NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per unit data, unless otherwise designated)
(unaudited)
A.
Partnership organization and formation
Ferrellgas Partners, L.P. (“Ferrellgas Partners”) was formed
April 19, 1994
, and is a publicly traded limited partnership, owning an approximate
99%
limited partner interest in Ferrellgas, L.P. (the "operating partnership"). Ferrellgas Partners and the operating partnership, collectively referred to as “Ferrellgas,” are both Delaware limited partnerships and are governed by their respective partnership agreements. Ferrellgas Partners was formed to acquire and hold a limited partner interest in the operating partnership. As of
October 31, 2017
, Ferrell Companies, Inc. ("Ferrell Companies") beneficially owns
22.8 million
Ferrellgas Partners common units. Ferrellgas, Inc. (the "general partner"), a wholly-owned subsidiary of Ferrell Companies, has retained an approximate
1%
general partner interest in Ferrellgas Partners and also holds an approximate
1%
general partner interest in the operating partnership, representing an effective
2%
general partner interest in Ferrellgas on a combined basis. As general partner, it performs all management functions required by Ferrellgas. Unless contractually provided for, creditors of the operating partnership have no recourse with regards to Ferrellgas Partners.
Ferrellgas Partners is a holding entity that conducts no operations and has
two
subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners owns a
100%
equity interest in Ferrellgas Partners Finance Corp., whose only business activity is to act as the co-issuer and co-obligor of debt issued by Ferrellgas Partners. The operating partnership is the only operating subsidiary of Ferrellgas Partners.
Ferrellgas is engaged in the following primary businesses:
|
|
•
|
Propane operations and related equipment sales consists of the distribution of propane and related equipment and supplies. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Ferrellgas serves residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all
50
states, the District of Columbia, and Puerto Rico.
|
|
|
•
|
Midstream operations consists of crude oil logistics and water solutions. Crude oil logistics primarily generates income by providing crude oil transportation and logistics services on behalf of producers and end-users of crude oil. Water solutions generates income primarily through the operation of salt water disposal wells in the Eagle Ford shale region of south Texas.
|
Due to seasonality, the results of operations for the
three months ended
October 31, 2017
are not necessarily indicative of the results to be expected for the full fiscal year ending
July 31, 2018
.
The condensed consolidated financial statements of Ferrellgas reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal recurring nature. Certain prior period amounts have been reclassified to conform to the current period presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes included in Ferrellgas' Annual Report on Form 10-K for fiscal
2017
.
B.
Summary of significant accounting policies
(1)
Accounting estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment assets, residual values of tanks, capitalization of customer tank installation costs, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, allowance for doubtful accounts, fair value of reporting units, recoverability of long-lived assets, assumptions used to value business combinations, fair values of derivative contracts and stock-based compensation calculations.
(2) New accounting standards:
FASB Accounting Standard Update No. 2014-09
In May 2014, the Financial Accounting Standards Board, ("FASB") issued Accounting Standard Update ("ASU") 2014-09,
Revenue from Contracts with Customers.
The issuance is part of a joint effort by the FASB and the International Accounting Standards Board ("IASB") to enhance financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards ("IFRS") and, thereby, improving the consistency of requirements, comparability of practices and usefulness of disclosures. The new standard will supersede much of the existing authoritative literature for revenue recognition. The standard and related amendments will be effective for Ferrellgas for its annual reporting period beginning August 1, 2018, including interim periods within that reporting period. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. Ferrellgas is currently evaluating the newly issued guidance, including which transition approach will be applied and the estimated impact it will have on the consolidated financial statements. Ferrellgas has formed an implementation team, completed training on the new standard, prepared an initial assessment and is continuing to review its contracts with customers.
FASB Accounting Standard Update No. 2015-11
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330) - Simplifying the Measurement of Inventory,
which requires that inventory within the scope of the guidance be measured at the lower of cost or net realizable value. We adopted ASU 2015-11 effective August 1, 2017. The adoption of this standard did not materially impact our consolidated financial statements.
FASB Accounting Standard Update No. 2016-02
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Ferrellgas is currently evaluating the impact of its pending adoption of ASU 2016-02 on the consolidated financial statements. Ferrellgas has formed an implementation team, completed training on the new standard, and is working on an initial assessment.
FASB Accounting Standard Update No. 2016-13
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326)
which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Ferrellgas is currently evaluating the impact of its pending adoption of this standard on the consolidated financial statements.
FASB Accounting Standard Update No. 2017-12
In August 2017, the FASB issued ASU 2017-12,
Financial Instruments - Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities
which is intended to improve the financial reporting for hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Ferrellgas is currently evaluating the impact of its pending adoption of this standard on the consolidated financial statements.
C.
Supplemental financial statement information
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
July 31, 2017
|
Propane gas and related products
|
|
$
|
79,196
|
|
|
$
|
67,049
|
|
Crude oil
|
|
7,921
|
|
|
724
|
|
Appliances, parts and supplies
|
|
25,221
|
|
|
24,779
|
|
Inventories
|
|
$
|
112,338
|
|
|
$
|
92,552
|
|
In addition to inventories on hand, Ferrellgas enters into contracts primarily to buy propane for supply procurement purposes with terms up to
36 months
. Most of these contracts call for payment based on market prices at the date of delivery. As of
October 31, 2017
, Ferrellgas had committed, for supply procurement purposes, to take delivery of approximately
119.3
million gallons of propane at fixed prices.
Other assets, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
July 31, 2017
|
Note receivable - Jamex, less current portion
|
|
$
|
30,000
|
|
|
$
|
32,500
|
|
Other
|
|
50,559
|
|
|
41,557
|
|
Other assets, net
|
|
$
|
80,559
|
|
|
$
|
74,057
|
|
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
July 31, 2017
|
Accrued interest
|
|
$
|
51,109
|
|
|
$
|
18,671
|
|
Customer deposits and advances
|
|
42,599
|
|
|
25,541
|
|
Other
|
|
107,171
|
|
|
82,012
|
|
Other current liabilities
|
|
$
|
200,879
|
|
|
$
|
126,224
|
|
Shipping and handling expenses are classified in the following condensed consolidated statements of operations line items:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
Operating expense
|
|
$
|
43,314
|
|
|
$
|
41,810
|
|
Depreciation and amortization expense
|
|
1,112
|
|
|
1,026
|
|
Equipment lease expense
|
|
6,069
|
|
|
6,666
|
|
Total shipping and handling expenses
|
|
$
|
50,495
|
|
|
$
|
49,502
|
|
Certain cash flow and significant non-cash activities are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
Cash paid for:
|
|
|
|
|
Interest
|
|
$
|
6,129
|
|
|
$
|
5,631
|
|
Income taxes
|
|
$
|
6
|
|
|
$
|
1
|
|
Non-cash investing and financing activities:
|
|
|
|
|
Liabilities incurred in connection with acquisitions
|
|
$
|
1,232
|
|
|
$
|
—
|
|
Change in accruals for property, plant and equipment additions
|
|
$
|
140
|
|
|
$
|
(189
|
)
|
D.
Accounts and notes receivable, net and accounts receivable securitization
Accounts and notes receivable, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
July 31, 2017
|
Accounts receivable pledged as collateral
|
|
$
|
137,244
|
|
|
$
|
109,407
|
|
Accounts receivable
|
|
46,318
|
|
|
47,346
|
|
Note receivable - Jamex, current portion
|
|
10,000
|
|
|
10,000
|
|
Other
|
|
294
|
|
|
307
|
|
Less: Allowance for doubtful accounts
|
|
(2,428
|
)
|
|
(1,976
|
)
|
Accounts and notes receivable, net
|
|
$
|
191,428
|
|
|
$
|
165,084
|
|
On April 28, 2017, Ferrellgas entered into a fifth amendment to its accounts receivable securitization facility to modify the maximum consolidated leverage ratio covenant and the consolidated interest coverage ratio covenant.
Consolidated leverage ratio
The consolidated leverage ratio is defined as the ratio of total debt of the operating partnership to trailing four quarters earnings before interest expense, income tax expense, depreciation and amortization expense ("EBITDA") (both as adjusted for certain, specified items) of the operating partnership, as detailed in Ferrellgas' secured credit facility and accounts receivable securitization facility.
The current maximum consolidated leverage covenant ratios are as follows:
|
|
|
|
|
Date
|
|
Maximum leverage ratio
|
October 31, 2017
|
|
7.75
|
|
January 31, 2018
|
|
7.75
|
|
April 30, 2018
|
|
7.75
|
|
July 31, 2018 & thereafter
|
|
5.50
|
|
Ferrellgas' consolidated leverage ratio was
7.57
x as of
October 31, 2017
. See additional disclosure about Ferrellgas' financial covenants in Note E - Debt.
Consolidated interest coverage ratio
The consolidated interest coverage ratio is defined as the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the operating partnership, as detailed in Ferrellgas' secured credit facility and accounts receivable securitization facility.
The current minimum consolidated interest coverage ratios are as follows:
|
|
|
|
|
Date
|
|
Minimum consolidated interest coverage ratio
|
October 31, 2017
|
|
1.75
|
|
January 31, 2018
|
|
1.75
|
|
April 30, 2018
|
|
1.75
|
|
July 31, 2018 & thereafter
|
|
2.50
|
|
Ferrellgas' consolidated interest coverage ratio was
1.93
x as of
October 31, 2017
; the margin allows for approximately
$12.1 million
of additional interest expense or approximately
$21.1 million
less EBITDA. See additional disclosure about Ferrellgas' financial covenants in Note E - Debt.
At
October 31, 2017
,
$137.2
million of trade accounts receivable were pledged as collateral against
$88.0
million of collateralized notes payable due to the commercial paper conduit. At
July 31, 2017
, $
109.4
million of trade accounts receivable were pledged as collateral against
$69.0
million of collateralized notes payable due to the commercial paper conduit. These accounts receivable pledged as collateral are bankruptcy remote from the operating partnership. The operating partnership does not provide any guarantee or similar support to the collectability of these accounts receivable pledged as collateral.
As of
October 31, 2017
, Ferrellgas had received cash proceeds of
$88.0
million from trade accounts receivables securitized, with
no
remaining capacity to receive additional proceeds. As of
July 31, 2017
, Ferrellgas had received cash proceeds of
$69.0
million from trade accounts receivables securitized, with
no
remaining capacity to receive additional proceeds. Borrowings under the accounts receivable securitization facility had a weighted average interest rate of
3.7%
and
4.0%
as of
October 31, 2017
and
July 31, 2017
, respectively.
E.
Debt
Short-term borrowings
As of October 31, 2017, Ferrellgas classified all of its secured credit facility borrowings as short-term because the facility matures in October 2018. Prior to October 31, 2017, Ferrellgas classified as short-term the portion of its secured credit facility borrowings that were used to fund working capital needs that management intended to pay down within the 12 month period following the balance sheet date. As of
October 31, 2017
and
July 31, 2017
,
$263.2 million
and
$59.8 million
, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.
Financial covenants
The indenture governing the outstanding notes of Ferrellgas Partners and the agreements governing the operating partnership’s indebtedness contain various covenants that limit Ferrellgas Partners' ability and the ability of specified subsidiaries to, among other things, make restricted payments and incur additional indebtedness. The general partner believes that the most restrictive of these covenants are the consolidated fixed charge coverage ratio, as defined in the indenture governing the outstanding notes of Ferrellgas Partners, and the consolidated leverage ratio and consolidated interest coverage ratio, as defined in the secured credit facility and the accounts receivable securitization facility.
Before a restricted payment (as defined in the secured credit facility and the operating partnership indentures) can be made by the operating partnership, the operating partnership must be in compliance with the consolidated leverage ratio and consolidated interest coverage ratio covenants under the secured credit facility and accounts receivable securitization facility and in compliance with the covenants under the operating partnership's indentures. If the operating partnership is unable to make restricted payments, Ferrellgas Partners will not have the ability to make semi-annual interest payments on its
$357.0 million
8.625%
unsecured senior notes due
2020
or distributions to Ferrellgas Partners common unitholders. If Ferrellgas Partners does not make interest payments on its unsecured notes, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If Ferrellgas' debt obligations are accelerated, Ferrellgas may be unable to borrow sufficient funds to refinance debt in which case unitholders and investors in our debt instruments could experience a partial or total loss of their investment.
Before a restricted payment (as defined in the Ferrellgas Partners indenture) can be made by Ferrellgas Partners, Ferrellgas Partners must be in compliance with the consolidated fixed charge coverage ratio covenant under the Ferrellgas Partners indenture. If Ferrellgas Partners is unable to make restricted payments, Ferrellgas Partners will not have the ability to make distributions to Ferrellgas Partners common unitholders.
A breach of the consolidated leverage ratio covenant or the consolidated interest coverage ratio covenant under the secured credit facility and the accounts receivable securitization facility would result in an event of default under those facilities resulting in the operating partnership’s inability to obtain funds under those facilities and would give the lenders and receivables purchasers the right to accelerate the operating partnership's obligations under those facilities and to exercise remedies to collect the outstanding amounts under those facilities. If the lenders and receivables purchasers accelerated the operating partnership's obligations, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If Ferrellgas' debt obligations are accelerated, Ferrellgas may be unable to borrow sufficient funds to refinance debt in which case unitholders and investors in our debt instruments could experience a partial or total loss of their investment.
Consolidated leverage ratio
The consolidated leverage ratio is defined as the ratio of total debt of the operating partnership to trailing four quarters EBITDA (both as adjusted for certain, defined items) of the operating partnership, as detailed in Ferrellgas' secured credit facility and accounts receivable securitization facility.
The current maximum consolidated leverage covenant ratios are as follows:
|
|
|
|
|
Date
|
|
Maximum leverage ratio
|
October 31, 2017
|
|
7.75
|
|
January 31, 2018
|
|
7.75
|
|
April 30, 2018
|
|
7.75
|
|
July 31, 2018 & thereafter
|
|
5.50
|
|
Ferrellgas' consolidated leverage ratio was
7.57
x as of
October 31, 2017
; the margin allows for approximately
$40.6 million
of additional borrowing capacity or approximately
$5.2 million
less EBITDA. This covenant also restricts Ferrellgas' ability to make distribution payments as discussed above.
Consolidated interest coverage ratio
The consolidated interest coverage ratio is defined as the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the operating partnership, as detailed in Ferrellgas' secured credit facility and accounts receivable securitization facility.
The current minimum consolidated interest coverage ratios are as follows:
|
|
|
|
|
Date
|
|
Minimum consolidated interest coverage ratio
|
October 31, 2017
|
|
1.75
|
|
January 31, 2018
|
|
1.75
|
|
April 30, 2018
|
|
1.75
|
|
July 31, 2018 & thereafter
|
|
2.50
|
|
Ferrellgas' consolidated interest coverage ratio was
1.93
x at
October 31, 2017
; the margin allows for approximately
$12.1 million
of additional interest expense or approximately
$21.1 million
less EBITDA.
Consolidated fixed charge coverage ratio
The indenture governing the outstanding notes of Ferrellgas Partners includes a consolidated fixed charge coverage ratio test for the incurrence of debt and the making of restricted payments. This covenant requires that the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of Ferrellgas Partners be at least
1.75
x before a restricted payment (as defined in the indenture) can be made by Ferrellgas Partners. If this ratio were to drop below
1.75
x, the indenture allows Ferrellgas Partners to make restricted payments of up to
$50.0 million
in total over a 16 quarter period while below this ratio. As of October 31, 2017, the ratio was
1.44
x. As a result, the
$9.8 million
distribution to be paid to common unitholders on December 15, 2017 will be taken from the
$50.0 million
restricted payment limitation, which after considering the
$9.8 million
deduction taken as a result of the distribution paid in September 2017, leaves
$30.4 million
for future restricted payments. Unless the indenture governing the outstanding notes is amended or refinanced, if our consolidated fixed charge coverage ratio does not improve to at least
1.75
x and we continue our current quarterly distribution rate of
$0.10
per common unit, this covenant will not allow us to make common unit distributions for our quarter ending October 31, 2018 and beyond.
Debt and interest expense reduction strategy
Ferrellgas continues to execute on a strategy to reduce its debt and interest expense. This strategy may include issuance of equity, amending existing debt agreements, asset sales or a further reduction in Ferrellgas Partners' annual distribution, which was reduced during the quarter ended October 31, 2016 from an annualized rate of
$2.05
to
$0.40
per common unit. Ferrellgas believes any debt and interest expense reduction strategies would remain in effect until Ferrellgas' consolidated leverage ratio reaches 4.5x or a level Ferrellgas deems appropriate for its business.
If Ferrellgas is unsuccessful with its strategy to reduce debt and interest expense, is unsuccessful in renegotiating its secured credit facility, which matures in October 2018, or is unable to secure alternative liquidity sources, it may not have the liquidity to fund its operations after that maturity date.
Failure to maintain compliance with these and other covenants in our agreements or failure to renew or replace liquidity available under the secured credit facility could have a material, adverse effect on Ferrellgas' operating capacity and cash flows and could further restrict Ferrellgas' ability to incur debt, pay interest on the notes or to make cash distributions to unitholders. An inability to pay interest on the notes could result in an event of default that would permit the acceleration of all of Ferrellgas' indebtedness. The accelerated debt would become immediately due and payable, which would in turn trigger cross-acceleration under other debt. If the payment of Ferrellgas' debt is accelerated, Ferrellgas' assets may be insufficient to repay such debt in full and Ferrellgas may be unable to borrow sufficient funds to refinance debt, in which case investors in common units and our debt instruments could experience a partial or total loss of their investment.
As a result of the October 2018 maturity date of Ferrellgas' secured credit facility, the entire balance outstanding at October 31, 2017 has been classified as a current liability in the condensed consolidated balance sheet as of October 31, 2017. The absence of a plan to renew or refinance this debt would raise substantial doubt about Ferrellgas' ability to continue as a going concern. Ferrellgas is working to renew or replace the secured credit facility. Potential options may include extending the current secured credit facility, entering into a new secured credit facility or securing alternative financing from a different source. Ferrellgas believes it is probable that it will be able to obtain sufficient capital to meet anticipated liquidity demands and, therefore, does not believe there is substantial doubt about our ability to continue as a going concern.
Secured credit facility
On April 28, 2017, Ferrellgas entered into a sixth amendment to its secured credit facility to modify the maximum consolidated leverage ratio covenant and the consolidated interest coverage ratio covenant. The amendment to our secured credit facility also (1) reduces the amounts available to be borrowed from
$700 million
to
$575 million
, (2) increases the pricing of loans when our leverage ratio is greater than or equal to
6.00
x from LIBOR plus
3.50%
to LIBOR plus
3.75%
and when our leverage ratio is greater than or equal to
7.00
x from LIBOR plus
3.50%
to LIBOR plus
4.00%
, (3) limits the amount of distributions (other than distributions to Ferrellgas Partners for payments of interest payable on its unsecured notes) that the operating partnership may make to Ferrellgas Partners to
$10 million
per quarter (Ferrellgas Partners' current distribution rate is
$9.8 million
per quarter) until the leverage ratio is less than
5.50
x, (4) reduces the amount of investments we can make when our leverage ratio is greater than
5.50
x from
$200 million
to
$50 million
, and (5) requires us to reduce our secured credit facility with 50% of the net cash proceeds received from any equity sale.
As of
October 31, 2017
, Ferrellgas had total borrowings outstanding under its secured credit facility of
$263.2 million
, all of which was classified as short-term. Ferrellgas had
$139.8 million
of capacity under the secured credit facility as of
October 31, 2017
. However, the consolidated leverage ratio covenant under this facility limited additional borrowings to
$40.6 million
as of October 31, 2017. As of
July 31, 2017
, Ferrellgas had total borrowings outstanding under its secured credit facility of
$245.5 million
, of which
$185.7 million
was classified as long-term debt. Ferrellgas had
$190.3 million
of capacity under the secured credit facility as of
July 31, 2017
. However, the consolidated leverage ratio covenant under this facility limited additional borrowings to
$67.5 million
as of
July 31, 2017
. Borrowings outstanding at
October 31, 2017
and
July 31, 2017
under the secured credit facility had weighted average interest rates of
5.9%
and
6.0%
, respectively.
The obligations under this credit facility are secured by substantially all assets of Ferrellgas, the general partner and certain subsidiaries of Ferrellgas but specifically excluding (a) assets that are subject to Ferrellgas’ accounts receivable securitization facility, (b) the general partner’s equity interest in Ferrellgas Partners and (c) equity interests in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiaries of Ferrellgas.
Letters of credit outstanding at
October 31, 2017
totaled
$172.0 million
and were used to secure commodity hedges, product purchases, and insurance arrangements. Letters of credit outstanding at
July 31, 2017
totaled
$139.2 million
and were used to secure commodity hedges, product purchases, and insurance arrangements. At
October 31, 2017
, Ferrellgas had remaining letter of credit capacity of
$28.0 million
. At
July 31, 2017
, Ferrellgas had remaining letter of credit capacity of
$60.8 million
.
F.
Partners' deficit
As of
October 31, 2017
and
July 31, 2017
, Ferrellgas Partners limited partner units, which are listed on the New York Stock Exchange under the symbol “FGP,” were beneficially owned by the following:
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
July 31, 2017
|
Public common unitholders
|
|
69,612,939
|
|
|
69,612,939
|
|
Ferrell Companies (1)
|
|
22,529,361
|
|
|
22,529,361
|
|
FCI Trading Corp. (2)
|
|
195,686
|
|
|
195,686
|
|
Ferrell Propane, Inc. (3)
|
|
51,204
|
|
|
51,204
|
|
James E. Ferrell (4)
|
|
4,763,475
|
|
|
4,763,475
|
|
(1) Ferrell Companies is the owner of the general partner and is an approximate
23%
direct owner of Ferrellgas Partners' common units and thus a related party. Ferrell Companies also beneficially owns
195,686
and
51,204
common units of Ferrellgas Partners held by FCI Trading Corp. ("FCI Trading") and Ferrell Propane, Inc. ("Ferrell Propane"), respectively, bringing Ferrell Companies' beneficial ownership to
23.4%
at
October 31, 2017
.
(2) FCI Trading is an affiliate of the general partner and thus a related party.
(3) Ferrell Propane is controlled by the general partner and thus a related party.
(4) James E. Ferrell is the Interim Chief Executive Officer and President of the general partner; and is Chairman of the Board of Directors of the general partner and thus a related party. JEF Capital Management owns
4,758,859
of these common units and is wholly-owned by the James E. Ferrell Revocable Trust Two for which James E. Ferrell is the trustee and sole beneficiary. The remaining
4,616
common units are held by Ferrell Resources Holding, Inc., which is wholly-owned by the James E. Ferrell Revocable Trust One, for which James E. Ferrell is the trustee and sole beneficiary.
Partnership distributions paid
Ferrellgas Partners has paid the following distributions:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
Public common unitholders
|
|
$
|
6,961
|
|
|
$
|
35,678
|
|
Ferrell Companies
|
|
2,253
|
|
|
11,546
|
|
FCI Trading Corp.
|
|
20
|
|
|
100
|
|
Ferrell Propane, Inc.
|
|
5
|
|
|
26
|
|
James E. Ferrell
|
|
476
|
|
|
2,441
|
|
General partner
|
|
98
|
|
|
503
|
|
|
|
$
|
9,813
|
|
|
$
|
50,294
|
|
On
November 16, 2017
, Ferrellgas Partners declared a cash distribution of
$0.10
per common unit for the three months ended
October 31, 2017
, which is expected to be paid on
December 15, 2017
. Included in this cash distribution are the following amounts to be paid to related parties:
|
|
|
|
|
|
Ferrell Companies
|
|
$
|
2,253
|
|
FCI Trading Corp.
|
|
20
|
|
Ferrell Propane, Inc.
|
|
5
|
|
James E. Ferrell
|
|
476
|
|
General partner
|
|
98
|
|
See additional discussions about transactions with related parties in Note I – Transactions with related parties.
Accumulated other comprehensive income (loss)
(“AOCI”)
See Note H – Derivative instruments and hedging activities – for details regarding changes in the fair value of risk management financial derivatives recorded within AOCI for the
three months ended
October 31, 2017
and
2016
.
General partner’s commitment to maintain its capital account
Ferrellgas’ partnership agreements allow the general partner to have an option to maintain its effective
2%
general partner interest concurrent with the issuance of other additional equity.
During the
three months ended
October 31, 2017
, the general partner made non-cash contributions of
$0.1 million
to Ferrellgas to maintain its effective
2%
general partner interest.
During the
three months ended
October 31, 2016
, the general partner made non-cash contributions of
$0.1 million
to Ferrellgas to maintain its effective
2%
general partner interest.
G.
Fair value measurements
Derivative financial instruments
The following table presents Ferrellgas’ financial assets and financial liabilities that are measured at fair value on a recurring basis for each of the fair value hierarchy levels, including both current and noncurrent portions, as of
October 31, 2017
and
July 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability)
|
|
|
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Unobservable Inputs (Level 3)
|
|
Total
|
October 31, 2017:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
298
|
|
|
$
|
—
|
|
|
$
|
298
|
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
35,000
|
|
|
$
|
—
|
|
|
$
|
35,000
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
(984
|
)
|
|
$
|
—
|
|
|
$
|
(984
|
)
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
(3,464
|
)
|
|
$
|
—
|
|
|
$
|
(3,464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2017:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
583
|
|
|
$
|
—
|
|
|
$
|
583
|
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
16,212
|
|
|
$
|
—
|
|
|
$
|
16,212
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
(707
|
)
|
|
$
|
—
|
|
|
$
|
(707
|
)
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
(1,258
|
)
|
|
$
|
—
|
|
|
$
|
(1,258
|
)
|
Methodology
The fair values of Ferrellgas’ non-exchange traded commodity derivative contracts are based upon indicative price quotations available through brokers, industry price publications or recent market transactions and related market indicators. The fair values of interest rate swap contracts are based upon third-party quotes or indicative values based on recent market transactions.
Other financial instruments
The carrying amounts of other financial instruments included in current assets and current liabilities (except for current maturities of long-term debt) approximate their fair values because of their short-term nature. The estimated fair value of the Jamex note receivable, a financial instrument classified in "Other assets, net" on the condensed consolidated balance sheet, is approximately
$36.4 million
, or
$3.8 million
less than its carrying amount as of October 31, 2017. The estimated fair value of the Jamex note receivable was calculated using a discounted cash flow method which relied on significant unobservable inputs. At
October 31, 2017
and
July 31, 2017
, the estimated fair value of Ferrellgas’ long-term debt instruments was
$1,704.4 million
and
$1,966.6 million
, respectively. Ferrellgas estimates the fair value of long-term debt based on quoted market prices. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.
Ferrellgas has other financial instruments such as trade accounts receivable which could expose it to concentrations of credit risk. The credit risk from trade accounts receivable is limited because of a large customer base which extends across many different U.S. markets.
H.
Derivative instruments and hedging activities
Ferrellgas is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. Ferrellgas utilizes derivative instruments to manage its exposure to fluctuations in commodity prices. Of these, the propane commodity derivative instruments are designated as cash flow hedges. All other commodity derivative instruments do not qualify or are not designated as cash flow hedges, therefore, the change in their fair value are recorded currently in earnings. Ferrellgas also periodically utilizes derivative instruments to manage its exposure to fluctuations in interest rates.
Derivative instruments and hedging activity
During the
three months ended
October 31, 2017
and 2016, Ferrellgas did
no
t recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of financial derivative contract gains or losses from the assessment of hedge effectiveness related to commodity cash flow hedges.
The following tables provide a summary of the fair value of derivatives in Ferrellgas’ condensed consolidated balance sheets as of
October 31, 2017
and
July 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative Instrument
|
|
Location
|
|
Fair value
|
|
Location
|
|
Fair value
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity derivatives-propane
|
|
Prepaid expenses and other current assets
|
|
$
|
25,938
|
|
|
Other current liabilities
|
|
$
|
1,209
|
|
Commodity derivatives-propane
|
|
Other assets, net
|
|
8,789
|
|
|
Other liabilities
|
|
284
|
|
Interest rate swap agreements
|
|
Prepaid expenses and other current assets
|
|
298
|
|
|
Other current liabilities
|
|
284
|
|
Interest rate swap agreements
|
|
Other assets, net
|
|
—
|
|
|
Other liabilities
|
|
700
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity derivatives-crude oil
|
|
Prepaid expenses and other current assets
|
|
273
|
|
|
Other current liabilities
|
|
1,971
|
|
|
|
Total
|
|
$
|
35,298
|
|
|
Total
|
|
$
|
4,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2017
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative Instrument
|
|
Location
|
|
Fair value
|
|
Location
|
|
Fair value
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity derivatives-propane
|
|
Prepaid expenses and other current assets
|
|
$
|
11,061
|
|
|
Other current liabilities
|
|
$
|
415
|
|
Commodity derivatives-propane
|
|
Other assets, net
|
|
4,413
|
|
|
Other liabilities
|
|
15
|
|
Interest rate swap agreements
|
|
Prepaid expenses and other current assets
|
|
583
|
|
|
Other current liabilities
|
|
595
|
|
Interest rate swap agreements
|
|
Other assets, net
|
|
—
|
|
|
Other liabilities
|
|
112
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity derivatives-crude oil
|
|
Prepaid expenses and other current assets
|
|
738
|
|
|
Other current liabilities
|
|
828
|
|
|
|
Total
|
|
$
|
16,795
|
|
|
Total
|
|
$
|
1,965
|
|
Ferrellgas' exchange traded commodity derivative contracts require cash margin deposit as collateral for contracts that are in a negative mark-to-market position. These cash margin deposits will be returned if mark-to-market conditions improve or will be applied against cash settlement when the contracts are settled. Liabilities represent cash margin deposits received by Ferrellgas for contracts that are in a positive mark-to-market position. The following tables provide a summary of cash margin balances as of
October 31, 2017
and
July 31, 2017
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
|
Assets
|
|
Liabilities
|
Description
|
|
Location
|
|
Amount
|
|
Location
|
|
Amount
|
Margin Balances
|
|
Prepaid expenses and other current assets
|
|
$
|
3,723
|
|
|
Other current liabilities
|
|
$
|
19,696
|
|
|
|
Other assets, net
|
|
1,461
|
|
|
Other liabilities
|
|
5,945
|
|
|
|
|
|
$
|
5,184
|
|
|
|
|
$
|
25,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2017
|
|
|
Assets
|
|
Liabilities
|
Description
|
|
Location
|
|
Amount
|
|
Location
|
|
Amount
|
Margin Balances
|
|
Prepaid expenses and other current assets
|
|
$
|
1,778
|
|
|
Other current liabilities
|
|
$
|
7,729
|
|
|
|
Other assets, net
|
|
1,631
|
|
|
Other liabilities
|
|
3,073
|
|
|
|
|
|
$
|
3,409
|
|
|
|
|
$
|
10,802
|
|
The following tables provide a summary of the effect on Ferrellgas' condensed consolidated statements of operations for the
three months ended
October 31, 2017
and
2016
due to derivatives designated as fair value hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain Recognized on Derivative
|
|
Amount of Interest Expense Recognized on Fixed-Rated Debt (Related Hedged Item)
|
Derivative Instrument
|
|
Location of Amounts Recognized on Derivative
|
|
For the three months ended October 31,
|
|
For the three months ended October 31,
|
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest rate swap agreements
|
|
Interest expense
|
|
$
|
138
|
|
|
$
|
420
|
|
|
$
|
(2,275
|
)
|
|
$
|
(2,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The following tables provide a summary of the effect on Ferrellgas’ condensed consolidated statements of comprehensive income (loss) for the
three months ended
October 31, 2017
and
2016
due to derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31, 2017
|
|
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCI
|
|
Location of Gain (Loss) Reclassified from AOCI into Income
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
|
|
Effective portion
|
|
Ineffective portion
|
Commodity derivatives
|
|
$
|
22,323
|
|
|
Cost of sales-propane and other gas liquids sales
|
|
$
|
4,132
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
126
|
|
|
Interest expense
|
|
(183
|
)
|
|
—
|
|
|
|
$
|
22,449
|
|
|
|
|
$
|
3,949
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31, 2016
|
|
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCI
|
|
Location of Gain (Loss) Reclassified from AOCI into Income
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
|
|
Effective portion
|
|
Ineffective portion
|
Commodity derivatives
|
|
$
|
4,873
|
|
|
Cost of sales-propane and other gas liquids sales
|
|
$
|
(3,596
|
)
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
265
|
|
|
Interest expense
|
|
(642
|
)
|
|
—
|
|
|
|
$
|
5,138
|
|
|
|
|
$
|
(4,238
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
The following tables provide a summary of the effect on Ferrellgas' condensed consolidated statements of operations for the
three months ended
October 31, 2017
and
2016
due to the change in fair value of derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31, 2017
|
Derivatives Not Designated as Hedging Instruments
|
|
Amount of Gain (Loss) Recognized in Income
|
|
Location of Gain (Loss) Recognized in Income
|
Commodity derivatives - crude oil
|
|
$
|
(1,390
|
)
|
|
Cost of sales - midstream operations
|
|
|
|
|
|
|
|
For the three months ended October 31, 2016
|
Derivatives Not Designated as Hedging Instruments
|
|
Amount of Gain (Loss) Recognized in Income
|
|
Location of Gain (Loss) Recognized in Income
|
Commodity derivatives - crude oil
|
|
$
|
(1,241
|
)
|
|
Cost of sales - midstream operations
|
Commodity derivatives - vehicle fuel
|
|
$
|
1,027
|
|
|
Operating expense
|
|
|
|
|
|
The changes in derivatives included in AOCI for the
three months ended
October 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
Gains and losses on derivatives included in AOCI
|
|
2017
|
|
2016
|
Beginning balance
|
|
$
|
14,648
|
|
|
$
|
(9,815
|
)
|
Change in value of risk management commodity derivatives
|
|
22,323
|
|
|
4,873
|
|
Reclassification of (gains) and losses on commodity hedges to cost of sales - propane and other gas liquids sales, net
|
|
(4,132
|
)
|
|
3,596
|
|
Change in value of risk management interest rate derivatives
|
|
126
|
|
|
265
|
|
Reclassification of (gains) and losses on interest rate hedges to interest expense
|
|
183
|
|
|
642
|
|
Ending balance
|
|
$
|
33,148
|
|
|
$
|
(439
|
)
|
Ferrellgas expects to reclassify net gains related to the risk management commodity derivatives of approximately
$24.7 million
to earnings during the next 12 months. These net gains are expected to be offset by decreased margins on propane sales commitments Ferrellgas has with its customers that qualify for the normal purchase normal sales exception.
During the
three months ended
October 31, 2017
, Ferrellgas had
no
reclassifications to operations resulting from the discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship.
As of
October 31, 2017
, Ferrellgas had financial derivative contracts covering
3.2 million
barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.
As of
October 31, 2017
, Ferrellgas had financial derivative contracts covering
0.3 million
barrels of crude oil related to the hedging of crude oil line fill and inventory.
Derivative financial instruments credit risk
Ferrellgas is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Ferrellgas’ counterparties principally consist of major energy companies and major U.S. financial institutions. Ferrellgas maintains credit policies with regard to its counterparties that it believes reduce its overall credit risk. These policies include evaluating and monitoring its counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by Ferrellgas in the forms of letters of credit, parent guarantees or cash. Ferrellgas has concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties. If these counterparties that make up the concentration failed to perform according to the terms of their contracts at
October 31, 2017
, the maximum amount of loss due to credit risk that, based upon the gross fair values of the derivative financial instruments, Ferrellgas would incur is $
33.3
million.
From time to time Ferrellgas enters into derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon Ferrellgas' debt rating. There were
no
open derivative contracts with credit-risk-related contingent features as of
October 31, 2017
.
I.
Transactions with related parties
Ferrellgas has
no
employees and is managed and controlled by its general partner. Pursuant to Ferrellgas’ partnership agreements, the general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas and all other necessary or appropriate expenses allocable to Ferrellgas or otherwise reasonably incurred by its general partner in connection with operating Ferrellgas’ business. These costs primarily include compensation and benefits paid to employees of the general partner who perform services on Ferrellgas’ behalf and are reported in the condensed consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
Operating expense
|
|
$
|
57,351
|
|
|
$
|
55,714
|
|
|
|
|
|
|
General and administrative expense
|
|
$
|
7,508
|
|
|
$
|
8,583
|
|
See additional discussions about transactions with the general partner and related parties in Note F – Partners’ deficit.
J.
Contingencies and commitments
Litigation
Ferrellgas’ operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane and crude oil. As a result, at any given time, Ferrellgas can be threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. Other than as discussed below, Ferrellgas is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that are reasonably expected to have a material adverse effect on the consolidated financial condition, results of operations and cash flows of Ferrellgas.
Ferrellgas has been named as a defendant, along with a competitor, in putative class action lawsuits filed in multiple jurisdictions. The lawsuits, which were consolidated in the Western District of Missouri on October 16, 2014, allege that Ferrellgas and a competitor coordinated in 2008 to reduce the fill level in barbeque cylinders and combined to persuade a common customer to accept that fill reduction, resulting in increased cylinder costs to direct customers and end-user customers in violation of federal and certain state antitrust laws. The lawsuits seek treble damages, attorneys’ fees, injunctive relief and costs on behalf of the putative class. These lawsuits have been consolidated into one case by a multidistrict litigation panel. The Federal Court for the Western District of Missouri has dismissed all claims brought by direct and indirect customers other than state law claims of indirect customers under Wisconsin, Maine and Vermont law. The direct customer plaintiffs filed an appeal, which resulted in a reversal of the district court’s dismissal. We have filed a petition for a writ of certiorari with the U.S. Supreme Court. The direct customer plaintiffs have agreed to a stay of the case pending a decision on the petition and, if granted, the appeal. An appeal by the indirect customer plaintiffs remains pending. Ferrellgas believes it has strong defenses to the claims and intends to vigorously defend against the consolidated case. Ferrellgas does not believe loss is probable or reasonably estimable at this time related to the putative class action lawsuit.
Ferrellgas has been named, along with several current and former officers, in several class action lawsuits alleging violations of certain securities laws based on alleged materially false and misleading statements in certain of our public disclosures. The lawsuits, the first of which was filed on October 6, 2016 in the Southern District of New York, seek unspecified compensatory damages. Derivative lawsuits with similar allegations have been filed naming Ferrellgas and several current and former officers and directors as defendants. Ferrellgas believes that it has defenses and will vigorously defend these cases. Ferrellgas does not believe loss is probable or reasonably estimable at this time related to the putative class action lawsuits or the derivative action.
Ferrellgas and Bridger Logistics, LLC, have been named, along with two former officers, in a lawsuit filed by Eddystone Rail Company ("Eddystone") on February 2, 2017 in the Eastern District of Pennsylvania (the "EDPA Lawsuit"). Eddystone indicated that it has prevailed or settled an arbitration against Jamex Transfer Services (“JTS”), then named Bridger Transfer Services, a former subsidiary of Bridger Logistics, LLC (“Bridger”). The arbitration involved a claim against JTS for money due for deficiency payments under a contract for the use of an Eddystone facility used to offload crude from rail onto barges. Eddystone alleges that Ferrellgas transferred assets out of JTS prior to the sale of the membership interest in JTS to Jamex Transfer Holdings, and that those transfers should be avoided so that the assets can be used to satisfy the amount owed by JTS to Eddystone under the arbitration. Eddystone also alleges that JTS was an “alter ego” of Bridger and Ferrellgas. Ferrellgas believes that Ferrellgas and Bridger have valid defenses to these claims and to Eddystone’s primary claim against JTS on the contract claim. The lawsuit does not specify a specific amount of damages that Eddystone is seeking; however, Ferrellgas believes that the amount of such damage claims, if ultimately owed to Eddystone, could be material to Ferrellgas. Ferrellgas intends to vigorously defend this claim. The lawsuit is in its early stages; as such, management does not currently believe a loss is probable or reasonably estimable at this time. On August 24, 2017, Ferrellgas filed a third-party complaint against JTS, Jamex Transfer Holdings, and other related persons and entities (the "Third-Party Defendants"), asserting claims for breach of contract, indemnification of any losses in the EDPA Lawsuit, tortious interference with contract, and contribution. The Third-Party Defendants have filed motions to dismiss the third-party complaint for alleged lack of personal jurisdiction, failure to state claim, and forum non-conveniens. Ferrellgas is vigorously opposing these motions.
K.
Net earnings (loss) per common unitholders’ interest
Below is a calculation of the basic and diluted net earnings (loss) per common unitholders’ interest in the condensed consolidated statements of operations for the periods indicated. Ferrellgas calculates net earnings (loss) per common unitholders’ interest for each period presented according to distributions declared and participation rights in undistributed earnings, as if all of the earnings or loss for the period had been distributed according to the incentive distribution rights in the Ferrellgas partnership agreement. Due to the seasonality of the propane business, the dilutive effect of the two-class method typically impacts only the three months ending January 31. In periods with undistributed earnings above certain levels, the calculation according to the two-class method results in an increased allocation of undistributed earnings to the general partner and a dilution of the earnings to the limited partners as follows:
|
|
|
|
|
|
|
|
|
|
Ratio of total distributions payable to:
|
Quarterly distribution per common unit
|
|
Common unitholder
|
|
General partner
|
$0.56 to $0.63
|
|
86.9
|
%
|
|
13.1
|
%
|
$0.64 to $0.82
|
|
76.8
|
%
|
|
23.2
|
%
|
$0.83 and above
|
|
51.5
|
%
|
|
48.5
|
%
|
There was no dilutive effect resulting from this method based on basic and diluted net earnings (loss) per common unitholders' interest for the three months ended
October 31, 2017
or
2016
.
In periods with net losses, the allocation of the net losses to the limited partners and the general partner will be determined based on the same allocation basis specified in Ferrellgas Partners’ partnership agreement that would apply to periods in which there were no undistributed earnings. Additionally, there are no dilutive securities in periods with net losses.
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
|
|
(in thousands, except per unitholders' interest amounts)
|
Common unitholders’ interest in net loss
|
|
$
|
(47,436
|
)
|
|
$
|
(42,642
|
)
|
|
|
|
|
|
Weighted average common units outstanding - basic and diluted
|
|
97,152.7
|
|
|
97,457.6
|
|
|
|
|
|
|
Basic and diluted net loss per common unitholders’ interest
|
|
$
|
(0.49
|
)
|
|
$
|
(0.44
|
)
|
L.
Segment reporting
Ferrellgas has two primary operations that result in two reportable operating segments: propane operations and related equipment sales and midstream operations.
Until April 2017, Ferrellgas utilized a structure that included two reportable segments which included propane operations and related equipment sales segment and the midstream operations - crude oil logistics segment. The results from midstream operations - water solutions segment were reported within Corporate and other. As a result of a change in the way management is evaluating results and allocating resources, results of the water solutions business are now included in the Midstream operations segment for all periods presented.
Following is a summary of segment information for the three months ended
October 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31, 2017
|
|
|
Propane operations and related equipment sales
|
|
Midstream operations
|
|
Corporate
|
|
Total
|
Segment revenues
|
|
$
|
333,895
|
|
|
$
|
120,760
|
|
|
$
|
—
|
|
|
$
|
454,655
|
|
Direct costs (1)
|
|
303,329
|
|
|
113,901
|
|
|
11,209
|
|
|
428,439
|
|
Adjusted EBITDA
|
|
$
|
30,566
|
|
|
$
|
6,859
|
|
|
$
|
(11,209
|
)
|
|
$
|
26,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31, 2016
|
|
|
Propane operations and related equipment sales
|
|
Midstream operations
|
|
Corporate
|
|
Total
|
Segment revenues
|
|
$
|
271,498
|
|
|
$
|
108,044
|
|
|
$
|
—
|
|
|
$
|
379,542
|
|
Direct costs (1)
|
|
237,014
|
|
|
102,773
|
|
|
10,736
|
|
|
350,523
|
|
Adjusted EBITDA
|
|
$
|
34,484
|
|
|
$
|
5,271
|
|
|
$
|
(10,736
|
)
|
|
$
|
29,019
|
|
|
|
|
|
|
|
|
|
|
(1) Direct costs are comprised of "cost of products sold-propane and other gas liquids sales", "cost of products sold-midstream operations", "cost of products sold-other", "operating expense", "general and administrative expense", and "equipment lease expense" less "non-cash stock-based compensation charge", "change in fair value of contingent consideration", "severance charge", "litigation accrual and related legal fees associated with a class action lawsuit", "unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments" and "acquisition and transition expenses".
Following is a reconciliation of Ferrellgas' total segment performance measure to condensed consolidated net earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31,
|
|
|
2017
|
|
2016
|
Net loss attributable to Ferrellgas Partners, L.P.
|
|
$
|
(47,915
|
)
|
|
$
|
(43,073
|
)
|
Income tax expense (benefit)
|
|
377
|
|
|
(590
|
)
|
Interest expense
|
|
40,807
|
|
|
35,428
|
|
Depreciation and amortization expense
|
|
25,732
|
|
|
26,202
|
|
EBITDA
|
|
19,001
|
|
|
17,967
|
|
Non-cash employee stock ownership plan compensation charge
|
|
3,962
|
|
|
3,754
|
|
Non-cash stock-based compensation charge
|
|
—
|
|
|
1,881
|
|
Loss on asset sales and disposal
|
|
895
|
|
|
6,423
|
|
Other income, net
|
|
(511
|
)
|
|
(508
|
)
|
Severance costs
|
|
1,663
|
|
|
1,469
|
|
Unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments
|
|
1,607
|
|
|
(1,569
|
)
|
Net loss attributable to noncontrolling interest
|
|
(401
|
)
|
|
(398
|
)
|
Adjusted EBITDA
|
|
$
|
26,216
|
|
|
$
|
29,019
|
|
Following are total assets by segment:
|
|
|
|
|
|
|
|
|
|
Assets
|
|
October 31, 2017
|
|
July 31, 2017
|
Propane operations and related equipment sales
|
|
$
|
1,292,686
|
|
|
$
|
1,194,905
|
|
Midstream operations
|
|
397,653
|
|
|
399,356
|
|
Corporate and unallocated
|
|
14,615
|
|
|
15,708
|
|
Total consolidated assets
|
|
$
|
1,704,954
|
|
|
$
|
1,609,969
|
|
Following are capital expenditures by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31, 2017
|
|
|
Propane operations and related equipment sales
|
|
Midstream operations
|
|
Corporate
|
|
Total
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Maintenance
|
|
$
|
8,351
|
|
|
$
|
3
|
|
|
$
|
239
|
|
|
$
|
8,593
|
|
Growth
|
|
9,688
|
|
|
664
|
|
|
—
|
|
|
10,352
|
|
Total
|
|
$
|
18,039
|
|
|
$
|
667
|
|
|
$
|
239
|
|
|
$
|
18,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31, 2016
|
|
|
Propane operations and related equipment sales
|
|
Midstream operations
|
|
Corporate
|
|
Total
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Maintenance
|
|
$
|
1,831
|
|
|
$
|
127
|
|
|
$
|
1,306
|
|
|
$
|
3,264
|
|
Growth
|
|
5,414
|
|
|
—
|
|
|
—
|
|
|
5,414
|
|
Total
|
|
$
|
7,245
|
|
|
$
|
127
|
|
|
$
|
1,306
|
|
|
$
|
8,678
|
|
M.
Subsequent events
Ferrellgas evaluated events and transactions occurring after the balance sheet date through the date Ferrellgas\' condensed consolidated financial statements were issued and concluded that there were no events or transactions occurring during this period that require recognition or disclosure in its condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
FERRELLGAS PARTNERS FINANCE CORP.
|
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
|
CONDENSED BALANCE SHEETS
|
(unaudited)
|
|
October 31, 2017
|
|
July 31, 2017
|
ASSETS
|
|
|
|
|
|
Cash
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Total assets
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
|
|
|
Contingencies and commitments (Note B)
|
|
|
|
|
|
|
|
STOCKHOLDER'S EQUITY
|
|
|
|
Common stock, $1.00 par value; 2,000 shares authorized; 1,000 shares issued and outstanding
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Additional paid in capital
|
25,105
|
|
|
25,055
|
|
Accumulated deficit
|
(25,105
|
)
|
|
(25,055
|
)
|
Total stockholder's equity
|
$
|
1,000
|
|
|
$
|
1,000
|
|
See notes to condensed financial statements.
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS PARTNERS FINANCE CORP.
|
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
|
CONDENSED STATEMENTS OF OPERATIONS
|
(unaudited)
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
General and administrative expense
|
$
|
50
|
|
|
$
|
92
|
|
|
|
|
|
|
|
Net loss
|
$
|
(50
|
)
|
|
$
|
(92
|
)
|
|
See notes to condensed financial statements.
|
|
|
|
|
|
|
|
|
|
FERRELLGAS PARTNERS FINANCE CORP.
|
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
|
CONDENSED STATEMENTS OF CASH FLOWS
|
(unaudited)
|
|
For the three months ended October 31,
|
|
2017
|
|
2016
|
Cash flows from operating activities:
|
|
|
|
Net loss
|
$
|
(50
|
)
|
|
$
|
(92
|
)
|
Cash used in operating activities
|
(50
|
)
|
|
(92
|
)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Capital contribution
|
50
|
|
|
92
|
|
Cash provided by financing activities
|
50
|
|
|
92
|
|
|
|
|
|
Net change in cash
|
—
|
|
|
—
|
|
Cash - beginning of period
|
1,000
|
|
|
1,000
|
|
Cash - end of period
|
$
|
1,000
|
|
|
$
|
1,000
|
|
See notes to condensed financial statements.
|
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
(unaudited)
NOTES TO CONDENSED FINANCIAL STATEMENTS
A.
Formation
Ferrellgas Partners Finance Corp. (the “Finance Corp.”), a Delaware corporation, was formed on
March 28, 1996
and is a wholly-owned subsidiary of Ferrellgas Partners, L.P. (the “Partnership”).
The condensed financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed financial statements were of a normal recurring nature.
The Finance Corp. has nominal assets, does not conduct any operations and has
no
employees.
B.
Contingencies and commitments
The Finance Corp. serves as co-issuer and co-obligor for debt securities of the Partnership.
The indenture governing the senior unsecured notes contains various restrictive covenants applicable to the Partnership and its subsidiaries, the most restrictive relating to additional indebtedness and restricted payments. As of
October 31, 2017
, the Partnership is in compliance with all requirements, tests, limitations and covenants related to this debt agreement, except for the consolidated fixed charge coverage ratio.
The indenture governing the outstanding notes of the Partnership includes a consolidated fixed charge coverage ratio test for the incurrence of debt and the making of restricted payments. This covenant requires that the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the Partnership be at least
1.75
x before a restricted payment (as defined in the indenture) can be made by the Partnership. If this ratio were to drop below
1.75
x, the indenture allows the Partnership to make restricted payments of up to
$50.0 million
in total over a 16 quarter period while below this ratio. As of October 31, 2017, the ratio was
1.44
x. As a result, the
$9.8 million
distribution to be paid to common unitholders on December 15, 2017 will be taken from the
$50.0 million
restricted payment limitation, which after considering the
$9.8 million
deduction taken as a result of the distribution paid in September 2017, leaves
$30.4 million
for future restricted payments. Unless the indenture governing the outstanding notes is amended or refinanced, if our consolidated fixed charge coverage ratio does not improve to at least
1.75
x and we continue our current quarterly distribution rate of
$0.10
per common unit, this covenant will not allow us to make common unit distributions for our quarter ending October 31, 2018 and beyond.
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(in thousands)
|
(unaudited)
|
|
October 31, 2017
|
|
July 31, 2017
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
7,098
|
|
|
$
|
5,701
|
|
Accounts and notes receivable, net (including $137,244 and $109,407 of accounts receivable pledged as collateral at October 31, 2017 and July 31, 2017, respectively)
|
191,428
|
|
|
165,084
|
|
Inventories
|
112,338
|
|
|
92,552
|
|
Prepaid expenses and other current assets
|
68,055
|
|
|
33,426
|
|
Total current assets
|
378,919
|
|
|
296,763
|
|
|
|
|
|
Property, plant and equipment, net
|
738,729
|
|
|
731,923
|
|
Goodwill, net
|
256,103
|
|
|
256,103
|
|
Intangible assets (net of accumulated amortization of $444,447 and $436,428 at October 31, 2017 and July 31, 2017, respectively)
|
250,629
|
|
|
251,102
|
|
Other assets, net
|
80,559
|
|
|
74,057
|
|
Total assets
|
$
|
1,704,939
|
|
|
$
|
1,609,948
|
|
|
|
|
|
LIABILITIES AND PARTNERS' DEFICIT
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
99,198
|
|
|
$
|
85,561
|
|
Short-term borrowings
|
263,200
|
|
|
59,781
|
|
Collateralized note payable
|
88,000
|
|
|
69,000
|
|
Other current liabilities
|
189,261
|
|
|
122,016
|
|
Total current liabilities
|
639,659
|
|
|
336,358
|
|
|
|
|
|
Long-term debt
|
1,464,429
|
|
|
1,649,270
|
|
Other liabilities
|
34,799
|
|
|
31,118
|
|
Contingencies and commitments (Note J)
|
|
|
|
|
|
|
|
|
|
Partners' deficit:
|
|
|
|
|
|
Limited partner
|
(462,655
|
)
|
|
(417,467
|
)
|
General partner
|
(4,557
|
)
|
|
(4,095
|
)
|
Accumulated other comprehensive income
|
33,264
|
|
|
14,764
|
|
Total partners' deficit
|
(433,948
|
)
|
|
(406,798
|
)
|
Total liabilities and partners' deficit
|
$
|
1,704,939
|
|
|
$
|
1,609,948
|
|
See notes to condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
(in thousands)
|
(unaudited)
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
|
Revenues:
|
|
|
|
|
Propane and other gas liquids sales
|
$
|
302,758
|
|
|
$
|
242,399
|
|
|
Midstream operations
|
120,760
|
|
|
108,044
|
|
|
Other
|
31,137
|
|
|
29,099
|
|
|
Total revenues
|
454,655
|
|
|
379,542
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
Cost of sales - propane and other gas liquids sales
|
179,515
|
|
|
119,212
|
|
|
Cost of sales - midstream operations
|
108,125
|
|
|
94,642
|
|
|
Cost of sales - other
|
13,702
|
|
|
11,746
|
|
|
Operating expense
|
110,462
|
|
|
105,086
|
|
|
Depreciation and amortization expense
|
25,732
|
|
|
26,202
|
|
|
General and administrative expense
|
13,164
|
|
|
14,269
|
|
|
Equipment lease expense
|
6,741
|
|
|
7,349
|
|
|
Non-cash employee stock ownership plan compensation charge
|
3,962
|
|
|
3,754
|
|
|
Loss on asset sales and disposal
|
895
|
|
|
6,423
|
|
|
|
|
|
|
|
Operating loss
|
(7,643
|
)
|
|
(9,141
|
)
|
|
|
|
|
|
|
Interest expense
|
(32,196
|
)
|
|
(31,398
|
)
|
|
Other income, net
|
511
|
|
|
508
|
|
|
|
|
|
|
|
Loss before income taxes
|
(39,328
|
)
|
|
(40,031
|
)
|
|
|
|
|
|
|
Income tax (benefit) expense
|
371
|
|
|
(591
|
)
|
|
|
|
|
|
|
Net loss
|
$
|
(39,699
|
)
|
|
$
|
(39,440
|
)
|
|
See notes to condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
(in thousands)
|
(unaudited)
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Net loss
|
|
$
|
(39,699
|
)
|
|
$
|
(39,440
|
)
|
Other comprehensive income:
|
|
|
|
|
Change in value of risk management derivatives
|
|
22,449
|
|
|
5,138
|
|
Reclassification of (gains) losses on derivatives to earnings, net
|
|
(3,949
|
)
|
|
4,238
|
|
Other comprehensive income
|
|
18,500
|
|
|
9,376
|
|
Comprehensive loss
|
|
$
|
(21,199
|
)
|
|
$
|
(30,064
|
)
|
See notes to condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
|
(in thousands)
|
(unaudited)
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
other
|
|
Total
|
|
Limited
|
|
General
|
|
comprehensive
|
|
partners'
|
|
partner
|
|
partner
|
|
income
|
|
deficit
|
|
|
|
|
|
|
|
|
Balance at July 31, 2017
|
$
|
(417,467
|
)
|
|
$
|
(4,095
|
)
|
|
$
|
14,764
|
|
|
$
|
(406,798
|
)
|
Contributions in connection with non-cash ESOP and stock-based compensation charges
|
3,923
|
|
|
39
|
|
|
—
|
|
|
3,962
|
|
Distributions
|
(9,813
|
)
|
|
(100
|
)
|
|
—
|
|
|
(9,913
|
)
|
Net loss
|
(39,298
|
)
|
|
(401
|
)
|
|
—
|
|
|
(39,699
|
)
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
18,500
|
|
|
18,500
|
|
Balance at October 31, 2017
|
$
|
(462,655
|
)
|
|
$
|
(4,557
|
)
|
|
$
|
33,264
|
|
|
$
|
(433,948
|
)
|
See notes to condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(in thousands)
|
(unaudited)
|
|
For the three months ended October 31,
|
|
2017
|
|
2016
|
Cash flows from operating activities:
|
|
|
|
Net loss
|
$
|
(39,699
|
)
|
|
$
|
(39,440
|
)
|
Reconciliation of net loss to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization expense
|
25,732
|
|
|
26,202
|
|
Non-cash employee stock ownership plan compensation charge
|
3,962
|
|
|
3,754
|
|
Non-cash stock-based compensation charge
|
—
|
|
|
1,881
|
|
Loss on asset sales and disposal
|
895
|
|
|
6,423
|
|
Unrealized gain on derivative instruments
|
1,607
|
|
|
—
|
|
Provision for doubtful accounts
|
693
|
|
|
9
|
|
Deferred income tax expense
|
364
|
|
|
143
|
|
Other
|
1,325
|
|
|
1,197
|
|
Changes in operating assets and liabilities, net of effects from business acquisitions:
|
|
|
|
Accounts and notes receivable, net of securitization
|
(23,862
|
)
|
|
1,310
|
|
Inventories
|
(33,160
|
)
|
|
(9,702
|
)
|
Prepaid expenses and other current assets
|
(6,885
|
)
|
|
8,031
|
|
Accounts payable
|
13,496
|
|
|
7,049
|
|
Accrued interest expense
|
24,740
|
|
|
24,571
|
|
Other current liabilities
|
39,839
|
|
|
21,251
|
|
Other assets and liabilities
|
(1,057
|
)
|
|
1,872
|
|
Net cash provided by operating activities
|
7,990
|
|
|
54,551
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Business acquisitions, net of cash acquired
|
(13,867
|
)
|
|
—
|
|
Capital expenditures
|
(20,154
|
)
|
|
(10,005
|
)
|
Proceeds from sale of assets
|
1,208
|
|
|
2,279
|
|
Net cash used in investing activities
|
(32,813
|
)
|
|
(7,726
|
)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Distributions
|
(9,913
|
)
|
|
(66,658
|
)
|
Proceeds from issuance of long-term debt
|
23,580
|
|
|
25,626
|
|
Payments on long-term debt
|
(281
|
)
|
|
(2,261
|
)
|
Net reductions in short-term borrowings
|
(5,879
|
)
|
|
(4,467
|
)
|
Net additions to collateralized short-term borrowings
|
19,000
|
|
|
10,000
|
|
Cash paid for financing costs
|
(287
|
)
|
|
(1,390
|
)
|
Net cash provided by (used in) financing activities
|
26,220
|
|
|
(39,150
|
)
|
|
|
|
|
Net change in cash and cash equivalents
|
1,397
|
|
|
7,675
|
|
Cash and cash equivalents - beginning of period
|
5,701
|
|
|
4,890
|
|
Cash and cash equivalents - end of period
|
$
|
7,098
|
|
|
$
|
12,565
|
|
See notes to condensed consolidated financial statements.
|
FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise designated)
(unaudited)
A.
Partnership organization and formation
Ferrellgas, L.P. is a limited partnership that owns and operates propane distribution and related assets, crude oil transportation and logistics related assets and salt water disposal wells in south Texas. Ferrellgas Partners, L.P. (“Ferrellgas Partners”), a publicly traded limited partnership, holds an approximate
99%
limited partner interest in, and consolidates, Ferrellgas, L.P. Ferrellgas, Inc. (the “general partner”), a wholly-owned subsidiary of Ferrell Companies, Inc. (“Ferrell Companies”), holds an approximate
1%
general partner interest in Ferrellgas, L.P. and performs all management functions required by Ferrellgas, L.P.
Ferrellgas, L.P. owns a
100%
equity interest in Ferrellgas Finance Corp., whose only business activity is to act as the co-issuer and co-obligor of debt issued by Ferrellgas, L.P.
Ferrellgas, L.P. is engaged in the following primary businesses:
|
|
•
|
Propane operations and related equipment sales consists of the distribution of propane and related equipment and supplies. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Ferrellgas, L.P. serves residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all
50
states, the District of Columbia, and Puerto Rico.
|
|
|
•
|
Midstream operations consists of crude oil logistics and water solutions. Crude oil logistics primarily generates income by providing crude oil transportation and logistics services on behalf of producers and end-users of crude oil. Water solutions generates income primarily through the operation of salt water disposal wells in the Eagle Ford shale region of south Texas.
|
Due to seasonality, the results of operations for the
three months ended
October 31, 2017
are not necessarily indicative of the results to be expected for the full fiscal year ending
July 31, 2018
.
The condensed consolidated financial statements of Ferrellgas, L.P. and subsidiaries reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal recurring nature. Certain prior period amounts have been reclassified to conform to the current period presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes included in Ferrellgas, L.P.’s Annual Report on Form 10-K for fiscal
2017
.
B.
Summary of significant accounting policies
(1)
Accounting estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment assets, residual values of tanks, capitalization of customer tank installation costs, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, allowance for doubtful accounts, fair value of reporting units, recoverability of long-lived assets, assumptions used to value business combinations, fair values of derivative contracts and stock-based compensation calculations.
(2) New accounting standards:
FASB Accounting Standard Update No. 2014-09
In May 2014, the Financial Accounting Standards Board, ("FASB") issued Accounting Standard Update ("ASU") 2014-09,
Revenue from Contracts with Customers.
The issuance is part of a joint effort by the FASB and the International Accounting Standards Board ("IASB") to enhance financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards ("IFRS") and, thereby, improving the consistency of requirements, comparability of practices and usefulness of disclosures. The new standard will supersede much of the existing authoritative literature for revenue recognition. The standard and related amendments will be effective for Ferrellgas, L.P. for its annual reporting period beginning August 1, 2018, including interim periods within that reporting period. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. Ferrellgas, L.P. is currently evaluating the newly issued guidance, including which transition approach will be applied and the estimated impact it will have
on the consolidated financial statements. Ferrellgas, L.P. has formed an implementation team, completed training on the new standard, prepared an initial assessment and is continuing to review its contracts with customers.
FASB Accounting Standard Update No. 2015-11
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330) - Simplifying the Measurement of Inventory,
which requires that inventory within the scope of the guidance be measured at the lower of cost or net realizable value. We adopted ASU 2015-11 effective August 1, 2017. The adoption of this standard did not materially impact our consolidated financial statements.
FASB Accounting Standard Update No. 2016-02
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Ferrellgas, L.P. is currently evaluating the impact of our pending adoption of ASU 2016-02 on the consolidated financial statements. Ferrellgas, L.P. has formed an implementation team, completed training on the new standard, and is working on an initial assessment.
FASB Accounting Standard Update No. 2016-13
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326)
which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Ferrellgas, L.P. is currently evaluating the impact of its pending adoption of this standard on the consolidated financial statements.
FASB Accounting Standard Update No. 2017-12
In August 2017, the FASB issued ASU 2017-12,
Financial Instruments - Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities
which is intended to improve the financial reporting for hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Ferrellgas, L.P. is currently evaluating the impact of its pending adoption of this standard on the consolidated financial statements.
C.
Supplemental financial statement information
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
July 31, 2017
|
Propane gas and related products
|
|
$
|
79,196
|
|
|
$
|
67,049
|
|
Crude oil
|
|
7,921
|
|
|
724
|
|
Appliances, parts and supplies
|
|
25,221
|
|
|
24,779
|
|
Inventories
|
|
$
|
112,338
|
|
|
$
|
92,552
|
|
In addition to inventories on hand, Ferrellgas, L.P. enters into contracts primarily to buy propane for supply procurement purposes with terms up to
36 months
. Most of these contracts call for payment based on market prices at the date of delivery. As of
October 31, 2017
, Ferrellgas, L.P. had committed, for supply procurement purposes, to take delivery of approximately
119.3
million gallons of propane at fixed prices.
Other assets, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
July 31, 2017
|
Note receivable - Jamex, less current portion
|
|
$
|
30,000
|
|
|
$
|
32,500
|
|
Other
|
|
50,559
|
|
|
41,557
|
|
Other assets, net
|
|
$
|
80,559
|
|
|
$
|
74,057
|
|
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
July 31, 2017
|
Accrued interest
|
|
$
|
39,477
|
|
|
$
|
14,737
|
|
Customer deposits and advances
|
|
42,599
|
|
|
25,541
|
|
Other
|
|
107,185
|
|
|
81,738
|
|
Other current liabilities
|
|
$
|
189,261
|
|
|
$
|
122,016
|
|
Shipping and handling expenses are classified in the following condensed consolidated statements of operations line items:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
Operating expense
|
|
$
|
43,314
|
|
|
$
|
41,810
|
|
Depreciation and amortization expense
|
|
1,112
|
|
|
1,026
|
|
Equipment lease expense
|
|
6,069
|
|
|
6,666
|
|
Total shipping and handling expenses
|
|
$
|
50,495
|
|
|
$
|
49,502
|
|
Certain cash flow and significant non-cash activities are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
Cash paid for:
|
|
|
|
|
Interest
|
|
$
|
6,129
|
|
|
$
|
5,630
|
|
Non-cash investing and financing activities:
|
|
|
|
|
Liabilities incurred in connection with acquisitions
|
|
$
|
1,232
|
|
|
$
|
—
|
|
Change in accruals for property, plant and equipment additions
|
|
$
|
140
|
|
|
$
|
(189
|
)
|
D.
Accounts and notes receivable, net and accounts receivable securitization
Accounts and notes receivable, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
July 31, 2017
|
Accounts receivable pledged as collateral
|
|
$
|
137,244
|
|
|
$
|
109,407
|
|
Accounts receivable
|
|
46,318
|
|
|
47,346
|
|
Note receivable - Jamex, current portion
|
|
10,000
|
|
|
10,000
|
|
Other
|
|
294
|
|
|
307
|
|
Less: Allowance for doubtful accounts
|
|
(2,428
|
)
|
|
(1,976
|
)
|
Accounts and notes receivable, net
|
|
$
|
191,428
|
|
|
$
|
165,084
|
|
On April 28, 2017, Ferrellgas, L.P. entered into a fifth amendment to its accounts receivable securitization facility to modify the maximum consolidated leverage ratio covenant and the consolidated interest coverage ratio covenant.
Consolidated leverage ratio
The consolidated leverage ratio is defined as the ratio of total debt of the operating partnership to trailing four quarters earnings before interest expense, income tax expense, depreciation and amortization expense ("EBITDA") (both as adjusted for certain, specified items) of the operating partnership, as detailed in Ferrellgas, L.P.'s secured credit facility and accounts receivable securitization facility.
The current maximum consolidated leverage covenant ratios are as follows:
|
|
|
|
|
Date
|
|
Maximum leverage ratio
|
October 31, 2017
|
|
7.75
|
|
January 31, 2018
|
|
7.75
|
|
April 30, 2018
|
|
7.75
|
|
July 31, 2018 & thereafter
|
|
5.50
|
|
Ferrellgas, L.P.'s consolidated leverage ratio was
7.57
x as of
October 31, 2017
. See additional disclosure about Ferrellgas' financial covenants in Note E - Debt.
Consolidated interest coverage ratio
The consolidated interest coverage ratio is defined as the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the operating partnership, as detailed in Ferrellgas, L.P.'s secured credit facility and accounts receivable securitization facility.
The current minimum consolidated interest coverage ratios are as follows:
|
|
|
|
|
Date
|
|
Minimum consolidated interest coverage ratio
|
October 31, 2017
|
|
1.75
|
|
January 31, 2018
|
|
1.75
|
|
April 30, 2018
|
|
1.75
|
|
July 31, 2018 & thereafter
|
|
2.50
|
|
Ferrellgas L.P.'s consolidated interest coverage ratio was
1.93
x as of
October 31, 2017
; the margin allows for approximately
$12.1 million
of additional interest expense or approximately
$21.1 million
less EBITDA. See additional disclosure about Ferrellgas' financial covenants in Note E - Debt.
At
October 31, 2017
,
$137.2
million of trade accounts receivable were pledged as collateral against
$88.0
million of collateralized notes payable due to a commercial paper conduit. At
July 31, 2017
,
$109.4 million
of trade accounts receivable were pledged as collateral against
$69.0 million
of collateralized notes payable due to the commercial paper conduit. These accounts receivable pledged as collateral are bankruptcy remote from Ferrellgas, L.P. Ferrellgas, L.P. does not provide any guarantee or similar support to the collectability of these accounts receivable pledged as collateral.
As of
October 31, 2017
, Ferrellgas, L.P. had received cash proceeds of
$88.0
million from trade accounts receivables securitized, with
no
remaining capacity to receive additional proceeds. As of
July 31, 2017
, Ferrellgas, L.P. had received cash proceeds of
$69.0
million from trade accounts receivables securitized, with
no
remaining capacity to receive additional proceeds. Borrowings under the accounts receivable securitization facility had a weighted average interest rate of
3.7%
and
4.0%
as of
October 31, 2017
and
July 31, 2017
, respectively.
E.
Debt
Short-term borrowings
As of October 31, 2017, Ferrellgas, L.P. classified all of its secured credit facility borrowings as short-term because the facility matures in October 2018. Prior to October 31, 2017, Ferrellgas, L.P. classified as short-term the portion of its secured credit facility borrowings that were used to fund working capital needs that management intended to pay down within the 12 month period following the balance sheet date. As of
October 31, 2017
and
July 31, 2017
,
$263.2 million
and
$59.8 million
, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.
Financial covenants
The agreements governing the operating partnership’s indebtedness contain various covenants that limit our ability and the ability of specified subsidiaries to, among other things, make restricted payments and incur additional indebtedness. Our general partner believes that the most restrictive of these covenants are the consolidated leverage ratio and consolidated interest coverage ratio, as defined in our secured credit facility and our accounts receivable securitization facility.
Before a restricted payment (as defined in the secured credit facility and the operating partnership indentures) can be made by the operating partnership, the operating partnership must be in compliance with the consolidated leverage ratio and consolidated interest coverage ratio covenants under the secured credit facility and accounts receivable securitization facility and in compliance with the covenants under the operating partnerships indentures. If the operating partnership is unable to make restricted payments, Ferrellgas Partners will not have the ability to make semi-annual interest payments on its
$357.0 million
8.625%
unsecured senior notes due
2020
or distributions to Ferrellgas Partners common unitholders. If Ferrellgas Partners does not make interest payments on its unsecured notes, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If Ferrellgas, L.P.'s debt obligations are accelerated, Ferrellgas, L.P. may be unable to borrow sufficient funds to refinance debt in which case Ferrellgas Partners' unitholders and investors in our debt instruments could experience a partial or total loss of their investment.
A breach of the consolidated leverage ratio covenant or the consolidated interest coverage ratio covenant under the secured credit facility and the accounts receivable securitization facility would result in an event of default under those facilities resulting in the operating partnership’s inability to obtain funds under those facilities and would give the lenders and receivables purchasers the right to accelerate the operating partnership’s obligations under those facilities and to exercise remedies to collect the outstanding amounts under those facilities. If the lenders and receivables purchasers accelerated the operating partnership's obligations, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If Ferrellgas, L.P.'s debt obligations are accelerated, Ferrellgas, L.P. may be unable to borrow sufficient funds to refinance debt in which case Ferrellgas Partners unitholders and investors in our debt instruments could experience a partial or total loss of their investment.
Consolidated leverage ratio
The consolidated leverage ratio is defined as the ratio of total debt of the operating partnership to trailing four quarters EBITDA (both as adjusted for certain, specified items) of the operating partnership, as detailed in Ferrellgas, L.P.'s secured credit facility and accounts receivable securitization facility.
The current maximum consolidated leverage covenant ratios are as follows:
|
|
|
|
|
Date
|
|
Maximum leverage ratio
|
October 31, 2017
|
|
7.75
|
|
January 31, 2018
|
|
7.75
|
|
April 30, 2018
|
|
7.75
|
|
July 31, 2018 & thereafter
|
|
5.50
|
|
Ferrellgas, L.P.'s consolidated leverage ratio was
7.57
x as of
October 31, 2017
; the margin allows for approximately
$40.6 million
of additional borrowing capacity or approximately
$5.2 million
less EBITDA. This covenant also restricts Ferrellgas L.P.'s ability to make payments to Ferrellgas Partners for purposes of funding distribution payments as discussed above.
Consolidated interest coverage ratio
The consolidated interest coverage ratio is defined as the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the operating partnership, as detailed in Ferrellgas' secured credit facility and accounts receivable securitization facility.
The current minimum consolidated interest coverage ratios are as follows:
|
|
|
|
|
Date
|
|
Minimum consolidated interest coverage ratio
|
October 31, 2017
|
|
1.75
|
|
January 31, 2018
|
|
1.75
|
|
April 30, 2018
|
|
1.75
|
|
July 31, 2018 & thereafter
|
|
2.50
|
|
Ferrellgas L.P.'s consolidated interest coverage ratio was
1.93
x at
October 31, 2017
; the margin allows for approximately
$12.1 million
of additional interest expense or approximately
$21.1 million
less EBITDA.
Debt and interest expense reduction strategy
Ferrellgas, L.P. continues to execute on a strategy to reduce its debt and interest expense. This strategy may include issuance of Ferrellgas Partners' equity, amending existing debt agreements, asset sales or a further reduction in the operating partnership's funding of Ferrellgas Partners' annual distribution, which was reduced during the quarter ended October 31, 2016 from an annualized rate of
$2.05
to
$0.40
per common unit. Ferrellgas, L.P. believes any debt and interest expense reduction strategies would remain in effect until Ferrellgas, L.P.'s consolidated leverage ratio reaches 4.5x or a level Ferrellgas, L.P. deems appropriate for its business.
If Ferrellgas, L.P. is unsuccessful with its strategy to reduce debt and interest expense, or is unsuccessful in renegotiating its secured credit facility, which matures in October 2018, or is unable to secure alternative liquidity sources, it may not have the liquidity to fund its operations after that maturity date.
Failure to maintain compliance with these and other covenants in our agreements or failure to renew or replace liquidity available under the secured credit facility could have a material, adverse effect on Ferrellgas, L.P.'s operating capacity and cash flows and could further restrict Ferrellgas, L.P.'s ability to incur debt, pay interest on the notes or to make cash distributions to its limited and general partners, which could result in an event of default that would permit the acceleration of all of Ferrellgas, L.P.'s indebtedness. The accelerated debt would become immediately due and payable, which would in turn trigger cross-acceleration under other debt. If the payment of Ferrellgas, L.P.'s debt is accelerated, Ferrellgas, L.P.'s assets may be insufficient to repay such debt in full and Ferrellgas, L.P. may be unable to borrow sufficient funds to refinance debt, in which case the limited and general partners and investors in our debt instruments could experience a partial or total loss of their investment.
As a result of the October 2018 maturity date of Ferrellgas, L.P.'s secured credit facility, the entire balance outstanding at October 31, 2017 has been classified as a current liability in the condensed consolidated balance sheet as of October 31, 2017. The absence of a plan to renew or refinance this debt would raise substantial doubt about Ferrellgas, L.P.'s ability to continue as a going concern. Ferrellgas, L.P. is working to renew or replace the secured credit facility. Potential options may include extending the current secured credit facility, entering into a new secured credit facility or securing alternative financing from a different source. Ferrellgas, L.P. believes it is probable that it will be able to obtain sufficient capital to meet anticipated liquidity demands and, therefore, does not believe there is substantial doubt about our ability to continue as a going concern.
Secured credit facility
On April 28, 2017, Ferrellgas, L.P. entered into sixth amendment to its secured credit facility primarily to modify the maximum consolidated leverage ratio covenant and the consolidated interest coverage ratio covenant. The amendment to our secured credit facility also (1) reduces the amounts available to be borrowed from
$700 million
to
$575 million
, (2) increases the pricing of loans when our leverage ratio is greater than or equal to
6.00
x from LIBOR plus
3.50%
to LIBOR plus
3.75%
and when our leverage ratio is greater than or equal to
7.00
x from LIBOR plus
3.50%
to LIBOR plus
4.00%
, (3) limits the amount of distributions (other than distributions to Ferrellgas Partners for payments of interest payable on its unsecured notes) that the operating partnership may make to Ferrellgas Partners to
$10 million
per quarter (Ferrellgas Partners' current distribution rate is
$9.8 million
per quarter) until the leverage ratio is less than
5.50
x, (4) reduces the amount of investments we can make when our leverage ratio is greater than
5.50
x from
$200 million
to
$50 million
, and (5) requires us to reduce our secured credit facility with
50%
of the net cash proceeds received from any equity sale.
As of
October 31, 2017
, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of
$263.2 million
, all of which was classified as short-term. Ferrellgas, L.P. had
$139.8 million
of capacity under the secured credit facility as of
October 31, 2017
. However, the consolidated leverage ratio covenant under this facility limited additional borrowings to
$40.6 million
as of October 31, 2017. As of
July 31, 2017
, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of
$245.5 million
, of which
$185.7 million
was classified as long-term debt. Ferrellgas, L.P. had
$190.3 million
of capacity under our secured credit facility as of
July 31, 2017
. However, the consolidated leverage ratio covenant under this facility limited additional borrowings to
$67.5 million
as of
July 31, 2017
. Borrowings outstanding at
October 31, 2017
and
July 31, 2017
under the secured credit facility had weighted average interest rates of
5.9%
and
6.0%
, respectively.
The obligations under this credit facility are secured by substantially all assets of Ferrellgas, L.P., the general partner and certain subsidiaries of Ferrellgas, L.P. but specifically excluding (a) assets that are subject to Ferrellgas, L.P.’s accounts receivable securitization facility, (b) the general partner’s equity interests in Ferrellgas Partners and (c) equity interest in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiaries of Ferrellgas, L.P.
Letters of credit outstanding at
October 31, 2017
totaled
$172.0 million
and were used to secure commodity hedges, product purchases, and insurance arrangements. Letters of credit outstanding at
July 31, 2017
totaled
$139.2 million
and were used to secure commodity hedges, product purchases, and insurance arrangements. At
October 31, 2017
, Ferrellgas, L.P. had remaining letter of credit capacity of
$28.0 million
. At
July 31, 2017
Ferrellgas, L.P. had remaining letter of credit capacity of
$60.8 million
.
F.
Partners’ deficit
Partnership distributions paid
Ferrellgas, L.P. has paid the following distributions:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
Ferrellgas Partners
|
|
$
|
9,813
|
|
|
$
|
66,145
|
|
General partner
|
|
100
|
|
|
513
|
|
|
|
$
|
9,913
|
|
|
$
|
66,658
|
|
On
November 16, 2017
, Ferrellgas, L.P. declared distributions for the three months ended
October 31, 2017
to Ferrellgas Partners and the general partner of
$25.2 million
and
$0.3 million
, respectively, which are expected to be paid on
December 15, 2017
.
See additional discussions about transactions with related parties in Note I – Transactions with related parties.
Accumulated other comprehensive income (loss)
(“AOCI”)
See Note H – Derivative instruments and hedging activities – for details regarding changes in the fair value of risk management financial derivatives recorded within AOCI for the
three months ended
October 31, 2017
and
2016
.
General partner’s commitment to maintain its capital account
Ferrellgas, L.P.’s partnership agreement allows the general partner to have an option to maintain its
1.0101%
general partner interest concurrent with the issuance of other additional equity.
During the
three months ended
October 31, 2017
, the general partner made non-cash contributions of
$0.1 million
to Ferrellgas, L.P. to maintain its
1.0101%
general partner interest.
During the
three months ended
October 31, 2016
, the general partner made non-cash contributions of
$0.1 million
to Ferrellgas, L.P. to maintain its
1.0101%
general partner interest.
G.
Fair value measurements
Derivative financial instruments
The following table presents Ferrellgas, L.P.’s financial assets and financial liabilities that are measured at fair value on a recurring basis for each of the fair value hierarchy levels, including both current and noncurrent portions, as of
October 31, 2017
and
July 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability)
|
|
|
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Unobservable Inputs (Level 3)
|
|
Total
|
October 31, 2017:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
298
|
|
|
$
|
—
|
|
|
$
|
298
|
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
35,000
|
|
|
$
|
—
|
|
|
$
|
35,000
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
(984
|
)
|
|
$
|
—
|
|
|
$
|
(984
|
)
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
(3,464
|
)
|
|
$
|
—
|
|
|
$
|
(3,464
|
)
|
|
|
|
|
|
|
|
|
|
July 31, 2017:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
583
|
|
|
$
|
—
|
|
|
$
|
583
|
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
16,212
|
|
|
$
|
—
|
|
|
$
|
16,212
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
(707
|
)
|
|
$
|
—
|
|
|
$
|
(707
|
)
|
Commodity derivatives
|
|
$
|
—
|
|
|
$
|
(1,258
|
)
|
|
$
|
—
|
|
|
$
|
(1,258
|
)
|
Methodology
The fair values of Ferrellgas, L.P.’s non-exchange traded commodity derivative contracts are based upon indicative price quotations available through brokers, industry price publications or recent market transactions and related market indicators. The fair values of interest rate swap contracts are based upon third-party quotes or indicative values based on recent market transactions.
Other financial instruments
The carrying amounts of other financial instruments included in current assets and current liabilities (except for current maturities of long-term debt) approximate their fair values because of their short-term nature. The estimated fair value of the Jamex note receivable, a financial instrument classified in "Other assets, net" on the condensed consolidated balance sheet, is approximately
$36.4 million
, or
$3.8 million
less than its carrying amount as of
October 31, 2017
. The estimated fair value of the Jamex note receivable was calculated using a discounted cash flow method which relied on significant unobservable inputs. At
October 31, 2017
and
July 31, 2017
, the estimated fair value of Ferrellgas, L.P.’s long-term debt instruments was
$1,386.6 million
and
$1,645.3 million
, respectively. Ferrellgas estimates the fair value of long-term debt based on quoted market prices. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.
Ferrellgas, L.P. has other financial instruments such as trade accounts receivable which could expose it to concentrations of credit risk. The credit risk from trade accounts receivable is limited because of a large customer base which extends across many different U.S. markets.
H.
Derivative instruments and hedging activities
Ferrellgas, L.P. is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. Ferrellgas, L.P. utilizes derivative instruments to manage its exposure to fluctuations in commodity prices. Of these, the propane commodity derivative instruments are designated as cash flow hedges. All other commodity derivative instruments do not qualify or are not designated as cash flow hedges, therefore, the change in their fair value are recorded currently in earnings. Ferrellgas, L.P. also periodically utilizes derivative instruments to manage its exposure to fluctuations in interest rates.
Derivative instruments and hedging activities
During the
three months ended
October 31, 2017
and 2016, Ferrellgas, L.P. did
no
t recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of financial derivative contract gains or losses from the assessment of hedge effectiveness related to commodity cash flow hedges.
The following tables provide a summary of the fair value of derivatives in Ferrellgas, L.P.’s condensed consolidated balance sheets as of
October 31, 2017
and
July 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative Instrument
|
|
Location
|
|
Fair value
|
|
Location
|
|
Fair value
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity derivatives-propane
|
|
Prepaid expenses and other current assets
|
|
$
|
25,938
|
|
|
Other current liabilities
|
|
$
|
1,209
|
|
Commodity derivatives-propane
|
|
Other assets, net
|
|
8,789
|
|
|
Other liabilities
|
|
284
|
|
Interest rate swap agreements
|
|
Prepaid expenses and other current assets
|
|
298
|
|
|
Other current liabilities
|
|
284
|
|
Interest rate swap agreements
|
|
Other assets, net
|
|
—
|
|
|
Other liabilities
|
|
700
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity derivatives-crude oil
|
|
Prepaid expenses and other current assets
|
|
273
|
|
|
Other current liabilities
|
|
1,971
|
|
|
|
Total
|
|
$
|
35,298
|
|
|
Total
|
|
$
|
4,448
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2017
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative Instrument
|
|
Location
|
|
Fair value
|
|
Location
|
|
Fair value
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
Prepaid expenses and other current assets
|
|
$
|
11,061
|
|
|
Other current liabilities
|
|
$
|
415
|
|
Commodity derivatives
|
|
Other assets, net
|
|
4,413
|
|
|
Other liabilities
|
|
15
|
|
Interest rate swap agreements
|
|
Prepaid expenses and other current assets
|
|
583
|
|
|
Other current liabilities
|
|
595
|
|
Interest rate swap agreements
|
|
Other assets, net
|
|
—
|
|
|
Other liabilities
|
|
112
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Commodity derivatives-crude oil
|
|
Prepaid expenses and other current assets
|
|
738
|
|
|
Other current liabilities
|
|
828
|
|
|
|
Total
|
|
$
|
16,795
|
|
|
Total
|
|
$
|
1,965
|
|
Ferrellgas, L.P.'s exchange traded commodity derivative contracts require cash margin deposit as collateral for contracts that are in a negative mark-to-market position. These cash margin deposits will be returned if mark-to-market conditions improve or will be applied against cash settlement when the contracts are settled. Liabilities represent cash margin deposits received by Ferrellgas, L.P. for contracts that are in a positive mark-to-market position. The following tables provide a summary of cash margin balances as of
October 31, 2017
and
July 31, 2017
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2017
|
|
|
Assets
|
|
Liabilities
|
Description
|
|
Location
|
|
Amount
|
|
Location
|
|
Amount
|
Margin Balances
|
|
Prepaid expenses and other current assets
|
|
$
|
3,723
|
|
|
Other current liabilities
|
|
$
|
19,696
|
|
|
|
Other assets, net
|
|
1,461
|
|
|
Other liabilities
|
|
5,945
|
|
|
|
|
|
$
|
5,184
|
|
|
|
|
$
|
25,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2017
|
|
|
Assets
|
|
Liabilities
|
Description
|
|
Location
|
|
Amount
|
|
Location
|
|
Amount
|
Margin Balances
|
|
Prepaid expenses and other current assets
|
|
$
|
1,778
|
|
|
Other current liabilities
|
|
$
|
7,729
|
|
|
|
Other assets, net
|
|
1,631
|
|
|
Other liabilities
|
|
3,073
|
|
|
|
|
|
$
|
3,409
|
|
|
|
|
$
|
10,802
|
|
The following table provides a summary of the effect on Ferrellgas, L.P.’s condensed consolidated statements of operations for the
three months ended
October 31, 2017
and
2016
due to derivatives designated as fair value hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain Recognized on Derivative
|
|
Amount of Interest Expense Recognized on Fixed-Rated Debt (Related Hedged Item)
|
Derivative Instrument
|
|
Location of Amounts Recognized on Derivative
|
|
For the three months ended October 31,
|
|
For the three months ended October 31,
|
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest rate swap agreements
|
|
Interest expense
|
|
$
|
138
|
|
|
$
|
420
|
|
|
$
|
(2,275
|
)
|
|
$
|
(2,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The following tables provide a summary of the effect on Ferrellgas, L.P.’s condensed consolidated statements of comprehensive income (loss) for the
three months ended
October 31, 2017
and
2016
due to derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31, 2017
|
|
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCI
|
|
Location of Gain (Loss) Reclassified from AOCI into Income
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
|
|
Effective portion
|
|
Ineffective portion
|
Commodity derivatives
|
|
$
|
22,323
|
|
|
Cost of sales-propane and other gas liquids sales
|
|
$
|
4,132
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
126
|
|
|
Interest expense
|
|
(183
|
)
|
|
—
|
|
|
|
$
|
22,449
|
|
|
|
|
$
|
3,949
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31, 2016
|
|
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCI
|
|
Location of Gain (Loss) Reclassified from AOCI into Income
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
|
|
Effective portion
|
|
Ineffective portion
|
Commodity derivatives
|
|
$
|
4,873
|
|
|
Cost of sales-propane and other gas liquids sales
|
|
$
|
(3,596
|
)
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
265
|
|
|
Interest expense
|
|
(642
|
)
|
|
—
|
|
|
|
$
|
5,138
|
|
|
|
|
$
|
(4,238
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
The following tables provide a summary of the effect on Ferrellgas, L.P.'s condensed consolidated statements of operations for the
three months ended
October 31, 2017
and
2016
due to the change in fair value of derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31, 2017
|
Derivatives Not Designated as Hedging Instruments
|
|
Amount of Gain (Loss) Recognized in Income
|
|
Location of Gain (Loss) Recognized in Income
|
Commodity derivatives - crude oil
|
|
$
|
(1,390
|
)
|
|
Cost of sales - midstream operations
|
|
|
|
|
|
|
|
For the three months ended October 31, 2016
|
Derivatives Not Designated as Hedging Instruments
|
|
Amount of Gain (Loss) Recognized in Income
|
|
Location of Gain (Loss) Recognized in Income
|
Commodity derivatives - crude oil
|
|
$
|
(1,241
|
)
|
|
Cost of sales - midstream operations
|
Commodity derivatives - vehicle fuel
|
|
$
|
1,027
|
|
|
Operating expense
|
|
|
|
|
|
The changes in derivatives included in AOCI for the
three months ended
October 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
Gains and losses on derivatives included in AOCI
|
|
2017
|
|
2016
|
Beginning balance
|
|
$
|
14,648
|
|
|
$
|
(9,815
|
)
|
Change in value of risk management commodity derivatives
|
|
22,323
|
|
|
4,873
|
|
Reclassification of (gains) and losses on commodity hedges to cost of sales - propane and other gas liquids sales, net
|
|
(4,132
|
)
|
|
3,596
|
|
Change in value of risk management interest rate derivatives
|
|
126
|
|
|
265
|
|
Reclassification of (gains) and losses on interest rate hedges to interest expense
|
|
183
|
|
|
642
|
|
Ending balance
|
|
$
|
33,148
|
|
|
$
|
(439
|
)
|
Ferrellgas, L.P. expects to reclassify net gains related to the risk management commodity derivatives of approximately
$24.7 million
to earnings during the next 12 months. These net gains are expected to be offset by decreased margins on propane sales commitments Ferrellgas, L.P. has with its customers that qualify for the normal purchase normal sales exception.
During the
three months ended
October 31, 2017
and
2016
, Ferrellgas, L.P. had
no
reclassifications to operations resulting from the discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship.
As of
October 31, 2017
, Ferrellgas, L.P. had financial derivative contracts covering
3.2 million
barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.
As of
October 31, 2017
, Ferrellgas, L.P. financial derivative contracts covering
0.3 million
barrels of crude oil related to the hedging of crude oil line fill and inventory.
Derivative financial instruments credit risk
Ferrellgas, L.P. is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Ferrellgas, L.P.’s counterparties principally consist of major energy companies and major U.S. financial institutions. Ferrellgas, L.P. maintains credit policies with regard to its counterparties that it believes reduces its overall credit risk. These policies include evaluating and monitoring its counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by Ferrellgas, L.P. in the forms of letters of credit, parent guarantees or cash. Ferrellgas, L.P. has concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties. If these counterparties that make up the concentration failed to perform according to the terms of their contracts at
October 31, 2017
, the maximum amount of loss due to credit risk that, based upon the gross fair values of the derivative financial instruments, Ferrellgas, L.P. would incur is $
33.3
million.
From time to time Ferrellgas, L.P. enters into derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon Ferrellgas, L.P.’s debt rating. There were
no
open derivative contracts with credit-risk-related contingent features as of
October 31, 2017
.
I.
Transactions with related parties
Ferrellgas, L.P. has
no
employees and is managed and controlled by its general partner. Pursuant to Ferrellgas, L.P.’s partnership agreement, the general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas, L.P. and all other necessary or appropriate expenses allocable to Ferrellgas, L.P. or otherwise reasonably incurred by its general partner in connection with operating Ferrellgas, L.P.’s business. These costs primarily include compensation and benefits paid to employees of the general partner who perform services on Ferrellgas, L.P.’s behalf and are reported in the condensed consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
Operating expense
|
|
$
|
57,351
|
|
|
$
|
55,714
|
|
|
|
|
|
|
General and administrative expense
|
|
$
|
7,508
|
|
|
$
|
8,583
|
|
See additional discussions about transactions with the general partner and related parties in Note F – Partners’ deficit.
J.
Contingencies and commitments
Litigation
Ferrellgas, L.P.’s operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane and crude oil. As a result, at any given time, Ferrellgas, L.P. can be threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. Other than as discussed below, Ferrellgas, L.P. is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that are reasonably expected to have a material adverse effect on the consolidated financial condition, results of operations and cash flows of Ferrellgas, L.P.
Ferrellgas, L.P. has been named as a defendant, along with a competitor, in putative class action lawsuits filed in multiple jurisdictions. The lawsuits, which were consolidated in the Western District of Missouri on October 16, 2014, allege that Ferrellgas, L.P. and a competitor coordinated in 2008 to reduce the fill level in barbeque cylinders and combined to persuade a common customer to accept that fill reduction, resulting in increased cylinder costs to direct customers and end-user customers in violation of federal and certain state antitrust laws. The lawsuits seek treble damages, attorneys’ fees, injunctive relief and costs on behalf of the putative class. These lawsuits have been consolidated into one case by a multidistrict litigation panel. The Federal Court for the Western District of Missouri has dismissed all claims brought by direct and indirect customers other than state law claims of indirect customers under Wisconsin, Maine and Vermont law. The direct customer plaintiffs filed an appeal, which resulted in a reversal of the district court’s dismissal. We have filed a petition for a writ of certiorari with the U.S. Supreme Court. The direct customer plaintiffs have agreed to a stay of the case pending a decision on the petition and, if granted, the appeal. An appeal by the indirect customer plaintiffs remains pending. Ferrellgas, L.P. believes it has strong defenses to the claims and intends to vigorously defend against the consolidated case. Ferrellgas, L.P. does not believe loss is probable or reasonably estimable at this time related to the putative class action lawsuit.
Ferrellgas, L.P. has been named, along with several current and former officers, in several class action lawsuits alleging violations of certain securities laws based on alleged materially false and misleading statements in certain of our public disclosures. The lawsuits, the first of which was filed on October 6, 2016 in the Southern District of New York, seek unspecified compensatory damages. Derivative lawsuits with similar allegations have been filed naming Ferrellgas, L.P. and several current and former officers and directors as defendants. Ferrellgas, L.P. believes that it has defenses and will vigorously defend these cases. Ferrellgas, L.P. does not believe loss is probable or reasonably estimable at this time related to the putative class action lawsuits or the derivative action.
Ferrellgas, L.P. and Bridger Logistics, LLC, have been named, along with two former officers, in a lawsuit filed by Eddystone Rail Company ("Eddystone") on February 2, 2017 in the Eastern District of Pennsylvania (the "EDPA Lawsuit"). Eddystone indicated that it has prevailed or settled an arbitration against Jamex Transfer Services (“JTS”), then named Bridger Transfer Services, a former subsidiary of Bridger Logistics, LLC (“Bridger”). The arbitration involved a claim against JTS for money due for deficiency payments under a contract for the use of an Eddystone facility used to offload crude from rail onto barges. Eddystone alleges that Ferrellgas, L.P. transferred assets out of JTS prior to the sale of the membership interest in JTS to Jamex Transfer Holdings, and that those transfers should be avoided so that the assets can be used to satisfy the amount owed by JTS to Eddystone under the arbitration. Eddystone also alleges that JTS was an “alter ego” of Bridger and Ferrellgas. Ferrellgas, L.P. believes that Ferrellgas, L.P. and Bridger have valid defenses to these claims and to Eddystone’s primary claim against JTS on the contract claim. The lawsuit does not specify a specific amount of damages that Eddystone is seeking; however, Ferrellgas, L.P. believes that the amount of such damage claims, if ultimately owed to Eddystone, could be material to Ferrellgas, L.P. Ferrellgas, L.P. intends to vigorously defend this claim. The lawsuit is in its early stages; as such, management does not currently believe a loss is probable or reasonably estimable at this time. On August 24, 2017, Ferrellgas, L.P. filed a third-party complaint against JTS, Jamex Transfer Holdings, and other related persons and entities (the "Third-Party
Defendants"), asserting claims for breach of contract, indemnification of any losses in the EDPA Lawsuit, tortious interference with contract, and contribution. The Third-Party Defendants have filed motions to dismiss the third-party complaint for alleged lack of personal jurisdiction, failure to state claim, and forum non-conveniens. Ferrellgas, L.P. is vigorously opposing these motions.
K.
Segment reporting
Ferrellgas, L.P. has two primary operations that result in two reportable operating segments: propane operations and related equipment sales and midstream operations.
Until April 2017, Ferrellgas, L.P. utilized a structure that included two reportable segments which included propane operations and related equipment sales segment and the midstream operations - crude oil logistics segment. The results from midstream operations - water solutions segment were reported within Corporate and other. As a result of a change in the way management is evaluating results and allocating resources, results of the water solutions business are now included in the Midstream operations segment for all periods presented.
Following is a summary of segment information for the three months ended
October 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31, 2017
|
|
|
Propane operations and related equipment sales
|
|
Midstream operations
|
|
Corporate
|
|
Total
|
Segment revenues
|
|
$
|
333,895
|
|
|
$
|
120,760
|
|
|
$
|
—
|
|
|
$
|
454,655
|
|
Direct costs (1)
|
|
303,329
|
|
|
113,901
|
|
|
11,209
|
|
|
428,439
|
|
Adjusted EBITDA
|
|
$
|
30,566
|
|
|
$
|
6,859
|
|
|
$
|
(11,209
|
)
|
|
$
|
26,216
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31, 2016
|
|
|
Propane operations and related equipment sales
|
|
Midstream operations
|
|
Corporate
|
|
Total
|
Segment revenues
|
|
$
|
271,498
|
|
|
$
|
108,044
|
|
|
$
|
—
|
|
|
$
|
379,542
|
|
Direct costs (1)
|
|
237,014
|
|
|
102,773
|
|
|
10,736
|
|
|
350,523
|
|
Adjusted EBITDA
|
|
$
|
34,484
|
|
|
$
|
5,271
|
|
|
$
|
(10,736
|
)
|
|
$
|
29,019
|
|
|
|
|
|
|
|
|
|
|
(1) Direct costs are comprised of "cost of sales-propane and other gas liquids sales", "cost of products sold-midstream operations", "cost of products sold-other", "operating expense", "general and administrative expense", and "equipment lease expense" less "non-cash stock-based compensation charge", "change in fair value of contingent consideration", "severance charge", "litigation accrual and related legal fees associated with a class action lawsuit", "unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments" and "acquisition and transition expenses".
Following is a reconciliation of Ferrellgas, L.P.'s total segment performance measure to condensed consolidated net earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31,
|
|
|
2017
|
|
2016
|
Net loss
|
|
$
|
(39,699
|
)
|
|
$
|
(39,440
|
)
|
Income tax expense (benefit)
|
|
371
|
|
|
(591
|
)
|
Interest expense
|
|
32,196
|
|
|
31,398
|
|
Depreciation and amortization expense
|
|
25,732
|
|
|
26,202
|
|
EBITDA
|
|
18,600
|
|
|
17,569
|
|
Non-cash employee stock ownership plan compensation charge
|
|
3,962
|
|
|
3,754
|
|
Non-cash stock-based compensation charge
|
|
—
|
|
|
1,881
|
|
Loss on asset sales and disposal
|
|
895
|
|
|
6,423
|
|
Other income, net
|
|
(511
|
)
|
|
(508
|
)
|
Severance costs
|
|
1,663
|
|
|
1,469
|
|
Unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments
|
|
1,607
|
|
|
(1,569
|
)
|
Adjusted EBITDA
|
|
$
|
26,216
|
|
|
$
|
29,019
|
|
Following are total assets by segment:
|
|
|
|
|
|
|
|
|
|
Assets
|
|
October 31, 2017
|
|
July 31, 2017
|
Propane operations and related equipment sales
|
|
$
|
1,292,686
|
|
|
$
|
1,194,905
|
|
Midstream operations
|
|
397,653
|
|
|
399,356
|
|
Corporate and unallocated
|
|
14,600
|
|
|
15,687
|
|
Total consolidated assets
|
|
$
|
1,704,939
|
|
|
$
|
1,609,948
|
|
Following are capital expenditures by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31, 2017
|
|
|
Propane operations and related equipment sales
|
|
Midstream operations
|
|
Corporate
|
|
Total
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Maintenance
|
|
$
|
8,351
|
|
|
$
|
3
|
|
|
$
|
239
|
|
|
$
|
8,593
|
|
Growth
|
|
9,688
|
|
|
664
|
|
|
—
|
|
|
10,352
|
|
Total
|
|
$
|
18,039
|
|
|
$
|
667
|
|
|
$
|
239
|
|
|
$
|
18,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 31, 2016
|
|
|
Propane operations and related equipment sales
|
|
Midstream operations
|
|
Corporate
|
|
Total
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Maintenance
|
|
$
|
1,831
|
|
|
$
|
127
|
|
|
$
|
1,306
|
|
|
$
|
3,264
|
|
Growth
|
|
5,414
|
|
|
—
|
|
|
—
|
|
|
5,414
|
|
Total
|
|
$
|
7,245
|
|
|
$
|
127
|
|
|
$
|
1,306
|
|
|
$
|
8,678
|
|
L.
Guarantor financial information
The
$500.0 million
aggregate principal amount of
6.75%
senior notes due
2023
co-issued by Ferrellgas, L.P. and Ferrellgas Finance Corp. are fully and unconditionally and jointly and severally guaranteed by all of Ferrellgas, L.P.’s
100%
owned subsidiaries except: i) Ferrellgas Finance Corp; ii) certain special purposes subsidiaries formed for use in connection with our accounts receivable securitization; and iii) foreign subsidiaries. Guarantees of these senior notes will be released under certain circumstances, including (i) in connection with any sale or other disposition of (a) all or substantially all of the assets of a guarantor or (b) all of the capital stock of such guarantor (including by way of merger or consolidation), in each case, to a person that is not Ferrellgas, L.P. or a restricted subsidiary of Ferrellgas, L.P., (ii) if Ferrellgas, L.P. designates any restricted subsidiary that is a guarantor as an unrestricted subsidiary, (iii) upon defeasance or discharge of the notes, (iv) upon the liquidation or dissolution of such guarantor, or (v) at such time as such guarantor ceases to guarantee any other indebtedness of either of the issuers and any other guarantor.
The guarantor financial information discloses in separate columns the financial position, results of operations and the cash flows of Ferrellgas, L.P. (Parent), Ferrellgas Finance Corp. (co-issuer), Ferrellgas L.P.’s guarantor subsidiaries on a combined basis, and Ferrellgas L.P.’s non-guarantor subsidiaries on a combined basis. The dates and the periods presented in the guarantor financial information are consistent with the periods presented in Ferrellgas, L.P.’s condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
(in thousands)
|
|
As of October 31, 2017
|
|
Ferrellgas, L.P. (Parent and Co-Issuer)
|
|
Ferrellgas Finance Corp. (Co-Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
6,852
|
|
|
$
|
1
|
|
|
$
|
245
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,098
|
|
Accounts and notes receivable
|
(2,343
|
)
|
|
—
|
|
|
60,692
|
|
|
133,079
|
|
|
—
|
|
|
191,428
|
|
Intercompany receivables
|
40,190
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,190
|
)
|
|
—
|
|
Inventories
|
90,812
|
|
|
—
|
|
|
21,526
|
|
|
—
|
|
|
—
|
|
|
112,338
|
|
Prepaid expenses and other current assets
|
61,140
|
|
|
—
|
|
|
6,909
|
|
|
6
|
|
|
—
|
|
|
68,055
|
|
Total current assets
|
196,651
|
|
|
1
|
|
|
89,372
|
|
|
133,085
|
|
|
(40,190
|
)
|
|
378,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
547,489
|
|
|
—
|
|
|
191,240
|
|
|
—
|
|
|
—
|
|
|
738,729
|
|
Goodwill
|
246,098
|
|
|
—
|
|
|
10,005
|
|
|
—
|
|
|
—
|
|
|
256,103
|
|
Intangible assets, net
|
131,322
|
|
|
—
|
|
|
119,307
|
|
|
—
|
|
|
—
|
|
|
250,629
|
|
Intercompany receivables
|
450,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(450,000
|
)
|
|
—
|
|
Investments in consolidated subsidiaries
|
(48,341
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48,341
|
|
|
—
|
|
Other assets, net
|
39,918
|
|
|
—
|
|
|
40,136
|
|
|
505
|
|
|
—
|
|
|
80,559
|
|
Total assets
|
$
|
1,563,137
|
|
|
$
|
1
|
|
|
$
|
450,060
|
|
|
$
|
133,590
|
|
|
$
|
(441,849
|
)
|
|
$
|
1,704,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
56,610
|
|
|
$
|
—
|
|
|
$
|
42,167
|
|
|
$
|
421
|
|
|
$
|
—
|
|
|
$
|
99,198
|
|
Short-term borrowings
|
263,200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
263,200
|
|
Collateralized note payable
|
—
|
|
|
—
|
|
|
—
|
|
|
88,000
|
|
|
—
|
|
|
88,000
|
|
Intercompany payables
|
—
|
|
|
—
|
|
|
42,952
|
|
|
(2,762
|
)
|
|
(40,190
|
)
|
|
—
|
|
Other current liabilities
|
182,794
|
|
|
—
|
|
|
6,238
|
|
|
229
|
|
|
—
|
|
|
189,261
|
|
Total current liabilities
|
502,604
|
|
|
—
|
|
|
91,357
|
|
|
85,888
|
|
|
(40,190
|
)
|
|
639,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
1,464,344
|
|
|
—
|
|
|
450,085
|
|
|
—
|
|
|
(450,000
|
)
|
|
1,464,429
|
|
Other liabilities
|
30,137
|
|
|
—
|
|
|
4,662
|
|
|
—
|
|
|
—
|
|
|
34,799
|
|
Contingencies and commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners' capital (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners' equity
|
(467,212
|
)
|
|
1
|
|
|
(96,044
|
)
|
|
47,702
|
|
|
48,341
|
|
|
(467,212
|
)
|
Accumulated other comprehensive income
|
33,264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,264
|
|
Total partners' capital (deficit)
|
(433,948
|
)
|
|
1
|
|
|
(96,044
|
)
|
|
47,702
|
|
|
48,341
|
|
|
(433,948
|
)
|
Total liabilities and partners' capital (deficit)
|
$
|
1,563,137
|
|
|
$
|
1
|
|
|
$
|
450,060
|
|
|
$
|
133,590
|
|
|
$
|
(441,849
|
)
|
|
$
|
1,704,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
(in thousands)
|
|
As of July 31, 2017
|
|
Ferrellgas, L.P. (Parent and Co-Issuer)
|
|
Ferrellgas Finance Corp. (Co-Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
5,327
|
|
|
$
|
1
|
|
|
$
|
373
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,701
|
|
Accounts and notes receivable
|
(3,132
|
)
|
|
—
|
|
|
58,618
|
|
|
109,598
|
|
|
—
|
|
|
165,084
|
|
Intercompany receivables
|
39,877
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39,877
|
)
|
|
—
|
|
Inventories
|
78,963
|
|
|
—
|
|
|
13,589
|
|
|
—
|
|
|
—
|
|
|
92,552
|
|
Prepaid expenses and other current assets
|
26,106
|
|
|
—
|
|
|
7,314
|
|
|
6
|
|
|
—
|
|
|
33,426
|
|
Total current assets
|
147,141
|
|
|
1
|
|
|
79,894
|
|
|
109,604
|
|
|
(39,877
|
)
|
|
296,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
537,582
|
|
|
—
|
|
|
194,341
|
|
|
—
|
|
|
—
|
|
|
731,923
|
|
Goodwill
|
246,098
|
|
|
—
|
|
|
10,005
|
|
|
—
|
|
|
—
|
|
|
256,103
|
|
Intangible assets, net
|
128,209
|
|
|
—
|
|
|
122,893
|
|
|
—
|
|
|
—
|
|
|
251,102
|
|
Intercompany receivables
|
450,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(450,000
|
)
|
|
—
|
|
Investments in consolidated subsidiaries
|
(53,915
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,915
|
|
|
—
|
|
Other assets, net
|
35,862
|
|
|
—
|
|
|
37,618
|
|
|
577
|
|
|
—
|
|
|
74,057
|
|
Total assets
|
$
|
1,490,977
|
|
|
$
|
1
|
|
|
$
|
444,751
|
|
|
$
|
110,181
|
|
|
$
|
(435,962
|
)
|
|
$
|
1,609,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
44,026
|
|
|
$
|
—
|
|
|
$
|
41,345
|
|
|
$
|
190
|
|
|
$
|
—
|
|
|
$
|
85,561
|
|
Short-term borrowings
|
59,781
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59,781
|
|
Collateralized note payable
|
—
|
|
|
—
|
|
|
—
|
|
|
69,000
|
|
|
—
|
|
|
69,000
|
|
Intercompany payables
|
—
|
|
|
—
|
|
|
41,645
|
|
|
(1,768
|
)
|
|
(39,877
|
)
|
|
—
|
|
Other current liabilities
|
118,039
|
|
|
—
|
|
|
3,776
|
|
|
201
|
|
|
—
|
|
|
122,016
|
|
Total current liabilities
|
221,846
|
|
|
—
|
|
|
86,766
|
|
|
67,623
|
|
|
(39,877
|
)
|
|
336,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
1,649,139
|
|
|
—
|
|
|
450,131
|
|
|
—
|
|
|
(450,000
|
)
|
|
1,649,270
|
|
Other liabilities
|
26,790
|
|
|
—
|
|
|
4,300
|
|
|
28
|
|
|
—
|
|
|
31,118
|
|
Contingencies and commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners' capital (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners' equity
|
(421,562
|
)
|
|
1
|
|
|
(96,446
|
)
|
|
42,530
|
|
|
53,915
|
|
|
(421,562
|
)
|
Accumulated other comprehensive income
|
14,764
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,764
|
|
Total partners' capital (deficit)
|
(406,798
|
)
|
|
1
|
|
|
(96,446
|
)
|
|
42,530
|
|
|
53,915
|
|
|
(406,798
|
)
|
Total liabilities and partners' capital (deficit)
|
$
|
1,490,977
|
|
|
$
|
1
|
|
|
$
|
444,751
|
|
|
$
|
110,181
|
|
|
$
|
(435,962
|
)
|
|
$
|
1,609,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
(in thousands)
|
|
|
|
For the three months ended October 31, 2017
|
|
Ferrellgas, L.P. (Parent and Co-Issuer)
|
|
Ferrellgas Finance Corp. (Co-Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Propane and other gas liquids sales
|
$
|
302,117
|
|
|
$
|
—
|
|
|
$
|
641
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
302,758
|
|
Midstream operations
|
—
|
|
|
—
|
|
|
120,760
|
|
|
—
|
|
|
—
|
|
|
120,760
|
|
Other
|
16,677
|
|
|
—
|
|
|
14,460
|
|
|
—
|
|
|
—
|
|
|
31,137
|
|
Total revenues
|
318,794
|
|
|
—
|
|
|
135,861
|
|
|
—
|
|
|
—
|
|
|
454,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales - propane and other gas liquids sales
|
178,819
|
|
|
—
|
|
|
696
|
|
|
—
|
|
|
—
|
|
|
179,515
|
|
Cost of sales - midstream operations
|
—
|
|
|
—
|
|
|
108,125
|
|
|
—
|
|
|
—
|
|
|
108,125
|
|
Cost of sales - other
|
2,709
|
|
|
—
|
|
|
10,993
|
|
|
—
|
|
|
—
|
|
|
13,702
|
|
Operating expense
|
101,232
|
|
|
—
|
|
|
9,263
|
|
|
1,182
|
|
|
(1,215
|
)
|
|
110,462
|
|
Depreciation and amortization expense
|
18,347
|
|
|
—
|
|
|
7,313
|
|
|
72
|
|
|
—
|
|
|
25,732
|
|
General and administrative expense
|
10,755
|
|
|
2
|
|
|
2,407
|
|
|
—
|
|
|
—
|
|
|
13,164
|
|
Equipment lease expense
|
6,648
|
|
|
—
|
|
|
93
|
|
|
—
|
|
|
—
|
|
|
6,741
|
|
Non-cash employee stock ownership plan compensation charge
|
3,962
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,962
|
|
Loss on asset sales and disposal
|
908
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
(4,586
|
)
|
|
(2
|
)
|
|
(3,016
|
)
|
|
(1,254
|
)
|
|
1,215
|
|
|
(7,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(20,394
|
)
|
|
—
|
|
|
(11,185
|
)
|
|
(617
|
)
|
|
—
|
|
|
(32,196
|
)
|
Other income (expense), net
|
215
|
|
|
—
|
|
|
296
|
|
|
1,215
|
|
|
(1,215
|
)
|
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
(24,765
|
)
|
|
(2
|
)
|
|
(13,905
|
)
|
|
(656
|
)
|
|
—
|
|
|
(39,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
(10
|
)
|
|
—
|
|
|
381
|
|
|
—
|
|
|
—
|
|
|
371
|
|
Equity in earnings (loss) of subsidiary
|
(14,944
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,944
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
(39,699
|
)
|
|
(2
|
)
|
|
(14,286
|
)
|
|
(656
|
)
|
|
14,944
|
|
|
(39,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
18,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
(21,199
|
)
|
|
$
|
(2
|
)
|
|
$
|
(14,286
|
)
|
|
$
|
(656
|
)
|
|
$
|
14,944
|
|
|
$
|
(21,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
(in thousands)
|
|
|
|
For the three months ended October 31, 2016
|
|
Ferrellgas, L.P. (Parent and Co-Issuer)
|
|
Ferrellgas Finance Corp. (Co-Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Propane and other gas liquids sales
|
$
|
242,399
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
242,399
|
|
Midstream operations
|
—
|
|
|
—
|
|
|
108,044
|
|
|
—
|
|
|
—
|
|
|
108,044
|
|
Other
|
17,326
|
|
|
—
|
|
|
11,773
|
|
|
—
|
|
|
—
|
|
|
29,099
|
|
Total revenues
|
259,725
|
|
|
—
|
|
|
119,817
|
|
|
—
|
|
|
—
|
|
|
379,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales - propane and other gas liquids sales
|
119,212
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
119,212
|
|
Cost of sales - midstream operations
|
—
|
|
|
—
|
|
|
94,642
|
|
|
—
|
|
|
—
|
|
|
94,642
|
|
Cost of sales - other
|
2,430
|
|
|
—
|
|
|
9,316
|
|
|
—
|
|
|
—
|
|
|
11,746
|
|
Operating expense
|
97,655
|
|
|
—
|
|
|
10,246
|
|
|
(2,105
|
)
|
|
(710
|
)
|
|
105,086
|
|
Depreciation and amortization expense
|
18,277
|
|
|
—
|
|
|
7,872
|
|
|
53
|
|
|
—
|
|
|
26,202
|
|
General and administrative expense
|
12,863
|
|
|
2
|
|
|
1,404
|
|
|
—
|
|
|
—
|
|
|
14,269
|
|
Equipment lease expense
|
7,210
|
|
|
—
|
|
|
139
|
|
|
—
|
|
|
—
|
|
|
7,349
|
|
Non-cash employee stock ownership plan compensation charge
|
3,754
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,754
|
|
Loss on asset sales and disposal
|
1,447
|
|
|
—
|
|
|
4,976
|
|
|
—
|
|
|
—
|
|
|
6,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
(3,123
|
)
|
|
(2
|
)
|
|
(8,778
|
)
|
|
2,052
|
|
|
710
|
|
|
(9,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(20,352
|
)
|
|
—
|
|
|
(10,673
|
)
|
|
(370
|
)
|
|
(3
|
)
|
|
(31,398
|
)
|
Other income (expense), net
|
(47
|
)
|
|
—
|
|
|
555
|
|
|
707
|
|
|
(707
|
)
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
(23,522
|
)
|
|
(2
|
)
|
|
(18,896
|
)
|
|
2,389
|
|
|
—
|
|
|
(40,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
(29
|
)
|
|
—
|
|
|
(562
|
)
|
|
—
|
|
|
—
|
|
|
(591
|
)
|
Equity in earnings (loss) of subsidiary
|
(15,947
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,947
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
(39,440
|
)
|
|
(2
|
)
|
|
(18,334
|
)
|
|
2,389
|
|
|
15,947
|
|
|
(39,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
9,376
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
(30,064
|
)
|
|
$
|
(2
|
)
|
|
$
|
(18,334
|
)
|
|
$
|
2,389
|
|
|
$
|
15,947
|
|
|
$
|
(30,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31, 2017
|
|
Ferrellgas, L.P. (Parent and Co-Issuer)
|
|
Ferrellgas Finance Corp. (Co-Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
23,305
|
|
|
$
|
(2
|
)
|
|
$
|
(22,294
|
)
|
|
$
|
25,981
|
|
|
$
|
(19,000
|
)
|
|
$
|
7,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
(13,867
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,867
|
)
|
Capital expenditures
|
(19,429
|
)
|
|
—
|
|
|
(725
|
)
|
|
—
|
|
|
—
|
|
|
(20,154
|
)
|
Proceeds from sale of assets
|
1,208
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,208
|
|
Cash collected for purchase of interest in accounts receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
203,291
|
|
|
(203,291
|
)
|
|
—
|
|
Cash remitted to Ferrellgas, L.P. for accounts receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
(222,291
|
)
|
|
222,291
|
|
|
—
|
|
Net changes in advances with consolidated entities
|
3,088
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,088
|
)
|
|
—
|
|
Net cash used in investing activities
|
(29,000
|
)
|
|
—
|
|
|
(725
|
)
|
|
(19,000
|
)
|
|
15,912
|
|
|
(32,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
(9,913
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,913
|
)
|
Proceeds from issuance of long-term debt
|
23,580
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,580
|
|
Payments on long-term debt
|
(281
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(281
|
)
|
Net reductions in short-term borrowings
|
(5,879
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,879
|
)
|
Net additions to collateralized short-term borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
19,000
|
|
|
—
|
|
|
19,000
|
|
Net changes in advances with parent
|
—
|
|
|
2
|
|
|
22,891
|
|
|
(25,981
|
)
|
|
3,088
|
|
|
—
|
|
Cash paid for financing costs
|
(287
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(287
|
)
|
Net cash provided by (used in) financing activities
|
7,220
|
|
|
2
|
|
|
22,891
|
|
|
(6,981
|
)
|
|
3,088
|
|
|
26,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
1,525
|
|
|
—
|
|
|
(128
|
)
|
|
—
|
|
|
—
|
|
|
1,397
|
|
Cash and cash equivalents - beginning of period
|
5,327
|
|
|
1
|
|
|
373
|
|
|
—
|
|
|
—
|
|
|
5,701
|
|
Cash and cash equivalents - end of period
|
$
|
6,852
|
|
|
$
|
1
|
|
|
$
|
245
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS, L.P. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
For the three months ended October 31, 2016
|
|
Ferrellgas, L.P. (Parent and Co-Issuer)
|
|
Ferrellgas Finance Corp. (Co-Issuer)
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
79,220
|
|
|
$
|
(2
|
)
|
|
$
|
(15,354
|
)
|
|
$
|
687
|
|
|
$
|
(10,000
|
)
|
|
$
|
54,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(10,000
|
)
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(10,005
|
)
|
Proceeds from sale of assets
|
2,279
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,279
|
|
Cash collected for purchase of interest in accounts receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
183,939
|
|
|
(183,939
|
)
|
|
—
|
|
Cash remitted to Ferrellgas, L.P. for accounts receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
(193,939
|
)
|
|
193,939
|
|
|
—
|
|
Net changes in advances with consolidated entities
|
(14,453
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,453
|
|
|
—
|
|
Net cash provided by (used in) investing activities
|
(22,174
|
)
|
|
—
|
|
|
(5
|
)
|
|
(10,000
|
)
|
|
24,453
|
|
|
(7,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
(66,658
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(66,658
|
)
|
Proceeds from issuance of long-term debt
|
25,626
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,626
|
|
Payments on long-term debt
|
(2,261
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,261
|
)
|
Net reductions in short-term borrowings
|
(4,467
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,467
|
)
|
Net additions to collateralized short-term borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
|
—
|
|
|
10,000
|
|
Net changes in advances with parent
|
—
|
|
|
2
|
|
|
15,138
|
|
|
(687
|
)
|
|
(14,453
|
)
|
|
—
|
|
Cash paid for financing costs
|
(1,390
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,390
|
)
|
Net cash provided by (used in) financing activities
|
(49,150
|
)
|
|
2
|
|
|
15,138
|
|
|
9,313
|
|
|
(14,453
|
)
|
|
(39,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
7,896
|
|
|
—
|
|
|
(221
|
)
|
|
—
|
|
|
—
|
|
|
7,675
|
|
Cash and cash equivalents - beginning of period
|
4,472
|
|
|
1
|
|
|
417
|
|
|
—
|
|
|
—
|
|
|
4,890
|
|
Cash and cash equivalents - end of period
|
$
|
12,368
|
|
|
$
|
1
|
|
|
$
|
196
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,565
|
|
|
|
|
|
|
|
|
M.
Subsequent events
Ferrellgas, L.P. evaluated events and transactions occurring after the balance sheet date through the date Ferrellgas L.P.'s condensed consolidated financial statements were issued and concluded that there were no events or transactions occurring during this period that require recognition or disclosure in its condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
FERRELLGAS FINANCE CORP.
|
(a wholly-owned subsidiary of Ferrellgas, L.P.)
|
CONDENSED BALANCE SHEETS
|
(unaudited)
|
|
October 31, 2017
|
|
July 31, 2017
|
ASSETS
|
|
|
|
|
|
Cash
|
$
|
1,100
|
|
|
$
|
1,100
|
|
Other current assets
|
—
|
|
|
1,500
|
|
Total assets
|
$
|
1,100
|
|
|
$
|
2,600
|
|
|
|
|
|
Contingencies and commitments (Note B)
|
|
|
|
|
|
|
|
|
|
STOCKHOLDER'S EQUITY
|
|
|
|
Common stock, $1.00 par value; 2,000 shares authorized; 1,000 shares issued and outstanding
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Additional paid in capital
|
67,386
|
|
|
67,336
|
|
Accumulated deficit
|
(67,286
|
)
|
|
(65,736
|
)
|
Total stockholder's equity
|
$
|
1,100
|
|
|
$
|
2,600
|
|
See notes to condensed financial statements.
|
|
|
|
|
|
|
|
|
|
|
FERRELLGAS FINANCE CORP.
|
(a wholly-owned subsidiary of Ferrellgas, L.P.)
|
CONDENSED STATEMENTS OF OPERATIONS
|
(unaudited)
|
|
|
|
|
|
For the three months ended October 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
General and administrative expense
|
|
$
|
1,550
|
|
|
$
|
1,550
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,550
|
)
|
|
$
|
(1,550
|
)
|
See notes to condensed financial statements.
|
|
|
|
|
|
|
|
|
|
FERRELLGAS FINANCE CORP.
|
(a wholly-owned subsidiary of Ferrellgas, L.P.)
|
CONDENSED STATEMENTS OF CASH FLOWS
|
(unaudited)
|
|
For the three months ended October 31,
|
|
2017
|
|
2016
|
Cash flows from operating activities:
|
|
|
|
Net loss
|
$
|
(1,550
|
)
|
|
$
|
(1,550
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
Other current assets
|
1,500
|
|
|
1,500
|
|
Cash used in operating activities
|
(50
|
)
|
|
(50
|
)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Capital contribution
|
50
|
|
|
50
|
|
Cash provided by financing activities
|
50
|
|
|
50
|
|
|
|
|
|
Net change in cash
|
—
|
|
|
—
|
|
Cash - beginning of period
|
1,100
|
|
|
1,100
|
|
Cash - end of period
|
$
|
1,100
|
|
|
$
|
1,100
|
|
See notes to condensed financial statements.
|
FERRELLGAS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas, L.P.)
(unaudited)
NOTES TO CONDENSED FINANCIAL STATEMENTS
A.
Formation
Ferrellgas Finance Corp. (the “Finance Corp.”), a Delaware corporation, was formed on
January 16, 2003
and is a wholly-owned subsidiary of Ferrellgas, L.P. (the “Partnership”).
The condensed financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed financial statements were of a normal recurring nature.
The Finance Corp. has nominal assets, does not conduct any operations and has
no
employees.
B.
Contingencies and commitments
The Finance Corp. serves as co-issuer and co-obligor for debt securities of the Partnership.
The indentures governing the senior notes agreements contains various restrictive covenants applicable to the Partnership and its subsidiaries, the most restrictive relating to additional indebtedness and restricted payments. As of
October 31, 2017
, the Partnership is in compliance with all requirements, tests, limitations and covenants related to these debt agreements.