Title of   class** | ** ** | **Name  and address of beneficial owner**                                                                                  | ** ** | **Units    beneficially   owned** | ** ** | **Percentage    of class** | ** ** |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------|------------|
| **Common  units**    |       | Ferrell Companies, Inc. Employee Stock  Ownership Trust  125 S. LaSalle Street, 17th Floor 

Chicago, Ill. 60603 |       | 20,327,666                        |       | 29.8                       |       |
|                 |       |                                                                                                                       |       |                              |       |                       |       |
|                 |       | James E. Ferrell

7500 College Blvd. Suite 1000

Overland Park, KS. 66210                                             |       | 4,353,475                         |       | 6.4                        |       |
|                 |       |                                                                                                                       |       |                              |       |                       |       |
|                 |       | J. Ryan VanWinkle                                                                                                          |       | —                            |       | *                          |       |
|                 |       | Stephen L. Wambold                                                                                                         |       | 1,500                             |       | *                          |       |
|                 |       | Tod D. Brown                                                                                                               |       | —                            |       | *                          |       |
|                 |       | George L. Koloroutis                                                                                                       |       | 500                               |       | *                          |       |
|                 |       | William K. Hoskins                                                                                                         |       | 26,000                            |       | *                          |       |
|                 |       | A. Andrew Levison                                                                                                          |       | 39,300                            |       | *                          |       |
|                 |       | John R. Lowden                                                                                                             |       | 5,000                             |       | *                          |       |
|                 |       | Michael F. Morrissey                                                                                                       |       | 3,000                             |       | *                          |       |
|                 |       | Elizabeth T. Solberg                                                                                                       |       | 11,431                            |       | *                          |       |
|                 |       |                                                                                                                       |       |                              |       |                       |       |
|                 |       | All Directors and  Executive Officers as a Group                                                                           |       | 4,440,206                         |       | 6.5                        |       |

 

----

*                 Less than one percent

 

Beneficial ownership forthe purposes of the foregoing table is defined by Rule 13d-3 under theExchange Act. Under that rule, a person is generally considered to be thebeneficial owner of a security if he has or shares the power to vote or directthe voting thereof, and/or to dispose or direct the disposition thereof, or hasthe right to acquire either of those powers within 60 days. See the “Executive Compensation— Outstanding Equity Awards at Fiscal Year End — Ferrellgas Unit Option Plan”table above for the number of common units that could be acquired by each namedexecutive officer through exercising common unit options.

 

All common stockof Ferrell Companies, Inc. (“FCI shares”) held in the Ferrell Companies, Inc.Employee Stock Ownership Trust (“Trust”) is ultimately voted by the appointedtrustee. The current independent trustee of the Trust is GreatBanc TrustCompany. Each participant in the Ferrell Companies, Inc. Employee StockOwnership Plan (“ESOP”) may be entitled to direct the Trustee as to theexercise of any voting rights attributable to FCI shares allocated to theirESOP account, but only to the extent required by Sections 401(a)(22) and409(e)(3) of the Internal Revenue Code and the regulations thereunder (the“Code”). The ESOP plan administrator shall direct the Trustee how to vote bothFCI shares not allocated to plan participants (i.e., held in a Trust suspenseaccount) and any allocated FCI shares in the Trust as to which no votinginstructions have been received from participants. In all cases, the Trusteemay vote the shares as it determines is necessary to fulfill its fiduciaryduties under ERISA.

 

As it relates tothe Trust, the Code provides that an ESOP participant may be entitled to directthe Trustee as to the exercise of any voting rights attributable to FCI sharesthen allocated to their ESOP account with respect to any corporate matterswhich involves the voting of such shares with respect to the approval ordisapproval of any corporate merger or consolidation, recapitalization,reclassification, liquidation, dissolution, sale of substantially all assets ofa trade or business, or such similar transaction as

 

82

----

Table of Contents

 

the Secretary mayprescribe in regulations.

 

The common units owned by the Employee Stock OwnershipTrust at August 31, 2009 includes 20,080,776 common units owned by FerrellCompanies which is 100% owned by the Employee Stock Ownership Trust, 195,686common units owned by FCI Trading Corp., a wholly-owned subsidiary of FerrellCompanies and 51,204 common units owned by Ferrell Propane, Inc., awholly-owned subsidiary of our general partner.

 

**SecuritiesAuthorized for Issuance under Equity Compensation Plans**

 

Thetable below provides information about our Second Amended and RestatedFerrellgas Unit Option Plan as of July 31, 2009. This plan is our onlyequity compensation plan that grants equity of Ferrellgas Partners to itsparticipants. In addition to the information set forth below, see Note B —Summary of significant accounting policies (16) Unit and stock basedcompensation — to our consolidated financial statements for additionalinformation about the plan.

 
| ** **                                                      | ** ** | **Number of common   units to be issued   upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding   options, warrants  and rights** | ** ** | **Number of common units  remaining available for future  issuance under equity  compensation plans   (excluding securities   reflected in the first column)** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by security  holders         |       | —                                                                                                  |       | —                                                                                    |       | —                                                                                                                                                         |       |
|                                                            |       |                                                                                                    |       |                                                                                      |       |                                                                                                                                                           |       |   |
| Equity compensation plans not approved by security  holders (1) |       | 332,000                                                                                                 |       | $                                                                                         | 12.71      |                                                                                                                                                           | 3,626      | (2) |
| Total                                                           |       | 332,000                                                                                                 |       | $                                                                                         | 12.71      |                                                                                                                                                           | 3,626      |   |

 

----

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

(2)           This numbermay be increased upon the occurrence of particular events. See narrative below.

 

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

 

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

 

·                  develop a proprietary interest in our growth andperformance;

·                  generate an increased incentive to contribute to ourfuture success and prosperity, thereby enhancing our value for the benefit ofour common unitholders; and

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

 

The plan is to beadministered by the Compensation Committee of the Board of our general partner.The Compensation Committee has designated an employee committee to recommend toit at various times throughout the year the number of unit options to begranted and to whom such unit options should be granted. The CompensationCommittee 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:

 

·                  designate the employees who are to be participants inthe plan;

 

83

----

Table of Contents

 

·                  determine the number of unit options to be granted toan employee;

·                  determine the terms and conditions of any unit option;

·                  interpret, construe and administer the plan and anyinstrument or agreement relating to a unit option granted under the plan;

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

·                  make a determination as to the right of any person toreceive payment of (or with respect to) a unit option; and

·                  make any other determinations and take any otheractions that the administrator deems necessary or desirable for the administrationof the plan.

 

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

 

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

 

Although the number ofunit options currently available for issuance under the plan is limited to1,350,000, under particular circumstances that would result in a significantdilution of the rights of the participants in the plan, the administrator ofthe plan may make appropriate adjustments in the maximum number of common unitsissuable under the plan to reflect the effect of such circumstance and may makeappropriate adjustments to the number of common units subject to, and/or theexercise price of, each outstanding unit option.

 

The administratorof the plan has the discretion to cancel all or part of any outstanding unitoptions at any time. Upon any such cancellation we will pay to the holder withrespect to each cancelled unit option an amount in cash equal to the excess, ifany, of (i) the fair market value of a common unit, at the effective dateof such cancellation, over (ii) the unit option exercise price. Inaddition, the administrator has the right to alter or amend the plan or anypart thereof from time to time; provided, however, that no change in any unitoption already granted may be made which would impair the rights of the holderthereof without the consent of the holder. The administrator may also in itsdiscretion terminate the plan at any time with respect to any common units forwhich a unit option has not yet been granted. There is currently no fixedtermination date for the plan.****If a plan forour complete dissolution is adopted or our unitholders approve an agreement forour sale or disposition of all or substantially all of our assets, then uponsuch 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 orapproval shall be immediately and fully vested and exercisable and may beexercised within one year from the date of that adoption or approval.

 

84

----

Table of Contents

 

**ITEM 13.****                     ****CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS.**

** **

**Related PartyTransactions**

 

Our written Code of Business Conduct and Ethics applies toour directors, officers and employees. It deals with conflicts of interest,confidential information, use of company assets, business dealings, and othersimilar topics. The Code prohibits any transaction that raises questions ofpossible ethical or legal conflict between the interests of the company and anemployee’s personal interests.

 

The board of directorsmaintains an affiliate trading policy and other policies that govern specificrelated party transactions. Each of these policies contain guidelines on whatentities or natural persons are considered related parties or an affiliate andthe related procedures that are to be followed if transactions occur with theseparties. On a quarterly basis, or more frequently if required by the policies, managementprovides the board with a discussion of any related party or affiliate tradingtransactions. Annually, these policies are reviewed by the board’s CorporateGovernance and Nominating Committee and considered for approval by the board ofdirectors. See Item 7. “Management’s Discussion and Analysis of FinancialCondition and Results of Operations — Disclosures about Effects of RelatedParties” and Note K — Transactions with related parties — to our consolidatedfinancial statements for additional discussion regarding related partytransactions.

 

Our directors and officers are required each year to respondto a detailed questionnaire. The questionnaire requires each director andofficer to identify every non-Company organization of any type of which they ortheir family (as defined by the SEC) are a director, partner, member, trustee,officer, employee, representative, consultant or significant shareholder. Thequestionnaire also requires disclosure of any transaction, relationship orarrangement with the Company. The information obtained from thesequestionnaires is then evaluated to determine the nature and amount of anytransactions or relationships. If significant, the results are provided to theGovernance Committee and Board for their use in determining director andofficer independence and related party disclosure obligations. See Note K —Transactions with related parties — and Note I — Partners’ capital — to our consolidated financialstatements for discussions of related party transactions.

 

**CertainBusiness Relationships**

 

None.

 

**Indebtednessof Management**

 

None.

 

**Transactionswith Promoters**

 

None**.**

 

**ITEM 14.****                     ****PRINCIPAL ACCOUNTANT FEES ANDSERVICES.**

 

The followingtable presents fees billed for professional audit services rendered by Deloitte &Touche LLP for the audit of our annual financial statements and for otherservices for fiscal 2009 and 2008.

 
| ** **             | ** ** | **2009**           | ** ** | **2008** | ** ** |
|------------------------|------------|--------------------|------------|----------|------------|
| ** **             | ** ** | **(in thousands)** | ** ** |
| Audit fees (1)         |       | $                  | 1,628      |     | $          | 1,539 |   |
| Audit related fees (2) |       | 45                 |       | 52       |       |
| All other fees (3)     |       | 9                  |       | 7        |       |
| Total                  |       | $                  | 1,682      |     | $          | 1,598 |   |

 

----

(1)          Audit fees consist of the aggregate fees billed for each of thelast two fiscal years for professional services rendered by Deloitte &Touche LLP in connection with the audit of our annual financial statements andthe review of financial statements included in our quarterly reports on Form 10-Q.In addition, these fees also covered those services that are normally providedby an accountant in 

 

85

----

Table of Contents

 

connection with statutoryand regulatory filings or engagements and services related to the audit of ourinternal controls over financial reporting.

 

(2)          Audit-related fees consistof the aggregate feesbilled in each of the last two fiscal years for assurance and related servicesby Deloitte & Touche LLP that we believe are reasonably related to theperformance of the audit or review of our financial statements and that wouldnot normally be reported under Item 9(e)(1) of Schedule 14A. These services generally consisted of financialaccounting and reporting consultations and benefit plans audits.

 

(3)          All other fees consist of the aggregate fees billed in each of thelast two fiscal years for products and services provided by Deloitte &Touche LLP, other than the services that would normally be reported in Items9(e)(1) through 9(e)(3) of Schedule 14A. These services consisted of subscription fees related to aweb-based research tool provided by Deloitte & Touche LLP.

 

TheAudit Committee of our general partner reviewed and approved all audit andnon-audit services provided to us by Deloitte & Touche LLP during fiscal 2009 and 2008 prior to thecommencement of such services. See “Item 10. Directors and Executive Officersof the Registrants—Audit Committee” for a description of the Audit Committee’spre-approval policies and procedures related to the engagement by us of anindependent accountant.

 

**PART IV**

** **

**ITEM 15.****                     ****EXHIBITS AND FINANCIAL STATEMENTSCHEDULES.**

 
| **1.** | **Financial Statements.**                                                           |
|--------|-------------------------------------------------------------------------------------|
|   | See “Index to Financial Statements” set forth on  page F-1.          |
| **2.** | **Financial Statement Schedules.**                                                  |
|   | See “Index to Financial Statement Schedules” set forth  on page S-1. |
| **3.** | **Exhibits.**                                                                       |
|   | See “Index to Exhibits”  set forth on page E-1.                      |

 

86

----

**Table of Contents**

** **

**SIGNATURES**

** **

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|   | FERRELLGAS PARTNERS,  L.P.                  |
|--------|---------------------------------------------|
|   |                                        |
|   | By  Ferrellgas, Inc. (General Partner) |
|   |                                        |
|   |                                        |
|   | By                                          | /s/ Stephen L. Wambold |
|   |                                        | Stephen L. Wambold |
|   |                                        | Chief Executive Officer  and President |

 

 

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

 
| **Signature**             | ** ** | **Title**                                                                                                   | ** ** | **Date**   |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|------------|
|                      |       |                                                                                                        |       |       |
| /s/ James E. Ferrell      |       | Executive Chairman and Chairman of the Board of  Directors                                                  |       | 09/28/2009 |
| James E. Ferrell          |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ William K. Hoskins    |       | Director                                                                                                    |       | 09/28/2009 |
| William K. Hoskins        |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ A. Andrew Levison     |       | Director                                                                                                    |       | 09/28/2009 |
| A. Andrew Levison         |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ John R. Lowden        |       | Director                                                                                                    |       | 09/28/2009 |
| John R. Lowden            |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ Michael F. Morrissey  |       | Director                                                                                                    |       | 09/28/2009 |
| Michael F. Morrissey      |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ Elizabeth T.  Solberg |       | Director                                                                                                    |       | 09/28/2009 |
| Elizabeth T. Solberg      |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ Stephen L. Wambold    |       | Chief Executive Officer  and President (Principal Executive Officer) and Director                           |       | 09/28/2009 |
| Stephen L. Wambold        |       |                                                                                                        |       |
|                      |       |                                                                                                        |       |       |
| /s/ J. Ryan VanWinkle     |       | Senior Vice President  and Chief Financial Officer; Treasurer (Principal Financial and Accounting  Officer) |       | 09/28/2009 |
| J. Ryan VanWinkle         |       |                                                                                                        |       |

 

 

----

Table of Contents

 

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|   | FERRELLGAS PARTNERS  FINANCE CORP. |
|--------|------------------------------------|
|   |                               |
|   |                               |
|   | By                                 | /s/ Stephen L. Wambold |
|   |                               | Stephen L. Wambold |
|   |                               | Chief Executive Officer  and President |

 

 

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

 
| **Signature**          | ** ** | **Title**                                                                               | ** ** | **Date**   |
|------------------------|------------|-----------------------------------------------------------------------------------------|------------|------------|
|                   |       |                                                                                    |       |       |
| /s/ Stephen L. Wambold |       | Chief Executive Officer  and President (Principal Executive Officer)                    |       | 09/28/2009 |
| Stephen L. Wambold     |       |                                                                                    |       |
|                   |       |                                                                                    |       |       |
|                   |       |                                                                                    |       |       |
| /s/ J. Ryan VanWinkle  |       | Chief Financial Officer  and Sole Director (Principal Financial and Accounting Officer) |       | 09/28/2009 |
| J. Ryan VanWinkle      |       |                                                                                    |       |

 

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

** **

## **Ferrellgas Partners Finance Corp. has not registeredsecurities pursuant to Section 12 of the Securities Act and files reportspursuant to Section 15(d) of the Securities Act.  As of the date of filing of this AnnualReport on Form 10-K, no annual report or proxy material has been sent tothe holders of the securities of Ferrellgas Partners Finance Corp., however, acopy of this Annual Report will be furnished to the holders of the securitiesof Ferrellgas Partners Finance Corp. subsequent to the date of filing of thisAnnual Report.**

 

----

Table ofContents

** **

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|   | FERRELLGAS, L.P.                            |
|--------|---------------------------------------------|
|   |                                        |
|   | By  Ferrellgas, Inc. (General Partner) |
|   |                                        |
|   |                                        |
|   | By                                          | /s/ Stephen L. Wambold |
|   |                                        | Stephen L. Wambold |
|   |                                        | Chief Executive Officer  and President |

 

 

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

 
| **Signature**             | ** ** | **Title**                                                                                                   | ** ** | **Date**   |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|------------|
|                      |       |                                                                                                        |       |       |
| /s/ James E. Ferrell      |       | Executive Chairman and Chairman of the Board of  Directors                                                  |       | 09/28/2009 |
| James E. Ferrell          |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ William K. Hoskins    |       | Director                                                                                                    |       | 09/28/2009 |
| William K. Hoskins        |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ A. Andrew Levison     |       | Director                                                                                                    |       | 09/28/2009 |
| A. Andrew Levison         |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ John R. Lowden        |       | Director                                                                                                    |       | 09/28/2009 |
| John R. Lowden            |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ Michael F.  Morrissey |       | Director                                                                                                    |       | 09/28/2009 |
| Michael F. Morrissey      |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ Elizabeth T.  Solberg |       | Director                                                                                                    |       | 09/28/2009 |
| Elizabeth T. Solberg      |       |                                                                                                        |       |       |
|                      |       |                                                                                                        |       |       |
| /s/ Stephen L. Wambold    |       | Chief Executive Officer  and President (Principal Executive Officer) and Director                           |       | 09/28/2009 |
| Stephen L. Wambold        |       |                                                                                                        |       |
|                      |       |                                                                                                        |       |       |
| /s/ J. Ryan VanWinkle     |       | Senior Vice President  and Chief Financial Officer; Treasurer (Principal Financial and Accounting  Officer) |       | 09/28/2009 |
| J. Ryan VanWinkle         |       |                                                                                                        |       |

** **

----

Table ofContents

** **

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|   | FERRELLGAS FINANCE  CORP. |
|--------|---------------------------|
|   |                      |
|   |                      |
|   | By                        | /s/ Stephen L. Wambold |
|   |                      | Stephen L. Wambold |
|   |                      | Chief Executive Officer  and President |

 

 

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

 
| **Signature**          | ** ** | **Title**                                                                               | ** ** | **Date**   |
|------------------------|------------|-----------------------------------------------------------------------------------------|------------|------------|
|                   |       |                                                                                    |       |       |
| /s/ Stephen L. Wambold |       | Chief Executive Officer  and President (Principal Executive Officer)                    |       | 09/28/2009 |
| Stephen L. Wambold     |       |                                                                                    |       |
|                   |       |                                                                                    |       |       |
|                   |       |                                                                                    |       |       |
| /s/ J. Ryan VanWinkle  |       | Chief Financial Officer  and Sole Director (Principal Financial and Accounting Officer) |       | 09/28/2009 |
| J. Ryan VanWinkle      |       |                                                                                    |       |

 

----

Table of Contents

 

**INDEX TO FINANCIAL STATEMENTS**

 
| ** **                                                                                         | **Page** |
|----------------------------------------------------------------------------------------------------|----------|
|                                                                                               |     |
| **Ferrellgas  Partners, L.P. and Subsidiaries**                                                    |     |
| Report  of Independent Registered Public Accounting Firm                                           | F-2      |
| Consolidated  Balance Sheets - July 31, 2009 and 2008                                         | F-3      |
| Consolidated  Statements of Earnings - Years ended July 31, 2009, 2008 and 2007               | F-4      |
| Consolidated Statements of Partners’ Capital - Years  ended July 31, 2009, 2008 and 2007 | F-5      |
| Consolidated Statements of Cash Flows - Years ended  July 31, 2009, 2008 and 2007             | F-6      |
| Notes to Consolidated Financial Statements                                                         | F-7      |
|                                                                                               |     |
| **Ferrellgas Partners Finance Corp.**                                                              |     |
| Report of Independent Registered Public Accounting  Firm                                           | F-31     |
| Balance  Sheets - July 31, 2009 and 2008                                                      | F-32     |
| Statements  of Earnings - Years ended July 31, 2009, 2008 and 2007                            | F-33     |
| Statements of Stockholder’s Equity - Years ended  July 31, 2009, 2008 and 2007           | F-34     |
| Statements  of Cash Flows - Years ended July 31, 2009, 2008 and 2007                          | F-35     |
| Notes to Financial Statements                                                                      | F-36     |
|                                                                                               |     |
| **Ferrellgas, L.P. and Subsidiaries**                                                              |     |
| Report of Independent Registered Public Accounting  Firm                                           | F-37     |
| Consolidated Balance Sheets - July 31, 2009 and  2008                                         | F-38     |
| Consolidated Statements of Earnings - Years ended  July 31, 2009, 2008 and 2007               | F-39     |
| Consolidated Statements of Partners’ Capital - Years  ended July 31, 2009, 2008 and 2007 | F-40     |
| Consolidated Statements of Cash Flows - Years ended  July 31, 2009, 2008 and 2007             | F-41     |
| Notes to Consolidated Financial Statements                                                         | F-42     |
|                                                                                               |     |
| **Ferrellgas  Finance Corp.**                                                                      |     |
| Report of Independent Registered Public Accounting  Firm                                           | F-64     |
| Balance  Sheets - July 31, 2009 and 2008                                                      | F-65     |
| Statements  of Earnings — Year ended July 31, 2009, 2008 and 2007                        | F-66     |
| Statements of Stockholder’s Equity - Year ended  July 31, 2009, 2008 and 2007            | F-67     |
| Statements  of Cash Flows - Year ended July 31, 2009, 2008 and 2007                           | F-68     |
| Notes to Financial Statements                                                                      | F-69     |

 

F-1

----

Table ofContents

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To the Partners of Ferrellgas Partners, L.P. and Subsidiaries**Overland Park, Kansas

 

We have audited the accompanying consolidated balance sheets ofFerrellgas Partners, L.P. and subsidiaries (“Partnership”) as of July 31,2009 and 2008, and the related consolidated statements of earnings, partners’capital, and cash flows for each of the three years in the period ended July 31,2009.  Our audits also included the financial statement schedules listedin the Index at Item 15.  These financial statements and financialstatement schedules are the responsibility of the Partnership’smanagement.  Our responsibility is to express an opinion on the financialstatements and financial statement schedules based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements.  An audit also includes assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, inall material respects, the financial position of Ferrellgas Partners, L.P. andsubsidiaries as of July 31, 2009 and 2008, and the results of theiroperations and their cash flows for each of the three years in the period endedJuly 31, 2009, in conformity with accounting principles generally acceptedin the United States of America.  Also, in our opinion, such financialstatement schedules, when considered in relation to the basic consolidatedfinancial statements taken as a whole, present fairly, in all materialrespects, the information set forth therein.

 

We have also audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the Partnership’s internalcontrol over financial reporting as of July 31, 2009, based on thecriteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated September 28,2009 expressed an unqualified opinion on the Partnership’s internal controlover financial reporting.

 

 

/s/ DELOITTE &TOUCHE LLP

Kansas City, MissouriSeptember 28, 2008

 

F-2

----

Tableof Contents

 

**FERRELLGAS PARTNERS, L.P. ANDSUBSIDIARIES**

** **

**CONSOLIDATED BALANCE SHEETS**

**(inthousands, except unit data)**

 
| ** **                                                                                                                   | ** ** | **July 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                                   | ** ** | **2009**          | ** ** | **2008** | ** ** |
| ** **                                                                                                                   |       |              |       |   |   |
| **ASSETS**                                                                                                                   |       |              |       |   |   |
| **Current assets:**                                                                                                          |       |              |       |   |   |
| Cash  and cash equivalents                                                                                                   |       | $                 | 7,066      |   | $ | 16,614 |   |
| Accounts  and notes receivable (net of allowance for doubtful accounts of $4,294 and $5,977  at 2009 and 2008, respectively) |       | 106,910           |       | 145,081 |   |
| Inventories                                                                                                                  |       | 129,808           |       | 152,301 |   |
| Price  risk management assets                                                                                                |       | 3,391             |       | 26,086 |   |
| Prepaid  expenses and other current assets                                                                                   |       | 11,640            |       | 10,924 |   |
| **Total current assets**                                                                                                     |       | 258,815           |       | 351,006 |   |
|                                                                                                                         |       |              |       |   |   |
| Property,  plant and equipment, net                                                                                          |       | 666,535           |       | 685,328 |   |
| Goodwill                                                                                                                     |       | 248,939           |       | 248,939 |   |
| Intangible  assets, net                                                                                                      |       | 212,037           |       | 225,273 |   |
| Other  assets, net                                                                                                           |       | 18,651            |       | 18,685 |   |
| **Total assets**                                                                                                             |       | $                 | 1,404,977  |   | $ | 1,529,231 |   |
|                                                                                                                         |       |              |       |   |   |
| **LIABILITIES AND PARTNERS’ CAPITAL**                                                                                   | ** ** | ** **        | ** ** |   | ** ** |
| **Current liabilities:**                                                                                                     | ** ** | ** **        | ** ** |   | ** ** |
| Accounts  payable                                                                                                            |       | $                 | 49,337     |   | $ | 71,348 |   |
| Short-term  borrowings                                                                                                       |       | 66,159            |       | 125,729 |   |
| Other  current liabilities                                                                                                   |       | 108,763           |       | 107,854 |   |
| **Total current liabilities**                                                                                                |       | 224,259           |       | 304,931 |   |
|                                                                                                                         |       |              |       |   |   |
| Long-term  debt                                                                                                              |       | 1,010,073         |       | 1,034,719 |   |
| Other  liabilities                                                                                                           |       | 19,300            |       | 23,237 |   |
| Contingencies  and commitments (Note L)                                                                                      |       | —            |       | — |   |
| Minority  interest                                                                                                           |       | 4,272             |       | 4,220 |   |
|                                                                                                                         |       |              |       |   |   |
| **Partners’ capital:**                                                                                                  |       |              |       |   |   |
| Common  unitholders (68,236,755 and 62,961,674 units outstanding at 2009 and 2008,  respectively)                            |       | 206,255           |       | 201,618 |   |
| General  partner unitholder (689,260 and 635,977 units outstanding at 2009 and 2008,  respectively)                          |       | (57,988           | )          | (58,036 | ) |
| Accumulated  other comprehensive income (loss)                                                                               |       | (1,194            | )          | 18,542 |   |
| **Total partners’ capital**                                                                                             |       | 147,073           |       | 162,124 |   |
| **Total liabilities and partners’ capital**                                                                             |       | $                 | 1,404,977  |   | $ | 1,529,231 |   |

 

See notes toconsolidated financial statements.

 

F-3

----

Table ofContents

 

**FERRELLGASPARTNERS, L.P. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF EARNINGS**

**(inthousands, except per unit data)**

 
| ** **                                                   | ** ** | **For the year ended July 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                   | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                         | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                                |       |                                 |       |   |   |   |   |
| Propane  and other gas liquids sales                         |       | $                                    | 1,829,653  |   | $ | 2,055,281 |   | $ | 1,757,423 |   |
| Other                                                        |       | 239,869                              |       | 235,408 |   | 235,017 |   |
| **Total revenues**                                           |       | 2,069,522                            |       | 2,290,689 |   | 1,992,440 |   |
| ** **                                                   |       |                                 |       |   |   |   |   |
| **Costs and expenses:**                                      |       |                                 |       |   |   |   |   |
| Cost  of product sold - propane and other gas liquids sales  |       | 1,207,368                            |       | 1,491,918 |   | 1,147,169 |   |
| Cost  of product sold - other                                |       | 152,853                              |       | 136,478 |   | 157,223 |   |
| Operating  expense                                           |       | 400,735                              |       | 372,078 |   | 380,838 |   |
| Depreciation  and amortization expense                       |       | 82,494                               |       | 85,521 |   | 87,383 |   |
| General  and administrative expense                          |       | 41,382                               |       | 45,612 |   | 44,870 |   |
| Equipment  lease expense                                     |       | 18,406                               |       | 24,478 |   | 26,142 |   |
| Employee  stock ownership plan compensation charge           |       | 6,755                                |       | 12,413 |   | 11,225 |   |
| Loss  on disposal of assets and other                        |       | 13,042                               |       | 11,250 |   | 10,822 |   |
|                                                         |       |                                 |       |   |   |   |   |
| **Operating income**                                         |       | 146,487                              |       | 110,941 |   | 126,768 |   |
|                                                         |       |                                 |       |   |   |   |   |
| Interest  expense                                            |       | (89,519                              | )          | (86,712 | ) | (87,953 | ) |
| Other  income (expense), net                                 |       | (1,321                               | )          | 1,039 |   | 3,145 |   |
|                                                         |       |                                 |       |   |   |   |   |
| **Earnings before income taxes and minority interest**       |       | 55,647                               |       | 25,268 |   | 41,960 |   |
|                                                         |       |                                 |       |   |   |   |   |
| Income  tax expense                                          |       | 2,292                                |       | 82 |   | 6,560 |   |
| Minority  interest                                           |       | 783                                  |       | 497 |   | 600 |   |
|                                                         |       |                                 |       |   |   |   |   |
| **Net earnings**                                             |       | 52,572                               |       | 24,689 |   | 34,800 |   |
|                                                         |       |                                 |       |   |   |   |   |
| Net  earnings available to general partner unitholder        |       | 526                                  |       | 247 |   | 348 |   |
| **Net earnings available to common unitholders**             |       | $                                    | 52,046     |   | $ | 24,442 |   | $ | 34,452 |   |
|                                                         |       |                                 |       |   |   |   |   |
| **Basic and diluted net earnings available per common unit** |       | $                                    | 0.79       |   | $ | 0.39 |   | $ | 0.55 |   |

 

See notes toconsolidated financial statements.

 

F-4

----

Table of Contents

 

**FERRELLGASPARTNERS, L.P. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF PARTNERS’CAPITAL**

**(inthousands)**

 
| ** **                                                                  | ** ** | ** **          | ** ** | ** **     | ** ** | ** **      | ** ** | ** **                      | ** ** | **Accumulated other** | ** ** | ** **      | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------|------------|----------------|------------|-----------------|------------|---------------------------------|------------|-----------------------|------------|-----------------|------------|
| ** **                                                                  | ** ** | **Number of units** | ** ** | ** **     | ** ** | ** **      | ** ** | **comprehensive income (loss)** | ** ** | ** **            | ** ** |
| ** **                                                                  | ** ** | ** **          | ** ** | **General**    | ** ** | ** **      | ** ** | **General**                     | ** ** | ** **            | ** ** | **Currency**    | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                                                                  | ** ** | **Common**          | ** ** | **partner**    | ** ** | **Common**      | ** ** | **partner**                     | ** ** | **Risk**              | ** ** | **translation** | ** ** | **Pension** | ** ** | **partners’** | ** ** |
| ** **                                                                  | ** ** | **unitholders**     | ** ** | **unitholder** | ** ** | **unitholders** | ** ** | **unitholder**                  | ** ** | **management**        | ** ** | **adjustments** | ** ** | **liability** | ** ** | **capital** | ** ** |
| ** **                                                                  |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| **Balance at July 31, 2006**                                           |       | 60,885.8            |       | 615.0          |       | $               | 321,194    |                            | $          | (56,829               | )          | $               | 2,126      |   | $ | 21 |   | $ | (767 | ) | $ | 265,745 |   |
| ** **                                                                  |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Contribution  in connection with ESOP and stock-based compensation charges  |       | —              |       | —         |       | 11,872          |       | 120                             |       | —                |       | —          |       | — |   | 11,992 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  unit distributions                                                  |       | —              |       | —         |       | (125,802        | )          | (1,270                          | )          | —                |       | —          |       | — |   | (127,072 | ) |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  units issued in private offering                                    |       | 1,891.9             |       | 19.1           |       | 43,765          |       | 442                             |       | —                |       | —          |       | — |   | 44,207 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  unit options exercised                                              |       | 55.5                |       | 0.6            |       | 1,014           |       | 11                              |       | —                |       | —          |       | — |   | 1,025 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  units issued in connection with acquisitions, net of issuance costs |       | 124.5               |       | 1.2            |       | 2,580           |       | 24                              |       | —                |       | —          |       | — |   | 2,604 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Comprehensive  income:                                                      |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Net earnings                                                                |       | —              |       | —         |       | 34,452          |       | 348                             |       | —                |       | —          |       | — |   | 34,800 |   |
| Other  comprehensive income (loss):                                         |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Net  earnings on risk management derivatives                                |       | —              |       | —         |       | —          |       | —                          |       | 5,055                 |       | —          |       | — |   |   |   |
| Reclassification  of derivatives to earnings                                |       | —              |       | —         |       | —          |       | —                          |       | (2,126                | )          | —          |       | — |   |   |   |
| Foreign  currency translation adjustment                                    |       | —              |       | —         |       | —          |       | —                          |       | —                |       | 14              |       | — |   |   |   |
| Tax  effect on foreign currency translation adjustment                      |       | —              |       | —         |       | —          |       | —                          |       | —                |       | (5              | )          | — |   |   |   |
| Pension  liability adjustment                                               |       | —              |       | —         |       | —          |       | —                          |       | —                |       | —          |       | 418 |   | 3,356 |   |
| Comprehensive  income                                                       |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   | 38,156 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| **Balance at July 31, 2007**                                           |       | 62,957.7            |       | 635.9          |       | 289,075         |       | (57,154                         | )          | 5,055                 |       | 30              |       | (349 | ) | 236,657 |   |
| ** **                                                                  |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Contribution  in connection with ESOP and stock-based compensation charges  |       | —              |       | —         |       | 13,945          |       | 141                             |       | —                |       | —          |       | — |   | 14,086 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  unit distributions                                                  |       | —              |       | —         |       | (125,919        | )          | (1,271                          | )          | —                |       | —          |       | — |   | (127,190 | ) |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  unit options exercised                                              |       | 4.0                 |       | 0.1            |       | 75              |       | 1                               |       | —                |       | —          |       | — |   | 76 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Comprehensive  income:                                                      |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Net  earnings                                                               |       | —              |       | —         |       | 24,442          |       | 247                             |       | —                |       | —          |       | — |   | 24,689 |   |
| Other  comprehensive income (loss):                                         |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Net  earnings on risk management derivatives                                |       | —              |       | —         |       | —          |       | —                          |       | 18,749                |       | —          |       | — |   |   |   |
| Reclassification  of derivatives to earnings                                |       | —              |       | —         |       | —          |       | —                          |       | (5,055                | )          | —          |       | — |   |   |   |
| Foreign  currency translation adjustment                                    |       | —              |       | —         |       | —          |       | —                          |       | —                |       | (10             | )          | — |   |   |   |
| Tax  effect on foreign currency translation adjustment                      |       | —              |       | —         |       | —          |       | —                          |       | —                |       | 6               |       | — |   |   |   |
| Pension  liability adjustment                                               |       | —              |       | —         |       | —          |       | —                          |       | —                |       | —          |       | 116 |   | 13,806 |   |
| Comprehensive  income                                                       |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   | 38,495 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| **Balance at July 31, 2008**                                           |       | 62,961.7            |       | 636.0          |       | 201,618         |       | (58,036                         | )          | 18,749                |       | 26              |       | (233 | ) | 162,124 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Contribution  in connection with ESOP and stock-based compensation charges  |       | —              |       | —         |       | 8,885           |       | 90                              |       | —                |       | —          |       | — |   | 8,975 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  unit distributions                                                  |       | —              |       | —         |       | (131,256        | )          | (1,325                          | )          | —                |       | —          |       | — |   | (132,581 | ) |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  units issued in offering                                            |       | 4,985.6             |       | 50.4           |       | 69,447          |       | 702                             |       | —                |       | —          |       | — |   | 70,149 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  unit options exercised                                              |       | —              |       | —         |       | —          |       | —                          |       | —                |       | —          |       | — |   | — |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Common  units issued in connection with acquisitions, net of issuance costs |       | 289.5               |       | 2.9            |       | 5,515           |       | 55                              |       | —                |       | —          |       | — |   | 5,570 |   |
|                                                                        |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Comprehensive  income:                                                      |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Net  earnings                                                               |       | —              |       | —         |       | 52,046          |       | 526                             |       | —                |       | —          |       | — |   | 52,572 |   |
| Other  comprehensive income (loss):                                         |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| Net  loss on risk management derivatives                                    |       | —              |       | —         |       | —          |       | —                          |       | (186,449              | )          | —          |       | — |   |   |   |
| Reclassification  of derivatives to earnings                                |       | —              |       | —         |       | —          |       | —                          |       | 166,711               |       | —          |       | — |   |   |   |
| Foreign  currency translation adjustment                                    |       | —              |       | —         |       | —          |       | —                          |       | —                |       | (7              | )          | — |   |   |   |
| Tax  effect on foreign currency translation adjustment                      |       | —              |       | —         |       | —          |       | —                          |       | —                |       | 3               |       | — |   |   |   |
| Pension  liability adjustment                                               |       | —              |       | —         |       | —          |       | —                          |       | —                |       | —          |       | 6 |   | (19,736 | ) |
| Comprehensive  income                                                       |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   | 32,836 |   |
| ** **                                                                  |       |                |       |           |       |            |       |                            |       |                  |       |            |       |   |   |   |   |
| **Balance at July 31, 2009**                                           |       | 68,236.8            |       | 689.3          |       | $               | 206,255    |                            | $          | (57,988               | )          | $               | (989       | ) | $ | 22 |   | $ | (227 | ) | $ | 147,073 |   |

 

See notes toconsolidated financial statements.

 

F-5

----

Table of Contents

 

**FERRELLGASPARTNERS, L.P. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(inthousands)**

 
| ** **                                                                                     | ** ** | **For the year ended July 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                     | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                           |       |                                 |       |   |   |   |   |
| **Cash flows from operating activities:**                                                      |       |                                 |       |   |   |   |   |
| Net  earnings                                                                                  |       | $                                    | 52,572     |   | $ | 24,689 |   | $ | 34,800 |   |
| Reconciliation  of net earnings to net cash provided by operating activities:                  |       |                                 |       |   |   |   |   |
| Depreciation  and amortization expense                                                         |       | 82,494                               |       | 85,521 |   | 87,383 |   |
| Employee  stock ownership plan compensation charge                                             |       | 6,755                                |       | 12,413 |   | 11,225 |   |
| Stock-based  compensation charge                                                               |       | 2,312                                |       | 1,816 |   | 889 |   |
| Loss  on disposal of assets                                                                    |       | 5,009                                |       | 4,820 |   | 4,232 |   |
| Loss  on transfer of accounts receivable related to the accounts receivable  securitization    |       | 12,124                               |       | 10,548 |   | 10,384 |   |
| Minority  interest                                                                             |       | 783                                  |       | 497 |   | 600 |   |
| Deferred  tax expense (benefit)                                                                |       | 388                                  |       | (1,650 | ) | 3,099 |   |
| Other                                                                                          |       | 4,714                                |       | 6,408 |   | 4,431 |   |
| Changes  in operating assets and liabilities, net of effects from business  acquisitions:      |       |                                 |       |   |   |   |   |
| Accounts  and notes receivable, net of securitization                                          |       | 65,466                               |       | (48,606 | ) | 1,105 |   |
| Inventories                                                                                    |       | 22,493                               |       | (40,920 | ) | 40,984 |   |
| Prepaid  expenses and other current assets                                                     |       | (120                                 | )          | 751 |   | 1,529 |   |
| Accounts  payable                                                                              |       | (21,054                              | )          | 8,523 |   | (21,295 | ) |
| Accrued  interest expense                                                                      |       | (156                                 | )          | (3,572 | ) | (1,353 | ) |
| Other  current liabilities                                                                     |       | 5,033                                |       | (2,497 | ) | (26,218 | ) |
| Other  liabilities                                                                             |       | (1,044                               | )          | 151 |   | 819 |   |
| Accounts  receivable securitization:                                                           |       |                                 |       |   |   |   |   |
| Proceeds  from new accounts receivable securitizations                                         |       | 109,000                              |       | 103,000 |   | 100,000 |   |
| Proceeds  from collections reinvested in revolving period accounts receivable  securitizations |       | 1,231,336                            |       | 1,365,655 |   | 1,156,214 |   |
| Remittances  of amounts collected as servicer of accounts receivable securitizations           |       | (1,376,336                           | )          | (1,456,655 | ) | (1,265,214 | ) |
| Net  cash provided by operating activities                                                     |       | 201,769                              |       | 70,892 |   | 143,614 |   |
|                                                                                           |       |                                 |       |   |   |   |   |
| **Cash flows from investing activities:**                                                      |       |                                 |       |   |   |   |   |
| Business  acquisitions, net of cash acquired                                                   |       | (2,701                               | )          | (191 | ) | (31,688 | ) |
| Capital  expenditures                                                                          |       | (54,085                              | )          | (43,823 | ) | (46,667 | ) |
| Proceeds  from sale of assets                                                                  |       | 8,199                                |       | 10,874 |   | 9,830 |   |
| Other                                                                                          |       | (4,643                               | )          | (2,991 | ) | (6,540 | ) |
| Net  cash used in investing activities                                                         |       | (53,230                              | )          | (36,131 | ) | (75,065 | ) |
|                                                                                           |       |                                 |       |   |   |   |   |
| **Cash flows from financing activities:**                                                      |       |                                 |       |   |   |   |   |
| Distributions                                                                                  |       | (132,581                             | )          | (127,190 | ) | (127,072 | ) |
| Issuance  of common units, net of issuance costs of $401, $0 and $226, respectively            |       | 69,447                               |       | — |   | 44,319 |   |
| Proceeds  from increase in long-term debt                                                      |       | 208,259                              |       | 115,249 |   | 74,568 |   |
| Reductions  in long-term debt                                                                  |       | (239,555                             | )          | (92,985 | ) | (60,942 | ) |
| Net  additions to (reductions in) short-term borrowings                                        |       | (59,570                              | )          | 67,950 |   | 5,132 |   |
| Cash  paid for financing costs                                                                 |       | (3,903                               | )          | (383 | ) | (367 | ) |
| Minority  interest activity                                                                    |       | (879                                 | )          | (1,539 | ) | (1,536 | ) |
| Proceeds  from exercise of common unit options                                                 |       | —                               |       | 76 |   | 1,025 |   |
| Cash  contribution from general partner                                                        |       | 702                                  |       | — |   | 470 |   |
| Net  cash used in financing activities                                                         |       | (158,080                             | )          | (38,822 | ) | (64,403 | ) |
|                                                                                           |       |                                 |       |   |   |   |   |
| **Effect of exchange rate changes on cash**                                                    |       | (7                                   | )          | (10 | ) | 14 |   |
|                                                                                           |       |                                 |       |   |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                              |       | (9,548                               | )          | (4,071 | ) | 4,160 |   |
| Cash  and cash equivalents - beginning of year                                                 |       | 16,614                               |       | 20,685 |   | 16,525 |   |
| **Cash and cash equivalents - end of year**                                                    |       | $                                    | 7,066      |   | $ | 16,614 |   | $ | 20,685 |   |

 

See notes toconsolidated financial statements.

 

F-6

----

Table of Contents

 

**FERRELLGASPARTNERS, L.P.**

**AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Dollars in thousands, except perunit data, unless otherwise designated)**

 

**A.****      ****Partnership organization and formation**

 

FerrellgasPartners, L.P. (“Ferrellgas Partners”) was formed on April 19, 1994, andis a publicly traded limited partnership, owning an approximate 99% limitedpartner interest in Ferrellgas, L.P. (the “operating partnership”). FerrellgasPartners and the operating partnership, collectively referred to as “Ferrellgas,”are both Delaware limited partnerships and are governed by their respectivepartnership agreements. Ferrellgas Partners was formed to acquire and hold alimited partner interest in the operating partnership. The operatingpartnership was formed to acquire, own and operate the propane business andassets of Ferrellgas, Inc. (“general partner”), a wholly-owned subsidiaryof Ferrell Companies, Inc. (“Ferrell Companies”). As of July 31,2009, Ferrell Companies beneficially owns 20.3 million of Ferrellgas Partners’outstanding common units. The general partner has retained a 1% general partnerinterest in Ferrellgas Partners and also holds an approximate 1% generalpartner interest in the operating partnership, representing an effective 2%general partner interest in Ferrellgas on a combined basis. As general partner,it performs all management functions required by Ferrellgas.

 

FerrellgasPartners owns a 100% equity interest in Ferrellgas Partners Finance Corp.,whose only business activity is to act as the co-issuer and co-obligor of anydebt issued by Ferrellgas Partners.

 

Ferrell Companiesis wholly-owned by a 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 anopportunity for ownership in Ferrell Companies and indirectly in Ferrellgas. Ascontributions are made by Ferrell Companies to the ESOT in the future, sharesof Ferrell Companies are allocated to the employees’ ESOP accounts.

 

FerrellgasPartners’ partnership agreement includes an agreement with Ferrell Companiesconcerning the distribution priority on common units owned by public investorsover those owned by Ferrell Companies. This provision extends to April 30,2010 and allows Ferrellgas Partners to defer distributions on the common unitsheld by Ferrell Companies up to an aggregate outstanding amount of $36.0million. 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 andhas two subsidiaries, Ferrellgas Partners Finance Corp. and the operatingpartnership. The operating partnership is the only operating subsidiary ofFerrellgas Partners.

 

The operatingpartnership is engaged primarily in the distribution of propane and relatedequipment and supplies in the United States. The propane distribution market isseasonal because propane is used primarily for heating in residential andcommercial buildings. The operating partnership serves approximately onemillion residential, industrial/commercial, portable tank exchange, agricultural,wholesale and other customers in all 50 states, the District of Columbia, andPuerto Rico.

 

**(2)****             ****Accounting estimates:** The preparation of financial statementsin conformity with accounting principles generally accepted in the UnitedStates of America (“GAAP”) requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereported period. Actual results could differ from these estimates.

 

F-7

----

Tableof Contents

 

Significant estimatesimpacting the consolidated financial statements include accruals that have beenestablished for contingent liabilities, pending claims and legal actionsarising in the normal course of business, useful lives of property, plant andequipment assets, residual values of tanks, capitalization of customer tankinstallation costs, amortization methods of intangible assets, valuationmethods used to value sales returns and allowances, allowance for doubtfulaccounts, financial derivative contracts and stock and unit-based compensation calculations.

 

**(3)****             ****Principles of consolidation:** Theaccompanying consolidated financial statements include Ferrellgas Partners’accounts and those of its wholly-owned subsidiary, Ferrellgas Partners FinanceCorp., and the operating partnership, its majority-owned subsidiary, afterelimination of all material intercompany accounts and transactions. Theaccounts of Ferrellgas Partners’ majority-owned subsidiary are included basedon the determination that Ferrellgas Partners will absorb a majority of theoperating partnership’s expected losses, receive a majority of the operatingpartnership’s expected residual returns and is the operating partnership’sprimary beneficiary. The operating partnership includes the accounts of itswholly-owned subsidiaries. The general partner’s approximate 1% general partnerinterest in the operating partnership is accounted for as a minority interest.The wholly-owned unconsolidated subsidiary of the operating partnership,Ferrellgas Receivables, LLC (“Ferrellgas Receivables”), is a special purposeentity.

 

**(4)****             ****Cash and cash equivalents and non-cash activities:**For purposesof the consolidated statements of cash flows, Ferrellgas considers cashequivalents to include all highly liquid debt instruments purchased with anoriginal maturity of three months or less. Significant non-cash activities arepresented below:

 
| ** **                                                | ** ** | **For the year ended July 31,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| CASH  PAID FOR:                                           |       |                                 |       |   |   |   |   |
| Interest                                                  |       | $                                    | 83,107     |   | $ | 88,380 |   | $ | 87,035 |   |
| Income  taxes                                             |       | $                                    | 1,512      |   | $ | 3,841 |   | $ | 3,742 |   |
| NON-CASH  INVESTING ACTIVITIES:                           |       |                                 |       |   |   |   |   |
| Issuance  of common units in connection with acquisitions |       | $                                    | 5,465      |   | $ | — |   | $ | 2,751 |   |
| Issuance  of liabilities in connection with acquisitions  |       | $                                    | 1,673      |   | $ | — |   | $ | 2,426 |   |
| Property,  plant and equipment additions                  |       | $                                    | 973        |   | $ | 1,970 |   | $ | 1,187 |   |

 

**(****5)      Accounts receivablesecuritization:** Ferrellgas has agreements to transfer, on an ongoingbasis, a portion of its trade accounts receivable through FerrellgasReceivables, an accounts receivable securitization facility that is awholly-owned unconsolidated special purpose entity. Ferrellgas retainsservicing responsibilities as well as a retained interest in the transferredreceivables. Ferrellgas also holds a note receivable from FerrellgasReceivables to the extent that expected cash proceeds from the sales ofaccounts receivable to Ferrellgas Receivables have not been received.Ferrellgas has no other continuing involvement with the transferredreceivables, other than servicing the receivables. The related receivables aretransferred from the consolidated balance sheets and a retained interest andnote receivable are recorded for the amount of receivables sold in excess ofcash received and a related loss on the transfer is recorded, which representsthe discount on the sale. The retained interest and note receivable areincluded in “Accounts and notes receivable, net” in the consolidated balancesheets.

 

Ferrellgasdetermines the fair value of its retained interest and note receivable based onthe present value of future expected cash flows using management’s bestestimates of various factors, including credit loss experience and discountrates commensurate with the risks involved. These assumptions 

 

F-8

----

Tableof Contents

 

areupdated periodically based on actual results; therefore, the estimated creditloss and discount rates utilized are materially consistent with historicalperformance. Due to the short-term nature of Ferrellgas’ trade receivables,variations in the credit and discount assumptions would not significantlyimpact the fair value of the retained interests and note receivable. Costsassociated with the sale of receivables are included in “Loss on disposal ofassets and other” in the consolidated statements of earnings. See Note F —Accounts and notes receivable, net and accounts receivable securitization — forfurther discussion of these transactions.

 

**(6)****             ****Inventories: ** Inventories arestated at the lower of cost or market using weighted average cost and actualcost methods.

 

**(7)****             ****Property, plant andequipment: **Property, plant and equipment are statedat cost less accumulated depreciation. Expenditures for maintenance and routinerepairs are expensed as incurred. Ferrellgas capitalizes computer software,equipment replacement and betterment expenditures that upgrade, replace orcompletely rebuild major mechanical components and extend the original usefullife of the equipment. Depreciation is calculated using the straight-linemethod based on the estimated useful lives of the assets ranging from two to 30years. Ferrellgas, using its best estimates based on reasonable and supportableassumptions and projections, reviews long-lived assets for impairment wheneverevents or changes in circumstances indicate that the carrying amount of itsassets might not be recoverable. See Note E — Supplemental financial statementinformation — for further discussion of property, plant and equipment.

 

**(8)****             ****Goodwill:** Ferrellgas records goodwill as theexcess of the cost of acquisitions over the fair value of the related netassets at the date of acquisition. Goodwill is tested for impairment annuallyon January 31, or more frequently if circumstances dictate, and ifimpaired, written off against earnings at that time. Ferrellgas has notrecognized any impairment losses as a result of these tests. For purposes ofFerrellgas’ goodwill impairment test, Ferrellgas has determined that it has onereporting unit. Ferrellgas assesses the carrying value of goodwill at itsreporting unit based on an estimate of the fair value of the reporting unit.Fair value of the reporting unit is estimated using a market value approachtaking into consideration the quoted market price of Ferrellgas’ common units.

 

**(9)****             ****Intangible assets:**Intangible assets with finite usefullives, consisting primarily of customer lists, non-compete agreements andpatented technology, are stated at cost, net of accumulated amortizationcalculated using the straight-line method over periods ranging from two to 15years. Trade names and trademarks have indefinite lives, are not amortized, andare stated at cost. Ferrellgas tests finite-lived intangible assets forimpairment when events or changes in circumstances indicate that the carryingamount of these assets might not be recoverable. Ferrellgas tests indefinite-lived intangible assets for impairment annually on January 31 or morefrequently if circumstances dictate. Ferrellgas has not recognized impairmentlosses as a result of these tests. When necessary, intangible assets’ usefullives are revised and the impact on amortization reflected on a prospectivebasis. See Note G — Goodwill and intangible assets, net — for furtherdiscussion of intangible assets.

 

**(10)  Derivatives and hedging activities:** Ferrellgas’ overall objective forentering into derivative contracts, including commodity options and swaps, isto hedge a portion of its exposure to market fluctuations in propane prices.These financial instruments are formally designated and documented as a hedgeof a specific underlying exposure, as well as the risk management objectivesand strategies for undertaking the hedge transaction. Because of the highdegree of correlation between the hedging instrument and the underlyingexposure being hedged, fluctuations in the value of the derivative instrumentare generally offset by changes in the anticipated cash flows of the underlyingexposure being hedged. The fair value of these derivatives fluctuates over thelength of the contracts. These fair value amounts should not be viewed inisolation, but rather in relation to the anticipated cash flows of theunderlying hedged transaction and the overall reduction in our risk relating toadverse fluctuations 

 

F-9

----

Tableof Contents

 

in propane prices.Ferrellgas formally assesses, both at inception and at least quarterlythereafter, whether the financial instruments that are used in hedgingtransactions are effective at offsetting changes in the anticipated cash flowsof the related underlying exposures. Any ineffective portion of a financialinstrument’s change in fair value is recognized in “Cost of product sold -propane and other gas liquids sales” in the consolidated statements ofearnings. Ferrellgas also enters into derivative contracts that qualify for thenormal purchases and normal sales exception under Statement of FinancialAccounting Standards (“SFAS”) No. 133, “Accounting for DerivativeInstruments and Hedging Activities” (“SFAS 133”), as amended. Financialinstruments formally designated and documented as a hedge of a specificunderlying exposure are recorded gross at fair value as either “Price riskmanagement assets” or “Other current liabilities” on the consolidated balancesheets with changes in fair value reported in other comprehensive income.

 

**(11)   Revenuerecognition:** Revenues from the distribution of propane andother gas liquids, including revenues from customer deposits and advances, arerecognized by Ferrellgas at the time product is delivered to its customers.Other revenues, which include revenue from the sale of propane appliances andequipment is recognized at the time of delivery or installation. Revenues fromrepairs and maintenance are recognized upon completion of the service.Ferrellgas recognizes shipping and handling revenues and expenses for sales ofpropane, appliances and equipment at the time of delivery or installation.Shipping and handling revenues are included in the price of propane charged tocustomers, and are classified as revenue. Revenues from annually billed,non-refundable tank rentals are recognized on a straight-line basis over oneyear. Cooperative advertising program costs are recorded as a reduction to ourrevenue.

 

**(12)  Shippingand handling expenses:** Shipping and handling expenses relatedto delivery personnel, vehicle repair and maintenance and general liabilityexpenses are classified within “Operating expense” in the consolidatedstatements of earnings. Depreciation expenses on delivery vehicles Ferrellgasowns are classified within “Depreciation and amortization expense.” Deliveryvehicles and distribution technology leased by Ferrellgas are classified within“Equipment lease expense.” See Note E — Supplemental financial statementinformation — for the financial statement presentation of shipping and handlingexpenses.

** **

**(13) Costof product sold:** “Cost of product sold — propane and othergas liquids sales” includes all costs to acquire propane and other gas liquids,the costs of storing and transporting inventory prior to delivery to Ferrellgas’customers, the results from risk management activities to hedge related pricerisk and the costs related to the refurbishment of Ferrellgas’ portable propanetanks. “Cost of product sold — other” primarily includes costs related to thesale of propane appliances and equipment.

** **

**(14)   Operating expenses:** “Operating expense” primarily includesthe personnel, vehicle, delivery, handling, plant, office, selling, marketing,credit and collections and other expenses related to the retail distribution ofpropane and related equipment and supplies.

 

**(15)   General and administrative expenses: “**General and administrative expense”primarily includes personnel and incentive expense related to executives andemployees and other overhead expense related to centralized corporatefunctions.

 

**(16)****         ****Unit and stock-basedcompensation:**

 

***FerrellgasUnit Option Plan (“UOP”)***

 

TheUOP is authorized to issue options covering up to 1.35 million common units toemployees of the general partner or its affiliates. The Compensation Committeeof the Board of Directors of the general partner administers the UOP,authorizes grants of unit options thereunder and sets the unit option price andvesting terms of unit options in accordance with the terms of the UOP. Nosingle officer or director

 

F-10

----

Tableof Contents

 

ofthe general partner may acquire more than 314,895 common units under the UOP.In general, the options currently outstanding under the UOP vest over afive-year period, and expire on the tenth anniversary of the date of the grant.The fair value of each option award is estimated on the date of grant using abinomial option valuation model. Expected volatility is based on the historicalvolatility of Ferrellgas’ publicly-traded common units. Historical informationis used to estimate option exercise and employee termination behavior. Due tothe limited number of employees eligible to participate in the UOP, there isonly one group of employees. The expected term of options granted is derivedfrom historical exercise patterns and represents the period of time thatoptions are expected to be outstanding. The risk free rate for periods withinthe contractual life of the option is based on the U.S. Treasury yield curve ineffect at the time of grant. During the year ended July 31, 2009, theportion of the total non-cash compensation charge relating to the UOP was $15thousand and related to fiscal 2009 grants of unit options to acquire 0.3million common units. During the years ended July 31, 2008 and 2007, nocompensation charge relating to the UOP was recognized as all optionsoutstanding at that time were fully vested.

 

*FerrellCompanies, Inc. Incentive Compensation Plan (“ICP”)*

TheICP is not a Ferrellgas stock-compensation plan; however, in accordance withFerrellgas’ partnership agreements, all employee-related costs incurred byFerrell Companies are allocated to Ferrellgas. As a result, Ferrellgas incurs anon-cash compensation charge from Ferrell Companies. During the years ended July 31,2009, 2008 and 2007, the portion of the total non-cash compensation chargerelating to the ICP was $2.3 million, $1.8 million and $0.9 million,respectively.

 

Ferrell Companiesis authorized to issue options covering up to 6.25 million shares of FerrellCompanies common stock under the ICP. The ICP was established by FerrellCompanies to allow upper middle and senior level managers of the generalpartner to participate in the equity growth of Ferrell Companies. The sharesunderlying the stock options are common shares of Ferrell Companies; therefore,there is no earnings per share dilution of Ferrellgas. The ICP stock optionsvest ratably over periods ranging from zero to 12 years or 100% upon a changeof control of Ferrell Companies, or upon the death, disability or retirement atthe age of 65 of the participant. Vested options are exercisable in incrementsbased on the timing of the retirement of Ferrell Companies’ debt, but in noevent later than 20 years from the date of issuance. The fair value of eachoption award is estimated on the date of grant using a binomial optionvaluation model.

 

**(17)   Income taxes:**Ferrellgas Partners is a publicly-traded masterlimited partnership with one subsidiary that is a taxable corporation. Theoperating partnership is a limited partnership with four subsidiaries that aretaxable corporations. Partnerships are generally not subject to federal incometax, although publicly-traded partnerships are treated as corporations forfederal income tax purposes and therefore subject to Federal income tax unlessa qualifying income test is satisfied. If this qualifying income test issatisfied, the publicly-traded partnership will be treated as a partnership forFederal income tax purposes. Based on Ferrellgas’ calculations, FerrellgasPartners satisfies the qualifying income test. As a result, except for thetaxable corporations, Ferrellgas Partners’ earnings or losses for Federalincome tax purposes are included in the tax returns of the individual partners,Ferrellgas Partners’ unitholders. Accordingly, the accompanying consolidatedfinancial statements of Ferrellgas Partners reflect federal income taxesrelated to the above mentioned taxable corporations only. Recent legislation incertain states of operation allows for taxation of partnerships. As such, theaccompanying consolidated financial statements of Ferrellgas Partners alsoreflect state income taxes resulting from this legislation. Net earnings forfinancial statement purposes may differ significantly from taxable incomereportable to Ferrellgas Partners unitholders as a result of differencesbetween the tax basis and financial reporting basis of assets and liabilities,the taxable income allocation requirements under Ferrellgas Partners’partnership agreement and differences between Ferrellgas Partners financialreporting year end and its calendar tax year end.

 

F-11

----

Tableof Contents

 

Income tax expenseconsisted of the following:

 
| ** **                  | ** ** | **For  the year ended July 31,** | ** ** |
|-----------------------------|------------|---------------------------------------|------------|
| ** **                  | ** ** | **2009**                              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Current  expense            |       | $                                     | 1,904      |   | $ | 1,732 |   | $ | 3,461 |   |
| Deferred  expense (benefit) |       | 388                                   |       | (1,650 | ) | 3,099 |   |
| Income  tax expense         |       | $                                     | 2,292      |   | $ | 82 |   | $ | 6,560 |   |

 

Deferred taxesconsisted of the following:

 
| ** **                  | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Deferred  tax assets        |       | $        | 877        |     | $          | 4,065 |   |
| Deferred  tax liabilities   |       | (1,889   | )          | (4,689   | )          |
| Net  deferred tax liability |       | $        | (1,012     | )        | $          | (624 | ) |

 

On July 12,2007, the governor of the state of Michigan signed into law a new MichiganBusiness Tax (the “MBT Act”), which provided a comprehensive restructuring ofMichigan’s principal business tax regime. The main provision of the MBT Actimposed a new two-part tax on business income and modified gross receipts thatis accounted for as an income tax in accordance with SFAS No. 109 “Accountingfor Income Taxes” (“SFAS 109”). Although the effective date of the MBT was January 1,2008, SFAS 109 required all effects of a tax law change be accounted for in theperiod of the law’s enactment. As a result, during the fourth quarter of fiscal2007 Ferrellgas recognized a one time increase in its deferred tax expense of$2.8 million. During fiscal 2008, the Governor of the State of Michigan signedinto law a one-time credit for this Michigan Business Tax law. The passing ofthis new tax law caused Ferrellgas to recognize a one time deferred tax benefitof $2.8 million during fiscal 2008.

 

**(18)   Sales taxes:**Ferrellgas accounts for the collection and remittanceof sales tax on a net tax basis. As a result, these amounts are not reflectedin the consolidated statements of earnings.

 

**(19)**   **Net earnings per common unit: ** Net earnings per common unit is computed bydividing net earnings, after deducting the general partner’s 1% interest, bythe weighted average number of outstanding common units and the dilutiveeffect, if any, of outstanding unit options. See Note N — Earnings per commonunit — for further discussion about these calculations.

 

**(20)**   **Segment information:** Ferrellgas is a single reportableoperating segment engaging in the distribution of propane and related equipmentand supplies to customers primarily in the United States.

 

**(21)   New accountingstandards:** SFAS No. 165,“Subsequent Events” provides guidance on management’s assessment of subsequentevents and clarifies that management must evaluate, as of each reportingperiod, events or transactions that occur after the balance sheet date throughthe date that the financial statements are issued or are available to beissued. The adoption of this statement during fiscal 2009 did not have asignificant impact on Ferrellgas’ financial position or resultsof operations. See additional disclosures relating to subsequent events in NoteP — Subsequent events.

 

SFASNo. 166, “Accounting for Transfers of Financial Assets, an Amendment ofFASB Statement No. 140” amends the derecognition guidance in SFAS No. 140to improve the accounting for transfers of financial assets. This statement iseffective for financial asset transfers that occur in fiscal years beginningafter November 15, 2009. Ferrellgas is currently evaluating the potentialimpact of this statement.

 

F-12

----

Table ofContents

 

SFASNo. 167, “Amendments to FASB Interpretation No. 46(R)” amends theconsolidation guidance that applies to variable interest entities and willsignificantly affect the overall consolidation analysis under FASBInterpretation 46(R). This statement is effective for fiscal years beginningafter November 15, 2009. Ferrellgas is currently evaluating the potentialimpact of this statement.

 

SFASNo. 168, “The FASB Accounting Standards Codification and the Hierarchy ofGenerally Accepted Accounting Principles, a Replacement of FASB Statement No. 162”establishes the authoritative reference for nongovernmental U.S. GAAP andmodifies the previous four-level GAAP hierarchy to include only two levels.This statement is effective for interim and annual periods ending after September 15,2009. Ferrellgas does not expect the adoption of this statement in fiscal 2010to have a material impact on its financial position or results of operations.

 

SFASNo. 161, “Disclosures about Derivative Instruments and Hedging Activities,an Amendment to FASB Statement No. 133” enhances disclosure requirementsfor derivative instruments and hedging activities. The adoption of thisstatement during fiscal 2009 did not have a significant impact on Ferrellgas’financial position or results of operations. See additional disclosuresrelating to commodity derivative and financial derivative transactions in NoteJ — Derivatives.

 

SFASNo. 157, “Fair Value Measurements” defines fair value, establishes aframework for measuring fair value and expands disclosures about fair valuemeasurements. The adoption of this statement during fiscal 2009 did not have asignificant impact on Ferrellgas’ financial position or results of operations.See disclosure of Ferrellgas’ fair value measurements commodity derivative andfinancial derivative transactions in Note J — Derivatives.

 

SFASNo. 159, “The Fair Value Option for Financial Assets and FinancialLiabilities,” provides entities the irrevocable option to elect to carry mostfinancial assets and liabilities at fair value with changes in fair valuerecorded in earnings. The adoption of this statement was effective August 1,2008; however, Ferrellgas has not elected the fair value option for any of itsfinancial assets or liabilities.

 

SFASNo. 141(R), “Business Combinations” (a replacement of SFAS No. 141, “BusinessCombinations”) establishes principles and requirements for how the acquirer ina business combination recognizes and measures the identifiable assetsacquired, the liabilities assumed, and any noncontrolling interest in the acquiree,how the acquirer recognizes and measures goodwill or a gain from a bargainpurchase (formerly negative goodwill) and how the acquirer determines whatinformation to disclose. This statement is effective for business combinationsfor which the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2008. Ferrellgas doesnot expect the adoption of this statement in fiscal 2010 to have a materialimpact on its financial position or results of operations.

 

SFASNo. 160, “Noncontrolling Interests in Consolidated Financial Statements”establishes accounting and reporting standards for the noncontrolling interest(formerly minority interest) in a subsidiary and for the deconsolidation of asubsidiary and it clarifies that a noncontrolling interest in a subsidiary isan ownership interest in the consolidated entity that should be reported asequity. This statement is effective for fiscal years, and interim periodswithin those fiscal years, beginning on or after December 15, 2008.Ferrellgas does not expect the adoption of this statement in fiscal 2010 tohave a material impact on its financial position or results of operations.

 

FASB Staff Position (“FSP”)SFAS 140-4 and FASB Interpretation No. 46R-8 “Disclosures by PublicEntities (Enterprises) about Transfers of Financial Assets and Interests inVariable Interest Entities” improves the transparency of transfers of financialassets and an enterprise’s involvement with variable interest entities, includingqualifying special-purpose entities. The adoption of this FSP during fiscal2009 did not have a significant impact on Ferrellgas’ financial position orresults of operations.

 

F-13

----

Table ofContents

 

EITFNo. 07-4, “Application of the Two-Class Method under FASB Statement No. 128,Earnings per Share, to Master Limited Partnerships” addresses the computationof incentive distribution rights and the appropriate allocation of these rightsto current period earnings in the computation of earnings per share. Thisstatement is effective for financial statements issued for fiscal yearsbeginning on or after December 15, 2008 and interim periods within thosefiscal years. Ferrellgas does not expect the adoption of this statement infiscal 2010 to have a material impact on its financial position or results ofoperations.

 

**C.****      ****Business combinations**

 

Businesscombinations are accounted for under the purchase method and the assetsacquired and liabilities assumed are recorded at their estimated fair marketvalues as of the acquisition dates. The results of operations are included inthe consolidated statements of earnings from the date of acquisition. The proforma effect of these transactions was not material to Ferrellgas’ results ofoperations.

 

During fiscal2009, Ferrellgas acquired propane distribution assets with an aggregate valueof $10.0 million in the following four transactions:

 

·                   Lorensen Propane Gas, Inc., based in California,acquired September 2008;

·                   HBH Gas Systems, LLC — Austin’s Colony Phase 5, basedin Texas, acquired September 2008;

·                   Ottawa Cooperative, based in Kansas, acquired May 2009;and

·                   Town & Country Propane, Inc, based inMissouri, acquired July 2009.

 

These acquisitionswere funded by $2.7 million in cash payments, the issuances of $1.8 million ofliabilities and other costs and considerations, and $5.5 million of commonunits, net of issuance costs.

 

The aggregate fairvalues of these four transactions were allocated as follows:

 
| Customer tanks,  buildings, land and other |   | $     | 3,031  |   |
|--------------------------------------------|--------|-------|--------|--------|
| Non-compete  agreements                    |   | 1,438 |   |
| Customer  lists                            |   | 5,475 |   |
| Working  capital                           |   | 6     |   |
|                                       |   | $     | 9,950  |   |

 

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

 

During fiscal2008, Ferrellgas had no acquisitions of propane distribution assets.

 

During fiscal2007, Ferrellgas acquired propane distribution assets with an aggregate valueof $36.2 million in the following nine transactions:

 

·                   Pacer-Valley Propane, LLC, based inCalifornia, acquired August 2006;

·                   Lake Propane, based in California,acquired August 2006;

·                   Pacific Propane Service, Inc., basedin California, acquired August 2006;

·                   Twin Ports Energy, Inc., based inWisconsin, acquired October 2006;

·                   Getman’s Gas Company, Inc., based inNew York, acquired October 2006;

·                   Yankee Gas, LLC, based in Massachusetts,acquired October 2006;

·                   Great Dane Propane, Inc., based inFlorida, acquired October 2006;

 

F-14

----

Table ofContents

 

·                   Puget Sound Propane, based in Washington,acquired December 2006; and

·                   Reliance Bottle Gas, Inc., based inOhio, acquired June 2007.

 

These acquisitionswere funded by $31.7 million in cash payments, the issuances of $2.5 million ofliabilities and other costs and considerations, and $2.0 million of commonunits, net of issuance costs.

 

The aggregate fairvalues of these nine transactions were allocated as follows:

 
| Customer  tanks, buildings, land and other |   | $      | 11,567 |   |
|--------------------------------------------|--------|--------|--------|--------|
| Non-compete  agreements                    |   | 2,072  |   |
| Customer  lists                            |   | 18,178 |   |
| Goodwill                                   |   | 3,649  |   |
| Working  capital                           |   | 712    |   |
|                                       |   | $      | 36,178 |   |

 

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

 

**D.  Quarterly distributions of available cash**

 

Ferrellgas Partnersmakes quarterly cash distributions of all of its “available cash.” Availablecash is defined in the partnership agreement of Ferrellgas Partners as,generally, the sum of its consolidated cash receipts less consolidated cashdisbursements and net changes in reserves established by the general partnerfor future requirements. Reserves are retained in order to provide for theproper conduct of Ferrellgas Partners’ business, or to provide funds fordistributions with respect to any one or more of the next four fiscal quarters.Distributions are made within 45 days after the end of each fiscal quarterending October, January, April and July to holders of record on theapplicable record date.

 

Distributionsby Ferrellgas Partners in an amount equal to 100% of its available cash, as definedin its partnership agreement, will be made to the common unitholders and thegeneral partner. Additionally, the payment of incentive distributions to theholders of incentive distribution rights will be made to the extent thatcertain target levels of cash distributions are achieved.

 

Thepublicly held common units have certain distribution preference rights over thecommon units held by Ferrell Companies. Ferrell Companies has grantedFerrellgas Partners the ability to defer future distributions on the commonunits held by it up to an aggregate outstanding amount of $36.0 million. Thisdistribution deferral agreement, which has not been utilized, expires April 30,2010. The ability to defer distributions to Ferrell Companies providesFerrellgas Partners’ public common unitholders distribution support. This distribution support is available ifFerrellgas Partners’ available cash for any fiscal quarter is insufficient topay all of the common unitholders their quarterly distribution. FerrellgasPartners would first pay a distribution to the publicly-held common units. Anyremaining available cash would then be used to pay a distribution on the commonunits held by Ferrell Companies. Any quarterly distribution paid per unit tothe publicly-held common units that is not able to be paid on the FerrellCompanies-owned common units would be deferred, within certain limits, and paidto Ferrell Companies in future quarters when available cash is sufficient. Ifinsufficient available cash should exist for a particular quarter, or anyprevious deferred distributions to Ferrell Companies remain outstanding, thedistribution declared per common unit may not be more than the highestquarterly distribution paid on the common units for any of the immediatelypreceding four fiscal quarters. If the cumulative amount of deferred quarterlydistributions to Ferrell Companies were to reach $36.0 million, the commonunits held by Ferrell Companies would then be paid in the same priority as thepublicly-held common units. After payment of all required distributions for anysubsequent period, Ferrellgas Partners would use any remaining available cashto reduce any amount previously deferred on the

 

F-15

----

Tableof Contents

 

common units held by Ferrell Companies. Reductions inamounts previously deferred, if any, would then again be available for futuredeferrals to Ferrell Companies through April 30, 2010.

 

**E.****        ****Supplemental financial statement information**

 

Inventoriesconsist of the following:

 
| ** **                        | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Propane  gas and related products |       | $        | 109,606    |     | $          | 128,776 |   |
| Appliances,  parts and supplies   |       | 20,202   |       | 23,525   |       |
| Inventories                       |       | $        | 129,808    |     | $          | 152,301 |   |

 

In addition to inventorieson hand, Ferrellgas enters into contracts primarily to buy propane for supplyprocurement purposes. Most of these contracts have terms of less than one yearand call for payment based on market prices at the date of delivery. All supplyprocurement fixed price contracts have terms of fewer than 24 months. As of July 31,2009, Ferrellgas had committed, for supply procurement purposes, to take netdelivery of approximately 87.9 million gallons of propane at fixed prices.

 

Property, plant and equipment,net consist of the following:

 
| ** **                               | ** ** | **Estimated**    | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------------|------------|------------|------------|------------|------------|
| ** **                               | ** ** | **useful lives** | ** ** | **2009**   | ** ** | **2008**   | ** ** |
| Land                                     |       | Indefinite       |       | $          | 30,414     |       | $          | 30,840 |   |
| Land  improvements                       |       | 2-20             |       | 10,858     |       | 10,585     |       |
| Buildings  and improvements              |       | 20               |       | 64,392     |       | 63,777     |       |
| Vehicles,  including transport trailers  |       | 8-20             |       | 92,914     |       | 96,351     |       |
| Bulk  equipment and district facilities  |       | 5-30             |       | 100,123    |       | 97,489     |       |
| Tanks,  cylinders and customer equipment |       | 2-30             |       | 767,682    |       | 761,065    |       |
| Computer  and office equipment           |       | 2-5              |       | 115,343    |       | 116,873    |       |
| Construction  in progress                |       | n/a              |       | 5,853      |       | 9,575      |       |
|                                     |       |             |       | 1,187,579  |       | 1,186,555  |       |
| Less:  accumulated depreciation          |       |             |       | 521,044    |       | 501,227    |       |
| Property,  plant and equipment, net      |       |             |       | $          | 666,535    |       | $          | 685,328 |   |

 

Depreciation expensetotaled $62.3 million, $64.6 million, and $64.8 million for fiscal 2009, 2008and 2007, respectively.

 

Other currentliabilities consist of the following:

 
| ** **                      | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Accrued  interest               |       | $        | 19,719     |     | $          | 19,875 |   |
| Accrued  payroll                |       | 23,395   |       | 12,621   |       |
| Customer  deposits and advances |       | 23,115   |       | 25,065   |       |
| Other                           |       | 42,534   |       | 50,293   |       |
| Other  current liabilities      |       | $        | 108,763    |     | $          | 107,854 |   |

 

F-16

----

Tableof Contents

 

Loss on disposal ofassets and other consist of the following:

 
| ** **                                                                                 | ** ** | **For the year ended  July 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                 | ** ** | **2009**                              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Loss on disposal  of assets                                                                |       | $                                     | 5,009      |   | $ | 4,820 |   | $ | 4,232 |   |
| Loss on transfer  of accounts receivable related to the accounts receivable securitization |       | 12,124                                |       | 10,548 |   | 10,384 |   |
| Service income related to the accounts receivable  securitization                          |       | (4,091                                | )          | (4,118 | ) | (3,794 | ) |
| Loss  on disposal of assets and other                                                      |       | $                                     | 13,042     |   | $ | 11,250 |   | $ | 10,822 |   |

 

Shipping andhandling expenses are classified in the following consolidated statements ofearnings line items:

 
| ** **                             | ** ** | **For the year ended  July 31,** | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|
| ** **                             | ** ** | **2009**                              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Operating  expense                     |       | $                                     | 178,218    |   | $ | 171,938 |   | $ | 163,193 |   |
| Depreciation and  amortization expense |       | 4,915                                 |       | 5,096 |   | 5,308 |   |
| Equipment lease  expense               |       | 17,541                                |       | 22,703 |   | 23,465 |   |
|                                   |       | $                                     | 200,674    |   | $ | 199,737 |   | $ | 191,966 |   |

 

**F.     Accountsand notes receivable, net and accounts receivable securitization**

 

Accounts and notesreceivable, net consist of the following:

 
| ** **                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Accounts  receivable                         |       | $        | 33,903     |     | $          | 127,975 |   |
| Note  receivable from Ferrellgas Receivables |       | 52,038   |       | —   |       |
| Retained  interest                           |       | 24,979   |       | 22,753   |       |
| Other                                        |       | 284      |       | 330      |       |
| Less:  allowance for doubtful accounts       |       | (4,294   | )          | (5,977   | )          |
| Accounts  and notes receivable, net          |       | $        | 106,910    |     | $          | 145,081 |   |

 

DuringApril 2009, Ferrellgas renewed its accounts receivable securitizationfacility with JPMorgan Chase Bank, N.A., JS Siloed Trust and Fifth Third Bankfor an additional 364-day commitment. As part of this renewed facility, theoperating partnership transfers a portion of its trade accounts receivable toFerrellgas Receivables, which finances its acquisition of the trade receivableassets by issuing beneficial interests in (securitizing) the receivables to acommercial paper conduit for proceeds of up to $145.0 million. The operatingpartnership does not provide any guarantee or similar support to thecollectability of these receivables. The operating partnership structured thefacility using a wholly-owned, unconsolidated special purpose entity in orderto facilitate the transaction while complying with Ferrellgas’ various debtcovenants. If the covenants are compromised, funding from the facility could berestricted or suspended, or its costs could increase. As a servicer, theoperating partnership remits daily to this special purpose entity fundscollected on the trade receivables held by Ferrellgas Receivables.

 

The operatingpartnership transfers a portion of its trade accounts receivable to FerrellgasReceivables and retains an interest and a note receivable related to thesetransferred receivables. As these transferred receivables are subsequentlycollected, the funding from the accounts receivable securitization facility isreduced. Ferrellgas Receivables recorded the following on its balance sheet:

 
| ** **                                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Trade accounts receivable transferred from the  operating partnership |       | $        | 118,982    |     | $          | 97,333 |   |
|                                                                  |       |     |       |     |       |
| Note payable to the operating partnership                             |       | $        | 52,038     |     | $          | — |   |

 

F-17

----

Tableof Contents

 

The operatingpartnership’s consolidated balance sheets do not include trade accountsreceivables transferred, but do include a note receivable from FerrellgasReceivables which represents expected cash proceeds from the sale of accountsreceivable to Ferrellgas Receivables that have not yet been received. As of July 31,2009, the operating partnership had received proceeds from trade accountsreceivable sales of $37.0 million with the ability to receive proceeds of anadditional $4.0 million.

 

Other accountsreceivable securitization activity consists of the following:

 
| ** **             | ** ** | **For the year ended July 31,** | ** ** |
|------------------------|------------|--------------------------------------|------------|
| ** **             | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net  non-cash activity |       | $                                    | 8,033      |   | $ | 6,430 |   | $ | 2,964 |   |
| Bad  debt expense      |       | $                                    | 600        |   | $ | — |   | $ | 202 |   |

 

The net non-cash activityreported in “Loss on disposal of assets and other” in the consolidatedstatements of earnings approximates the financing cost of issuing commercialpaper backed by these accounts receivable transferred to FerrellgasReceivables. See details of the net non-cash activity disclosed in Note E —Supplemental financial statement information — “Loss on transfer of accountsreceivable related to the accounts receivable securitization” and “Serviceincome related to the accounts receivable securitization.” The weighted averagediscount rate used to value the retained interest in the transferredreceivables was 3.6% and 4.65% as of July 31, 2009 and 2008, respectively.

 

**G.  Goodwilland intangible assets, net**

 

Goodwilland intangibleassets, net consist of:

 
| ** **                         | ** ** | **July 31,  2009**     | ** ** | **July 31,  2008**          | ** ** |
|------------------------------------|------------|-----------------------------|------------|----------------------------------|------------|
| ** **                         | ** ** | **Gross  carrying  amount** | ** ** | **Accum-  ulated  amortization** | ** ** | **Net** | ** ** | **Gross  carrying  amount** | ** ** | **Accum-  ulated  amortization** | ** ** | **Net** | ** ** |
| Goodwill, net                      |       | $                           | 248,939    |                             | $          | — |   | $ | 248,939 |   | $ | 248,939 |   | $ | — |   | $ | 248,939 |   |
|                               |       |                        |       |                             |       |   |   |   |   |   |   |   |   |
| Intangible  Assets, net            |       |                        |       |                             |       |   |   |   |   |   |   |   |   |
| Amortized  intangible assets       |       |                        |       |                             |       |   |   |   |   |   |   |   |   |
| Customer lists                     |       | $                           | 368,716    |                             | $          | (225,038 | ) | $ | 143,678 |   | $ | 363,242 |   | $ | (207,107 | ) | $ | 156,135 |   |
| Non-compete agreements             |       | 44,481                      |       | (36,957                          | )          | 7,524 |   | 43,042 |   | (35,081 | ) | 7,961 |   |
| Other                              |       | 3,584                       |       | (1,860                           | )          | 1,724 |   | 3,572 |   | (1,502 | ) | 2,070 |   |
|                               |       | 416,781                     |       | (263,855                         | )          | 152,926 |   | 409,856 |   | (243,690 | ) | 166,166 |   |
|                               |       |                        |       |                             |       |   |   |   |   |   |   |   |   |
| Unamortized  intangible assets     |       |                        |       |                             |       |   |   |   |   |   |   |   |   |
| Trade  names & trademarks |       | 59,111                      |       | —                           |       | 59,111 |   | 59,107 |   | — |   | 59,107 |   |
| Total intangible  assets, net      |       | $                           | 475,892    |                             | $          | (263,855 | ) | $ | 212,037 |   | $ | 468,963 |   | $ | (243,690 | ) | $ | 225,273 |   |

 

Customer listshave estimated lives of 15 years, while non-compete agreements and otherintangible assets have estimated lives ranging from two to ten years.Ferrellgas intends to utilize all acquired trademarks and trade names and doesnot believe there are any legal, regulatory, contractual,

 

F-18

----

Tableof Contents

 

competitive,economical or other factors that would limit their useful lives. Therefore,trademarks and trade names have indefinite useful lives.

 

Aggregateamortization expense:

 

For the year endedJuly 31,

 
| 2009 |   | $      | 20,166 |   |
|------|--------|--------|--------|--------|
| 2008 |   | 20,970 |   |
| 2007 |   | 22,553 |   |

 

Estimatedamortization expense:

 

For the year endedJuly 31,

 
| 2010 |   | $      | 19,298 |   |
|------|--------|--------|--------|--------|
| 2011 |   | 19,141 |   |
| 2012 |   | 18,693 |   |
| 2013 |   | 18,142 |   |
| 2014 |   | 14,874 |   |

 

 

**H. Debt**

 

***Short-termborrowings***

 

Ferrellgasclassified a portion of its unsecured credit facility due April 2010borrowings as short-term because it was used to fund working capital needs thatmanagement had intended to pay down within the 12 month period following eachbalance sheet date. As of July 31, 2009 and 2008, $66.2 million and $125.7million, respectively, were classified as short-term borrowings. For furtherdiscussion see the unsecured credit facility section below.

 

***Long-termdebt***

 

Long-term debtconsisted of the following:

 
| ** **                                                                                                                                                                                                        | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Senior notes**                                                                                                                                                                                                  |       |      |       |      |       |
| Fixed rate, Series D-E, ranging from 7.24% to  7.42% due 2010-2013 (1)                                                                                                                                       |       | $         | 152,000    |      | $          | 204,000 |   |
| Fixed rate, 8.75%, due 2012, net of unamortized  premium of $1,091 and $1,471 at July 31, 2009 and 2008, respectively (2)                                                                                    |       | 269,091   |       | 269,471   |       |
| Fixed rate, Series C, 8.87%, due 2009 (3)                                                                                                                                                                    |       | 73,000    |       | 73,000    |       |
| Fixed rate, 6.75% due 2014, net of unamortized  discount of $26,458 and $518 at July 31, 2009 and 2008, respectively (4)                                                                                     |       | 423,542   |       | 249,482   |       |
| ** **                                                                                                                                                                                                        |       |      |       |      |       |
| **Credit facility**, variable interest rate, expiring 2010 (net of  $66.2 million and $125.7 million classified as short-term borrowings at  July 31, 2009 and 2008, respectively)                           |       | 88,541    |       | 235,270   |       |
| ** **                                                                                                                                                                                                        |       |      |       |      |       |
| **Notes payable**, 8.4% and 7.9% weighted average interest rate in  2009 and 2008, respectively, due 2009 to 2016, net of unamortized discount of  $1,301 and $1,160 at July 31, 2009 and 2008, respectively |       | 5,321     |       | 5,864     |       |
| ** **                                                                                                                                                                                                        |       |      |       |      |       |
| **Capital lease obligations**                                                                                                                                                                                     |       | —    |       | 29        |       |
|                                                                                                                                                                                                              |       | 1,011,495 |       | 1,037,116 |       |
| Less: current portion, included in other current  liabilities on the consolidated balance sheets                                                                                                                  |       | 1,422     |       | 2,397     |       |
| **Long-term debt**                                                                                                                                                                                                |       | $         | 1,010,073  |      | $          | 1,034,719 |   |

 

F-19

----

Tableof Contents

 

----

| (1)       | The operating  partnership’s 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 are senior to all subordinated indebtedness of the operating partnership.  The outstanding principal amount of the series D and E notes are due on  August 1, 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 Partners issued $170.0 million of its  fixed rate senior notes. On December 18, 2002, Ferrellgas Partners  issued $48.0 million of its 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 Partners issued $50.0 million of its fixed rate  senior notes with a debt premium of $1.6 million that will be amortized to  interest expense through 2012. The 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’s 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 are senior to all subordinated indebtedness of the operating  partnership. The outstanding principal amount of the series C notes is  due on August 1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|  (4) | On  April 20, 2004, the operating partnership issued $250.0 million of its  fixed rate senior notes with a debt discount of $0.9 million that will be  amortized to interest expense through 2014. On August 4, 2008, the  operating partnership issued $200.0 million of its fixed rate senior notes  with a debt discount of $30.0 million that will be amortized to interest  expense through 2014. These notes 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 are 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. |

 

*Seniornotes*

 

During August 2007,Ferrellgas made a scheduled principal payment of $90.0 million of the 8.78% Series Bsenior notes using proceeds from borrowings on the unsecured credit facilitydue April 2010.

 

During August 2008,Ferrellgas made scheduled principal payments of $52.0 million on the 7.12% Series Csenior notes using proceeds from borrowings on the unsecured credit facility dueApril 2010.

 

During August 2008,Ferrellgas issued $200.0 million in aggregate principal amount of its 6.75%senior notes due 2014 at an offering price equal to 85% of par. The proceedsfrom this transaction were used to reduce outstanding indebtedness under theunsecured credit facility due April 2010.

 

See Note P — Subsequentevents for a discussion on senior note principal payments and new long termdebt issuances.

 

F-20

----

Tableof Contents

 

*Unsecured credit facility*

 

Ferrellgas’$448.0 million unsecured credit facility matures April 22, 2010.Borrowings under this facility are available for working capital, acquisition,capital expenditure, long-term debt repayment, and general partnershippurposes. The credit facility has a letter of credit sub-facility withavailability of up to $150.0 million.

 

Asof July 31, 2009 and 2008, Ferrellgas had total borrowings outstandingunder this unsecured credit facility due April 2010 of $154.7 million and$361.0 million, respectively, of which $88.5 million and $235.3 million,respectively, were classified as long-term debt. See footnote P — Subsequentevents for a discussion of the classification of this portion of the unsecuredcredit facility as long term.

 

Borrowingsunder the unsecured credit facility due April 2010 had a weighed averageinterest rate of 2.19% and 4.72% at July 31, 2009 and 2008, respectively.These borrowings bear interest, at Ferrellgas’ option, at a rate equal toeither:

 

·                           the baserate, which is defined as the higher of the federal funds rate plus 0.50% orBank of America’s prime rate (as of July 31, 2009, the federal funds rateand Bank of America’s prime rate were 0.18% and 3.25%, respectively); or

·                           theEurodollar Rate plus a margin varying from 1.50% to 2.50% (as of July 31,2009, the one-month and three-month Eurodollar Rates were 0.45% and 0.75%,respectively).

 

Inaddition, an annual commitment fee is payable on the daily unused portion ofthe unsecured credit facility due April 2010 at a per annum rate varyingfrom 0.375% to 0.500% (as of July 31, 2009, the commitment fee per annumrate was 0.375%).

 

Lettersof credit outstanding at July 31, 2009 totaled $44.4 million and were usedprimarily to secure insurance arrangements and to a lesser extent, productpurchases. Letters of credit outstanding at July 31, 2008 totaled $42.3million and were used primarily for insurance arrangements. At July 31,2009, Ferrellgas had available letter of credit remaining capacity of $105.6million. Ferrellgas incurred commitment fees of $0.9 million, $0.4 million and$0.6 million in fiscal 2009, 2008 and 2007, respectively.

 

During May 2007,the operating partnership entered into a new unsecured credit facility withadditional borrowing capacity of up to $150.0 million, which was scheduled tomature on August 1, 2009. During April 2009, Ferrellgas terminatedthis facility and paid down its total borrowings outstanding of $95.0 millionusing borrowing capacity available under the unsecured credit facility due April 2010.

 

During April 2008,Ferrellgas amended its unsecured credit facility due April 2010,increasing its borrowing capacity by $73.0 million and bringing its totalborrowing capacity to $448.0 million.

 

During October 2008,Ferrellgas amended its unsecured credit facility due April 2010 increasingthe letter of credit sublimit from $90.0 million to $200.0 million through February 28,2009 and to $150.0 million thereafter. The letter of credit sublimit is partof, and not in addition to, the aggregate credit facility commitment. Theamendment also requires Ferrellgas to cash collateralize any outstanding letterof credit obligations in an amount equal to the pro rata share of anydefaulting lender.

 

See Note P —Subsequent events for further discussion about the unsecured credit facilitydue April 2010 and its replacement with a new secured credit facility.

 

*Covenants*

 

Thesenior notes and the unsecured credit facility due April 2010 agreementcontain various restrictive covenants applicable to Ferrellgas and itssubsidiaries, the most restrictive relating to additional indebtedness. Inaddition, Ferrellgas Partners is prohibited from making cash distributions ofthe 

 

F-21

----

Tableof Contents

 

minimumquarterly distribution if a default or event of default exists or would existupon making such distribution, or if Ferrellgas fails to meet certain coveragetests. As of July 31, 2009, Ferrellgas is in compliance with allrequirements, tests, limitations and covenants related to these debtagreements.

 

Thescheduled annual principal payments on long-term debt are as follows:

 
| **For the year ended  July 31,** | ** ** | **Scheduled   annual principal   payments** | ** ** |
|---------------------------------------|------------|---------------------------------------------|------------|
| 2010                                  |       | $                                           | 1,422      |   |
| 2011                                  |       | 1,271                                       |       |
| 2012                                  |       | 269,191                                     |       |
| 2013                                  |       | 25,131                                      |       |
| 2014                                  |       | 450,621                                     |       |
| Thereafter                            |       | 290,527                                     |       |
| Total                                 |       | $                                           | 1,038,163  |   |

 

See Note P —Subsequent events for discussion about the classification of long-term debtmaturities.

 

The carryingamount of short-term financial instruments approximates fair value because ofthe short maturity of these instruments. The estimated fair value of Ferrellgas’long-term debt was $1,045.9 million and $1,098.4 million as of July 31,2009 and 2008, respectively. The fair value is estimated based on quoted marketprices.

 

**I.**   **Partners’ capital**

 

As of July 31, 2009and 2008, limited partner units were beneficially owned by the following:

* *
| ** **                     | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|--------------------------------|------------|------------|------------|------------|------------|
| Third parties (1)              |       | 43,555,614 |       | 38,300,533 |       |
| Ferrell Companies (2)          |       | 20,080,776 |       | 20,080,776 |       |
| FCI Trading Corp. (3)          |       | 195,686    |       | 195,686    |       |
| Ferrell Propane, Inc. (4) |       | 51,204     |       | 51,204     |       |
| James E. Ferrell (5)           |       | 4,353,475  |       | 4,333,475  |       |

 

----

| (1) | These  common units are listed on the New York Stock Exchange under the symbol  “FGP.”                                               |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Ferrell  Companies is the owner of the general partner and a 29% owner of Ferrellgas’  common units and thus a related party.             |
| (3) | FCI  Trading Corp. (“FCI Trading”) is an affiliate of the general partner and thus  a related party.                                 |
| (4) | Ferrell  Propane, Inc. (“Ferrell Propane”) is controlled by the general partner  and thus a related party.                      |
| (5) | James E. Ferrell (“Mr. Ferrell”) is the  Chairman and Chief Executive Officer of the general partner and thus a  related party. |

 

Together these limitedpartner units represent Ferrellgas Partner’s limited partners’ interest and aneffective 98% economic interest in Ferrellgas Partners, exclusive of thegeneral partners’ incentive distribution rights. The general partner has aneffective 2% interest in Ferrellgas Partners, excluding incentive distributionrights. Since ongoing distributions have not yet reached the levels required tocommence payment of incentive distribution rights to the general partner,distributions to the partners from operations or interim capital transactionswill generally be made in accordance with the above percentages. Inliquidation, allocations and distributions will be made in accordance with eachcommon unitholder’s positive capital account.

 

The common units ofFerrellgas Partners represent limited partner interests in Ferrellgas Partners,which give the holders thereof the right to participate in distributions madeby Ferrellgas Partners and to

 

F-22

----

Tableof Contents

 

exercise the otherrights or privileges available to such holders under the Fourth Amended andRestated Agreement of Limited Partnership of Ferrellgas Partners, L.P. dated February 18,2003 (the “Partnership Agreement”). Under the terms of the PartnershipAgreement, holders of common units have limited voting rights on mattersaffecting the business of Ferrellgas Partners. Generally, persons owning 20% ormore of Ferrellgas Partners’ outstanding common units cannot vote; however,this limitation does not apply to those common units owned by the generalpartner or its “affiliates,” as such term is defined in the PartnershipAgreement.

 

Ferrellgasmaintains shelf registration statements for the issuance of common units, andother securities that may include deferred participation units, warrants anddebt securities. The Partnership Agreement allows the general partner to issuean unlimited number of additional Ferrellgas general and limited partner interestsand other equity securities of Ferrellgas Partners for such consideration andon such terms and conditions as shall be established by the general partnerwithout the approval of any unitholders.

 

*Common unit and general partner distributions*

 

Ferrellgas Partners has paid the followingdistributions:

 
| ** **         | ** ** | **For the year ended July 31,** | ** ** |
|--------------------|------------|--------------------------------------|------------|
| ** **         | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Third  parties     |       | $                                    | 81,922     |   | $ | 76,646 |   | $ | 76,562 |   |
| Ferrell  Companies |       | 40,160                               |       | 40,160 |   | 40,162 |   |
| FCI  Trading       |       | 392                                  |       | 392 |   | 391 |   |
| Ferrell  Propane   |       | 104                                  |       | 104 |   | 102 |   |
| Mr. Ferrell   |       | 8,678                                |       | 8,616 |   | 8,584 |   |
| General  partner   |       | 1,325                                |       | 1,272 |   | 1,271 |   |
|               |       | $                                    | 132,581    |   | $ | 127,190 |   | $ | 127,072 |   |

 

OnAugust 28, 2009, Ferrellgas declared a cash distribution of $0.50 percommon unit for the three months ended July 31, 2009, which was paid on September 14,2009. Included in this cash distribution were the following amounts paid torelated parties:

 
| Ferrell  Companies |   | $     | 10,040 |   |   |   |   |   |
|--------------------|--------|-------|--------|--------|--------|--------|--------|--------|
| FCI  Trading       |   | 98    |   |   |   |   |   |
| Ferrell  Propane   |   | 26    |   |   |   |   |   |
| Mr. Ferrell   |   | 2,177 |   |   |   |   |   |
| General  partner   |   | 345   |   |   |   |   |   |

 

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

 

*Common unit issuances*

 

InFebruary 2009, Ferrellgas completed a registered public offering of 5.0million common units representing limited partner interests. This transactionwas comprised of both an original offering of 4.5 million common units and anover allotment offering of 0.5 million common units. The net proceeds receivedfrom this offering of $69.4 million were used to reduce long term borrowingsunder Ferrellgas’ unsecured credit facility.

 

During fiscal 2009, Ferrellgas issued 0.3 million common units valued at $5.5 million inconnection with acquisitions.

 

F-23

----

Tableof Contents

 

*Other comprehensive income (“OCI”)*

 

See Note J — Derivatives — for details regarding changes in fair valueon risk management financial derivatives recorded within OCI for the year endedJuly 31, 2009.

 

**J.  Derivatives**

 

*Commodity Price Risk Management*

 

Ferrellgas’ riskmanagement activities primarily attempt to mitigate price risks related to thepurchase, storage, transport and sale of propane generally in the contract andspot markets from major domestic energy companies on a short-term basis.Ferrellgas attempts to mitigate these price risks through the use of financialderivative instruments and forward propane purchase and sales contracts.

 

Ferrellgas’ riskmanagement strategy involves taking positions in the forward or financialmarkets that are equal and opposite to Ferrellgas’ positions in the physicalproducts market in order to minimize the risk of financial loss from an adverseprice change. This risk management strategy is successful when Ferrellgas’gains or losses in the physical product markets are offset by its losses orgains in the forward or financial markets. These financial derivatives aredesignated as cash flow hedges.

 

Ferrellgas’ riskmanagement activities include the use of financial derivative instrumentsincluding, but not limited to, price swaps, options, futures and basis swaps toseek protection from adverse price movements and to minimize potential losses.Ferrellgas enters into these financial derivative instruments directly withthird parties in the over-the-counter market and with brokers who are clearingmembers with the New York Mercantile Exchange. Ferrellgas also enters intoforward propane purchase and sales contracts with counterparties. These forwardcontracts qualify for the normal purchase normal sales exception within SFAS133 and are therefore not recorded by Ferrellgas prior to settlement.

 

*Cash Flow Hedging Activity*

 

Ferrellgas uses financial derivative instruments forrisk management purposes to hedge a portion of its exposure to marketfluctuations in propane prices. These financial derivative instruments aredesignated as cash flow hedging instruments, thus the effective portions ofchanges in the fair value of the financial derivatives are recorded in OCIprior to settlement and are subsequently recognized in the consolidatedstatements of earnings in “Cost of goods sold — propane and other gas liquidssales” when the forward or forecasted propane sales transaction impactsearnings. The effectiveness of cash flow hedges is evaluated at inception andon an on-going basis. Changes in the fair value of cash flow hedges due tohedge ineffectiveness, if any, are recognized in “Cost of product sold —propane and other gas liquids sales.” During the years ended July 31,2009, 2008 and 2007, Ferrellgas did not recognize any gain or loss in earningsrelated to hedge ineffectiveness and did not exclude any component of thefinancial derivative contract gain or loss from the assessment of hedgeeffectiveness related to these cash flow hedges.

 

The fair value offinancial derivative instruments are classified gross on the consolidatedbalance sheets as “Price risk management assets” and “Other current liabilities”as follows:

 

F-24

----

Tableof Contents

 
| ** **                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Derivatives – Price risk management assets       |       | $        | 3,391      |     | $          | 26,086 |   |
| Derivatives  – Price risk management liabilities |       | $        | 4,380      |     | $          | 7,337 |   |

 

Ferrellgas had the following cash flow hedge activityincluded in OCI in the consolidated statements of partners’ capital:

 
| ** **                                                                                                                       | ** ** | **For  the year   ended July 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2009**                                | ** ** |
| Fair value loss  adjustment classified as OCI with offset in Price risk management assets and  Price risk management liabilities |       | $                                       | (186,449   | ) |
| Reclassification  of net losses originally recorded within OCI to Cost of product sold —  propane and other gas liquids     |       | $                                       | (166,711   | ) |

 

Thefair value losses reported above relate to the significant decrease inwholesale propane prices that occurred during fiscal 2009. Assuming a minimalchange in future market prices, Ferrellgas expects to reclassify net losses ofapproximately $1.0 million to earnings during the next year. These net lossesare expected to be offset by margins on propane sales commitments Ferrellgashas with its customers that qualify for the normal purchase normal salesexception under SFAS 133.

 

Duringthe years ended July 31, 2009, 2008 and 2007, Ferrellgas had noreclassifications to earnings resulting from discontinuance of any cash flowhedges arising from the probability of the original forecasted transactions notoccurring within the originally specified period of time defined within thehedging relationship.

 

Asof July 31, 2009, Ferrellgas had financial derivative contracts covering0.7 million barrels of propane that were entered into as cash flow hedges offorward and forecasted purchases of propane.

 

Duringthe year ended July 31, 2009, four counterparties represented 85% of netsettled cash flow hedging positions reported in “Cost of goods sold — propaneand other gas liquids sales.” During the year ended July 31, 2009,Ferrellgas neither held nor entered into financial derivative contracts that containedcredit risk related contingency features.

 

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

 

·                  Level 1 –Quoted prices available in active markets for identical assets or liabilities.

·                  Level 2 –Pricing inputs not quoted in active markets but either directly or indirectlyobservable.

·                  Level 3 –Significant inputs to pricing that have little or no transparency with inputsrequiring significant management judgment or estimation.

 

Ferrellgasconsiders over-the-counter derivative instruments entered into directly withthird parties as Level 2 valuation since the values of these derivatives arequoted by third party brokers and are on an exchange for similar transactions.The market prices used to value Ferrellgas’ derivatives have been determinedusing independent third party prices, readily available market information,broker quotes, and appropriate valuation techniques.

 

F-25

----

Tableof Contents

 

AtJuly 31, 2009 and 2008, all derivative assets and liabilities qualifiedfor classification as Level 2 - other observable inputs as defined within SFAS157. All financial derivatives assets and liabilities were non-tradingpositions.

 

**K.****   ****Transactions with related parties**

 

Ferrellgas has noemployees and is managed and controlled by its general partner. Pursuant toFerrellgas’ partnership agreements, the general partner is entitled toreimbursement for all direct and indirect expenses incurred or payments itmakes on behalf of Ferrellgas and all other necessary or appropriate expensesallocable to Ferrellgas or otherwise reasonably incurred by its general partnerin connection with operating Ferrellgas’ business. These costs primarilyinclude compensation and benefits paid to employees of the general partner whoperform services on Ferrellgas’ behalf and are reported in the consolidatedstatements of earnings as follows:

 
| ** **                          | ** ** | **For the year ended July 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|
| ** **                          | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                |       |                                 |       |   |   |   |   |   |   |   |
| Operating  expense                  |       | $                                    | 217,374    |   | $ | 185,576 |   | $ | 202,824 |   |
|                                |       |                                 |       |   |   |   |   |
| General  and administrative expense |       | $                                    | 23,801     |   | $ | 27,203 |   | $ | 26,542 |   |

 

Ferrellgashas a subleasing and a shared services agreement with Samson Dental PracticeManagement, LLC (“Samson”), a company wholly-owned by Mr. Ferrell. During the year ended July 31, 2009,Ferrellgas received payments totaling $0.3 million for services provided to andsublease revenue receipts from Samson. No payments were received from Samsonduring the years ended July 31, 2008 and 2007.

 

Duringfiscal 2009, Ferrellgas paid Fleishman-Hillard Inc. $0.2 million for marketingand communications services. Elizabeth Solberg, a member of the general partner’sboard of directors, serves as the General Manager of Fleishman-Hillard Inc.

 

Seeadditional discussions about transactions with related parties in Note I —Partners’ capital.

 

**L.****    ****Contingencies and commitments**

 

*Litigation*

 

Ferrellgas’operations are subject to all operating hazards and risks normally incidentalto handling, storing, transporting and otherwise providing for use by consumersof combustible liquids such as propane. As a result, at any given time,Ferrellgas is threatened with or named as a defendant in various lawsuitsarising in the ordinary course of business. Currently, Ferrellgas is not aparty to any legal proceedings other than various claims and lawsuits arisingin the ordinary course of business. It is not possible to determine theultimate disposition of these matters; however, management is of the opinionthat there are no known claims or contingent claims that are reasonablyexpected to have a material adverse effect on the consolidated financialcondition, results of operations and cash flows of Ferrellgas.

 

Ferrellgas has been namedas a defendant in lawsuits filed in multiple federal and state courts that seekto certify nationwide or statewide classes. The plaintiffs in each casegenerally allege that Ferrellgas failed to inform consumers of the amount ofpropane contained in propane tanks they purchased related to its Blue Rhinobranded propane tank exchange activities. The cases have generally been stayeduntil motions are heard regarding coordination for multidistrict treatment in asingle court prior to trial. Based on Ferrellgas’ business and consumernotification practices in its Blue 

 

F-26

----

Tableof Contents

 

Rhino tank exchangeoperations, Ferrellgas believes that all of these claims are without merit andintends to defend the claims vigorously.

 

*Long-term debt-related commitments*

 

Ferrellgas has long and short-term payment obligationsunder agreements such as senior notes and its unsecured credit facility. SeeNote H — Debt — for a description of these debt obligations and a schedule offuture maturities.

 

*Operating lease commitments and buyouts*

 

Ferrellgasleases certain property, plant and equipment under non-cancelable andcancelable operating leases. Amounts shown in the table below represent minimumlease payment obligations under Ferrellgas’ third-party leases with terms inexcess of one year for the periods indicated. These arrangements include theleasing of transportation equipment, property, computer equipment and propanetanks.

 

Ferrellgasis required to recognize a liability for the fair value of guarantees issuedafter December 31, 2002. The only material guarantees Ferrellgas has areassociated with residual value guarantees of operating leases. Most of theoperating leases involving Ferrellgas’ transportation equipment containresidual value guarantees. These transportation equipment lease arrangementsare scheduled to expire over the next seven fiscal years. Most of thesearrangements provide that the fair value of the equipment will equal or exceeda guaranteed amount, or Ferrellgas will be required to pay the lessor thedifference. The fair value of these residual value guarantees entered intoafter December 31, 2002 was $0.7 million as of July 31, 2009.Although the fair values of the underlying equipment at the end of the leaseterms have historically exceeded these guaranteed amounts, the maximumpotential amount of aggregate future payments Ferrellgas could be required tomake under these leasing arrangements, assuming the equipment is worthless atthe end of the lease term, was $10.0 million as of July 31, 2009.Ferrellgas does not know of any event, demand, commitment, trend or uncertaintythat would result in a material change to these arrangements.

 

Operatinglease buyouts represent the maximum amount Ferrellgas would pay if it were toexercise its right to buyout the assets at the end of their lease term.

 

Thefollowing table summarizes Ferrellgas’ contractual operating lease commitmentsand buyout obligations as of July 31, 2009:

 
| ** **                   | ** ** | **Future minimum rental and buyout amounts by fiscal year** | ** ** |
|------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                   | ** ** | **2010**                                                    | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **Thereafter** | ** ** |
|                         |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Operating  lease obligations |       | $                                                           | 22,246     |   | $ | 15,475 |   | $ | 8,431 |   | $ | 5,590 |   | $ | 4,734 |   | $ | 11,137 |   |
| Operating  lease buyouts     | ** ** | $                                                           | 8,641      |   | $ | 5,323 |   | $ | 2,827 |   | $ | 357 |   | $ | 784 |   | $ | 1,418 |   |

 

Certainproperty and equipment is leased under non-cancelable operating leases, whichrequire fixed monthly rental payments and which expire at various dates through2024. Rental expense under these leases totaled $38.6 million, $44.3 million,and $45.3 million for fiscal 2009, 2008 and 2007, respectively.

 

F-27

----

Tableof Contents

 

**M.**** ****Employee benefits**

 

Ferrellgas has noemployees and is managed and controlled by its general partner. Ferrellgasassumes all liabilities, which include specific liabilities related to thefollowing employee benefit plans for the benefit of the officers and employeesof the general partner.

 

FerrellCompanies makes contributions to the ESOT, which causes a portion of the sharesof Ferrell Companies owned by the ESOT to be allocated to employees’ accountsover time. The allocation of Ferrell Companies’ shares to employee accountscauses a non-cash compensation charge to be incurred by Ferrellgas, equivalentto the fair value of such shares allocated. This non-cash compensation chargeis reported separately in Ferrellgas’ consolidated statements of earnings andthus excluded from operating and general and administrative expenses. Thenon-cash compensation charges were $6.8 million, $12.4 million and $11.2million during fiscal 2009, 2008 and 2007, respectively. Ferrellgas is notobligated to fund or make contributions to the ESOT.

 

Thegeneral partner and its parent, Ferrell Companies, have a defined contributionprofit-sharing plan which includes both profit sharing and matchingcontributions. The plan covers substantially all full time employees. With theestablishment of the ESOP in July 1998, Ferrellgas suspended futurecontributions to the profit sharing plan beginning with fiscal 1998. The plan,which qualifies under section 401(k) of the Internal Revenue Code, alsoprovides for matching contributions under a cash or deferred arrangement basedupon participant salaries and employee contributions to the plan. Matchingcontributions for fiscal 2009, 2008 and 2007 were $2.7 million, $2.6 million,and $3.0 million, respectively.

 

Thegeneral partner has a defined benefit plan that provides participants who werecovered under a previously terminated plan with a guaranteed retirement benefitat least equal to the benefit they would have received under the terminatedplan. Until July 31, 1999, benefits under the terminated plan weredetermined by years of credited service and salary levels. As of July 31,1999, years of credited service and salary levels were frozen. The generalpartner’s funding policy for this plan is to contribute amounts deductible forFederal income tax purposes and invest the plan assets primarily in corporatestocks and bonds, U.S. Treasury bonds and short-term cash investments. Duringfiscal 2009, 2008 and 2007 other comprehensive income and other liabilitieswere adjusted by $(6.0) thousand $(0.1) million and $(0.4) million,respectively.

 

**N**.    **Earnings per common unit**

 

Below is a calculation of the basic and diluted netearnings available per common unit in the consolidated statements of earningsfor the periods indicated. In accordance with EITF 03-6, “ParticipatingSecurities and the Two-Class Method under FASB Statement No. 128, *Earnings per Share*” (“EITF 03-6”), Ferrellgas calculates netearnings per limited partner unit for each period presented according todistributions declared and participation rights in undistributed earnings, asif all of the earnings for the period had been distributed. In periods withundistributed earnings above certain levels, the calculation according to thetwo-class method results in an increased allocation of undistributed earningsto the general partner and a dilution of the earnings to the limited partners.Due to the seasonality of the propane business, the dilution effect of EITF03-6 typically impacts only the three months ending January 31. There wasnot a dilutive effect from EITF 03-6 on basic net earnings per common unit fortotal earnings for fiscal 2009, 2008 and 2007.

 

F-28

----

Tableof Contents

 
| ** **                                                          | ** ** | **For the year ended July 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                          | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net  earnings available to common unitholders                       |       | $                                    | 52,046     |   | $ | 24,442 |   | $ | 34,452 |   |
|                                                                |       |                                 |       |   |   |   |   |
| Weighted  average common units outstanding (in thousands)           |       | 65,540.7                             |       | 62,959.5 |   | 62,755.8 |   |
|                                                                |       |                                 |       |   |   |   |   |
| Dilutive  securities                                                |       | 72.7                                 |       | 11.0 |   | 18.0 |   |
|                                                                |       |                                 |       |   |   |   |   |
| Weighted  average common units outstanding plus dilutive securities |       | 65,613.4                             |       | 62,970.5 |   | 62,773.8 |   |
|                                                                |       |                                 |       |   |   |   |   |
| Basic  and diluted net earnings available per common unit           |       | $                                    | 0.79       |   | $ | 0.39 |   | $ | 0.55 |   |

 

**O**.   **Quarterly data (unaudited)**

 

Thefollowing summarized unaudited quarterly data includes all adjustments(consisting only of normal recurring adjustments), which Ferrellgas considersnecessary for a fair presentation. Due to the seasonality of the propanedistribution industry, first and fourth quarter revenues, gross margin frompropane and other gas liquids sales and net earnings are consistently less thanthe second and third quarter results. Other factors affecting the results ofoperations include competitive conditions, demand for product, timing ofacquisitions, variations in the weather and fluctuations in propane prices. Thesum of net earnings (loss) available to common unitholders by quarter do notequal the total net earnings available to common unitholders for the year dueto the effect of EITF 03-6 on quarterly computations of earnings available tocommon unitholders in the second quarter of fiscal 2009 and 2008. See Note N —Earnings per common unit — for further discussion of this calculation. The sumof net earnings (loss) per common unit by quarter may not equal the netearnings (loss) per common unit for the year due to variations in the weightedaverage units outstanding used in computing such amounts.

 

**For the year ended July 31, 2009**

 
| ** **                                                                         | ** ** | **First    quarter** | ** ** | **Second    quarter** | ** ** | **Third    quarter** | ** ** | **Fourth  quarter** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|-----------------------|------------|----------------------|------------|---------------------|------------|
| Revenues                                                                           |       | $                    | 480,074    |                  | $          | 715,625              |       | $                   | 561,133    |   | $ | 312,690 |   |
| Gross margin  from propane and other gas liquids sales (a)                         |       | 119,143              |       | 219,009               |       | 165,969              |       | 118,164             |       |
| Net earnings  (loss)                                                               |       | (14,887              | )          | 69,652                |       | 32,864               |       | (35,057             | )          |
| Net earnings  (loss) available to common unitholders                               |       | (14,738              | )          | 58,019                |       | 32,535               |       | (34,707             | )          |
|                                                                               |       |                 |       |                  |       |                 |       |                |       |
| Basic and  diluted earnings (loss) per common unit available to common unitholders |       | $                    | (0.23      | )                     | $          | 0.92                 |       | $                   | 0.48       |   | $ | (0.51 | ) |

 

F-29

----

Tableof Contents

 

**For the year ended July 31, 2008**

 
| ** **                                                                         | ** ** | **First    quarter** | ** ** | **Second    quarter** | ** ** | **Third    quarter** | ** ** | **Fourth  quarter** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|-----------------------|------------|----------------------|------------|---------------------|------------|
| Revenues                                                                           |       | $                    | 394,916    |                  | $          | 763,968              |       | $                   | 712,090    |   | $ | 419,715 |   |
| Gross margin  from propane and other gas liquids sales (a)                         |       | 106,416              |       | 179,932               |       | 165,968              |       | 111,047             |       |
| Net earnings  (loss)                                                               |       | (22,900              | )          | 51,198                |       | 35,171               |       | (38,780             | )          |
| Net earnings  (loss) available to common unitholders                               |       | (22,671              | )          | 47,541                |       | 34,819               |       | (38,392             | )          |
|                                                                               |       |                 |       |                  |       |                 |       |                |       |
| Basic and  diluted earnings (loss) per common unit available to common unitholders |       | $                    | (0.36      | )                     | $          | 0.76                 |       | $                   | 0.55       |   | $ | (0.61 | ) |

 

----

(a) Gross margin from “Propane andother gas liquids sales” represents “Propane and other gas liquids sales” less “Costof product sold — propane and other gas liquids sales.”

 

**P**. **Subsequent events**

 

During August 2009,Ferrellgas made scheduled principal payments of $73.0 million on the 8.87% Series Csenior notes using availability under its unsecured credit facility due April 2010.

 

DuringSeptember 2009, Ferrellgas issued $300.0 million in aggregate principalamount of new 9.125% senior notes due 2017 at an offering price equal to 98.6%of par. Ferrellgas then gave early redemption notice to the holders of its$82.0 million 7.24% series D notes due August 1, 2010 and its $70.0million 7.42% series E notes due August 1, 2013. The principal amount ofthese senior notes and the related prepayment penalties are expected to befunded with the proceeds from the new senior notes offering with remainingproceeds used to reduce borrowings on Ferrellgas’ unsecured credit facility dueApril 2010.

 

During September 2009,Ferrellgas and several banks and other financial institutions executed intoescrow a Credit Agreement (“Credit Agreement”) which will be released fromescrow pending certain closing conditions. The Credit Agreement is intended toreplace Ferrellgas’ existing unsecured credit facility. The Credit Agreement,at closing, will provide for a $400.0 million revolving credit facility withthe entire amount available for loans and with a sublimit of $200.0 million forletters of credit. The obligations under such credit facility will be securedby substantially all assets of the operating partnership, the general partnerand certain subsidiaries of the operating partnership but specificallyexcluding (a) assets that are subject to the operating partnership’sreceivables securitization facility, (b) the general partner’s equityinterest in Ferrellgas Partners and (c) equity interest in certainunrestricted subsidiaries. Such obligations will also be guaranteed by thegeneral partner and certain subsidiaries of the operating partnership. Thesecured revolving credit facility will mature on the third anniversary ofthe closing date for such facility.

 

During September 2009, Ferrellgas acquiredVanson, LLC, based in Michigan. The propane distribution assets acquired havean aggregate value of $45.1 million. This acquisition was funded by $36.6million in cash payments, the issuance of $5.4 million of liabilities and othercosts and considerations, and $3.1 million of common units, net of issuancecosts.

 

Ferrellgashas evaluated events and transactions for subsequent events disclosuresoccurring after the balance sheet date through its Form 10-K filing on September 28,2009 with the Securities and Exchange Commission.

 

F-30

----

 

 

 

Tableof Contents

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

To theBoard of Directors ofFerrellgas Partners Finance Corp.**Overland Park, Kansas

 

Wehave audited the accompanying balance sheets of Ferrellgas Partners FinanceCorp. (a wholly-owned subsidiary of Ferrellgas Partners, L.P., referred toherein as the “Company”) as of July 31, 2009 and 2008, and the relatedstatements of earnings, stockholder’s equity, and cash flows for each of thethree years in the period ended July 31, 2009.  These financialstatements are the responsibility of the Company’s management.  Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

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

 

In our opinion, such financial statements presentfairly, in all material respects, the financial position of Ferrellgas PartnersFinance Corp. as of July 31, 2009 and 2008, and the results of itsoperations and its cash flows for each of the three years in the period ended July 31,2009, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

/s/**DELOITTE &TOUCHE

 

Kansas City, MissouriSeptember 28, 2009

 

F-31

----

Tableof Contents

 

**FERRELLGAS PARTNERS FINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas Partners, L.P.)**

** **

**BALANCESHEETS**

 
| ** **                                                                                 | ** ** | **July 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                 | ** ** | **2009**          | ** ** | **2008** | ** ** |
| ** **                                                                                 | ** ** | ** **        | ** ** | ** ** | ** ** |
| **ASSETS**                                                                                 | ** ** | ** **        | ** ** | ** ** | ** ** |
| Cash                                                                                       |       | $                 | 1,000      |   | $ | 1,000 |   |
| **Total assets**                                                                           |       | $                 | 1,000      |   | $ | 1,000 |   |
|                                                                                       |       |              |       |   |   |
| **STOCKHOLDER’S EQUITY**                                                              |       |              |       |   |   |
| Common  stock, $1 par value; 2,000 shares authorized; 1,000 shares issued and  outstanding |       | $                 | 1,000      |   | $ | 1,000 |   |
|                                                                                       |       |              |       |   |   |
| Additional  paid in capital                                                                |       | 5,594             |       | 5,149 |   |
|                                                                                       |       |              |       |   |   |
| Accumulated  deficit                                                                       |       | (5,594            | )          | (5,149 | ) |
| **Total stockholder’s equity**                                                        |       | $                 | 1,000      |   | $ | 1,000 |   |

 

See notes to financialstatements.

 

F-32

----

Tableof Contents

 

**FERRELLGASPARTNERS FINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas Partners, L.P.)**

 

**STATEMENTS OF EARNINGS**

 
| ** **                          | ** ** | **For the year ended July 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|
| ** **                          | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                |       |                                 |       |   |   |   |   |
| General  and administrative expense |       | $                                    | 445        |   | $ | 992 |   | $ | 444 |   |
|                                |       |                                 |       |   |   |   |   |
| **Net loss**                        |       | $                                    | (445       | ) | $ | (992 | ) | $ | (444 | ) |

 

See notes to financialstatements.

 

F-33

----

Tableof Contents

 

**FERRELLGASPARTNERS FINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas Partners, L.P.)**

 

**STATEMENTS OF STOCKHOLDER’S EQUITY**

 
| ** **             | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**  | ** ** | ** **             | ** ** | **Total**  | ** ** |
|------------------------|------------|------------------|------------|-------------|------------|-----------------|------------|------------------------|------------|------------|------------|
| ** **             | ** ** | **Common stock** | ** ** | **paid in** | ** ** | **Accumulated** | ** ** | **stockholder’s** | ** ** |
| ** **             | ** ** | **Shares**       | ** ** | **Dollars** | ** ** | **capital**     | ** ** | **deficit**            | ** ** | **equity** | ** ** |
|                   | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | ** **             | ** ** | ** ** | ** ** |
| **July 31, 2006** |       | 1,000            |       | $           | 1,000      |            | $          | 3,713                  |       | $          | (3,713     | ) | $ | 1,000 |   |
| Capital  contribution  |       | —           |       | —      |       | 444             |       | —                 |       | 444        |       |
| Net  loss              |       | —           |       | —      |       | —          |       | (444                   | )          | (444       | )          |
| **July 31, 2007** |       | 1,000            |       | 1,000       |       | 4,157           |       | (4,157                 | )          | 1,000      |       |
| Capital  contribution  |       | —           |       | —      |       | 992             |       | —                 |       | 992        |       |
| Net  loss              |       | —           |       | —      |       | —          |       | (992                   | )          | (992       | )          |
| **July 31, 2008** |       | 1,000            |       | 1,000       |       | 5,149           |       | (5,149                 | )          | 1,000      |       |
| Capital  contribution  |       | —           |       | —      |       | 445             |       | —                 |       | 445        |       |
| Net  loss              |       | —           |       | —      |       | —          |       | (445                   | )          | (445       | )          |
| **July 31, 2009** |       | 1,000            |       | $           | 1,000      |            | $          | 5,594                  |       | $          | (5,594     | ) | $ | 1,000 |   |

 

See notes to financialstatements.

 

F-34

----

Tableof Contents

 

**FERRELLGASPARTNERS FINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas Partners, L.P.)**

 

**STATEMENTS OF CASH FLOWS**

 
| ** **                                | ** ** | **For the year ended July 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|
| ** **                                | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Cash flows from operating activities:** |       |                                 |       |   |   |   |   |
| Net  loss                                 |       | $                                    | (445       | ) | $ | (992 | ) | $ | (444 | ) |
| Cash  used in operating activities        |       | (445                                 | )          | (992 | ) | (444 | ) |
|                                      |       |                                 |       |   |   |   |   |
| **Cash flows from financing activities:** |       |                                 |       |   |   |   |   |
| Capital  contribution                     |       | 445                                  |       | 992 |   | 444 |   |
| Cash  provided by financing activities    |       | 445                                  |       | 992 |   | 444 |   |
|                                      |       |                                 |       |   |   |   |   |
| Change  in cash                           |       | —                               |       | — |   | — |   |
| Cash  - beginning of year                 |       | 1,000                                |       | 1,000 |   | 1,000 |   |
| **Cash - end of year**                    |       | $                                    | 1,000      |   | $ | 1,000 |   | $ | 1,000 |   |

 

See notes to financialstatements.

 

F-35

----

Table of Contents

 

**FERRELLGASPARTNERS FINANCE CORP.**

**(awholly-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 September 24,  2002, the Partnership issued $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. On June 10, 2004, the Partnership  issued an additional $50.0 million of 8 3/4% senior notes due 2012. The  Partnership may redeem some or all of the aggregate principle amount of the  notes at any time on or after June 15, 2007.

 

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

** **

Income taxes have been  computed separately as 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 $2,194 associated  with the net operating loss carryforward of $5,641, which expire at various  dates through July 31, 2029, a valuation allowance has been provided on  the full amount of the deferred tax asset. Accordingly, there is no net  deferred tax benefit for fiscal 2009, 2008 or 2007, and there is no net  deferred tax asset as of July 31, 2009 and 2008. |

 

F-36

----

Tableof Contents

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To the Partners of Ferrellgas, L.P. and Subsidiaries**Overland Park, Kansas

 

We have audited the accompanying consolidated balance sheets ofFerrellgas, L.P. and subsidiaries (“Ferrellgas”) as of July 31, 2009 and2008, and the related consolidated statements of earnings, partners’ capital,and cash flows for each of the three years in the period ended July 31,2009.  Our audits also included the financial statement schedule listed inthe Index at Item 15.  These financial statements and financial statementschedule are the responsibility of Ferrellgas’ management.  Ourresponsibility is to express an opinion on the financial statements andfinancial statement schedule based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements.  An audit also includes assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, inall material respects, the financial position of Ferrellgas, L.P. andsubsidiaries as of July 31, 2009 and 2008, and the results of theiroperations and their cash flows for each of the three years in the period endedJuly 31, 2009, in conformity with accounting principles generally acceptedin the United States of America.  Also, in our opinion, such financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.

 

We have also audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), Ferrellgas’ internalcontrol over financial reporting as of July 31, 2009, based on thecriteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated September 28,2009 expressed an unqualified opinion on Ferrellgas’ internal control overfinancial reporting.

 

/s/ DELOITTE & TOUCHE

 

Kansas City, Missouri

September 28, 2009

 

F-37

----

Tableof Contents

 

**FERRELLGAS, L.P. AND SUBSIDIARIES**

** **

**CONSOLIDATED BALANCE SHEETS**

**(inthousands)**

 
| ** **                                                                                                                   | ** ** | **July 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                                   | ** ** | **2009**          | ** ** | **2008** | ** ** |
| ** **                                                                                                                   | ** ** | ** **        | ** ** | ** ** | ** ** |
| **ASSETS**                                                                                                                   | ** ** | ** **        | ** ** | ** ** | ** ** |
| **Current assets:**                                                                                                          | ** ** | ** **        | ** ** | ** ** | ** ** |
| Cash  and cash equivalents                                                                                                   |       | $                 | 7,050      |   | $ | 16,545 |   |
| Accounts  and notes receivable (net of allowance for doubtful accounts of $4,294 and $5,977  at 2009 and 2008, respectively) |       | 106,910           |       | 145,081 |   |
| Inventories                                                                                                                  |       | 129,808           |       | 152,301 |   |
| Price  risk management assets                                                                                                |       | 3,391             |       | 26,086 |   |
| Prepaid  expenses and other current assets                                                                                   |       | 10,965            |       | 10,251 |   |
| **Total current assets**                                                                                                     |       | 258,124           |       | 350,264 |   |
|                                                                                                                         |       |              |       |   |   |
| Property,  plant and equipment, net                                                                                          |       | 666,535           |       | 685,328 |   |
| Goodwill                                                                                                                     |       | 248,939           |       | 248,939 |   |
| Intangible  assets, net                                                                                                      |       | 212,037           |       | 225,273 |   |
| Other  assets, net                                                                                                           |       | 17,414            |       | 16,817 |   |
| **Total assets**                                                                                                             |       | $                 | 1,403,049  |   | $ | 1,526,621 |   |
| ** **                                                                                                                   |       |              |       |   |   |
| **LIABILITIES AND PARTNERS’ CAPITAL**                                                                                   | ** ** | ** **        | ** ** | ** ** | ** ** |
| **Current liabilities:**                                                                                                     | ** ** | ** **        | ** ** | ** ** | ** ** |
| Accounts  payable                                                                                                            |       | $                 | 49,337     |   | $ | 71,348 |   |
| Short-term  borrowings                                                                                                       |       | 66,159            |       | 125,729 |   |
| Other  current liabilities                                                                                                   |       | 105,661           |       | 104,790 |   |
| **Total current liabilities**                                                                                                |       | 221,157           |       | 301,867 |   |
|                                                                                                                         |       |              |       |   |   |
| Long-term  debt                                                                                                              |       | 740,982           |       | 765,248 |   |
| Other  liabilities                                                                                                           |       | 19,300            |       | 23,237 |   |
| Contingencies  and commitments (Note L)                                                                                      |       | —            |       | — |   |
|                                                                                                                         |       |              |       |   |   |
| **Partners’ capital:**                                                                                                  |       |              |       |   |   |
| Limited  partner                                                                                                             |       | 418,532           |       | 413,507 |   |
| General  partner                                                                                                             |       | 4,272             |       | 4,220 |   |
| Accumulated  other comprehensive income (loss)                                                                               |       | (1,194            | )          | 18,542 |   |
| **Total partners’ capital**                                                                                             |       | 421,610           |       | 436,269 |   |
| **Total liabilities and partners’ capital**                                                                             |       | $                 | 1,403,049  |   | $ | 1,526,621 |   |

 

See notes toconsolidated financial statements.

 

F-38

----

Tableof Contents

 

**FERRELLGAS,L.P. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF EARNINGS**

**(inthousands)**

 
| ** **                                                  | ** ** | **For the year ended July 31,** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                  | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                  | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                               |       |                                 |       |   |   |   |   |
| Propane  and other gas liquids sales                        |       | $                                    | 1,829,653  |   | $ | 2,055,281 |   | $ | 1,757,423 |   |
| Other                                                       |       | 239,869                              |       | 235,408 |   | 235,017 |   |
| **Total revenues**                                          |       | 2,069,522                            |       | 2,290,689 |   | 1,992,440 |   |
|                                                        |       |                                 |       |   |   |   |   |
| **Costs and expenses:**                                     |       |                                 |       |   |   |   |   |
| Cost  of product sold - propane and other gas liquids sales |       | 1,207,368                            |       | 1,491,918 |   | 1,147,169 |   |
| Cost  of product sold - other                               |       | 152,853                              |       | 136,478 |   | 157,223 |   |
| Operating  expense                                          |       | 400,407                              |       | 371,819 |   | 380,563 |   |
| Depreciation  and amortization expense                      |       | 82,494                               |       | 85,521 |   | 87,383 |   |
| General  and administrative expense                         |       | 41,382                               |       | 45,612 |   | 44,870 |   |
| Equipment  lease expense                                    |       | 18,406                               |       | 24,478 |   | 26,142 |   |
| Employee  stock ownership plan compensation charge          |       | 6,755                                |       | 12,413 |   | 11,225 |   |
| Loss  on disposal of assets and other                       |       | 13,042                               |       | 11,250 |   | 10,822 |   |
|                                                        |       |                                 |       |   |   |   |   |
| **Operating income**                                        |       | 146,815                              |       | 111,200 |   | 127,043 |   |
|                                                        |       |                                 |       |   |   |   |   |
| Interest  expense                                           |       | (65,785                              | )          | (63,001 | ) | (64,201 | ) |
| Other  income (expense), net                                |       | (1,321                               | )          | 1,039 |   | 3,145 |   |
|                                                        |       |                                 |       |   |   |   |   |
| **Earnings before income taxes**                            |       | 79,709                               |       | 49,238 |   | 65,987 |   |
|                                                        |       |                                 |       |   |   |   |   |
| Income  tax expense                                         |       | 2,208                                |       | 6 |   | 6,560 |   |
|                                                        |       |                                 |       |   |   |   |   |
| **Net earnings**                                            |       | $                                    | 77,501     |   | $ | 49,232 |   | $ | 59,427 |   |

 

See notes toconsolidated financial statements.

 

F-39

----

Table ofContents

 

**FERRELLGAS,L.P. AND SUBSIDIARIES**

** **

**CONSOLIDATED STATEMENTS OF PARTNERS’CAPITAL**

**(inthousands)**

 
| ** **                                                                                                                  | ** ** | ** **  | ** ** | ** **  | ** ** | **Accumulated other**           | ** ** | ** **      | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|---------------------------------|------------|-----------------|------------|
| ** **                                                                                                                  | ** ** | ** **  | ** ** | ** **  | ** ** | **comprehensive income (loss)** | ** ** | ** **      | ** ** |
| ** **                                                                                                                  | ** ** | ** **  | ** ** | ** **  | ** ** | ** **                      | ** ** | **Currency**    | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                                                                                                                  | ** ** | **Limited** | ** ** | **General** | ** ** | **Risk**                        | ** ** | **translation** | ** ** | **Pension** | ** ** | **partners’** | ** ** |
| ** **                                                                                                                  | ** ** | **partner** | ** ** | **partner** | ** ** | **management**                  | ** ** | **adjustments** | ** ** | **liability** | ** ** | **capital** | ** ** |
| ** **                                                                                                                  | ** ** | ** **  | ** ** | ** **  | ** ** | ** **                      | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance at July 31, 2006**                                                                                           |       | $           | 533,095    |        | $          | 5,435                           |       | $               | 2,126      |   | $ | 21 |   | $ | (767 | ) | $ | 539,910 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Contributions  in connection with ESOP and stock-based compensation charges                                                 |       | 11,992      |       | 122         |       | —                          |       | —          |       | — |   | 12,114 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Quarterly  distributions                                                                                                    |       | (150,522    | )          | (1,536      | )          | —                          |       | —          |       | — |   | (152,058 | ) |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Cash  contributed by Ferrellgas Partners and the general partner                                                            |       | 46,100      |       | 470         |       | —                          |       | —          |       | — |   | 46,570 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Net  assets contributed by Ferrellgas Partners and cash contributed by the general  partner in connection with acquisitions |       | 2,009       |       | 28          |       | —                          |       | —          |       | — |   | 2,037 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Comprehensive  income:                                                                                                      |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Net  earnings                                                                                                               |       | 58,827      |       | 600         |       | —                          |       | —          |       | — |   | 59,427 |   |
| Other  comprehensive income (loss):                                                                                         |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Net  earnings on risk management derivatives                                                                                |       | —      |       | —      |       | 5,055                           |       | —          |       | — |   |   |   |
| Reclassification  of derivatives to earnings                                                                                |       | —      |       | —      |       | (2,126                          | )          | —          |       | — |   |   |   |
| Foreign  currency translation adjustment                                                                                    |       | —      |       | —      |       | —                          |       | 14              |       | — |   |   |   |
| Tax  effect on foreign currency translation adjustment                                                                      |       | —      |       | —      |       | —                          |       | (5              | )          | — |   |   |   |
| Pension  liability adjustment                                                                                               |       | —      |       | —      |       | —                          |       | —          |       | 418 |   | 3,356 |   |
| Comprehensive  income                                                                                                       |       |        |       |        |       |                            |       |            |       |   |   | 62,783 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| **Balance at July 31, 2007**                                                                                           |       | 501,501     |       | 5,119       |       | 5,055                           |       | 30              |       | (349 | ) | 511,356 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Contributions  in connection with ESOP and stock-based compensation charges                                                 |       | 14,086      |       | 143         |       | —                          |       | —          |       | — |   | 14,229 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Quarterly  distributions                                                                                                    |       | (150,815    | )          | (1,539      | )          | —                          |       | —          |       | — |   | (152,354 | ) |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Comprehensive  income:                                                                                                      |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Net  earnings                                                                                                               |       | 48,735      |       | 497         |       | —                          |       | —          |       | — |   | 49,232 |   |
| Other  comprehensive income (loss):                                                                                         |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Net  earnings on risk management derivatives                                                                                |       | —      |       | —      |       | 18,749                          |       | —          |       | — |   |   |   |
| Reclassification  of derivatives to earnings                                                                                |       | —      |       | —      |       | (5,055                          | )          | —          |       | — |   |   |   |
| Foreign  currency translation adjustment                                                                                    |       | —      |       | —      |       | —                          |       | (10             | )          | — |   |   |   |
| Tax  effect on foreign currency translation adjustment                                                                      |       | —      |       | —      |       | —                          |       | 6               |       | — |   |   |   |
| Pension  liability adjustment                                                                                               |       | —      |       | —      |       | —                          |       | —          |       | 116 |   | 13,806 |   |
| Comprehensive  income                                                                                                       |       |        |       |        |       |                            |       |            |       |   |   | 63,038 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| **Balance at July 31, 2008**                                                                                           |       | 413,507     |       | 4,220       |       | 18,749                          |       | 26              |       | (233 | ) | 436,269 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Contributions  in connection with ESOP and stock-based compensation charges                                                 |       | 8,975       |       | 92          |       | —                          |       | —          |       | — |   | 9,067 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Quarterly  distributions                                                                                                    |       | (156,031    | )          | (1,592      | )          | —                          |       | —          |       | — |   | (157,623 | ) |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Cash  contributed by Ferrellgas Partners and the general partner                                                            |       | 69,848      |       | 713         |       | —                          |       | —          |       | — |   | 70,561 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Net  assets contributed by Ferrellgas Partners and cash contributed by the general  partner in connection with acquisitions |       | 5,515       |       | 56          |       | —                          |       | —          |       | — |   | 5,571 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Comprehensive  income:                                                                                                      |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Net  earnings                                                                                                               |       | 76,718      |       | 783         |       | —                          |       | —          |       | — |   | 77,501 |   |
| Other  comprehensive income (loss):                                                                                         |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| Net  loss on risk management derivatives                                                                                    |       | —      |       | —      |       | (186,449                        | )          | —          |       | — |   |   |   |
| Reclassification  of derivatives to earnings                                                                                |       | —      |       | —      |       | 166,711                         |       | —          |       | — |   |   |   |
| Foreign  currency translation adjustment                                                                                    |       | —      |       | —      |       | —                          |       | (7              | )          | — |   |   |   |
| Tax  effect on foreign currency translation adjustment                                                                      |       | —      |       | —      |       | —                          |       | 3               |       | — |   |   |   |
| Pension  liability adjustment                                                                                               |       | —      |       | —      |       | —                          |       | —          |       | 6 |   | (19,736 | ) |
| Comprehensive  income                                                                                                       |       |        |       |        |       |                            |       |            |       |   |   | 57,765 |   |
|                                                                                                                        |       |        |       |        |       |                            |       |            |       |   |   |   |   |
| **Balance at July 31, 2009**                                                                                           |       | $           | 418,532    |        | $          | 4,272                           |       | $               | (989       | ) | $ | 22 |   | $ | (227 | ) | $ | 421,610 |   |

 

See notes toconsolidated financial statements.

 

F-40

----

Table of Contents

 

**FERRELLGAS,L.P. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(inthousands)**

 
| ** **                                                                                    | ** ** | **For the year ended July 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                    | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                          |       |                                 |       |   |   |   |   |
| **Cash flows from operating activities:**                                                     |       |                                 |       |   |   |   |   |
| Net  earnings                                                                                 |       | $                                    | 77,501     |   | $ | 49,232 |   | $ | 59,427 |   |
| Reconciliation  of net earnings to net cash provided by operating activities:                 |       |                                 |       |   |   |   |   |
| Depreciation  and amortization expense                                                        |       | 82,494                               |       | 85,521 |   | 87,383 |   |
| Employee  stock ownership plan compensation charge                                            |       | 6,755                                |       | 12,413 |   | 11,225 |   |
| Stock-based  compensation charge                                                              |       | 2,312                                |       | 1,816 |   | 889 |   |
| Loss  on disposal of assets                                                                   |       | 5,009                                |       | 4,820 |   | 4,232 |   |
| Loss  on transfer of accounts receivable related to the accounts receivable  securitization   |       | 12,124                               |       | 10,548 |   | 10,384 |   |
| Deferred  tax expense (benefit)                                                               |       | 388                                  |       | (1,650 | ) | 3,099 |   |
| Other                                                                                         |       | 4,463                                |       | 6,151 |   | 4,185 |   |
| Changes  in operating assets and liabilities, net of effects from business  acquisitions:     |       |                                 |       |   |   |   |   |
| Accounts  and notes receivable, net of securitization                                         |       | 65,466                               |       | (48,606 | ) | 1,105 |   |
| Inventories                                                                                   |       | 22,493                               |       | (40,920 | ) | 40,984 |   |
| Prepaid  expenses and other current assets                                                    |       | (118                                 | )          | 755 |   | 1,528 |   |
| Accounts  payable                                                                             |       | (21,054                              | )          | 8,523 |   | (21,295 | ) |
| Accrued  interest expense                                                                     |       | (156                                 | )          | (3,572 | ) | (1,353 | ) |
| Other  current liabilities                                                                    |       | 4,995                                |       | (2,380 | ) | (26,186 | ) |
| Other  liabilities                                                                            |       | (1,044                               | )          | 151 |   | 819 |   |
| Accounts  receivable securitization:                                                          |       |                                 |       |   |   |   |   |
| Proceeds  from new accounts receivable securitizations                                        |       | 109,000                              |       | 103,000 |   | 100,000 |   |
| Proceeds  from collections reinvested in revolving period accounts receivable securitizations |       | 1,231,336                            |       | 1,365,655 |   | 1,156,214 |   |
| Remittances  of amounts collected as servicer of accounts receivable securitizations          |       | (1,376,336                           | )          | (1,456,655 | ) | (1,265,214 | ) |
| Net  cash provided by operating activities                                                    |       | 225,628                              |       | 94,802 |   | 167,426 |   |
|                                                                                          |       |                                 |       |   |   |   |   |
| **Cash flows from investing activities:**                                                     |       |                                 |       |   |   |   |   |
| Business  acquisitions, net of cash acquired                                                  |       | (2,706                               | )          | (191 | ) | (31,715 | ) |
| Capital  expenditures                                                                         |       | (54,085                              | )          | (43,823 | ) | (46,667 | ) |
| Proceeds  from sale of assets                                                                 |       | 8,199                                |       | 10,874 |   | 9,830 |   |
| Other                                                                                         |       | (4,643                               | )          | (2,991 | ) | (6,540 | ) |
| Net  cash used in investing activities                                                        |       | (53,235                              | )          | (36,131 | ) | (75,092 | ) |
|                                                                                          |       |                                 |       |   |   |   |   |
| **Cash flows from financing activities:**                                                     |       |                                 |       |   |   |   |   |
| Distributions                                                                                 |       | (157,623                             | )          | (152,354 | ) | (152,058 | ) |
| Contributions  from partners                                                                  |       | 70,561                               |       | — |   | 46,570 |   |
| Proceeds  from increase in long-term debt                                                     |       | 208,259                              |       | 115,249 |   | 74,568 |   |
| Reductions  in long-term debt                                                                 |       | (239,555                             | )          | (92,985 | ) | (60,942 | ) |
| Net  additions to (reductions in) short-term borrowings                                       |       | (59,570                              | )          | 67,950 |   | 5,132 |   |
| Cash  paid for financing costs                                                                |       | (3,953                               | )          | (383 | ) | (86 | ) |
| Net  cash used in financing activities                                                        |       | (181,881                             | )          | (62,523 | ) | (86,816 | ) |
|                                                                                          |       |                                 |       |   |   |   |   |
| **Effect of exchange rate changes on cash**                                                   |       | (7                                   | )          | (10 | ) | 14 |   |
|                                                                                          |       |                                 |       |   |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                             |       | (9,495                               | )          | (3,862 | ) | 5,532 |   |
| Cash  and cash equivalents - beginning of year                                                |       | 16,545                               |       | 20,407 |   | 14,875 |   |
| **Cash and cash equivalents - end of year**                                                   |       | $                                    | 7,050      |   | $ | 16,545 |   | $ | 20,407 |   |

 

See notes toconsolidated financial statements.

 

F-41

----

**Tableof Contents**

** **

**FERRELLGAS,L.P.**

**ANDSUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Dollarsin thousands, unless otherwise designated)**

 

**A.****      ****Partnershiporganization and formation**

 

Ferrellgas, L.P. was formed on April 22, 1994, and is a Delawarelimited partnership. Ferrellgas, L.P. owns and operates propane distributionand related assets. Ferrellgas Partners, L.P. (“Ferrellgas Partners”), apublicly traded limited partnership, holds an approximate 99% limited partnerinterest in, and consolidates, Ferrellgas, L.P. Ferrellgas, Inc. (the “generalpartner”), a wholly-owned subsidiary of Ferrell Companies, Inc. (“FerrellCompanies”), holds an approximate 1% general partner interest in Ferrellgas,L.P. and performs all management functions required by Ferrellgas, L.P.Ferrellgas Partners and Ferrellgas, L.P. are governed by their respectivepartnership agreements. These agreements contain specific provisions for theallocation of net earnings and loss to each of the partners for purposes ofmaintaining the partner capital accounts.

 

Ferrellgas, L.P. owns a 100% equity interest in Ferrellgas FinanceCorp., whose only business activity is to act as the co-issuer and co-obligorof any debt issued by Ferrellgas, L.P.

 

Ferrell Companies is wholly-owned by a leveraged employee stockownership trust (“ESOT”) established pursuant to the Ferrell Companies EmployeeStock Ownership Plan (“ESOP”). The purpose of the ESOP is to provide employeesof the general partner an opportunity for ownership in Ferrell Companies andindirectly in Ferrellgas, L.P. As contributions are made by Ferrell Companiesto the ESOT in the future, shares of Ferrell Companies are allocated to theemployees’ ESOP accounts.

 

**B.****      ****Summaryof significant accounting policies**

 

**(1)     Nature of operations:** Ferrellgas,L.P. is engaged primarily in the distribution of propane and related equipmentand supplies in the United States. The propane distribution market is seasonalbecause propane is used primarily for heating in residential and commercialbuildings. Ferrellgas, L.P. serves approximately one million residential,industrial/commercial, portable tank exchange, agricultural, wholesale andother customers in all 50 states, the District of Columbia, and Puerto Rico.

 

**(2)****             ****Accountingestimates:** The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America (“GAAP”) requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reported period.Actual results could differ from these estimates. Significant estimatesimpacting the consolidated financial statements include accruals that have beenestablished for contingent liabilities, pending claims and legal actionsarising in the normal course of business, useful lives of property, plant andequipment assets, residual values of tanks, capitalization of customer tankinstallation costs, amortization methods of intangible assets, valuationmethods used to value sales returns and allowances, allowance for doubtful accounts,financial derivative contracts and stock and unit-based compensationcalculations.

 

**(3)****             ****Principlesof consolidation:** Theaccompanying consolidated financial statements present the consolidatedfinancial position, results of operations and cash flows of Ferrellgas, L.P.and its subsidiaries after elimination of all material intercompany accountsand transactions. Ferrellgas, L.P.

 

F-42

----

Table of Contents

 

consolidates the following wholly-owned taxable corporations: BlueRhino Global Sourcing, Inc. and Blue Rhino Canada, Inc. FerrellgasReceivables, LLC (“Ferrellgas Receivables”), a wholly-owned unconsolidatedsubsidiary, is a special purpose entity.

 

**(4)****             ****Cashand cash equivalents and non-cash activities:**For purposes of theconsolidated statements of cash flows, Ferrellgas, L.P. considers cashequivalents to include all highly liquid debt instruments purchased with anoriginal maturity of three months or less. Significant non-cash activities arepresented below**:**

** **
| ** **                                                                   | ** ** | **For the year ended July 31,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                   | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| CASH PAID FOR:                                                               |       |                                 |       |   |   |   |   |
| Interest                                                                     |       | $                                    | 59,626     |   | $ | 64,922 |   | $ | 63,584 |   |
| Income taxes                                                                 |       | $                                    | 1,374      |   | $ | 3,766 |   | $ | 3,742 |   |
| NON-CASH INVESTING ACTIVITIES:                                               |       |                                 |       |   |   |   |   |
| Assets contributed from Ferrellgas Partners in  connection with acquisitions |       | $                                    | 5,515      |   | $ | — |   | $ | 2,009 |   |
| Issuance of liabilities in connection with  acquisitions                     |       | $                                    | 1,673      |   | $ | — |   | $ | 2,426 |   |
| Property, plant and equipment additions                                      |       | $                                    | 973        |   | $ | 1,970 |   | $ | 1,187 |   |

 

**(****5)     Accounts receivablesecuritization:** Ferrellgas, L.P. has agreements to transfer, on anongoing basis, a portion of its trade accounts receivable through FerrellgasReceivables, an accounts receivable securitization facility. Ferrellgas, L.P.retains servicing responsibilities as well as a retained interest in thetransferred receivables. Ferrellgas, L.P. also holds a note receivable fromFerrellgas Receivables to the extent that expected cash proceeds from the salesof accounts receivable to Ferrellgas Receivables have not been received.Ferrellgas, L.P. has no other continuing involvement with the transferredreceivables, other than servicing the receivables. The related receivables aretransferred from the consolidated balance sheets and a retained interest andnote receivable are recorded for the amount of receivables sold in excess ofcash received and a related loss on the transfer is recorded, which representsthe discount on the sale. The retained interest and note receivable areincluded in “Accounts and notes receivable, net” in the consolidated balancesheets.

 

Ferrellgas, L.P.determines the fair value of its retained interest and note receivable based onthe present value of future expected cash flows using management’s bestestimates of various factors, including credit loss experience and discountrates commensurate with the risks involved. These assumptions are updatedperiodically based on actual results; therefore, the estimated credit loss anddiscount 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 significantlyimpact the fair value of the retained interests and note receivable. Costsassociated with the sale of receivables are included in “Loss on disposal ofassets and other” in the consolidated statements of earnings. See Note F —Accounts and notes receivable, net and accounts receivable securitization — forfurther discussion of these transactions.

 

**(6)****             ****Inventories: ** Inventories are stated at the lower of cost or market using weightedaverage cost and actual cost methods.

 

**(7)****             ****Property,plant and equipment: **Property, plantand equipment are stated at cost less accumulated depreciation. Expendituresfor maintenance and routine repairs are expensed as incurred. Ferrellgas, L.P.capitalizes computer software, equipment replacement and betterment expendituresthat upgrade, replace or completely rebuild major mechanical components andextend

 

F-43

----

Table of Contents

 

the original useful life of the equipment. Depreciation is calculatedusing the straight-line method based on the estimated useful lives of theassets ranging from two to 30 years. Ferrellgas L.P., using its best estimatesbased on reasonable and supportable assumptions and projections, reviewslong-lived assets for impairment whenever events or changes in circumstancesindicate that the carrying amount of its assets might not be recoverable. SeeNote E — Supplemental financial statement information — for further discussionof property, plant and equipment.

 

**(8) ****          ****Goodwill:** Ferrellgas,L.P. records goodwill as the excess of the cost of acquisitions over the fairvalue of the related net assets at the date of acquisition. Goodwill is testedfor impairment annually on January 31, or more frequently if circumstancesdictate, and if impaired, written off against earnings at that time.Ferrellgas, L.P. has not recognized any impairment losses as a result of thesetests. For purposes of Ferrellgas, L.P.’s goodwill impairment test, Ferrellgas,L.P. has determined that it has one reporting unit. Ferrellgas, L.P. assessesthe carrying value of goodwill at its reporting unit based on an estimate ofthe fair value of the reporting unit. Fair value of the reporting unit isestimated using a market value approach taking into consideration the quotedmarket price of Ferrellgas Partners’ common units.

 

**(9)     Intangible assets:**Intangibleassets with finite useful lives, consisting primarily of customer lists,non-compete agreements and patented technology, are stated at cost, net ofaccumulated amortization calculated using the straight-line method over periodsranging from two to 15 years. Trade names and trademarks have indefinite lives,are not amortized, and are stated at cost. Ferrellgas, L.P. tests finite-livedintangible assets for impairment when events or changes in circumstancesindicate that the carrying amount of these assets might not be recoverable.Ferrellgas, L.P. tests indefinite-lived intangible assets for impairmentannually on January 31 or more frequently if circumstances dictate.Ferrellgas, L.P. has not recognized impairment losses as a result of thesetests. When necessary, intangible assets’ useful lives are revised and theimpact on amortization reflected on a prospective basis. See Note G — Goodwilland intangible assets, net — for further discussion of intangible assets.

 

**(10)  Derivatives and hedgingactivities:** Ferrellgas, L.P.’s overall objective for enteringinto derivative contracts, including commodity options and swaps, is to hedge aportion of its exposure to market fluctuations in propane prices. Thesefinancial instruments are formally designated and documented as a hedge of aspecific underlying exposure, as well as the risk management objectives andstrategies for undertaking the hedge transaction. Because of the high degree ofcorrelation between the hedging instrument and the underlying exposure beinghedged, fluctuations in the value of the derivative instrument are generallyoffset by changes in the anticipated cash flows of the underlying exposurebeing hedged. The fair value of these derivatives fluctuates over the length ofthe contracts. These fair value amounts should not be viewed in isolation, butrather in relation to the anticipated cash flows of the underlying hedgedtransaction and the overall reduction in our risk relating to adversefluctuations in propane prices. Ferrellgas, L.P. formally assesses, both atinception and at least quarterly thereafter, whether the financial instrumentsthat are used in hedging transactions are effective at offsetting changes in theanticipated cash flows of the related underlying exposures. Any ineffectiveportion of a financial instrument’s change in fair value is recognized in “Costof product sold - propane and other gas liquids sales” in the consolidatedstatements of earnings. Ferrellgas, L.P. also enters into derivative contractsthat qualify for the normal purchases and normal sales exception underStatement of Financial Accounting Standards (“SFAS”) No. 133, “Accountingfor Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended.Financial instruments formally designated and documented as a hedge of aspecific underlying exposure are recorded gross at fair value as either “Pricerisk management assets” or “Other current liabilities” on the consolidatedbalance sheets with changes in fair value reported in other comprehensiveincome.

 

F-44

----

Table of Contents

 

**(11)Revenue recognition:**Revenues from the distribution of propane and other gas liquids, includingrevenues from customer deposits and advances, are recognized by Ferrellgas,L.P. at the time product is delivered to its customers. Other revenues, whichinclude revenue from the sale of propane appliances and equipment is recognizedat the time of delivery or installation. Revenues from repairs and maintenanceare recognized upon completion of the service. Ferrellgas, L.P. recognizesshipping and handling revenues and expenses for sales of propane, appliancesand equipment at the time of delivery or installation. Shipping and handlingrevenues are included in the price of propane charged to customers, and areclassified as revenue. Revenues from annually billed, non-refundable tankrentals are recognized on a straight-line basis over one year. Cooperativeadvertising program costs are recorded as a reduction to our revenue.

 

**(12)Shipping and handling expenses:**Shipping and handlingexpenses related to delivery personnel, vehicle repair and maintenance andgeneral liability expenses are classified within “Operating expense” in theconsolidated statements of earnings. Depreciation expenses on delivery vehiclesFerrellgas, L.P. owns are classified within “Depreciation and amortizationexpense.” Delivery vehicles and distribution technology leased by Ferrellgas,L.P. are classified within “Equipment lease expense.” See Note E — Supplementalfinancial statement information - for the financial statement presentation ofshipping and handling expenses.

** **

**(13) Costof product sold:** “Cost of product sold — propane and othergas liquids sales” includes all costs to acquire propane and other gas liquids,the costs of storing and transporting inventory prior to delivery toFerrellgas, L.P.’s customers, the results from risk management activities tohedge related price risk and the costs related to the refurbishment ofFerrellgas, L.P.’s portable propane tanks. “Cost of product sold — other”primarily includes costs related to the sale of propane appliances andequipment.

** **

**(14)   Operating expenses:** “Operatingexpense” primarily includes the personnel, vehicle, delivery, handling, plant,office, selling, marketing, credit and collections and other expenses relatedto the retail distribution of propane and related equipment and supplies.

** **

**(15)General and administrative expenses: “**General andadministrative expense” primarily includes personnel and incentive expenserelated to executives and employees and other overhead expense related tocentralized corporate functions.

** **

**(16)****         ****Unit and stock-basedcompensation:**

 

***Ferrellgas Unit Option Plan (“UOP”)***

 

TheUOP is authorized to issue options covering up to 1.35 million common units toemployees of the general partner or its affiliates. The Compensation Committeeof the Board of Directors of the general partner administers the UOP,authorizes grants of unit options thereunder and sets the unit option price andvesting terms of unit options in accordance with the terms of the UOP. Nosingle officer or director of the general partner may acquire more than 314,895common units under the UOP. In general, the options currently outstanding underthe UOP vest over a five-year period, and expire on the tenth anniversary ofthe date of the grant. The fair value of each option award is estimated on thedate of grant using a binomial option valuation model. Expected volatility isbased on the historical volatility of Ferrellgas Partners’ publicly-tradedcommon units. Historical information is used to estimate option exercise andemployee termination behavior. Due to the limited number of employees eligibleto participate in the UOP, there is only one group of employees. The expectedterm of options granted is derived from historical exercise patterns andrepresents the period of time that options are expected to be outstanding. Therisk free rate for periods within the contractual life of the option is basedon the U.S. Treasury yield curve in effect at the time of grant. During theyear ended July 31, 2009, the portion of the total non-cash compensationcharge relating to the UOP was

 

F-45

----

Table of Contents

 

$15thousand and related to fiscal 2009 grants of unit options to acquire 0.3million common units. During the years ended July 31, 2008 and 2007, nocompensation charge relating to the UOP was recognized as all optionsoutstanding at that time were fully vested.

 

*FerrellCompanies, Inc. Incentive Compensation Plan (“ICP”)*

TheICP is not a Ferrellgas, L.P. stock-compensation plan; however, in accordancewith Ferrellgas L.P.’s partnership agreements, all employee-related costsincurred by Ferrell Companies are allocated to Ferrellgas, L.P. As a result,Ferrellgas, L.P. incurs a non-cash compensation charge from Ferrell Companies.During the years ended July 31, 2009, 2008 and 2007, the portion of thetotal non-cash compensation charge relating to the ICP was $2.3 million, $1.8million and $0.9 million, respectively.

FerrellCompanies is authorized to issue options covering up to 6.25 million shares ofFerrell Companies common stock under the ICP. The ICP was established byFerrell Companies to allow upper middle and senior level managers of thegeneral partner to participate in the equity growth of Ferrell Companies. Theshares underlying the stock options are common shares of Ferrell Companies;therefore, there is no earnings per share dilution of Ferrellgas, L.P. The ICPstock options vest ratably over periods ranging from zero to 12 years or 100%upon a change of control of Ferrell Companies, or upon the death, disability orretirement at the age of 65 of the participant. Vested options are exercisablein increments based on the timing of the retirement of Ferrell Companies’ debt,but in no event later than 20 years from the date of issuance. The fair valueof each option award is estimated on the date of grant using a binomial optionvaluation model.

** **

**(17)****      ****Incometaxes: ** Ferrellgas, L.P. is a limited partnership and owns four subsidiariesthat are taxable corporations. As a result, except for the taxablecorporations, Ferrellgas, L.P.’s earnings or losses for federal income taxpurposes are included in the tax returns of the individual partners.Accordingly, the accompanying consolidated financial statements of Ferrellgas,L.P. reflect federal income taxes related to the above mentioned taxablecorporations. Recent legislation in certain states of operation allows fortaxation of partnerships. As such, the accompanying consolidated financialstatements of Ferrellgas, L.P. also reflect state income taxes resulting fromthis legislation. Net earnings for financial statement purposes may differsignificantly from taxable income reportable to partners as a result of differencesbetween the tax basis and financial reporting basis of assets and liabilities,the taxable income allocation requirements under Ferrellgas, L.P.’s partnershipagreement and differences between Ferrellgas, L.P.’s financial reporting yearend and limited partners tax year end.

 

Income tax expense consisted of the following:

 
| ** **                 | ** ** | **For the year ended  July 31,** | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **2009**                              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Current expense            |       | $                                     | 1,820      |   | $ | 1,656 |   | $ | 3,461 |   |
| Deferred expense (benefit) |       | 388                                   |       | (1,650 | ) | 3,099 |   |
| Income tax  expense        |       | $                                     | 2,208      |   | $ | 6 |   | $ | 6,560 |   |

 

Deferred taxes consisted of the following:

 
| ** **                 | ** ** | ** ** | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------|------------|------------|------------|----------|------------|----------|------------|
| Deferred tax assets        |       |       |       | $        | 877        |     | $          | 4,065 |   |
| Deferred tax liabilities   |       |       |       | (1,889   | )          | (4,689   | )          |
| Net deferred tax liability |       |       |       | $        | (1,012     | )        | $          | (624 | ) |

 

F-46

----

Table of Contents

 

On July 12, 2007, the governor of the state of Michigan signedinto law a new Michigan Business Tax (the “MBT Act”), which provided acomprehensive restructuring of Michigan’s principal business tax regime. Themain provision of the MBT Act imposed a new two-part tax on business income andmodified gross receipts that is accounted for as an income tax in accordancewith SFAS No. 109 “Accounting for Income Taxes” (“SFAS 109”). Although theeffective date of the MBT was January 1, 2008, SFAS 109 required alleffects of a tax law change be accounted for in the period of the law’senactment. As a result, during the fourth quarter of fiscal 2007 Ferrellgas,L.P. recognized a one time increase in its deferred tax expense of $2.8million. During fiscal 2008, the Governor of the State of Michigan signed intolaw a one time credit for this Michigan Business Tax law. The passing of thisnew tax law caused Ferrellgas, L.P. to recognize a one time deferred taxbenefit of $2.8 million during fiscal 2008.

 

**(18) Sales taxes:**Ferrellgas, L.P. accountsfor the collection and remittance of sales tax on a net tax basis. As a result,these amounts are not reflected in the consolidated statements of earnings.

 

**(19)****Segment information:**Ferrellgas, L.P. is a single reportable operating segment engaging in thedistribution of propane and related equipment and supplies to customersprimarily in the United States.

 

**(20) New accounting standards:**SFAS No. 165, “Subsequent Events” provides guidance on management’sassessment of subsequent events and clarifies that management must evaluate, asof each reporting period, events or transactions that occur after the balancesheet date through the date that the financial statements are issued or areavailable to be issued. The adoption of this statement during fiscal 2009 didnot have a significant impact on Ferrellgas, L.P.’s financial position orresults of operations. See additional disclosures relating to subsequent eventsin Note O — Subsequent events.

 

SFASNo. 166, “Accounting for Transfers of Financial Assets, an Amendment ofFASB Statement No. 140” amends the derecognition guidance in SFAS No. 140to improve the accounting for transfers of financial assets. This statement iseffective for financial asset transfers that occur in fiscal years beginningafter November 15, 2009. Ferrellgas, L.P. is currently evaluating thepotential impact of this statement.

 

SFASNo. 167, “Amendments to FASB Interpretation No. 46(R)” amends theconsolidation guidance that applies to variable interest entities and willsignificantly affect the overall consolidation analysis under FASBInterpretation 46(R). This statement is effective for fiscal years beginningafter November 15, 2009. Ferrellgas, L.P. is currently evaluating thepotential impact of this statement.

 

SFASNo. 168, “The FASB Accounting Standards Codification and the Hierarchy ofGenerally Accepted Accounting Principles, a Replacement of FASB Statement No. 162”establishes the authoritative reference for nongovernmental U.S. GAAP andmodifies the previous four-level GAAP hierarchy to include only two levels.This statement is effective for interim and annual periods ending after September 15,2009. Ferrellgas, L.P. does not expect the adoption of this statement in fiscal2010 to have a material impact on its financial position or results ofoperations.

 

SFASNo. 161, “Disclosures about Derivative Instruments and Hedging Activities,an Amendment to FASB Statement No. 133” enhances disclosure requirementsfor derivative instruments and hedging activities. The adoption of thisstatement during fiscal 2009 did not have a significant impact on Ferrellgas,L.P.’s financial position or results of operations. See additional disclosuresrelating to commodity derivative and financial derivative transactions in NoteJ — Derivatives.

 

SFASNo. 157, “Fair Value Measurements” defines fair value, establishes aframework for measuring fair value and expands disclosures about fair valuemeasurements. The adoption of this

 

F-47

----

Table of Contents

 

statementduring fiscal 2009 did not have a significant impact on Ferrellgas, L.P.’sfinancial position or results of operations. See disclosure of Ferrellgas, L.P.’sfair value measurements commodity derivative and financial derivativetransactions in Note J — Derivatives.

 

SFASNo. 159, “The Fair Value Option for Financial Assets and FinancialLiabilities,” provides entities the irrevocable option to elect to carry mostfinancial assets and liabilities at fair value with changes in fair valuerecorded in earnings. The adoption of this statement was effective August 1,2008; however, Ferrellgas, L.P. has not elected the fair value option for anyof its financial assets or liabilities.

 

SFASNo. 141(R) “Business Combinations” (a replacement of SFAS No. 141,“Business Combinations”) establishes principles and requirements for how theacquirer in a business combination recognizes and measures the identifiableassets acquired, the liabilities assumed, and any noncontrolling interest inthe acquiree, how the acquirer recognizes and measures goodwill or a gain from abargain purchase (formerly negative goodwill) and how the acquirer determineswhat information to disclose. This statement is effective for businesscombinations for which the acquisition date is on or after the beginning of thefirst annual reporting period beginning on or after December 15, 2008.Ferrellgas, L.P. does not expect the adoption of this statement in fiscal 2010to have a material impact on its financial position or results of operations.

 

FASBStaff Position (“FSP”) SFAS 140-4 and FASB Interpretation No. 46R-8 “Disclosuresby Public Entities (Enterprises) about Transfers of Financial Assets andInterests in Variable Interest Entities” improves the transparency of transfersof financial assets and an enterprise’s involvement with variable interestentities, including qualifying special-purpose entities. The adoption of thisFSP during fiscal 2009 did not have a significant impact on Ferrellgas, L.P.’sfinancial position or results of operations.

 

**C**.       **Business combinations**

 

Business combinations areaccounted for under the purchase method and the assets acquired and liabilitiesassumed are recorded at their estimated fair market values as of theacquisition dates. The results of operations are included in the consolidatedstatements of earnings from the date of acquisition. The pro forma effect ofthese transactions was not material to Ferrellgas, L.P.’s results ofoperations.

 

During fiscal 2009,Ferrellgas, L.P. acquiredpropane distribution assets with an aggregate value of $10.0 million in thefollowing four transactions:

 

·                  Lorensen Propane Gas, Inc.,based in California, acquired September 2008;

·                  HBH Gas Systems, LLC —Austin’s Colony Phase 5, based in Texas, acquired September 2008;

·                  Ottawa Cooperative, based inKansas, acquired May 2009; and

·                  Town & CountryPropane, Inc, based in Missouri, acquired July 2009.

 

These acquisitions were funded by $2.7 million in cash payments, theissuances of $1.8 million of liabilities and other costs and considerations,and the contribution of net assets of $5.5 million from Ferrellgas Partners.

 

F-48

----

Table of Contents

 

The aggregate fair values ofthese four transactions were allocated as follows:

 
| Customer tanks, buildings,  land and other |   | $     | 3,031  |   |
|--------------------------------------------|--------|-------|--------|--------|
| Non-compete agreements                     |   | 1,438 |   |
| Customer lists                             |   | 5,475 |   |
| Working capital                            |   | 6     |   |
|                                       |   | $     | 9,950  |   |

 

The estimated fair values and useful lives ofassets acquired are based on a preliminary internal valuation and are subjectto final valuation adjustments. Ferrellgas, L.P. intends to continue itsanalysis of the net assets of these transactions to determine the finalallocation of the total purchase price to the various assets and liabilitiesacquired.

 

During fiscal 2008,Ferrellgas, L.P. had no acquisitions of propane distribution assets.

 

During fiscal 2007,Ferrellgas, L.P. acquired propane distribution assets with an aggregate valueof $36.2 million in the following nine transactions:

 

·                  Pacer-Valley Propane, LLC,based in California, acquired August 2006;

·                  Lake Propane, based inCalifornia, acquired August 2006;

·                  Pacific Propane Service, Inc.,based in California, acquired August 2006;

·                  Twin Ports Energy, Inc.,based in Wisconsin, acquired October 2006;

·                  Getman’s Gas Company, Inc., based in NewYork, acquired October 2006;

·                  Yankee Gas, LLC, based in Massachusetts,acquired October 2006;

·                  Great Dane Propane, Inc., based inFlorida, acquired October 2006;

·                  Puget Sound Propane, based in Washington,acquired December 2006; and

·                  Reliance Bottle Gas, Inc., based inOhio, acquired June 2007.

 

These acquisitions were funded by $31.7 million in cash payments, theissuances of $2.5 million of liabilities and other costs and considerations, andthe contribution of net assets of $2.0 million from Ferrellgas Partners.

 

The aggregate fair values ofthese nine transactions were allocated as follows:

 
| Customer  tanks, buildings, land and other |   | $      | 11,567 |   |
|--------------------------------------------|--------|--------|--------|--------|
| Non-compete  agreements                    |   | 2,072  |   |
| Customer  lists                            |   | 18,178 |   |
| Goodwill                                   |   | 3,649  |   |
| Working  capital                           |   | 712    |   |
|                                       |   | $      | 36,178 |   |

 

The fair valuesand useful lives of assets acquired are based on an internal valuation andincluded only minor final valuation adjustments during the 12 month periodafter the date of acquisition.

 

**D.****           ****Quarterly distributions ofavailable cash**

 

Ferrellgas, L.P. makes quarterly cash distributions of all of its “availablecash.”  Available cash is defined in thepartnership agreement of Ferrellgas, L.P. as, generally, the sum of itsconsolidated cash receipts less consolidated cash disbursements and net changesin reserves established by the general partner for future requirements.Reserves are retained in order to provide for the proper conduct of Ferrellgas,L.P.’s business, or to provide funds for distributions with respect to any oneor

 

 

F-49

----

Tableof Contents

 

more of the next four fiscal quarters. Distributions are made within 45days after the end of each fiscal quarter ending October, January, April, andJuly.

 

Distributions by Ferrellgas, L.P. in an amount equal to 100% of itsavailable cash, as defined in its partnership agreement, will be madeapproximately 99% to Ferrellgas Partners and approximately 1% to the generalpartner.

 

**E.****             ****Supplemental****financial statement information**

 

Inventories consist of the following:

 
| ** **                       | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Propane gas and related products |       | $        | 109,606    |     | $          | 128,776 |   |
| Appliances, parts and supplies   |       | 20,202   |       | 23,525   |       |
| Inventories                      |       | $        | 129,808    |     | $          | 152,301 |   |

 

Inaddition to inventories on hand, Ferrellgas, L.P. enters into contractsprimarily to buy propane for supply procurement purposes. Most of thesecontracts have terms of less than one year and call for payment based on marketprices at the date of delivery. All supply procurement fixed price contractshave terms of fewer than 24 months. As of July 31, 2009, Ferrellgas, L.P.had committed, for supply procurement purposes, to take net delivery of approximately87.9 million gallons of propane at fixed prices.

 

Property, plantand equipment, net consist of the following:

 
| ** **                               | ** ** | **Estimated**    | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------------|------------|------------|------------|------------|------------|
| ** **                               | ** ** | **useful lives** | ** ** | **2009**   | ** ** | **2008**   | ** ** |
| Land                                     |       | Indefinite       |       | $          | 30,414     |       | $          | 30,840 |   |
| Land  improvements                       |       | 2-20             |       | 10,858     |       | 10,585     |       |
| Buildings  and improvements              |       | 20               |       | 64,392     |       | 63,777     |       |
| Vehicles,  including transport trailers  |       | 8-20             |       | 92,914     |       | 96,351     |       |
| Bulk  equipment and district facilities  |       | 5-30             |       | 100,123    |       | 97,489     |       |
| Tanks,  cylinders and customer equipment |       | 2-30             |       | 767,682    |       | 761,065    |       |
| Computer  and office equipment           |       | 2-5              |       | 115,343    |       | 116,873    |       |
| Construction  in progress                |       | n/a              |       | 5,853      |       | 9,575      |       |
|                                     |       |             |       | 1,187,579  |       | 1,186,555  |       |
| Less:  accumulated depreciation          |       |             |       | 521,044    |       | 501,227    |       |
| Property,  plant and equipment, net      |       |             |       | $          | 666,535    |       | $          | 685,328 |   |

 

Depreciationexpense totaled $62.3 million, $64.6 million and $64.8 million for fiscal 2009,2008 and 2007, respectively.

 

Other current liabilities consist of the following:

 
| ** **                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Accrued interest               |       | $        | 16,723     |     | $          | 16,879 |   |
| Accrued payroll                |       | 23,395   |       | 12,621   |       |
| Customer deposits and advances |       | 23,115   |       | 25,065   |       |
| Other                          |       | 42,428   |       | 50,225   |       |
| Other current liabilities      |       | $        | 105,661    |     | $          | 104,790 |   |

 

F-50

----

Table of Contents

 

Loss on disposalof assets and other consist of the following:

 
| ** **                                                                                 | ** ** | **For the year ended July 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                 | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Loss on disposal of assets                                                                 |       | $                                    | 5,009      |   | $ | 4,820 |   | $ | 4,232 |   |
| Loss on transfer of  accounts receivable related to the accounts receivable securitization |       | 12,124                               |       | 10,548 |   | 10,384 |   |
| Service income related to the accounts receivable  securitization                          |       | (4,091                               | )          | (4,118 | ) | (3,794 | ) |
| Loss on disposal of assets  and other                                                      |       | $                                    | 13,042     |   | $ | 11,250 |   | $ | 10,822 |   |

 

Shipping and handlingexpenses are classified in the following consolidated statements of earningsline items:

 
| ** **                            | ** ** | **For the year ended  July 31,** | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|
| ** **                            | ** ** | **2009**                              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Operating expense                     |       | $                                     | 178,218    |   | $ | 171,938 |   | $ | 163,193 |   |
| Depreciation and amortization expense |       | 4,915                                 |       | 5,096 |   | 5,308 |   |
| Equipment lease expense               |       | 17,541                                |       | 22,703 |   | 23,465 |   |
|                                  |       | $                                     | 200,674    |   | $ | 199,737 |   | $ | 191,966 |   |

 

**F.****            ****Accountsand notes receivable, net and accounts receivable securitization**

 

Accountsand notes receivable, net consist of the following:

 
| ** **                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Accounts receivable                         |       | $        | 33,903     |     | $          | 127,975 |   |
| Note receivable from Ferrellgas Receivables |       | 52,038   |       | —   |       |
| Retained interest                           |       | 24,979   |       | 22,753   |       |
| Other                                       |       | 284      |       | 330      |       |
| Less: allowance for doubtful accounts       |       | (4,294   | )          | (5,977   | )          |
| Accounts and notes receivable, net          |       | $        | 106,910    |     | $          | 145,081 |   |

 

DuringApril 2009, Ferrellgas, L.P. renewed its accounts receivablesecuritization facility with JPMorgan Chase Bank, N.A., JS Siloed Trust andFifth Third Bank for an additional 364-day commitment. As part of this renewedfacility, Ferrellgas, L.P. transfers a portion of its trade accounts receivableto Ferrellgas Receivables, which finances its acquisition of the tradereceivable assets by issuing beneficial interests in (securitizing) thereceivables to a commercial paper conduit for proceeds of up to $145.0 million.Ferrellgas, L.P. does not provide any guarantee or similar support to thecollectability of these receivables. Ferrellgas, L.P. structured the facilityusing a wholly-owned, unconsolidated special purpose entity in order tofacilitate the transaction while complying with Ferrellgas, L.P.’s various debtcovenants. If the covenants are compromised, funding from the facility could berestricted or suspended, or its costs could increase. As a servicer,Ferrellgas, L.P. remits daily to this special purpose entity funds collected onthe trade receivables held by Ferrellgas Receivables.

 

Ferrellgas, L.P. transfers a portion of its trade accounts receivableto Ferrellgas Receivables and retains an interest and a note receivable relatedto these transferred receivables. As these transferred receivables aresubsequently collected, the funding from the accounts receivable securitizationfacility is reduced. Ferrellgas Receivables recorded the following on itsbalance sheet:

 
| ** **                                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|
| Trade accounts receivable transferred from Ferrellgas,  L.P. |       | $        | 118,982    |     | $          | 97,333 |   |
|                                                         |       |     |       |     |       |
| Note payable to Ferrellgas, L.P.                             |       | $        | 52,038     |     | $          | — |   |

 

F-51

----

Table of Contents

 

Ferrellgas, L.P.’s consolidated balance sheets do not include tradeaccounts receivables transferred, but do include a note receivable fromFerrellgas Receivables which represents expected cash proceeds from the sale ofaccounts receivable to Ferrellgas Receivables that have not yet been received.As of July 31, 2009, the operating partnership had received proceeds fromtrade accounts receivable sales of $37.0 million with the ability to receiveproceeds of an additional $4.0 million.

 

Other accounts receivable securitization activity consists of thefollowing:

 
| ** **            | ** ** | **For the year ended July 31,** | ** ** |
|-----------------------|------------|--------------------------------------|------------|
| ** **            | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net non-cash activity |       | $                                    | 8,033      |   | $ | 6,430 |   | $ | 2,964 |   |
| Bad debt expense      |       | $                                    | 600        |   | $ | — |   | $ | 202 |   |

 

The net non-cash activity reported in “Loss on disposal of assets andother” in the consolidated statements of earnings approximates the financingcost of issuing commercial paper backed by these accounts receivabletransferred to Ferrellgas Receivables. See details of the net non-cash activitydisclosed in Note E — Supplemental financial statement information — “Loss ontransfer of accounts receivable related to the accounts receivablesecuritization” and “Service income related to the accounts receivablesecuritization.” The weighted average discount rate used to value the retainedinterest in the transferred receivables was 3.6% and 4.65% as of July 31,2009 and 2008, respectively.

 

**G****.****          ****Goodwill and intangible assets,net**

 

Goodwill and intangible assets, netconsist of:

 
| ** **                        | ** ** | **July 31, 2009**      | ** ** | **July 31, 2008**        | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                        | ** ** | **Gross  carrying  amount** | ** ** | **Accumulated  amortization** | ** ** | **Net** | ** ** | **Gross  carrying  amount** | ** ** | **Accumulated  amortization** | ** ** | **Net** | ** ** |
| Goodwill, net                     |       | $                           | 248,939    |                          | $          | — |   | $ | 248,939 |   | $ | 248,939 |   | $ | — |   | $ | 248,939 |   |
| Intangible assets, net            |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Amortized intangible assets       |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Customer lists                    |       | $                           | 368,716    |                          | $          | (225,038 | ) | $ | 143,678 |   | $ | 363,242 |   | $ | (207,107 | ) | $ | 156,135 |   |
| Non-compete agreements            |       | 44,481                      |       | (36,957                       | )          | 7,524 |   | 43,042 |   | (35,081 | ) | 7,961 |   |
| Other                             |       | 3,584                       |       | (1,860                        | )          | 1,724 |   | 3,572 |   | (1,502 | ) | 2,070 |   |
|                              |       | 416,781                     |       | (263,855                      | )          | 152,926 |   | 409,856 |   | (243,690 | ) | 166,166 |   |
|                              |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Unamortized intangible assets     |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| Trade names & trademarks |       | 59,111                      |       | —                        |       | 59,111 |   | 59,107 |   | — |   | 59,107 |   |
| Total intangible assets, net      |       | $                           | 475,892    |                          | $          | (263,855 | ) | $ | 212,037 |   | $ | 468,963 |   | $ | (243,690 | ) | $ | 225,273 |   |

 

F-52

----

Tableof Contents

 

Customer lists have estimated lives of 15 years, while non-competeagreements and other intangible assets have estimated lives ranging from two toten years. Ferrellgas, L.P. intends to utilize all acquired trademarks andtrade names and does not believe there are any legal, regulatory, contractual,competitive, economical or other factors that would limit their useful lives.Therefore, trademarks and trade names have indefinite useful lives.

 

Aggregate amortization expense:

 
| For the year ended July 31, |   |
|----------------------------------|--------|
| 2009                             |   | $ | 20,166 |   |
| 2008                             |   | 20,970 |   |
| 2007                             |   | 22,553 |   |
|                                  |        |  |  |  |

 

Estimated amortization expense:

 
| For the year ended July 31, |   |
|----------------------------------|--------|
| 2010                             |   | $ | 19,298 |   |
| 2011                             |   | 19,141 |   |
| 2012                             |   | 18,693 |   |
| 2013                             |   | 18,142 |   |
| 2014                             |   | 14,874 |   |
|                                  |        |  |  |  |

 

**H.****          ****Debt**

 

***Short-term borrowings***

 

The operating partnership classified a portion of its unsecured creditfacility due April 2010 borrowings as short-term because it was used tofund working capital needs that management had intended to pay down within the12 month period following each balance sheet date. As of July 31, 2009 and2008, $66.2 million and $125.7 million, respectively, were classified asshort-term borrowings. For further discussion see the unsecured credit facilitysection below.

 

***Long-term debt***

 

Long-term debt consisted of the following:

 
| ** **                                                                                                                                                                                                         | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Senior notes**                                                                                                                                                                                                   |       |     |       |     |       |
| Fixed rate,  Series D-E, ranging from 7.24% to 7.42%, due 2010-2013 (1)                                                                                                                                       |       | $        | 152,000    |     | $          | 204,000 |   |
| Fixed rate, Series C, 8.87%, due 2009 (2)                                                                                                                                                                     |       | 73,000   |       | 73,000   |       |
| Fixed rate, 6.75% due 2014, net of unamortized  discount of $26,458 and $518 at July 31, 2009 and 2008, respectively (3)                                                                                      |       | 423,542  |       | 249,482  |       |
| ** **                                                                                                                                                                                                         |       |     |       |     |       |
| **Credit facility**, variable  interest rate, expiring 2010 (net of $66.2 million and $125.7 million  classified as short-term borrowings at July 31, 2009 and 2008,  respectively)                           |       | 88,541   |       | 235,270  |       |
| ** **                                                                                                                                                                                                         |       |     |       |     |       |
| **Notes payable**, 8.4% and  7.9% weighted average interest rate in 2009 and 2008, respectively, due 2009  to 2016, net of unamortized discount of $1,301 and $1,160 at July 31,  2009 and 2008, respectively |       | 5,321    |       | 5,864    |       |
| **Capital lease obligations**                                                                                                                                                                                      |       | —   |       | 29       |       |
|                                                                                                                                                                                                               |       | 742,404  |       | 767,645  |       |
| Less: current portion, included in other current  liabilities on the consolidated balance sheets                                                                                                                   |       | 1,422    |       | 2,397    |       |
| **Long-term debt**                                                                                                                                                                                                 |       | $        | 740,982    |     | $          | 765,248 |   |

 

F-53

----

Table of Contents

 

----

(1)                           Ferrellgas,L.P.’s fixed rate senior notes issued in August 1998 are general unsecuredobligations of Ferrellgas, L.P. and rank on an equal basis in right of paymentwith all senior indebtedness of Ferrellgas, L.P. and are senior to allsubordinated indebtedness of Ferrellgas, L.P. The outstanding principal amountof the series D and E notes are due on August 1, 2010 and 2013,respectively. In general, Ferrellgas, L.P. does not have the option to prepaythe notes prior to maturity without incurring prepayment penalties.

 

(2)                           Ferrellgas,L.P.’s fixed rate senior notes issued in February 2000 are generalunsecured obligations of Ferrellgas, L.P. and rank on an equal basis in rightof payment with all senior indebtedness of Ferrellgas, L.P. and are senior toall subordinated indebtedness of Ferrellgas, L.P. The outstanding principal amountof the series C notes is due on August 1, 2009.

 

(3)                           On April 20,2004, Ferrellgas, L.P. issued $250.0 million of its fixed rate senior noteswith a debt discount of $0.9 million that will be amortized to interest expensethrough 2014. On August 4, 2008, the Ferrellgas, L.P. issued $200.0million of its fixed rate senior notes with a debt discount of $30.0 millionthat will be amortized to interest expense through 2014. These notes aregeneral unsecured obligations of Ferrellgas, L.P. and rank on an equal basis inright of payment with all senior indebtedness of  Ferrellgas, L.P. and are senior to allsubordinated indebtedness of Ferrellgas, L.P. The outstanding principal amountis due on May 1, 2014. In general, Ferrellgas, L.P. does not have the optionto prepay the notes prior to maturity without incurring prepayment penalties.

 

*Senior Notes*

 

During August 2007,Ferrellgas, L.P. made a scheduled principal payment of $90.0 million of the8.78% Series B senior notes using proceeds from borrowings on theunsecured credit facility due April 2010.

 

DuringAugust 2008, Ferrellgas, L.P. made scheduled principal payments of $52.0million on the 7.12% Series C senior notes using proceeds from borrowingson the unsecured credit facility due April 2010.

 

DuringAugust 2008 Ferrellgas, L.P. issued $200.0 million in aggregate principalamount of its 6.75% senior notes due 2014 at an offering price equal to 85% ofpar. The net proceeds of these two transactions of $114.5 million, net ofunderwriting discounts and commissions, proceeds from this transaction wereused to reduce outstanding indebtedness under the unsecured credit facility dueApril 2010.

 

SeeNote O — Subsequent events for a discussion on senior note principal paymentsand new long term debt issuances.

 

*Unsecured credit facility*

 

FerrellgasL.P.’s $448.0 million unsecured credit facility matures April 22, 2010.Borrowings under this facility are available for working capital, acquisition,capital expenditure, long-term debt repayment, and general partnershippurposes. The credit facility has a letter of credit sub-facility withavailability of up to $150.0 million.

 

F-54

----

Table of Contents

 

Asof July 31, 2009 and 2008 Ferrellgas, L.P. had total borrowingsoutstanding under this unsecured credit facility due April 2010 of $154.7million and $361.0 million, respectively, of which $88.5 million and $235.3million, respectively were classified as long-term debt. See footnote O —Subsequent events for a discussion of the classification of this portion of theunsecured credit facility due April 2010 as long term.

 

Borrowingsunder the unsecured credit facility due April 2010 had weighted averageinterest rates of 2.19% and 4.72%, at July 31, 2009 and 2008,respectively. These borrowings bear interest, at Ferrellgas, L.P.’s option, ata rate equal to either:

 

·                  the baserate, which is defined as the higher of the federal funds rate plus 0.50% orBank of America’s prime rate (as of July 31, 2009, the federal funds rateand Bank of America’s prime rate were 0.18% and 3.25%, respectively); or

·                  theEurodollar Rate plus a margin varying from 1.50% to 2.50% (as of July 31,2009, the one-month and three-month Eurodollar Rates were 0.45% and 0.75%,respectively).

 

Inaddition, an annual commitment fee is payable on the daily unused portion ofthe unsecured credit facility due April 2010 at a per annum rate varyingfrom 0.375% to 0.500% (as of July 31, 2009, the commitment fee per annumrate was 0.375%).

 

Lettersof credit outstanding at July 31, 2009 totaled $44.4 million and were usedprimarily to secure insurance arrangements and to a lesser extent, productpurchases. Letters of credit outstanding at July 31, 2008 totaled $42.3million and were used primarily for insurance arrangements. At July 31,2009, Ferrellgas, L.P. had available letter of credit remaining capacity of$105.6 million. Ferrellgas, L.P. incurred commitment fees of $0.9 million, $0.4million and $0.6 million in fiscal 2009, 2008 and 2007, respectively.

 

During May 2007, Ferrellgas, L.P. entered into a new unsecuredcredit facility with additional borrowing capacity of up to $150.0 million,which was scheduled to mature on August 1, 2009. During April 2009,Ferrellgas, L.P. terminated this facility and paid down its total borrowingsoutstanding of $95.0 million using borrowing capacity available under theunsecured credit facility due April 2010.

 

DuringApril 2008, Ferrellgas, L.P. amended its unsecured credit facility due April 2010,increasing its borrowing capacity by $73.0 million and bringing its totalborrowing capacity to $448.0 million.

 

DuringOctober 2008, Ferrellgas, L.P. amended its unsecured credit facility due April 2010increasing the letter of credit sublimit from $90.0 million to $200.0 millionthrough February 28, 2009 and to $150.0 million thereafter. The letter ofcredit sublimit is part of, and not in addition to, the aggregate creditfacility commitment. The amendment also requires Ferrellgas, L.P. to cashcollateralize any outstanding letter of credit obligations in an amount equalto the pro rata share of any defaulting lender.

 

SeeNote O — Subsequent events for further discussion about the unsecured creditfacility due April 2010 and its replacement with a new secured creditfacility.

 

*Covenants*

 

Thesenior notes and the credit facility agreement contain various restrictivecovenants applicable to Ferrellgas, L.P. and its subsidiaries, the mostrestrictive relating to additional indebtedness. In addition, Ferrellgas, L.P.is prohibited from making cash distributions if a default or event of defaultexists or would exist upon making such distribution, or if Ferrellgas, L.P.fails to meet certain 

 

F-55

----

Table of Contents

 

coveragetests. As of July 31, 2009, Ferrellgas, L.P. is in compliance with allrequirements, tests, limitations and covenants related to these debtagreements.

 

The scheduled annual principal payments on long-term debt are asfollows:

** **
| **For the year ended July 31,** | ** ** | **Scheduled  annual  principal  payments** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|
| 2010                                                     |       | $                                          | 1,422      |   |
| 2011                                                     |       | 1,271                                      |       |
| 2012                                                     |       | 1,191                                      |       |
| 2013                                                     |       | 25,131                                     |       |
| 2014                                                     |       | 450,621                                    |       |
| Thereafter                                               |       | 290,527                                    |       |
| Total                                                    |       | $                                          | 770,163    |   |

 

See Note O — Subsequent events for discussion about the classificationof long-term debt maturities.

 

The carrying amount of short-term financial instruments approximatesfair value because of the short maturity of the instruments. The estimated fairvalue of Ferrellgas, L.P.’s long-term debt instruments was $791.3 million and$843.8 million as of July 31, 2009 and 2008, respectively. The fair valueis estimated based on quoted market prices.

 

**I.****               ****Partner’scapital**

 

*Partnership distributions paid*

 
| ** **          | ** ** | **For the year ended July 31,** | ** ** |
|---------------------|------------|--------------------------------------|------------|
| ** **          | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Ferrellgas Partners |       | $                                    | 156,031    |   | $ | 150,815 |   | $ | 150,522 |   |
| General partner     |       | $                                    | 1,592      |   | $ | 1,539 |   | $ | 1,536 |   |

 

OnAugust 28, 2009, Ferrellgas, L.P. declared distributions to FerrellgasPartners and the general partner of $34.5 million and $0.4 million,respectively, which were paid on September 14, 2009.

 

*Partnership contributions received*

 

During fiscal 2009, Ferrellgas, L.P.received cash contributions totaling $70.6 million and net asset contributionsrelated to acquisitions totaling $5.6 million from Ferrellgas Partners and thegeneral partner.

 

During fiscal 2008, Ferrellgas, L.P.received no cash or net asset contributions related to acquisitions fromFerrellgas Partners and the general partner.

 

During fiscal 2007, Ferrellgas, L.P.received cash contributions totaling $46.6 million and net asset contributionsrelated to acquisitions totaling $2.0 million from Ferrellgas Partners and thegeneral partner.

 

See additional discussions abouttransactions with related parties in Note K — Transactions with relatedparties.

 

F-56

----

Table ofContents

 

**J.****            ****Derivatives**

 

*Commodity Price Risk Management*

 

Ferrellgas, L.P.’s risk management activitiesprimarily attempt to mitigate price risks related to the purchase, storage,transport and sale of propane generally in the contract and spot markets frommajor domestic energy companies on a short-term basis. Ferrellgas, L.P.attempts to mitigate these price risks through the use of financial derivativeinstruments and forward propane purchase and sales contracts.

 

Ferrellgas,L.P.’s risk management strategy involves taking positions in the forward orfinancial markets that are equal and opposite to Ferrellgas, L.P.’s positionsin the physical products market in order to minimize the risk of financial lossfrom an adverse price change. This risk management strategy is successful whenFerrellgas, L.P.’s  gains or losses inthe physical product markets are offset by its losses or gains in the forwardor financial markets. These financial derivatives are designated as cash flowhedges.

 

Ferrellgas,L.P.’s risk management activities include the use of financial derivativeinstruments including, but not limited to, price swaps, options, futures andbasis swaps to seek protection from adverse price movements and to minimizepotential losses. Ferrellgas, L.P. enters into these financial derivativeinstruments directly with third parties in the over-the-counter market and withbrokers who are clearing members with the New York Mercantile Exchange.Ferrellgas, L.P. also enters into forward propane purchase and sales contractswith counterparties. These forward contracts qualify for the normal purchasenormal sales exception within SFAS 133 and are therefore not recorded byFerrellgas, L.P. prior to settlement.

 

*Cash Flow Hedging Activity*

 

Ferrellgas,L.P. uses financial derivative instruments for risk management purposes tohedge a portion of its exposure to market fluctuations in propane prices. Thesefinancial derivative instruments are designated as cash flow hedginginstruments, thus the effective portions of changes in the fair value of thefinancial derivatives are recorded in OCI prior to settlement and aresubsequently recognized in the consolidated statements of earnings in “Cost ofgoods sold — propane and other gas liquids sales” when the forward orforecasted propane sales transaction impacts earnings. The effectiveness ofcash flow hedges is evaluated at inception and on an on-going basis. Changes inthe fair value of cash flow hedges due to hedge ineffectiveness, if any, arerecognized in “Cost of product sold — propane and other gas liquids sales.”During the years ended July 31, 2009, 2008 and 2007, Ferrellgas, L.P. didnot recognize any gain or loss in earnings related to hedge ineffectiveness anddid not exclude any component of the financial derivative contract gain or lossfrom the assessment of hedge effectiveness related to these cash flow hedges.

 

The fair value of financial derivativeinstruments are classified gross on the consolidated balance sheets as “Pricerisk management assets” and “Other current liabilities” as follows:

 
| ** **                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Derivatives — Price risk  management assets      |       | $        | 3,391      |     | $          | 26,086 |   |
| Derivatives — Price risk  management liabilities |       | $        | 4,380      |     | $          | 7,337 |   |

 

F-57

----

Table ofContents

 

Ferrellgas,L.P. had the following cash flow hedge activity included in OCI in theconsolidated statements of partners’ capital:

 
| ** **                                                                                                                      | ** ** | **For the year   ended July 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                      | ** ** | **2009**                               | ** ** |
| Fair value loss adjustment classified as OCI with  offset in Price risk management assets and Price risk management liabilities |       | $                                      | (186,449   | ) |
| Reclassification of net losses originally recorded  within OCI to Cost of product sold — propane and other gas liquids     |       | $                                      | (166,711   | ) |

 

Thefair value losses reported above relate to the significant decrease inwholesale propane prices that occurred during fiscal 2009. Assuming a minimalchange in future market prices, Ferrellgas, L.P. expects to reclassify netlosses of approximately $1.0 million to earnings during the next year. Thesenet losses are expected to be offset by margins on propane sales commitmentsFerrellgas, L.P. has with its customers that qualify for the normal purchasenormal sales exception under SFAS 133.

 

During the years ended July 31,2009, 2008 and 2007, Ferrellgas, L.P. had no reclassifications to earningsresulting from discontinuance of any cash flow hedges arising from theprobability of the original forecasted transactions not occurring within theoriginally specified period of time defined within the hedging relationship.

 

Asof July 31, 2009, Ferrellgas, L.P. had financial derivative contractscovering 0.7 million barrels of propane that were entered into as cash flowhedges of forward and forecasted purchases of propane.

 

During the year ended July 31, 2009,four counterparties represented 85% of net settled cash flow hedging positionsreported in “Cost of goods sold — propane and other gas liquids sales.” Duringthe year ended July 31, 2009, Ferrellgas, L.P. neither held nor enteredinto financial derivative contracts that contained credit risk relatedcontingency features.

 

In accordance with SFAS 157, Ferrellgas,L.P. determines the fair value of its assets and liabilities subject to fairvalue measurement by using the highest possible “Level” as defined within SFAS157. The three levels defined by the SFAS 157 hierarchy are as follows:

 

·                 Level 1 —Quoted prices available in active markets for identical assets or liabilities.

·                 Level 2 —Pricing inputs not quoted in active markets but either directly or indirectlyobservable.

·                 Level 3 —Significant inputs to pricing that have little or no transparency with inputsrequiring significant management judgment or estimation.

 

Ferrellgas,L.P. considers over-the-counter derivative instruments entered into directlywith third parties as Level 2 valuation since the values of these derivativesare quoted by third party brokers and are on an exchange for similartransactions. The market prices used to value Ferrellgas, L.P.’s derivativeshave been determined using independent third party prices, readily availablemarket information, broker quotes, and appropriate valuation techniques.

 

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

 

F-58

----

Tableof Contents

 

**K.****          ****Transactionswith related parties**

 

Ferrellgas, L.P. has no employees and is managed and controlled by itsgeneral partner. Pursuant to Ferrellgas, L.P.’s partnership agreement, thegeneral partner is entitled to reimbursement for all direct and indirectexpenses incurred or payments it makes on behalf of Ferrellgas, L.P., and allother necessary or appropriate expenses allocable to Ferrellgas, L.P. or otherwisereasonably incurred by its general partner in connection with operatingFerrellgas, L.P.’s business. These costs primarily include compensation andbenefits paid to employees of the general partner who perform services onFerrellgas, L.P.’s behalf and are reported in the consolidated statements ofearnings as follows:

 
| ** **                         | ** ** | **For the year ended July 31,** | ** ** |
|------------------------------------|------------|--------------------------------------|------------|
| ** **                         | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
|                               |       |                                 |       |   |   |   |   |
| Operating expense                  |       | $                                    | 217,374    |   | $ | 185,576 |   | $ | 202,824 |   |
|                               |       |                                 |       |   |   |   |   |
| General and administrative expense |       | $                                    | 23,801     |   | $ | 27,203 |   | $ | 26,542 |   |

 

Ferrellgas,L.P. has a subleasing and a shared services agreement with Samson DentalPractice Management, LLC (“Samson”), a company wholly-owned by Mr. Ferrell.During the year ended July 31,2009, Ferrellgas, L.P. received payments totaling $0.3 million for servicesprovided to and sublease revenue receipts from Samson. No payments werereceived from Samson during the years ended July 31, 2008 and 2007.

 

Duringfiscal 2009, Ferrellgas, L.P. paid Fleishman-Hillard Inc. $0.2 million formarketing and communications services. Elizabeth Solberg, a member of thegeneral partner’s board of directors, serves as the General Manager ofFleishman—Hillard Inc.

 

Seeadditional discussions about transactions with related parties in Note I —Partner’s capital.

 

**L.****           ****Contingenciesand commitments**

 

*Litigation*

 

Ferrellgas, L.P.’s operations are subject to all operating hazards andrisks normally incidental to handling, storing, transporting and otherwiseproviding for use by consumers of combustible liquids such as propane. As aresult, at any given time, Ferrellgas, L.P. is threatened with or named as adefendant in various lawsuits arising in the ordinary course of business.Currently, Ferrellgas, L.P. is not a party to any legal proceedings other thanvarious claims and lawsuits arising in the ordinary course of business. It isnot possible to determine the ultimate disposition of these matters; however,management is of the opinion that there are no known claims or contingentclaims that are reasonably expected to have a material adverse effect on theconsolidated financial condition, results of operations and cash flows ofFerrellgas, L.P.

 

Ferrellgas,L.P. has been named as a defendant in lawsuits filed in multiple federal andstate courts that seek to certify nationwide or statewide classes. Theplaintiffs in each case generally allege that Ferrellgas, L.P. failed to informconsumers of the amount of propane contained in propane tanks they purchasedrelated to its Blue Rhino branded propane tank exchange activities. The caseshave generally been stayed until motions are heard regarding coordination formultidistrict treatment in a single court prior to trial. Based on Ferrellgas,L.P.’s business and consumer notification practices in its Blue Rhino tankexchange operations, Ferrellgas, L.P. believes that all of these claims arewithout merit and intend to defend the claims vigorously.

 

F-59

----

Table of Contents

 

*Long-term debt-related commitments*

 

Ferrellgas, L.P. has longand short-term payment obligations under agreements such as senior notes andits unsecured credit facility. See Note H - Debt - for a description of thesedebt obligations and a schedule of future maturities.

 

*Operatinglease commitments and buyouts*

 

Ferrellgas, L.P. leasescertain property, plant and equipment under noncancelable and cancelableoperating leases. Amounts shown in the table below represent minimum leasepayment obligations under Ferrellgas, L.P.’s third-party operating leases withterms in excess of one year for the periods indicated. These arrangementsinclude the leasing of transportation equipment, property, computer equipmentand propane tanks. Ferrellgas, L.P. accounts for these arrangements asoperating leases.

 

Ferrellgas, L.P. isrequired to recognize a liability for the fair value of guarantees issued afterDecember 31, 2002. The only material guarantees Ferrellgas, L.P. has areassociated with residual value guarantees of operating leases. Most of theoperating leases involving Ferrellgas, L.P.’s transportation equipment containresidual value guarantees. These transportation equipment lease arrangementsare scheduled to expire over the next seven fiscal years. Most of thesearrangements provide that the fair value of the equipment will equal or exceeda guaranteed amount, or Ferrellgas, L.P. will be required to pay the lessor thedifference. The fair value of these residual value guarantees entered into afterDecember 31, 2002 was $0.7 million as of July 31, 2009. Although thefair values of the underlying equipment at the end of the lease terms havehistorically exceeded these guaranteed amounts, the maximum potential amount ofaggregate future payments Ferrellgas, L.P. could be required to make underthese leasing arrangements, assuming the equipment is worthless at the end ofthe lease term, was $10.0 million as of July 31, 2009. Ferrellgas, L.P.does not know of any event, demand, commitment, trend or uncertainty that wouldresult in a material change to these arrangements.

 

Operating lease buyoutsrepresent the maximum amount Ferrellgas, L.P. would pay if it were to exerciseits right to buyout the assets at the end of their lease term.

 

Thefollowing table summarizes Ferrellgas, L.P.’s contractual operating leasecommitments and buyout obligations as of July 31, 2009:

 
| ** **                  | ** ** | **Future  minimum rental and buyout amounts by fiscal year** | ** ** |
|-----------------------------|------------|--------------------------------------------------------------|------------|
| ** **                  | ** ** | **2010**                                                     | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **Thereafter** | ** ** |
|                        |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Operating lease obligations |       | $                                                            | 22,246     |   | $ | 15,475 |   | $ | 8,431 |   | $ | 5,590 |   | $ | 4,734 |   | $ | 11,137 |   |
| Operating lease buyouts     | ** ** | $                                                            | 8,641      |   | $ | 5,323 |   | $ | 2,827 |   | $ | 357 |   | $ | 784 |   | $ | 1,418 |   |

 

Certainproperty and equipment is leased under non-cancelable operating leases, whichrequire fixed monthly rental payments and which expire at various dates through2024. Rental expense under these leases totaled $38.6 million, $44.3 million,and $45.3 million for fiscal 2009, 2008 and 2007, respectively.

 

F-60

----

Tableof Contents

 

**M.****        ****Employee benefits**

 

Ferrellgas, L.P. has no employees and is managed and controlled by itsgeneral partner. Ferrellgas, L.P. assumes all liabilities, which includespecific liabilities related to the following employee benefit plans for thebenefit of the officers and employees of the general partner.

 

FerrellCompanies makes contributions to the ESOT, which causes a portion of the sharesof Ferrell Companies owned by the ESOT to be allocated to employees’ accountsover time. The allocation of Ferrell Companies’ shares to employee accountscauses a non-cash compensation charge to be incurred by Ferrellgas, L.P.,equivalent to the fair value of such shares allocated. This non-cashcompensation charge is reported separately in Ferrellgas, L.P.’s consolidatedstatements of earnings and thus excluded from operating and general andadministrative expenses. The non-cash compensation charges were $6.8 million,$12.4 million, and $11.2 million during fiscal 2009, 2008 and 2007,respectively. Ferrellgas, L.P. is not obligated to fund or make contributionsto the ESOT.

 

The general partner and its parent,Ferrell Companies, have a defined contribution profit-sharing plan whichincludes both profit sharing and matching contributions. The plan coverssubstantially all full time employees. With the establishment of the ESOP in July 1998,Ferrellgas, L.P. suspended future contributions to the profit sharing planbeginning with fiscal 1998. The plan, which qualifies under section 401(k) ofthe Internal Revenue Code, also provides for matching contributions under acash or deferred arrangement based upon participant salaries and employeecontributions to the plan. Matching contributions for fiscal 2009, 2008 and2007 were $2.7 million, $2.6 million, and $3.0 million, respectively.

 

Thegeneral partner has a defined benefit plan that provides participants who werecovered under a previously terminated plan with a guaranteed retirement benefitat least equal to the benefit they would have received under the terminatedplan. Until July 31, 1999, benefits under the terminated plan weredetermined by years of credited service and salary levels. As of July 31,1999, years of credited service and salary levels were frozen. The generalpartner’s funding policy for this plan is to contribute amounts deductible forFederal income tax purposes and invest the plan assets primarily in corporatestocks and bonds, U.S. Treasury bonds and short-term cash investments. Duringfiscal 2009, 2008 and 2007 other comprehensive income and other liabilitieswere adjusted by $(6.0) thousand $(0.1) million and $(0.4) million,respectively.

 

**N**.           **Quarterlydata (unaudited)**

 

Thefollowing 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 thepropane distribution industry, first and fourth quarter revenues, gross marginfrom propane and other gas liquids sales and net earnings are consistently lessthan the second and third quarter results. Other factors affecting the resultsof operations include competitive conditions, demand for product, timing ofacquisitions, variations in the weather and fluctuations in propane prices.

 

F-61

----

Table of Contents

 

**For the year ended July 31,2009**

 
| ** **                                                 | ** ** | **First  quarter** | ** ** | **Second  quarter** | ** ** | **Third  quarter** | ** ** | **Fourth  quarter** | ** ** |
|------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
|                                                       |       |               |       |                |       |               |       |                |       |
| Revenues                                                   |       | $                  | 480,074    |                | $          | 715,625            |       | $                   | 561,133    |   | $ | 312,690 |   |
| Gross margin from propane and other gas liquids  sales (a) |       | 119,143            |       | 219,009             |       | 165,969            |       | 118,164             |       |
| Net earnings (loss)                                        |       | (8,948             | )          | 76,431              |       | 39,293             |       | (29,275             | )          |
|                                                            |            |                    |            |                     |            |                    |            |                     |            |  |  |  |  |

 

**For the year ended July 31,2008**

 
| ** **                                                | ** ** | **First  quarter** | ** ** | **Second  quarter** | ** ** | **Third  quarter** | ** ** | **Fourth  quarter** | ** ** |
|-----------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
|                                                      |       |               |       |                |       |               |       |                |       |
| Revenues                                                  |       | $                  | 394,916    |                | $          | 763,968            |       | $                   | 712,090    |   | $ | 419,715 |   |
| Gross margin from propane and other gas liquids  sales(a) |       | 106,416            |       | 179,932             |       | 165,968            |       | 111,047             |       |
| Net earnings (loss)                                       |       | (17,084            | )          | 57,854              |       | 41,588             |       | (33,126             | )          |
|                                                           |            |                    |            |                     |            |                    |            |                     |            |  |  |  |  |

 

----

(a)          Grossmargin from “Propane and other gas liquids sales” represents “Propane and othergas liquids sales” less “Cost of product sold — propane and other gas liquidssales.”

 

**O**.          **Subsequentevents**

 

During August 2009, Ferrellgas, L.P. made scheduled principalpayments of $73.0 million on the 8.87% Series C senior notes usingavailability under its unsecured credit facility due April 2010.

 

DuringSeptember 2009, Ferrellgas, L.P. issued $300.0 million in aggregateprincipal amount of new 9.125% senior notes due 2017 at an offering price equalto 98.6% of par. Ferrellgas, L.P. then gave early redemption notice to theholders of its $82.0 million 7.24% series D notes due August 1, 2010 andits $70.0 million 7.42% series E notes due August 1, 2013. The principalamount of these senior notes and the related prepayment penalties are expectedto be funded with the proceeds from the new senior notes offering withremaining proceeds used to reduce borrowings on Ferrellgas, L.P.’s unsecuredcredit facility due April 2010.

 

During September 2009,Ferrellgas, L.P. and several banks and other financial institutions executedinto escrow a Credit Agreement (“Credit Agreement”) which will be released fromescrow pending certain closing conditions. The Credit Agreement is intended toreplace Ferrellgas, L.P.’s existing unsecured credit facility. The CreditAgreement, at closing, will provide for a $400.0 million revolving creditfacility with the entire amount available for loans and with a sublimit of$200.0 million for letters of credit. The obligations under such creditfacility will be secured by substantially all assets of Ferrellgas, L.P., thegeneral partner and certain subsidiaries of Ferrellgas, L.P. but specificallyexcluding (a) assets that are subject to the operating partnership’sreceivables securitization facility, (b) the general partner’s equityinterest in Ferrellgas Partners, L.P. and (c) equity interest in certainunrestricted subsidiaries. Such obligations will also be guaranteed by thegeneral partner and certain subsidiaries of Ferrellgas, L.P. The securedrevolving credit facility will mature on the third anniversary of theclosing date for such facility.

 

F-62

----

Table of Contents

 

During September 2009,Ferrellgas, L.P. acquired Vanson, LLC, based in Michigan. The propanedistribution assets acquired have an aggregate value of $45.1 million. Thisacquisition was funded by $36.6 million in cash payments, the issuance of $5.4million of liabilities and other costs and considerations, and the contributionof net assets of $3.1 million from Ferrellgas Partners.

 

Ferrellgas, L.P.has evaluated events and transactions for subsequent events disclosuresoccurring after the balance sheet date through its Form 10-K filing on September 28,2009 with the Securities and Exchange Commission.

 

F-63

----

Table of Contents

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

To theBoard of Directors ofFerrellgas Finance Corp.**Overland Park, Kansas

 

We haveaudited the accompanying balance sheets of Ferrellgas Finance Corp. (awholly-owned subsidiary of Ferrellgas, L.P., referred to herein as “the Company”)as of July 31, 2009 and 2008, and the related statements of earnings,stockholder’s equity, and cash flows for each of the three years in the periodended July 31, 2009.  These financial statements are theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

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

 

In our opinion, such financial statements present fairly, in all materialrespects, the financial position of Ferrellgas Finance Corp. as of July 31,2009 and 2008, and the results of its operations and its cash flows for each ofthe three years in the period ended July 31, 2009, in conformity withaccounting principles generally accepted in the United States of America.

 
| /s/ DELOITTE &  TOUCHE |   |
|---------------------------------|--------|
|                            |   |
| Kansas City, Missouri           |   |
| September 28, 2009         |   |

 

F-64

----

Table of Contents

 

**FERRELLGAS FINANCE CORP.**

**(a wholly-owned subsidiary ofFerrellgas, L.P.)**

 

**BALANCE SHEETS**

 
| ** **                                                                                 | ** ** | **July 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                 | ** ** | **2009**          | ** ** | **2008** | ** ** |
| ** **                                                                                 | ** ** | ** **        | ** ** | ** ** | ** ** |
| **ASSETS**                                                                                 | ** ** | ** **        | ** ** | ** ** | ** ** |
| ** **                                                                                 | ** ** | ** **        | ** ** | ** ** | ** ** |
| Cash                                                                                       |       | $                 | 1,100      |   | $ | 1,100 |   |
| **Total assets**                                                                           |       | $                 | 1,100      |   | $ | 1,100 |   |
|                                                                                       |       |              |       |   |   |
| **STOCKHOLDER’S EQUITY**                                                              |       |              |       |   |   |
|                                                                                       |       |              |       |   |   |
| Common  stock, $1 par value; 2,000 shares authorized; 1,000 shares issued and  outstanding |       | $                 | 1,000      |   | $ | 1,000 |   |
|                                                                                       |       |              |       |   |   |
| Additional  paid in capital                                                                |       | 6,757             |       | 3,312 |   |
|                                                                                       |       |              |       |   |   |
| Accumulated  deficit                                                                       |       | (6,657            | )          | (3,212 | ) |
| **Total stockholder’s equity**                                                        |       | $                 | 1,100      |   | $ | 1,100 |   |

 

See notes to financialstatements.

 

F-65

----

Table of Contents

 

**FERRELLGAS FINANCE CORP.**

**(a wholly-owned subsidiary ofFerrellgas, L.P.)**

 

**STATEMENTSOF EARNINGS**

 
| ** **                          | ** ** | **For the year ended July 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|
| ** **                          | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                |       |                                 |       |   |   |   |   |
| General  and administrative expense |       | $                                    | 3,445      |   | $ | 992 |   | $ | 444 |   |
|                                |       |                                 |       |   |   |   |   |
| **Net loss**                        |       | $                                    | (3,445     | ) | $ | (992 | ) | $ | (444 | ) |

 

See notes to financialstatements.

 

F-66

----

Table of Contents

 

**FERRELLGASFINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas, L.P.)**

 

**STATEMENTS OF STOCKHOLDER’S EQUITY**

 
| ** **             | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**  | ** ** | ** **             | ** ** | **Total**  | ** ** |
|------------------------|------------|------------------|------------|-------------|------------|-----------------|------------|------------------------|------------|------------|------------|
| ** **             | ** ** | **Common stock** | ** ** | **paid in** | ** ** | **Accumulated** | ** ** | **stockholder’s** | ** ** |
| ** **             | ** ** | **Shares**       | ** ** | **Dollars** | ** ** | **capital**     | ** ** | **deficit**            | ** ** | **equity** | ** ** |
|                   | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | ** **             | ** ** | ** ** | ** ** |
| **July 31, 2006** |       | 1,000            |       | $           | 1,000      |            | $          | 1,776                  |       | $          | (1,776     | ) | $ | 1,000 |   |
| Capital  contribution  |       | —           |       | —      |       | 444             |       | —                 |       | 444        |       |
| Net  loss              |       | —           |       | —      |       | —          |       | (444                   | )          | (444       | )          |
| **July 31, 2007** |       | 1,000            |       | 1,000       |       | 2,220           |       | (2,220                 | )          | 1,000      |       |
| Capital  contribution  |       | —           |       | —      |       | 1,092           |       | —                 |       | 1,092      |       |
| Net  loss              |       | —           |       | —      |       | —          |       | (992                   | )          | (992       | )          |
| **July 31, 2008** |       | 1,000            |       | 1,000       |       | 3,312           |       | (3,212                 | )          | 1,100      |       |
| Capital  contribution  |       | —           |       | —      |       | 3,445           |       | —                 |       | 3,445      |       |
| Net  loss              |       | —           |       | —      |       | —          |       | (3,445                 | )          | (3,445     | )          |
| **July 31, 2009** |       | 1,000            |       | $           | 1,000      |            | $          | 6,757                  |       | $          | (6,657     | ) | $ | 1,100 |   |

 

See notes to financial statements.

 

F-67

----

Table of Contents

 

**FERRELLGAS FINANCE CORP.**

**(a wholly-owned subsidiary ofFerrellgas, L.P.)**

 

**STATEMENTSOF CASH FLOWS**

 
| ** **                                | ** ** | **For the year ended July 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|
| ** **                                | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Cash flows from operating activities:** |       |                                 |       |   |   |   |   |
| Net  loss                                 |       | $                                    | (3,445     | ) | $ | (992 | ) | $ | (444 | ) |
| Cash  used in operating activities        |       | (3,445                               | )          | (992 | ) | (444 | ) |
|                                      |       |                                 |       |   |   |   |   |
| **Cash flows from financing activities:** |       |                                 |       |   |   |   |   |
| Capital  contribution                     |       | 3,445                                |       | 1,092 |   | 444 |   |
| Cash  provided by financing activities    |       | 3,445                                |       | 1,092 |   | 444 |   |
|                                      |       |                                 |       |   |   |   |   |
| Change  in cash                           |       | —                               |       | 100 |   | — |   |
| Cash  - beginning of year                 |       | 1,100                                |       | 1,000 |   | 1,000 |   |
| **Cash - end of year**                    |       | $                                    | 1,100      |   | $ | 1,100 |   | $ | 1,000 |   |

 

Seenotes to financial statements.

 

F-68

----

Tableof Contents

 

**FERRELLGASFINANCE CORP.**

**(awholly-owned subsidiary of Ferrellgas, L.P.)**

** **

**NOTES TO FINANCIAL STATEMENTS**

 

**A.****                                   ****Formation**

 

FerrellgasFinance 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”).

 

ThePartnership contributed $1,000 to the Finance Corp. on January 24, 2003 inexchange for 1,000 shares of common stock.

 

TheFinance Corp. has nominal assets, does not conduct any operations and has noemployees.

 

**B.**                                    **Commitment**

 

On April 20,2004 the Partnership issued $250.0 million of 6 3/4% senior notes due 2014. On August 4,2008, the Partnership issued $200.0 million of 6 3/4% senior notes due 2014 atan offering price equal to 85% of par. The Partnership may redeem some or allof the aggregate principal amount of the notes at any time on or after May 1,2009.

 

TheFinance Corp. serves as co-obligor for the senior notes.

 

**C.**                                    **Income Taxes**

 

Income taxes have beencomputed separately as the Finance Corp. files its own income tax return.Deferred income taxes are provided as a result of temporary differences betweenfinancial and tax reporting using the asset/liability method. Deferred incometaxes are recognized for the tax consequences of temporary differences betweenthe financial statement carrying amounts and tax basis of existing assets andliabilities.

 

Due to the inability ofthe Finance Corp. to utilize the deferred tax benefit of $2,589 associated withthe net operating loss carryforward of $6,656, which expires at various datesthrough July 31, 2029, a valuation allowance has been provided on the fullamount of the deferred tax asset. Accordingly, there is no net deferred taxbenefit for fiscal 2009, 2008 and 2007, and there is no net deferred tax assetas of July 31, 2009 and 2008.

 

F-69

----

Tableof Contents

 

**INDEX TOFINANCIAL STATEMENT SCHEDULES**

 
| ** **                                      |                                                                                                                                                           | **Page** |
|-------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **Ferrellgas  Partners, L.P. and Subsidiaries** |                                                                                                                                                           |     |
|                                            |                                                                                                                                                           |     |   |
| Schedule I                                      | Parent Only Balance Sheets as of  July 31, 2009 and 2008 and Statements of Earnings and Cash Flows for the  years ended July 31, 2009, 2008 and 2007 |     | S-2 |
|                                            |                                                                                                                                                           |     |   |
| Schedule II                                     | Valuation and Qualifying  Accounts for the years ended July 31, 2009, 2008 and 2007.                                                                      |     | S-5 |
|                                            |                                                                                                                                                           |     |   |
| **Ferrellgas,  L.P. and Subsidiaries**          |                                                                                                                                                           |     |
|                                            |                                                                                                                                                           |     |   |
| Schedule II                                     | Valuation and Qualifying Accounts for the years  ended July 31, 2009, 2008 and 2007.                                                                      |     | S-6 |

 

S-1

----

Tableof Contents

 
| ** ** | **FERRELLGAS PARTNERS, L.P.** | **Schedule  l** |
|------------|-------------------------------|-----------------|
| ** ** | **PARENT  ONLY**              | ** **      |

 

**BALANCESHEETS**

**(inthousands, except unit data)**

 
| ** **                                                                                        | ** ** | **July 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                        | ** ** | **2009**          | ** ** | **2008** | ** ** |
| **ASSETS**                                                                                        |       |              |       |   |   |
| ** **                                                                                        |       |              |       |   |   |
| Cash  and cash equivalents                                                                        |       | $                 | 16         |   | $ | 69 |   |
| Prepaid  expenses and other current assets                                                        |       | 675               |       | 673 |   |
| Investment  in Ferrellgas, L.P.                                                                   |       | 417,338           |       | 432,049 |   |
| Other  assets, net                                                                                |       | 1,237             |       | 1,868 |   |
| **Total assets**                                                                                  |       | $                 | 419,266    |   | $ | 434,659 |   |
|                                                                                              |       |              |       |   |   |
| **LIABILITIES AND PARTNERS’ CAPITAL**                                                        |       |              |       |   |   |
| ** **                                                                                        |       |              |       |   |   |
| Other  current liabilities                                                                        |       | $                 | 3,102      |   | $ | 3,064 |   |
| Long  term debt                                                                                   |       | 269,091           |       | 269,471 |   |
|                                                                                              |       |              |       |   |   |
| **Partners’ capital**                                                                        |       |              |       |   |   |
| Common  unitholders (68,236,755 and 62,961,674 units outstanding at 2009 and 2008,  respectively) |       | 206,255           |       | 201,618 |   |
| General  partner (689,260 and 635,977 units outstanding at 2009 and 2008,  respectively)          |       | (57,988           | )          | (58,036 | ) |
| Accumulated  other comprehensive income (loss)                                                    |       | (1,194            | )          | 18,542 |   |
| **Total partners’ capital**                                                                  |       | 147,073           |       | 162,124 |   |
| **Total liabilities and partners’ capital**                                                  |       | $                 | 419,266    |   | $ | 434,659 |   |

 

S-2

----

Tableof Contents

 
| ** ** | **FERRELLGAS  PARTNERS, L.P.** |       |
|------------|--------------------------------|------------|
| ** ** | **PARENT  ONLY**               | ** ** |

 

**STATEMENTSOF EARNINGS**

**(inthousands)**

 
| ** **                              | ** ** | **For the year ended July 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                              | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Equity  in earnings of Ferrellgas, L.P. |       | $                                    | 76,718     |   | $ | 48,735 |   | $ | 58,827 |   |
| Operating  expense                      |       | 328                                  |       | 259 |   | 275 |   |
|                                    |       |                                 |       |   |   |   |   |
| **Operating income**                    |       | 76,390                               |       | 48,476 |   | 58,552 |   |
|                                    |       |                                 |       |   |   |   |   |
| Interest  expense                       |       | (23,734                              | )          | (23,711 | ) | (23,752 | ) |
| Income  tax expense                     |       | (84                                  | )          | (76 | ) | — |   |
|                                    |       |                                 |       |   |   |   |   |
| **Net earnings**                        |       | $                                    | 52,572     |   | $ | 24,689 |   | $ | 34,800 |   |

 

S-3

----

Tableof Contents

 
| ** ** | **FERRELLGAS  PARTNERS, L.P.** |       |
|------------|--------------------------------|------------|
| ** ** | **PARENT  ONLY**               | ** ** |

 

**STATEMENTSOF CASH FLOWS**

**(inthousands)**

 
| ** **                                                                           | ** ** | **For the year ended July 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                           | ** ** | **2009**                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Cash flows from operating activities:**                                            |       |                                 |       |   |   |   |   |
| Net  earnings                                                                        |       | $                                    | 52,572     |   | $ | 24,689 |   | $ | 34,800 |   |
| Reconciliation  of net earnings to net cash used in operating activities:            |       |                                 |       |   |   |   |   |
| Other                                                                                |       | 292                                  |       | 519 |   | (142 | ) |
| Equity  in earnings of Ferrellgas, L.P.                                              |       | (76,718                              | )          | (48,735 | ) | (58,827 | ) |
| Net  cash used in operating activities                                               |       | (23,854                              | )          | (23,527 | ) | (24,169 | ) |
|                                                                                 |       |                                 |       |   |   |   |   |
| **Cash flows from investing activities:**                                            |       |                                 |       |   |   |   |   |
| Distributions  received from Ferrellgas, L.P.                                        |       | 156,031                              |       | 150,815 |   | 150,522 |   |
| Cash  contributed to Ferrellgas, L.P.                                                |       | (69,848                              | )          | — |   | (46,100 | ) |
| Net  cash provided by investing activities                                           |       | 86,183                               |       | 150,815 |   | 104,422 |   |
|                                                                                 |       |                                 |       |   |   |   |   |
| **Cash flows from financing activities:**                                            |       |                                 |       |   |   |   |   |
| Distributions                                                                        |       | (132,581                             | )          | (127,190 | ) | (127,072 | ) |
| Cash  paid for financing costs                                                       |       | 50                                   |       | (383 | ) | (367 | ) |
| Issuance  of common units (net of issuance costs of $401, $0 and $226, respectively) |       | 69,447                               |       | — |   | 44,319 |   |
| Proceeds  from exercise of common unit options                                       |       | —                               |       | 76 |   | 1,025 |   |
| Other                                                                                |       | 702                                  |       | — |   | 470 |   |
| Net  cash used in financing activities                                               |       | (62,382                              | )          | (127,497 | ) | (81,625 | ) |
|                                                                                 |       |                                 |       |   |   |   |   |
| Decrease  in cash and cash equivalents                                               |       | (53                                  | )          | (209 | ) | (1,372 | ) |
| Cash  and cash equivalents - beginning of year                                       |       | 69                                   |       | 278 |   | 1,650 |   |
| **Cash and cash equivalents - end of year**                                          |       | $                                    | 16         |   | $ | 69 |   | $ | 278 |   |

 

S-4

----

Tableof Contents

 
| ** ** | **FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES** | **Schedule  lI** |
|------------|------------------------------------------------|------------------|
| ** ** | ** **                                     | ** **       |

**VALUATIONAND QUALIFYING ACCOUNTS(in thousands)**

 
| ** **                        | ** ** | ** **     | ** ** | **Additions**  | ** ** | ** **    | ** ** | ** **       | ** ** |
|-----------------------------------|------------|----------------|------------|----------------|------------|---------------|------------|------------------|------------|
| ** **                        | ** ** | **Balance at** | ** ** | **Charged to** | ** ** | ** **    | ** ** | **Deductions**   | ** ** | **Balance** | ** ** |
| ** **                        | ** ** | **beginning**  | ** ** | **cost /**     | ** ** | **Other**     | ** ** | **(amounts**     | ** ** | **at end** | ** ** |
| **Description**                   | ** ** | **of period**  | ** ** | **expenses**   | ** ** | **additions** | ** ** | **charged-off)** | ** ** | **of period** | ** ** |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2009** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance  for doubtful accounts  |       | $              | 5,977      |           | $          | 4,421         |       | $                | 961        |   | $ | (7,065 | ) | $ | 4,294 |   |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2008** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance  for doubtful accounts  |       | $              | 4,358      |           | $          | 8,092         |       | $                | 643        |   | $ | (7,116 | ) | $ | 5,977 |   |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2007** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance  for doubtful accounts  |       | $              | 5,628      |           | $          | 4,745         |       | $                | 419        |   | $ | (6,434 | ) | $ | 4,358 |   |

 

S-5

----

Tableof Contents

 
| ** ** | **FERRELLGAS,  L.P. AND SUBSIDIARIES** |       |
|------------|----------------------------------------|------------|
| ** ** | ** **                             | ** ** |

**VALUATIONAND QUALIFYING ACCOUNTS(in thousands)**

 
| ** **                        | ** ** | ** **     | ** ** | **Additions**  | ** ** | ** **    | ** ** | ** **       | ** ** |
|-----------------------------------|------------|----------------|------------|----------------|------------|---------------|------------|------------------|------------|
| ** **                        | ** ** | **Balance at** | ** ** | **Charged to** | ** ** | ** **    | ** ** | **Deductions**   | ** ** | **Balance** | ** ** |
| ** **                        | ** ** | **beginning**  | ** ** | **cost /**     | ** ** | **Other**     | ** ** | **(amounts**     | ** ** | **at end** | ** ** |
| **Description**                   | ** ** | **of period**  | ** ** | **expenses**   | ** ** | **additions** | ** ** | **charged-off)** | ** ** | **of period** | ** ** |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2009** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance  for doubtful accounts  |       | $              | 5,977      |           | $          | 4,421         |       | $                | 961        |   | $ | (7,065 | ) | $ | 4,294 |   |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2008** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance  for doubtful accounts  |       | $              | 4,358      |           | $          | 8,092         |       | $                | 643        |   | $ | (7,116 | ) | $ | 5,977 |   |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Year ended July 31, 2007** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Allowance  for doubtful accounts  |       | $              | 5,628      |           | $          | 4,745         |       | $                | 419        |   | $ | (6,434 | ) | $ | 4,358 |   |

 

S-6

----

Table of Contents

 

The exhibitslisted 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 arenot listed, are not applicable.

 
| ** ** | ** ** | **Exhibit   Number** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                           | **Description** |
|------------|------------|----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|
| ** ** | ** ** | ** **           | ** **                                                                                                                                                                                                                                                                                                                                                                                                                           |
|       |       | 3.1                  | Fourth Amended and  Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. dated  as of February 18, 2003. Incorporated by reference to Exhibit 3.1  to our registration statement on Form S-3 filed March 6, 2009.                                                                                                                                                                              |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 3.2                  | First Amendment to  Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas  Partners, L.P. dated as of March 8, 2005. Incorporated by reference to  Exhibit 3.2 to our registration statement on Form S-3 filed  March 6, 2009.                                                                                                                                                              |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 3.3                  | Second Amendment to  Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas  Partners, L.P. dated as of June 29, 2005. Incorporated by reference to  Exhibit 3.3 to our registration statement on Form S-3 filed  March 6, 2009.                                                                                                                                                             |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 3.4                  | Third Amendment to  Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas  Partners, L.P. dated as of October 11, 2006. Incorporated by reference  to Exhibit 3.4 to our registration statement on Form S-3 filed  March 6, 2009.                                                                                                                                                           |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 3.5                  | Certificate of  Incorporation of Ferrellgas Partners Finance Corp. filed with the Delaware  Division of Corporations on March 28, 1996. Incorporated by reference to  Exhibit 3.6 to our registration statement on Form S-3 filed  March 6, 2009.                                                                                                                                                                |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 3.6                  | Bylaws of Ferrellgas  Partners Finance Corp. Incorporated by reference to Exhibit 3.7 to our  registration statement on Form S-3 filed March 6, 2009.                                                                                                                                                                                                                                                                 |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 3.7                  | Third Amended and  Restated Agreement of Limited Partnership of Ferrellgas, L.P. dated as of  April 7, 2004. Incorporated by reference to Exhibit 3.5 to our  registration statement on Form S-3 filed March 6, 2009.                                                                                                                                                                                            |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 3.8                  | Certificate of  Incorporation of Ferrellgas Finance Corp. filed with the Delaware Division of  Corporations on January 16, 2003. Incorporated by reference to  Exhibit 3.8 to our registration statement on Form S-3 filed  March 6, 2009.                                                                                                                                                                       |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 3.9                  | Bylaws of Ferrellgas  Finance Corp. adopted as of January 16, 2003. Incorporated by reference  to Exhibit 3.9 to our registration statement on Form S-3 filed  March 6, 2009.                                                                                                                                                                                                                                    |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 4.1                  | Specimen Certificate  evidencing Common Units representing Limited Partner Interests. Incorporated  by reference to Exhibit A of Exhibit 3.1 to our registration  statement on Form S-3 filed March 6, 2009.                                                                                                                                                                                                     |
|       |       |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | 4.2                  | Indenture dated as of  September 24, 2002, with form of Note attached, among Ferrellgas  Partners, L.P., Ferrellgas Partners Finance Corp. and U.S. Bank National  Association, as trustee, relating to $170,000,000 aggregate principal amount  of the Registrant’s 8 3⁄4% Senior Notes due 2012. Incorporated by reference to  Exhibit 4.2 to our Quarterly Report on Form 10-Q filed  March 10, 2009. |

 

----

Tableof Contents

 
|   |   | 4.3    | Indenture dated as of  April 20, 2004, with form of Note attached, among Ferrellgas Escrow LLC,  Ferrellgas Finance Escrow Corporation and U.S. Bank National Association, as  trustee, relating to 6 3⁄4% Senior Notes due 2014. Incorporated by reference to  Exhibit 4.3 to our Quarterly Report on Form 10-Q filed  March 10, 2009.                                                                                                                                                                                                                                                        |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 4.4    | 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 Quarterly Report  on Form 10-Q filed March 10, 2009. |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 4.5    | Ferrellgas, L.P. Note  Purchase Agreement dated as of February 1, 2000, relating to:  $21,000,000 8.68% Senior Notes, Series A, due August 1, 2006,  $90,000,000 8.78% Senior Notes, Series B, due August 1, 2007,  and $73,000,000 8.87% Senior Notes, Series C, due August 1,  2009. Incorporated by reference to Exhibit 4.5 to our Quarterly Report  on Form 10-Q filed March 10, 2009.                                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 4.6    | Indenture dated as of  August 4, 2008, with form of Note attached, among Ferrellgas, L.P.,  Ferrellgas Finance Corp. and U.S. Bank National Association, as trustee,  relating to 6 3⁄4% Senior Notes due 2014. Incorporated by reference to  Exhibit 4.1 to our Current Report on Form 8-K filed August 5,  2008.                                                                                                                                                                                                                                                                             |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 4.7    | Indenture dated as of  September 14, 2009 with form of Note attached, among Ferrellgas, L.P.,  Ferrellgas Finance Corp. and U.S. Bank National Association, as trustee,  relating to 9 1/8% Senior Notes due 2017. Incorporated by reference to  Exhibit 4.1 to our Current Report on Form 8-K filed  September 14, 2009.                                                                                                                                                                                                                                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 4.8    | Registration Rights  Agreement dated as of September 14, 2009, by and among Ferrellgas, L.P.,  Ferrellgas Finance Corp. and the initial purchasers named therein. Incorporated  by reference to Exhibit 4.2 to our Current Report on Form 8-K filed  September 14, 2009.                                                                                                                                                                                                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 4.9    | Registration Rights  Agreement dated as of August 4, 2008, by and among Ferrellgas, L.P.,  Ferrellgas Finance Corp. and the initial purchasers named therein.  Incorporated by reference to Exhibit 4.2 to our Current Report on  Form 8-K filed August 5, 2008.                                                                                                                                                                                                                                                                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 4.10   | Registration Rights  Agreement dated as of December 17, 1999, by and between Ferrellgas  Partners, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by  reference to Exhibit 4.8 to our Quarterly Report on Form 10-Q filed  March 10, 2009.                                                                                                                                                                                                                                                                                                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 4.11   | First Amendment to  Registration Rights Agreement dated as of March 14, 2000, by and between  Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc.  Incorporated by reference to Exhibit 4.9 to our Quarterly Report on  Form 10-Q filed March 10, 2009.                                                                                                                                                                                                                                                                                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 4.12   | Second Amendment to  Registration Rights Agreement dated as of April 6, 2001, by and between  Ferrellgas Partners, L.P. and The Williams Companies, Inc. Incorporated  by reference to Exhibit 4.10 to our Quarterly Report on Form 10-Q  filed March 10, 2009.                                                                                                                                                                                                                                                                                                                              |

 

----

Tableof Contents

 
|   |   | 4.13   | Third Amendment to  Registration Rights Agreement dated as of June 29, 2005, by and between  Ferrellgas Partners, L.P. and JEF Capital Management, Inc. Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  filed June 30, 2005.                                                                                                                                                                     |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 10.1   | Fifth Amended and Restated  Credit Agreement dated as of April 22, 2005, among Ferrellgas, L.P. as  the borrower, Ferrellgas, Inc. as the general partner of the borrower,  Bank of America, N.A., as administrative agent and swing line lender, and the  lenders and L/C issuers party hereto. Incorporated by reference to  Exhibit 10.5 to our Quarterly Report on Form 10-Q filed  June 8, 2005.                          |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 10.2   | First Amendment to  Fifth Amended and Restated Credit Agreement dated as of April 11, 2008,  by and among Ferrellgas, L.P. as the borrower, Ferrellgas, Inc. as the  general partner of the borrower, Bank of America, N.A. as administrative  agent, swing line lender and L/C issuer, and the lenders party hereto.  Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K  filed April 14, 2008.      |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 10.3   | Second Amendment to  Fifth Amended and Restated Credit Agreement dated as of October 15,  2008, by and among Ferrellgas, L.P. as the borrower, Ferrellgas, Inc. as  the general partner of the borrower, Bank of America, N.A. as administrative  agent, swing line lender and L/C issuer, and the lenders party hereto.  Incorporated by reference to Exhibit 10.1 to our Current Report on  Form 8-K filed October 16, 2008. |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 10.4   | Third Amendment to  Fifth Amended and Restated Credit Agreement dated as of April 15, 2009,  by and among Ferrellgas, L.P. as the borrower, Ferrellgas, Inc. as the  general partner of the borrower, Bank of America, N.A. as administrative  agent, swing line lender and L/C issuer, and the lenders party hereto. Incorporated  by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q  filed June 8, 2009.     |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 10.5   | Credit Agreement dated  as of May 1, 2007, among Ferrellgas, L.P. as the borrower,  Ferrellgas, Inc. as the general partner of the borrower, Bank of America  N.A. as administrative agent and the lenders party hereto. Incorporated by  reference to Exhibit 10.1 to our Current Report on Form 8-K filed  May 4, 2007.                                                                                                      |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 10.6   | Lender Addendum dated  as of June 6, 2006, by and among Deutsche Bank Trust Company Americas as  the new lender, Ferrellgas, L.P. as the borrower, Ferrellgas, Inc. and  Bank of America, N.A., as administrative agent. Incorporated by reference to  Exhibit 10.2 to our Annual Report on Form 10-K filed  October 12, 2006.                                                                                                 |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 10.7   | Commitment Increase  Agreement dated as of August 28, 2006, by and among Fifth Third Bank as  the increasing lender, Ferrellgas, L.P. as the borrower,  Ferrellgas, Inc. and Bank of America, N.A. as administrative agent.  Incorporated by reference to Exhibit 10.3 to our Annual Report on  Form 10-K filed October 12, 2006.                                                                                              |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 10.8   | Amended and Restated  Receivable Interest Sale Agreement dated as of June 7, 2005 between  Ferrellgas, L.P., as originator, and Ferrellgas Receivables, LLC, as buyer.  Incorporated by reference to Exhibit 10.9 to our Quarterly Report on  Form 10-Q filed June 8, 2005.                                                                                                                                                         |

 

----

Tableof Contents

 
|   |   | 10.9   | Amendment No. 1 to  Amended and Restated Receivable Interest Sale Agreement and Subordinated Note  dated as of June 6, 2006 between Ferrellgas, L.P., as originator, and  Ferrellgas Receivables, LLC, as buyer. Incorporated by reference to  Exhibit 10.11 to our Quarterly Report on Form 10-Q filed on  June 8, 2006.                                                                                                                                                            |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | 10.10  | Amendment No. 2 to  Amended and Restated Receivable Interest Sale Agreement dated as of  August 16, 2006 between Ferrellgas, L.P., as originator, and Ferrellgas  Receivables, LLC, as buyer. Incorporated by reference to Exhibit 10.6 to  our Annual Report on Form 10-K filed October 12, 2006.                                                                                                                                                                                   |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | 10.11  | Amendment No. 3 to  Amended and Restated Receivable Interest Sale Agreement dated as of  May 31, 2007 between Ferrellgas, L.P., as originator, and Ferrellgas  Receivables, LLC, as buyer. Incorporated by reference to Exhibit 10.2 to  our Current Report on Form 8-K Filed June 1, 2007.                                                                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | 10.12  | Amendment No. 4 to  Amended and Restated Receivable Interest Sale Agreement dated as of  May 5, 2008 between Ferrellgas, L.P., as originator, and Ferrellgas  Receivables, LLC, as buyer. Incorporated by reference to Exhibit 10.2 to  our Current Report on Form 8-K Filed May 6, 2008.                                                                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | 10.13  | Second Amended and  Restated Receivable Sale Agreement dated as of April 15, 2009 between  Ferrellgas, L.P., as originator, and Ferrellgas Receivables, LLC, as buyer.  Incorporated by reference to Exhibit 10.1 to our Current Report on  Form 8-K Filed April 20, 2009.                                                                                                                                                                                                                |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | 10.14  | Second Amended and  Restated Receivables Purchase Agreement dated as of June 6, 2006, among  Ferrellgas Receivables, LLC, as seller, Ferrellgas, L.P., as servicer,  Jupiter Securitization Corporation, the financial institutions from time to  time party hereto, Fifth Third Bank and JPMorgan Chase Bank, NA, as agent.  Incorporated by reference to Exhibit 10.19 to our Quarterly Report on  Form 10-Q filed June 8, 2006.                                                        |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | 10.15  | Amendment No. 1 to  Second Amended and Restated Receivables Purchase Agreement dated as of  August 16, 2006, by and among Ferrellgas Receivables, LLC, as seller,  Ferrellgas, L.P., as servicer, JP Morgan Chase Bank, N.A., Jupiter Securitization  Company, LLC, Fifth Third Bank and JPMorgan Chase Bank, N.A., as agent.  Incorporated by reference to Exhibit 99.2 to our Current Report on  Form 8-K filed August 18, 2006.                                                   |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | 10.16  | Amendment No. 2 to  Second Amended and Restated Receivables Purchase Agreement dated as of  May 31, 2007, by and among Ferrellgas Receivables, LLC, as seller,  Ferrellgas, L.P., as servicer, JP Morgan Chase Bank, N.A., Jupiter  Securitization Company, LLC, Fifth Third Bank and JPMorgan Chase Bank, N.A.,  as agent. Incorporated by reference to Exhibit 10.1 to our Current  Report on Form 8-K filed June 1, 2007.                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | 10.17  | Amendment No. 3 to  Second Amended and Restated Receivables Purchase Agreement dated as of  May 5, 2008, by and among Ferrellgas Receivables, LLC, as seller,  Ferrellgas, L.P., as servicer, JP Morgan Chase Bank, N.A., Falcon Asset  Securitization Company, LLC, as assignee of Jupiter Securitization Company,  LLC, Fifth Third Bank and JPMorgan Chase Bank, N.A,. as agent. Incorporated  by reference to Exhibit 10.1 to our Current Report on Form 8-K  filed May 6, 2008. |

 

----

Tableof Contents

 
|     |     | 10.18    | Third Amended and  Restated Receivables Purchase Agreement dated as of April 15, 2009,  among Ferrellgas Receivables, LLC, as seller, Ferrellgas, L.P., as servicer,  Falcon Asset Securitization Company, LLC, the financial institutions from  time to time party hereto, Fifth Third Bank and JPMorgan Chase Bank, N.A., as  agent. Incorporated by reference to Exhibit 10.2 to our Current Report  on Form 8-K filed April 20, 2009. |
|----------|----------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| *        |     | 10.19    | Assignment and  Amendment Agreement dated as of May 20, 2009, by and between Falcon  Asset Securitization Company, LLC as assignor and JS Siloed Trust as  assignee.                                                                                                                                                                                                                                                                                     |
| * * | * * | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| #        |     | 10.20    | Ferrell  Companies, Inc. Supplemental Savings Plan, as amended and restated  effective January 1, 2009. Incorporated by reference to  Exhibit 10.1 to our Current Report on Form 8-K filed  February 25, 2009.                                                                                                                                                                                                                       |
| * * | * * | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| #        |     | 10.21    | Amended and Restated  Ferrellgas Unit Option Plan. Incorporated by reference to Exhibit 10.17  to our Quarterly Report on Form 10-Q filed March 10, 2009.                                                                                                                                                                                                                                                                                      |
|     |     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| #        | *        | 10.22    | Ferrell  Companies, Inc. 1998 Incentive Compensation Plan, as amended and  restated effective October 11, 2004.                                                                                                                                                                                                                                                                                                                                     |
|     |     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| #        |     | 10.23    | Employment,  Confidentiality, and Noncompete Agreement dated as of July 17, 1998 by  and among Ferrell Companies, Inc. as the company, Ferrellgas, Inc.  as the company, James E. Ferrell as the executive and LaSalle National Bank  as trustee of the Ferrell Companies, Inc. Employee Stock Ownership  Trust. Incorporated by reference to Exhibit 10.19 to our Quarterly  Report on Form 10-Q filed March 10, 2009.    |
|     |     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| #        |     | 10.24    | Waiver to Employment,  Confidentiality, and Noncompete Agreement dated as of December 19, 2006  by and among Ferrell Companies, Inc. as the company,  Ferrellgas, Inc. as the company, James E. Ferrell as the executive and  Greatbanc Trust Company as successor trustee to LaSalle National Bank.  Incorporated by reference to Exhibit 10.19 to our Quarterly Report on  Form 10-Q filed March 9, 2007.                     |
|     |     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| #        |     | 10.25    | Amended and Restated  Change In Control Agreement dated as of March 5, 2008 by and between  Ferrellgas, Inc. as the company and Patrick J. Walsh as the executive.  Incorporated by reference to exhibit 10.25 to our Quarterly Report on  Form 10-Q filed March 7, 2008.                                                                                                                                                                 |
|     |     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| #        |     | 10.26    | Change In Control  Agreement dated as of March 5, 2008 by and between Ferrellgas, Inc.  as the company and Richard V. Mayberry as the executive. Incorporated by  reference to exhibit 10.28 to our Quarterly Report on Form 10-Q filed  March 7, 2008.                                                                                                                                                                                   |
|     |     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| #        |     | 10.27    | Change In Control  Agreement dated as of October 9, 2006 by and between  Ferrellgas, Inc. as the company and James E. Ferrell as the executive.  Incorporated by reference to Exhibit 10.30 to our Annual Report on  Form 10-K filed October 12, 2006.                                                                                                                                                                               |
|     |     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| #        |     | 10.28    | Employment Agreement  dated as of August 10, 2009 by and between Ferrellgas, Inc. as the  company and Stephen L. Wambold as the executive. Incorporated by reference to  Exhibit 10.1 to our Current Report on Form 8-K filed  August 10, 2009.                                                                                                                                                                                      |

 

----

Tableof Contents

 
| #      |   | 10.29  | Employment Agreement  dated as of August 10, 2009 by and between Ferrellgas, Inc. as the  company and James R. VanWinkle as the executive. Incorporated by reference to  Exhibit 10.2 to our Current Report on Form 8-K filed  August 10, 2009.                                                           |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   | 10.30  | Employment Agreement  dated as of August 10, 2009 by and between Ferrellgas, Inc. as the  company and Jennifer Boren as the executive. Incorporated by reference to  Exhibit 10.3 to our Current Report on Form 8-K filed  August 10, 2009.                                                               |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   | 10.31  | Employment Agreement  dated as of August 10, 2009 by and between Ferrellgas, Inc. as the  company and Tod Brown as the executive. Incorporated by reference to  Exhibit 10.4 to our Current Report on Form 8-K filed  August 10, 2009.                                                                    |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   | 10.32  | Employment Agreement  dated as of August 10, 2009 by and between Ferrellgas, Inc. as the  company and Eugene D. Caresia as the executive. Incorporated by reference to  Exhibit 10.5 to our Current Report on Form 8-K filed  August 10, 2009.                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   | 10.33  | Employment Agreement  dated as of August 10, 2009 by and between Ferrellgas, Inc. as the  company and George L. Koloroutis as the executive. Incorporated by reference  to Exhibit 10.6 to our Current Report on Form 8-K filed  August 10, 2009.                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   | 10.34  | Agreement and release  dated as of December 4, 2007 by and among Ferrell Companies, Inc.,  Ferrellgas, Inc., Ferrellgas Partners L.P., Ferrellgas L.P. and Brian J.  Kline as the employee. Incorporated by reference to Exhibit 10.33 to our  Quarterly Report on Form 10-Q filed December 6, 2007. |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   | 10.35  | Agreement and release  dated as of March 28, 2008 by and among Ferrell Companies, Inc.,  Ferrellgas, Inc., Ferrellgas Partners L.P., Ferrellgas, L.P. and Kevin  T. Kelly as the employee. Incorporated by reference to Exhibit 10.1 to  our Current Report on Form 8-K filed March 28, 2008.        |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   | 10.36  | Services Agreement  dated as of September 26, 2008 between Samson Dental Practice  Management, LLC as the client and Ferrellgas, L.P. as the provider.  Incorporated by reference to Exhibit 10.33 to our Annual Report on  Form 10-K filed September 29, 2008.                                                |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| #      |   | 10.37  | Amendment No. 1 to  Services Agreement dated as of May 1, 2009 between Samson Dental  Practice Management, LLC as the client and Ferrellgas, L.P. as the provider.  Incorporated by reference to Exhibit 99.1 to our Current Report on  Form 8-K filed May 4, 2009.                                       |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| *      |   | 21.1   | List of subsidiaries                                                                                                                                                                                                                                                                                                               |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| *      |   | 23.1   | Consent of  Deloitte & Touche, LLP, independent registered public accounting  firm, for the certain use of its report appearing in the Annual Report on  Form 10-K of Ferrellgas Partners, L.P. for the year ended July 31,  2009.                                                                              |
|   |   |   |                                                                                                                                                                                                                                                                                                                               |
| *      |   | 23.2   | Consent of  Deloitte & Touche, LLP, independent registered public accounting  firm, for the certain use of its report appearing in the Annual Report on  Form 10-K of Ferrellgas Partners Finance Corp. for the year ended  July 31, 2009.                                                                      |

 

----

Tableof Contents

 
| *          |       | 23.3       | Consent of  Deloitte & Touche, LLP, independent registered public accounting  firm, for the certain use of its report appearing in the Annual Report on  Form 10-K of Ferrellgas, L.P. for the year ended July 31, 2009.          |
|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |       |                                                                                                                                                                                                                                                 |
| *          |       | 23.4       | Consent of  Deloitte & Touche, LLP, independent registered public accounting  firm, for the certain use of its report appearing in the Annual Report on  Form 10-K of Ferrellgas Finance Corp. for the year ended July 31,  2009. |
|       |       |       |                                                                                                                                                                                                                                                 |
| *          |       | 31.1       | Certification of  Ferrellgas Partners, L.P. pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Exchange Act.                                                                                                                   |
| ** ** | ** ** | ** ** | ** **                                                                                                                                                                                                                                           |
| *          |       | 31.2       | Certification of  Ferrellgas Partners Finance Corp. pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Exchange Act.                                                                                                           |
|       |       |       |                                                                                                                                                                                                                                                 |
| *          |       | 31.3       | Certification of  Ferrellgas, L.P. pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Exchange Act.                                                                                                                            |
|       |       |       |                                                                                                                                                                                                                                                 |
| *          |       | 31.4       | Certification of  Ferrellgas Finance Corp. pursuant to Rule 13a-14(a) or  Rule 15d-14(a) of the Exchange Act.                                                                                                                    |
|       |       |       |                                                                                                                                                                                                                                                 |
| *          |       | 32.1       | Certification of  Ferrellgas Partners, L.P. pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                 |
|       |       |       |                                                                                                                                                                                                                                                 |
| *          |       | 32.2       | Certification of  Ferrellgas Partners Finance Corp. pursuant to 18 U.S.C. Section 1350.                                                                                                                                                         |
|       |       |       |                                                                                                                                                                                                                                                 |
| *          |       | 32.3       | Certification of  Ferrellgas, L.P. pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                          |
|       |       |       |                                                                                                                                                                                                                                                 |
| *          |       | 32.4       | Certification of  Ferrellgas Finance Corp. pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                  |

 

----

|   | * | Filed herewith                               |
|--------|---|----------------------------------------------|
|   | # | Management contracts or  compensatory plans. |

 

----