NOTES TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2013
(Dollars in thousands, except per unit data, unless otherwise designated)
(unaudited)
A.
Partnership organization and formation
Ferrellgas Partners, L.P. (“Ferrellgas Partners”) is a publicly traded limited partnership, owning an approximate
99%
limited partner interest in Ferrellgas, L.P. (the "operating partnership"). Ferrellgas Partners and the operating partnership, 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
April 30, 2013
, Ferrell Companies beneficia
lly owns
21.7 million
, or
27%
, of Ferrellg
as Partners’ outstanding common units. Ferrellgas, Inc. (the “general partner”) has retained a
1%
general partner interest in Ferrellgas Partners and also holds an approximate
1%
general partner interest in the operating partnership, representing an effective
2%
general partner interest in Ferrellgas on a combined basis. The general partner performs all management functions required by Ferrellgas.
Ferrellgas Partners is a holding entity that conducts no operations and has
two
subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners owns a
100%
equity interest in Ferrellgas Partners Finance Corp., whose only business activity is to act as the co-issuer and co-obligor of any debt issued by Ferrellgas Partners. The operating partnership is the only operating subsidiary of Ferrellgas Partners. Ferrellgas is a single reportable operating segment.
The operating partnership is engaged primarily in the distribution of propane and related equipment and supplies in the United States. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Therefore, the results of operations for the
nine months ended April 30, 2013
and
2012
are not necessarily indicative of the results to be expected for a full fiscal year. The operating partnership serves residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all
50
states, the District of Columbia, and Puerto Rico.
The condensed consolidated financial statements of Ferrellgas reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal, recurring nature. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes, each as set forth in Ferrellgas’ Annual Report on Form 10-K for fiscal
2012
.
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 condensed consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment assets, residual values of tanks, capitalization of customer tank installation costs, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, valuation methods used to value intangibles and goodwill in business combinations, allowance for doubtful accounts, fair value of reporting units, fair values of derivative contracts and stock and unit-based compensation calculations.
(2)
Supplemental cash flow information:
For purposes of the condensed consolidated statements of cash flows, Ferrellgas considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less. Certain cash flow and significant non-cash activities are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30,
|
|
|
2013
|
|
2012
|
CASH PAID FOR:
|
|
|
|
|
Interest
|
|
$
|
58,262
|
|
|
$
|
61,621
|
|
Income taxes
|
|
$
|
88
|
|
|
$
|
100
|
|
NON-CASH INVESTING ACTIVITIES:
|
|
|
|
|
Issuance of common units in connection with acquisitions
|
|
$
|
—
|
|
|
$
|
1,300
|
|
Liabilities incurred in connection with acquisitions
|
|
$
|
8,047
|
|
|
$
|
2,321
|
|
Change in accruals for property, plant and equipment additions
|
|
$
|
449
|
|
|
$
|
604
|
|
(3)
New accounting standards:
FASB Accounting Standard Update No. 2011-08
In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-08, which amends the existing guidance on goodwill impairment testing. Under the new guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If an entity determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Ferrellgas adopted this guidance for the quarter ended January 31, 2013 with no impact on its financial position, results of operations or cash flows.
FASB Accounting Standard Update No. 2012-02
In July 2012, the FASB issued ASU 2012-02, which amends the existing guidance on impairment testing of indefinite-lived intangible assets. Under the new guidance, entities testing indefinite-lived intangible assets for impairment have the option of performing a qualitative assessment before calculating the fair value of the asset. If an entity determines, on the basis of qualitative factors, that the fair value of the asset is more likely than not less than the carrying amount, the two-step impairment test would be required. This guidance is effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. Ferrellgas adopted this guidance for the quarter ended January 31, 2013 with no impact on its financial position, results of operations or cash flows.
C.
Supplemental
financial statement information
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
July 31,
|
|
|
2013
|
|
2012
|
Propane gas and related products
|
|
$
|
85,249
|
|
|
$
|
110,517
|
|
Appliances, parts and supplies
|
|
21,961
|
|
|
17,081
|
|
Inventories
|
|
$
|
107,210
|
|
|
$
|
127,598
|
|
In addition to inventories on hand, Ferrellgas enters into contracts primarily to buy propane for supply procurement purposes with terms of fewer than
36 months
. Most of these contracts call for payment based on market prices at the date of delivery. As of
April 30, 2013
, Ferrellgas had committed, for supply procurement purposes, to take delivery of approximately
50.2 million
gallons of propane at fixed prices.
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
July 31,
|
|
|
2013
|
|
2012
|
Accrued interest
|
|
$
|
25,028
|
|
|
$
|
19,945
|
|
Accrued payroll
|
|
28,808
|
|
|
16,495
|
|
Customer deposits and advances
|
|
15,953
|
|
|
28,842
|
|
Other
|
|
53,667
|
|
|
57,385
|
|
Other current liabilities
|
|
$
|
123,456
|
|
|
$
|
122,667
|
|
Shipping and handling expenses are classified in the following condensed consolidated statements of earnings line items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Operating expense
|
|
$
|
49,633
|
|
|
$
|
47,472
|
|
|
$
|
141,794
|
|
|
$
|
139,197
|
|
Depreciation and amortization expense
|
|
1,371
|
|
|
1,636
|
|
|
4,298
|
|
|
4,920
|
|
Equipment lease expense
|
|
3,555
|
|
|
3,179
|
|
|
10,435
|
|
|
9,323
|
|
|
|
$
|
54,559
|
|
|
$
|
52,287
|
|
|
$
|
156,527
|
|
|
$
|
153,440
|
|
D.
Accounts and notes receivable, net and accounts receivable securitization
Accounts and notes receivable, net consist of the following:
|
|
|
|
|
|
|
|
|
|
April 30, 2013
|
|
July 31, 2012
|
Accounts receivable pledged as collateral
|
$
|
183,957
|
|
|
$
|
121,812
|
|
Accounts receivable
|
18,303
|
|
|
5,788
|
|
Other
|
460
|
|
|
216
|
|
Less: Allowance for doubtful accounts
|
(4,532
|
)
|
|
(3,812
|
)
|
Accounts and notes receivable, net
|
$
|
198,188
|
|
|
$
|
124,004
|
|
At
April 30, 2013
,
$184.0 million
of trade accounts receivable were pledged as collateral against
$116.0 million
of collateralized notes payable due to a 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
April 30, 2013
, the operating partnership had received cash proceeds of
$116.0 million
from trade accounts receivables securitized, with
no
remaining capacity to receive additional proceeds. As of
July 31, 2012
, the operating partnership had received cash proceeds of
$74.0 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
2.2%
and
2.6%
as of
April 30, 2013
and
July 31, 2012
, respectively.
E.
Debt
Short-term borrowings
Ferrellgas classified a portion of its secured credit facility borrowings as short-term because it was used to fund working capital needs that management had intended to pay down within the 12 month period following each balance sheet date. As of
April 30, 2013
and
July 31, 2012
,
$21.5 million
and
$95.7 million
, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.
Secured credit facility
As of
April 30, 2013
, Ferrellgas had total borrowings outstanding under its secured credit facility of
$133.3 million
, of which
$111.8 million
was classified as long-term debt. As of
July 31, 2012
, Ferrellgas had total borrowings outstanding under its secured credit facility of
$160.0 million
, of which
$64.3 million
was classified as long-term debt.
Borrowings outstanding at
April 30, 2013
and
July 31, 2012
under the secured credit facility had a weighted average interest rate of
4.2%
at both dates.
The obligations under this credit facility are secured by substantially all assets of the operating partnership, the general partner and certain subsidiaries of the operating partnership but specifically excluding (a) assets that are subject to the operating partnership’s accounts receivable securitization facility, (b) the general partner’s equity interest in Ferrellgas Partners and (c) equity interest in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiaries of the operating partnership.
Letters of credit outstanding at
April 30, 2013
totaled
$56.4 million
and were used primarily to secure insurance arrangements and to a lesser extent, commodity hedges and product purchases. Letters of credit outstanding at
July 31, 2012
totaled
$64.5 million
and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. At
April 30, 2013
, Ferrellgas had available letter of credit remaining capacity of
$143.6 million
. At
July 31, 2012
, Ferrellgas had available letter of credit remaining capacity of
$135.5 million
.
F.
Partners' deficit
Partnership distributions paid
Ferrellgas Partners has paid the following distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Public common unitholders
|
|
$
|
26,497
|
|
|
$
|
26,443
|
|
|
$
|
79,437
|
|
|
$
|
77,727
|
|
Ferrell Companies (1)
|
|
10,735
|
|
|
10,735
|
|
|
32,205
|
|
|
30,815
|
|
FCI Trading (2)
|
|
98
|
|
|
98
|
|
|
294
|
|
|
294
|
|
Ferrell Propane (3)
|
|
26
|
|
|
26
|
|
|
78
|
|
|
78
|
|
Mr. Ferrell (4)
|
|
2,179
|
|
|
2,179
|
|
|
6,537
|
|
|
6,537
|
|
General partner
|
|
399
|
|
|
399
|
|
|
1,197
|
|
|
1,167
|
|
|
|
$
|
39,934
|
|
|
$
|
39,880
|
|
|
$
|
119,748
|
|
|
$
|
116,618
|
|
|
|
(1)
|
Ferrell Companies is the owner of the general partner and a
27%
direct owner of Ferrellgas Partner’s common units and thus a related party.
|
|
|
(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 (“Mr. Ferrell”) is the Executive Chairman of the general partner and thus a related party.
|
On
May 23, 2013
, Ferrellgas Partners declared a cash distribution of
$0.50
per common unit for the
three months ended April 30, 2013
which is expected to be paid on
June 14, 2013
. Inclu
ded in this cash distribution are the following amounts to be paid to related parties:
|
|
|
|
|
|
Ferrell Companies
|
|
$
|
10,735
|
|
FCI Trading
|
|
98
|
|
Ferrell Propane
|
|
26
|
|
Mr. Ferrell
|
|
2,179
|
|
General partner
|
|
399
|
|
See additional discussions about transactions with related parties in Note I – Transactions with related parties.
Accumulated other
comprehensive loss (“AOCL”)
See Note H – Derivative instruments and hedging activities – for details regarding changes in fair value on risk management financial derivatives recorded within AOCL for the
nine months ended April 30, 2013
and
2012
.
General partner’s commitment to maintain its capital account
Ferrellgas’ partnership agreements allows 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
nine months ended April 30, 2013
, the general partner made non-cash contributions of
$0.4 million
to Ferrellgas to maintain its effective 2% general partner interest.
During the
nine months ended April 30, 2012
, the general partner made cash contributions of
$1.0 million
and non-cash contributions of
$0.2 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
April 30, 2013
and
July 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
April 30, 2013:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
7,356
|
|
|
$
|
—
|
|
|
$
|
7,356
|
|
Commodity derivatives propane swaps
|
|
$
|
—
|
|
|
$
|
2,498
|
|
|
$
|
—
|
|
|
$
|
2,498
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
(2,720
|
)
|
|
$
|
—
|
|
|
$
|
(2,720
|
)
|
Commodity derivatives propane swaps
|
|
$
|
—
|
|
|
$
|
(1,126
|
)
|
|
$
|
—
|
|
|
$
|
(1,126
|
)
|
|
|
|
|
|
|
|
|
|
July 31, 2012:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
7,784
|
|
|
$
|
—
|
|
|
$
|
7,784
|
|
Commodity derivatives propane swaps
|
|
$
|
—
|
|
|
$
|
1,049
|
|
|
$
|
—
|
|
|
$
|
1,049
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
(1,778
|
)
|
|
$
|
—
|
|
|
$
|
(1,778
|
)
|
Commodity derivatives propane swaps
|
|
$
|
—
|
|
|
$
|
(12,069
|
)
|
|
$
|
—
|
|
|
$
|
(12,069
|
)
|
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.
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. Ferrellgas also periodically utilizes derivative instruments to manage its exposure to fluctuations in interest rates.
Derivative instruments and hedging activity
During the
nine months ended April 30, 2013
and
2012
, Ferrellgas did not 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 fair value derivatives that were designated as hedging instruments in Ferrellgas’ condensed consolidated balance sheets as of
April 30, 2013
and
July 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2013
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative Instrument
|
|
Location
|
|
Fair value
|
|
Location
|
|
Fair value
|
Commodity derivatives propane swaps
|
|
Prepaid expenses and other current assets
|
|
$
|
1,845
|
|
|
Other current liabilities
|
|
$
|
899
|
|
Commodity derivatives propane swaps
|
|
Other assets, net
|
|
653
|
|
|
Other liabilities
|
|
227
|
|
Interest rate swap agreements, current portion
|
|
Prepaid expenses and other current assets
|
|
3,407
|
|
|
Other current liabilities
|
|
—
|
|
Interest rate swap agreements, noncurrent portion
|
|
Other assets, net
|
|
3,949
|
|
|
Other liabilities
|
|
2,720
|
|
|
|
Total
|
|
$
|
9,854
|
|
|
Total
|
|
$
|
3,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2012
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative Instrument
|
|
Location
|
|
Fair value
|
|
Location
|
|
Fair value
|
Commodity derivatives propane swaps
|
|
Prepaid expenses and other current assets
|
|
$
|
1,049
|
|
|
Other current liabilities
|
|
$
|
12,069
|
|
Interest rate swap agreements, current portion
|
|
Prepaid expenses and other current assets
|
|
3,346
|
|
|
Other current liabilities
|
|
—
|
|
Interest rate swap agreements, noncurrent portion
|
|
Other assets, net
|
|
4,438
|
|
|
Other liabilities
|
|
1,778
|
|
|
|
Total
|
|
$
|
8,833
|
|
|
Total
|
|
$
|
13,847
|
|
The following table provides a summary of the effect on Ferrellgas’ condensed consolidated statements of earnings for the three and
nine months ended April 30, 2013
and
2012
due to derivatives that were 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 Gain Recognized on Derivative
|
|
For the three months ended April 30,
|
|
For the three months ended April 30,
|
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Interest rate swap agreements
|
|
Interest expense
|
|
$
|
805
|
|
|
$
|
—
|
|
|
$
|
(5,469
|
)
|
|
$
|
(5,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain Recognized on Derivative
|
|
Amount of Interest Expense Recognized on Fixed-Rated Debt (Related Hedged Item)
|
Derivative Instrument
|
|
Location of Gain Recognized on Derivative
|
|
For the nine months ended April 30,
|
|
For the nine months ended April 30,
|
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Interest rate swap agreements
|
|
Interest expense
|
|
$
|
2,412
|
|
|
$
|
—
|
|
|
$
|
(16,406
|
)
|
|
$
|
(16,406
|
)
|
The following tables provide a summary of the effect on Ferrellgas’ condensed consolidated statements of comprehensive income for the three and
nine months ended April 30, 2013
and
2012
due to the effective portion of derivatives that were designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30, 2013
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCL on Derivative
|
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
Commodity derivatives propane swaps
|
|
$
|
1,130
|
|
|
Cost of product sold- propane and other gas liquids sales
|
|
$
|
(1,723
|
)
|
Interest rate swap agreements
|
|
(98
|
)
|
|
Interest expense
|
|
—
|
|
|
|
$
|
1,032
|
|
|
|
|
$
|
(1,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30, 2012
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCL on Derivative
|
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
Commodity derivatives propane swaps
|
|
$
|
(5,725
|
)
|
|
Cost of product sold- propane and other gas liquids sales
|
|
$
|
(1,590
|
)
|
|
|
$
|
(5,725
|
)
|
|
|
|
$
|
(1,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30, 2013
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCL on Derivative
|
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
Commodity derivatives propane swaps
|
|
$
|
2,044
|
|
|
Cost of product sold- propane and other gas liquids sales
|
|
$
|
(10,348
|
)
|
Interest rate swap agreements
|
|
(941
|
)
|
|
Interest expense
|
|
—
|
|
|
|
$
|
1,103
|
|
|
|
|
$
|
(10,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30, 2012
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCL on Derivative
|
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
Commodity derivatives propane swaps
|
|
$
|
(9,600
|
)
|
|
Cost of product sold- propane and other gas liquids sales
|
|
$
|
1,123
|
|
|
|
$
|
(9,600
|
)
|
|
|
|
$
|
1,123
|
|
The changes in derivative gains (losses) included in accumulated other comprehensive loss (“AOCL”) for the
nine months ended April 30, 2013
and
2012
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30,
|
Derivative gains (losses) included in AOCL
|
|
2013
|
|
2012
|
Beginning balance
|
|
$
|
(12,799
|
)
|
|
$
|
5,161
|
|
Change in value on risk management commodity derivatives
|
|
2,044
|
|
|
(9,600
|
)
|
Reclassification of gains and losses of commodity hedges to cost of product sold - propane and other gas liquids sales
|
|
10,348
|
|
|
(1,123
|
)
|
Change in value on risk management interest rate derivatives
|
|
(941
|
)
|
|
—
|
|
Ending balance
|
|
$
|
(1,348
|
)
|
|
$
|
(5,562
|
)
|
Ferrellgas expects to reclassify net losses of approximately
$0.9 million
to earnings during the next 12 months. These net losses are expected to be offset by margins on propane sales commitments Ferrellgas has with its customers that qualify for the normal purchase, normal sales exception.
During the
nine months ended April 30, 2013
and
2012
, Ferrellgas did not have any reclassifications to earnings resulting from discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship.
As of
April 30, 2013
, Ferrellgas had financial derivative contracts covering
1.2 million
barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.
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 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 in the forms of letters of credit, parental guarantees or cash. Although Ferrellgas has concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties, the maximum amount of loss due to credit risk that, based upon the gross fair values of the derivative financial instruments, Ferrellgas would incur if these counterparties that make up the concentration failed to perform according to the terms of their contracts was
$1.6 million
at
April 30, 2013
.
Ferrellgas holds certain derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon the operating partnership’s debt rating. As of
April 30, 2013
, a downgrade in the operating partnership’s debt rating would not trigger any further reduction in credit limit. The aggregate fair value of all derivatives with credit-risk-related contingent features that are in a liability position on
April 30, 2013
is
$0.1 million
for which Ferrellgas has posted collateral of
$0.1 million
in the normal course of business. The credit-risk-related contingent features underlying these agreements will result in
no
additional collateral requirements as of
April 30, 2013
.
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 earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Operating expense
|
|
$
|
55,374
|
|
|
$
|
48,165
|
|
|
$
|
156,752
|
|
|
$
|
151,476
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
$
|
10,252
|
|
|
$
|
6,103
|
|
|
$
|
23,708
|
|
|
$
|
18,809
|
|
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. As a result, at any given time, Ferrellgas is threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. 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 received notice that the Offices of the District Attorneys of several counties in California and the Federal Trade Commission are investigating cylinder labeling and filling practices and any anti-trust issues relating to the amount of propane contained in propane tanks. These government agencies issued administrative subpoenas seeking documents and information relating to those practices and Ferrellgas has responded. Ferrellgas believes that its cylinders were correctly filled and labeled and will defend any claims that may result from this investigation. Ferrellgas does not believe any loss is probable or reasonably estimable at this time related to these investigations.
Ferrellgas has also been named as a defendant in a class action lawsuit filed in the United States District Court in Kansas. The complaint alleges that Ferrellgas violates consumer protection laws in the manner Ferrellgas sets prices and fees for its customers. Based on Ferrellgas’ business practices, Ferrellgas believes that the claims are without merit and intends to defend the claims vigorously. The court has permitted limited discovery into an individual claim and the case has not been certified for class treatment. Ferrellgas does not believe loss is probable or reasonably estimable at this time related to this class action lawsuit.
K.
Net earnings per common unitholders’ interest
Below is a calculation of the basic and diluted net earnings available per common unitholders’ interest in the condensed consolidated statements of earnings for the periods indicated. In accordance with guidance issued by the FASB regarding participating securities and the two-class method, 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. In periods with undistributed earnings above certain levels, the calculation according to the two-class method results in an increased allocation of undistributed earnings to the general partner and a dilution of the earnings to the limited partners. Due to the seasonality of the propane business, the dilution effect of the guidance on the two-class method typically impacts only the three months ending January 31. There was neither a dilutive effect resulting from this guidance on basic and diluted net earnings per common unitholders' interest for the three months ended April 30, 2013 and 2012, nor for the nine months ended April 30, 2013 and 2012.
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 the Ferrellgas Partners’ partnership agreement that would apply to periods in which there were no undistributed earnings. Additionally, in periods with net losses, there are no dilutive securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Common unitholders’ interest in net earnings
|
|
$
|
44,234
|
|
|
$
|
20,599
|
|
|
$
|
84,378
|
|
|
$
|
24,331
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding (in thousands)
|
|
79,054.4
|
|
|
78,960.0
|
|
|
79,027.5
|
|
|
77,095.8
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities
|
|
31.7
|
|
|
42.4
|
|
|
38.0
|
|
|
73.8
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding plus dilutive securities
|
|
79,086.1
|
|
|
79,002.4
|
|
|
79,065.5
|
|
|
77,169.6
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings per common unitholders’ interest
|
|
$
|
0.56
|
|
|
$
|
0.26
|
|
|
$
|
1.07
|
|
|
$
|
0.32
|
|
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED
BALANCE SHEETS
(in dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
April 30, 2013
|
|
July 31, 2012
|
ASSETS
|
|
|
|
|
|
|
|
Cash
|
$
|
969
|
|
|
$
|
969
|
|
Total assets
|
$
|
969
|
|
|
$
|
969
|
|
|
|
|
|
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
|
11,134
|
|
|
10,919
|
|
|
|
|
|
Accumulated deficit
|
(11,165
|
)
|
|
(10,950
|
)
|
Total stockholder's equity
|
$
|
969
|
|
|
$
|
969
|
|
|
|
|
|
See notes to condensed financial statements.
|
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED
STATEMENTS OF EARNINGS
(in dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
General and administrative expense
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
215
|
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(215
|
)
|
|
$
|
(175
|
)
|
|
|
|
|
|
|
|
|
See notes to condensed financial statements.
|
FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED STATEMENTS OF
CASH FLOWS
(in dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30,
|
|
2013
|
|
2012
|
Cash flows provided by (used in) operating activities:
|
|
|
|
Net loss
|
$
|
(215
|
)
|
|
$
|
(175
|
)
|
Cash used in operating activities
|
(215
|
)
|
|
(175
|
)
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
Capital contribution
|
215
|
|
|
175
|
|
Cash provided by financing activities
|
215
|
|
|
175
|
|
|
|
|
|
Change in cash
|
—
|
|
|
—
|
|
Cash - beginning of period
|
969
|
|
|
969
|
|
Cash - end of period
|
$
|
969
|
|
|
$
|
969
|
|
|
|
|
|
See notes to condensed financial statements.
|
FERRELLGAS PARTNERS FINANCE CORP.
April 30, 2013
(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 statement of the interim periods presented. All adjustments to the condensed financial statements were of a normal, recurring nature.
The Finance Corp. has nominal assets, does not conduct any operations and has
no
employees.
B.
Contingencies and commitments
The Finance Corp. serves as co-issuer and co-obligor for the
$182.0
million fixed rate,
8.625%
due
2020
debt securities of the Partnership.
The senior unsecured notes contain various restrictive covenants applicable to the Partnership and its subsidiaries, the most restrictive relating to additional indebtedness. As of
April 30, 2013
, the Partnership is in compliance with all requirements, tests, limitations and covenants related to this debt agreement.
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
April 30, 2013
|
|
July 31, 2012
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
11,780
|
|
|
$
|
8,218
|
|
Accounts and notes receivable (including $183,957 and $121,812 of accounts receivable pledged as collateral at April 30, 2013 and July 31, 2012, respectively)
|
198,188
|
|
|
124,004
|
|
Inventories
|
107,210
|
|
|
127,598
|
|
Prepaid expenses and other current assets
|
23,361
|
|
|
29,275
|
|
Total current assets
|
340,539
|
|
|
289,095
|
|
|
|
|
|
Property, plant and equipment, (net of accumulated depreciation of $613,452 and $597,177 at April 30, 2013 and July 31, 2012, respectively)
|
604,716
|
|
|
626,551
|
|
Goodwill
|
253,286
|
|
|
248,944
|
|
Intangible assets (net of accumulated amortization of $341,091 and $324,893 at April 30, 2013 and July 31, 2012, respectively)
|
195,191
|
|
|
189,118
|
|
Other assets, net
|
43,355
|
|
|
39,954
|
|
Total assets
|
$
|
1,437,087
|
|
|
$
|
1,393,662
|
|
|
|
|
|
LIABILITIES AND PARTNERS' CAPITAL
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
70,285
|
|
|
$
|
47,824
|
|
Short-term borrowings
|
21,450
|
|
|
95,730
|
|
Collateralized note payable
|
116,000
|
|
|
74,000
|
|
Other current liabilities
|
117,062
|
|
|
120,384
|
|
Total current liabilities
|
324,797
|
|
|
337,938
|
|
|
|
|
|
Long-term debt
|
924,669
|
|
|
877,085
|
|
Other liabilities
|
31,727
|
|
|
25,499
|
|
Contingencies and commitments (Note J)
|
|
|
|
|
|
|
|
|
|
Partners' capital:
|
|
|
|
|
|
Limited partner
|
156,145
|
|
|
164,737
|
|
General partner
|
1,595
|
|
|
1,683
|
|
Accumulated other comprehensive loss
|
(1,846
|
)
|
|
(13,280
|
)
|
Total partners' capital
|
155,894
|
|
|
153,140
|
|
Total liabilities and partners' capital
|
$
|
1,437,087
|
|
|
$
|
1,393,662
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
|
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Revenues:
|
|
|
|
|
|
|
|
Propane and other gas liquids sales
|
$
|
508,408
|
|
|
$
|
556,644
|
|
|
$
|
1,426,763
|
|
|
$
|
1,850,430
|
|
Other
|
94,612
|
|
|
72,975
|
|
|
198,031
|
|
|
146,887
|
|
Total revenues
|
603,020
|
|
|
629,619
|
|
|
1,624,794
|
|
|
1,997,317
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Cost of product sold - propane and other gas liquids sales
|
313,207
|
|
|
401,521
|
|
|
903,100
|
|
|
1,405,243
|
|
Cost of product sold - other
|
66,714
|
|
|
49,117
|
|
|
123,348
|
|
|
80,211
|
|
Operating expense (includes $0.4 million and $0.1 million for the three months ended April 30, 2013 and 2012, respectively, and $1.7 million and $2.0 million for the nine months ended April 30, 2013 and 2012, respectively, for non-cash stock and unit-based compensation)
|
107,453
|
|
|
95,779
|
|
|
310,660
|
|
|
300,642
|
|
Depreciation and amortization expense
|
20,896
|
|
|
21,123
|
|
|
62,522
|
|
|
62,839
|
|
General and administrative expense (includes $1.8 million and $0.3 million for the three months ended April 30, 2013 and 2012, respectively, and $6.7 million and $2.9 million for the nine months ended April 30, 2013 and 2012, respectively, for non-cash stock and unit-based compensation)
|
15,232
|
|
|
9,236
|
|
|
39,104
|
|
|
31,586
|
|
Equipment lease expense
|
4,098
|
|
|
3,789
|
|
|
11,848
|
|
|
10,846
|
|
Non-cash employee stock ownership plan compensation charge
|
2,824
|
|
|
2,203
|
|
|
12,673
|
|
|
6,719
|
|
Loss on disposal of assets and other
|
3,337
|
|
|
1,220
|
|
|
5,728
|
|
|
2,052
|
|
|
|
|
|
|
|
|
|
Operating income
|
69,259
|
|
|
45,631
|
|
|
155,811
|
|
|
97,179
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(18,040
|
)
|
|
(19,442
|
)
|
|
(55,010
|
)
|
|
(58,815
|
)
|
Other income, net
|
185
|
|
|
201
|
|
|
517
|
|
|
248
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
51,404
|
|
|
26,390
|
|
|
101,318
|
|
|
38,612
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
2,008
|
|
|
1,137
|
|
|
2,661
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
49,396
|
|
|
$
|
25,253
|
|
|
$
|
98,657
|
|
|
$
|
37,335
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
|
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Net earnings
|
$
|
49,396
|
|
|
$
|
25,253
|
|
|
$
|
98,657
|
|
|
$
|
37,335
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
Change in value on risk management derivatives
|
1,032
|
|
|
(5,725
|
)
|
|
1,103
|
|
|
(9,600
|
)
|
Reclassification of gains and losses of derivatives to earnings
|
1,723
|
|
|
1,590
|
|
|
10,348
|
|
|
(1,123
|
)
|
Foreign currency translation adjustment
|
(20
|
)
|
|
(11
|
)
|
|
(17
|
)
|
|
(11
|
)
|
Other comprehensive income (loss)
|
2,735
|
|
|
(4,146
|
)
|
|
11,434
|
|
|
(10,734
|
)
|
Comprehensive income
|
$
|
52,131
|
|
|
$
|
21,107
|
|
|
$
|
110,091
|
|
|
$
|
26,601
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
|
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited
Partner
|
|
General
Partner
|
|
Accumulated other comprehensive loss
|
|
Total
partners'
capital
|
Balance at July 31, 2012
|
$
|
164,737
|
|
|
$
|
1,683
|
|
|
$
|
(13,280
|
)
|
|
$
|
153,140
|
|
|
|
|
|
|
|
|
|
Contributions in connection with non-cash ESOP and stock and unit-based compensation charges
|
20,895
|
|
|
212
|
|
|
|
|
21,107
|
|
|
|
|
|
|
|
|
|
Cash contributed by Ferrellgas Partners and general partner
|
450
|
|
|
5
|
|
|
|
|
455
|
|
|
|
|
|
|
|
|
|
Distributions
|
(127,597
|
)
|
|
(1,302
|
)
|
|
|
|
(128,899
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
97,660
|
|
|
997
|
|
|
|
|
98,657
|
|
Other comprehensive income
|
|
|
|
|
11,434
|
|
|
11,434
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
110,091
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2013
|
$
|
156,145
|
|
|
$
|
1,595
|
|
|
$
|
(1,846
|
)
|
|
$
|
155,894
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
|
FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30,
|
|
2013
|
|
2012
|
Cash flows provided by (used in) operating activities:
|
|
|
|
Net earnings
|
$
|
98,657
|
|
|
$
|
37,335
|
|
Reconciliation of net earnings to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization expense
|
62,522
|
|
|
62,839
|
|
Non-cash employee stock ownership plan compensation charge
|
12,673
|
|
|
6,719
|
|
Non-cash stock and unit-based compensation charge
|
8,434
|
|
|
4,867
|
|
Loss on disposal of assets and other
|
5,728
|
|
|
2,052
|
|
Provision for doubtful accounts
|
2,373
|
|
|
4,966
|
|
Deferred tax expense
|
1,303
|
|
|
584
|
|
Other
|
2,840
|
|
|
1,149
|
|
Changes in operating assets and liabilities, net of effects from business acquisitions:
|
|
|
|
Accounts and notes receivable, net of securitization
|
(68,007
|
)
|
|
(38,572
|
)
|
Inventories
|
25,915
|
|
|
4,285
|
|
Prepaid expenses and other current assets
|
8,035
|
|
|
(2,055
|
)
|
Accounts payable
|
22,245
|
|
|
165
|
|
Accrued interest expense
|
1,159
|
|
|
1,475
|
|
Other current liabilities
|
(3,039
|
)
|
|
(15,516
|
)
|
Other liabilities
|
379
|
|
|
(148
|
)
|
Net cash provided by operating activities
|
181,217
|
|
|
70,145
|
|
|
|
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
Business acquisitions, net of cash acquired
|
(37,186
|
)
|
|
(10,340
|
)
|
Capital expenditures
|
(33,263
|
)
|
|
(37,747
|
)
|
Proceeds from sale of assets
|
8,013
|
|
|
4,314
|
|
Net cash used in investing activities
|
(62,436
|
)
|
|
(43,773
|
)
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
Distributions
|
(128,899
|
)
|
|
(125,737
|
)
|
Contributions from partners
|
455
|
|
|
50,510
|
|
Proceeds from increase in long-term debt
|
48,163
|
|
|
42,436
|
|
Payments on long-term debt
|
(2,641
|
)
|
|
(52,391
|
)
|
Net reductions to short-term borrowings
|
(74,280
|
)
|
|
(6,636
|
)
|
Net additions to collateralized short-term borrowings
|
42,000
|
|
|
73,000
|
|
Cash paid for financing costs
|
—
|
|
|
(3,575
|
)
|
Net cash used in financing activities
|
(115,202
|
)
|
|
(22,393
|
)
|
|
|
|
|
Effect of exchange rate changes on cash
|
(17
|
)
|
|
(11
|
)
|
|
|
|
|
Increase in cash and cash equivalents
|
3,562
|
|
|
3,968
|
|
Cash and cash equivalents - beginning of period
|
8,218
|
|
|
7,342
|
|
Cash and cash equivalents - end of period
|
$
|
11,780
|
|
|
$
|
11,310
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
|
FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES
TO
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2013
(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. 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 any debt issued by Ferrellgas, L.P.
Ferrellgas, L.P. is engaged primarily in the distribution of propane and related equipment and supplies in the United States. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Therefore, the results of operations for the
nine months ended April 30, 2013
and
2012
are not necessarily indicative of the results to be expected for a full fiscal year. 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.
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. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes, each as set forth in Ferrellgas, L.P.’s Annual Report on Form 10-K for fiscal
2012
.
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 condensed consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment assets, residual values of tanks, capitalization of customer tank installation costs, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, valuation methods used to value intangibles and goodwill in business combinations, allowance for doubtful accounts, fair value of reporting units, fair values of derivative contracts and stock and unit-based compensation calculations.
(2)
Supplemental cash flow information:
For purposes of the condensed consolidated statements of cash flows, Ferrellgas, L.P. considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less. Certain cash flow and significant non-cash activities are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30,
|
|
|
2013
|
|
2012
|
CASH PAID FOR:
|
|
|
|
|
Interest
|
|
$
|
50,413
|
|
|
$
|
53,773
|
|
Income taxes
|
|
$
|
73
|
|
|
$
|
92
|
|
NON-CASH INVESTING ACTIVITIES:
|
|
|
|
|
Assets contributed from Ferrellgas Partners in connection with acquisitions
|
|
$
|
—
|
|
|
$
|
1,300
|
|
Liabilities incurred in connection with acquisitions
|
|
$
|
8,047
|
|
|
$
|
2,321
|
|
Change in accruals for property, plant and equipment additions
|
|
$
|
449
|
|
|
$
|
604
|
|
(3)
New accounting standards:
FASB Accounting Standard Update No. 2011-08
In September 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-08, which amends the existing guidance on goodwill impairment testing. Under the new guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If an entity determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Ferrellgas adopted this guidance for the quarter ending January 31, 2013 with no impact on its financial position, results of operations or cash flows.
FASB Accounting Standard Update No. 2012-02
In July 2012, the FASB issued ASU 2012-02, which amends the existing guidance on impairment testing of indefinite-lived intangible assets. Under the new guidance, entities testing indefinite-lived intangible assets for impairment have the option of performing a qualitative assessment before calculating the fair value of the asset. If an entity determines, on the basis of qualitative factors, that the fair value of the asset is more likely than not less than the carrying amount, the two-step impairment test would be required. This guidance is effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. Ferrellgas adopted this guidance for the quarter ending January 31, 2013 with no impact on its financial position, results of operations or cash flows.
C.
Supplemental financial statement information
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
July 31,
|
|
|
2013
|
|
2012
|
Propane gas and related products
|
|
$
|
85,249
|
|
|
$
|
110,517
|
|
Appliances, parts and supplies
|
|
21,961
|
|
|
17,081
|
|
Inventories
|
|
$
|
107,210
|
|
|
$
|
127,598
|
|
In addition to inventories on hand, Ferrellgas, L.P. enters into contracts primarily to buy propane for supply procurement purposes with terms of fewer than
36 months
. Most of these contracts call for payment based on market prices at the date of delivery. As of
April 30, 2013
, Ferrellgas, L.P. had committed, for supply procurement purposes, to take delivery of approximately
50.2 million
gallons of propane at fixed prices.
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
July 31,
|
|
|
2013
|
|
2012
|
Accrued interest
|
|
$
|
19,097
|
|
|
$
|
17,938
|
|
Accrued payroll
|
|
28,808
|
|
|
16,495
|
|
Customer deposits and advances
|
|
15,953
|
|
|
28,842
|
|
Other
|
|
53,204
|
|
|
57,109
|
|
Other current liabilities
|
|
$
|
117,062
|
|
|
$
|
120,384
|
|
Shipping and handling expenses are classified in the following condensed consolidated statements of earnings line items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Operating expense
|
|
$
|
49,633
|
|
|
$
|
47,472
|
|
|
$
|
141,794
|
|
|
$
|
139,197
|
|
Depreciation and amortization expense
|
|
1,371
|
|
|
1,636
|
|
|
4,298
|
|
|
4,920
|
|
Equipment lease expense
|
|
3,555
|
|
|
3,179
|
|
|
10,435
|
|
|
9,323
|
|
|
|
$
|
54,559
|
|
|
$
|
52,287
|
|
|
$
|
156,527
|
|
|
$
|
153,440
|
|
D.
Accounts and notes receivable, net and accounts receivable securitization
Accounts and notes receivable, net consist of the following:
|
|
|
|
|
|
|
|
|
|
April 30, 2013
|
|
July 31, 2012
|
Accounts receivable pledged as collateral
|
$
|
183,957
|
|
|
$
|
121,812
|
|
Accounts receivable
|
18,303
|
|
|
5,788
|
|
Other
|
460
|
|
|
216
|
|
Less: Allowance for doubtful accounts
|
(4,532
|
)
|
|
(3,812
|
)
|
Accounts and notes receivable, net
|
$
|
198,188
|
|
|
$
|
124,004
|
|
At
April 30, 2013
,
$184.0 million
of trade accounts receivable were pledged as collateral against
$116.0 million
of collateralized notes payable due to a 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
April 30, 2013
, Ferrellgas, L.P. had received cash proceeds of
$116.0 million
from trade accounts receivables securitized, with
no
remaining capacity to receive additional proceeds. As of
July 31, 2012
, Ferrellgas, L.P. had received cash proceeds of
$74.0 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
2.2%
and
2.6%
as of
April 30, 2013
and
July 31, 2012
, respectively.
E.
Debt
Short-term borrowings
Ferrellgas, L.P. classified a portion of its secured credit facility borrowings as short-term because it was used to fund working capital needs that management had intended to pay down within the 12 month period following each balance sheet date. As of
April 30, 2013
and
July 31, 2012
,
$21.5 million
and
$95.7 million
, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.
Secured credit facility
As of
April 30, 2013
, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of
$133.3 million
, of which
$111.8 million
was classified as long-term debt. As of
July 31, 2012
, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of
$160.0 million
, of which
$64.3 million
was classified as long-term debt.
Borrowings outstanding at
April 30, 2013
and
July 31, 2012
under the secured credit facility had a weighted average interest rate of
4.2%
at both dates.
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 interest 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
April 30, 2013
totaled
$56.4 million
and were used primarily to secure insurance arrangements and to a lesser extent, commodity hedges and product purchases. Letters of credit outstanding at
July 31, 2012
totaled
$64.5 million
and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. At
April 30, 2013
, Ferrellgas, L.P. had available letter of credit remaining capacity of
$143.6 million
. At
July 31, 2012
, Ferrellgas, L.P. had available letter of credit remaining capacity of
$135.5 million
.
F.
Partners’ capital
Partnership distributions paid
Ferrellgas, L.P. has paid the following distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Ferrellgas Partners
|
|
$
|
39,934
|
|
|
$
|
39,880
|
|
|
$
|
127,597
|
|
|
$
|
124,467
|
|
General partner
|
|
408
|
|
|
407
|
|
|
1,302
|
|
|
1,270
|
|
|
|
$
|
40,342
|
|
|
$
|
40,287
|
|
|
$
|
128,899
|
|
|
$
|
125,737
|
|
On
May 23, 2013
, Ferrellgas, L.P. declared distributions for the
three months ended April 30, 2013
to Ferrellgas Partners and the general partner of
$47.8 million
and
$0.5 million
, respectively, which is expected to be paid on
June 14, 2013
.
See additional discussions about transactions with related parties in Note I – Transactions with related parties.
Accumulated other comprehensive loss (“AOCL”)
See Note H – Derivative instruments and hedging activities – for details regarding changes in fair value on risk management financial derivatives recorded within AOCL for the
nine months ended April 30, 2013
and
2012
.
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
nine months ended April 30, 2013
, the general partner made non-cash contributions of
$0.2 million
to Ferrellgas, L.P. to maintain its
1.0101%
general partner interest.
During the
nine months ended April 30, 2012
, the general partner made cash contributions of
$0.5 million
and 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
April 30, 2013
and
July 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
April 30, 2013:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
7,356
|
|
|
$
|
—
|
|
|
$
|
7,356
|
|
Commodity derivatives propane swaps
|
|
$
|
—
|
|
|
$
|
2,498
|
|
|
$
|
—
|
|
|
$
|
2,498
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
(2,720
|
)
|
|
$
|
—
|
|
|
$
|
(2,720
|
)
|
Commodity derivatives propane swaps
|
|
$
|
—
|
|
|
$
|
(1,126
|
)
|
|
$
|
—
|
|
|
$
|
(1,126
|
)
|
|
|
|
|
|
|
|
|
|
July 31, 2012:
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
7,784
|
|
|
$
|
—
|
|
|
$
|
7,784
|
|
Commodity derivatives propane swaps
|
|
$
|
—
|
|
|
$
|
1,049
|
|
|
$
|
—
|
|
|
$
|
1,049
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
—
|
|
|
$
|
(1,778
|
)
|
|
$
|
—
|
|
|
$
|
(1,778
|
)
|
Commodity derivatives propane swaps
|
|
$
|
—
|
|
|
$
|
(12,069
|
)
|
|
$
|
—
|
|
|
$
|
(12,069
|
)
|
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.
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. Ferrellgas, L.P. also periodically utilizes derivative instruments to manage its exposure to fluctuations in interest rates.
Derivative instruments and hedging activity
During the
nine months ended April 30, 2013
and
2012
, Ferrellgas, L.P. did not 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 cash flow hedges.
The following tables provide a summary of the fair value derivatives that were designated as hedging instruments in Ferrellgas, L.P.’s condensed consolidated balance sheets as of
April 30, 2013
and
July 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2013
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative Instrument
|
|
Location
|
|
Fair value
|
|
Location
|
|
Fair value
|
Commodity derivatives propane swaps
|
|
Prepaid expenses and other current assets
|
|
$
|
1,845
|
|
|
Other current liabilities
|
|
$
|
899
|
|
Commodity derivatives propane swaps
|
|
Other assets, net
|
|
653
|
|
|
Other liabilities
|
|
227
|
|
Interest rate swap agreements, current portion
|
|
Prepaid expenses and other current assets
|
|
3,407
|
|
|
Other current liabilities
|
|
—
|
|
Interest rate swap agreements, noncurrent portion
|
|
Other assets, net
|
|
3,949
|
|
|
Other liabilities
|
|
2,720
|
|
|
|
Total
|
|
$
|
9,854
|
|
|
Total
|
|
$
|
3,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2012
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative Instrument
|
|
Location
|
|
Fair value
|
|
Location
|
|
Fair value
|
Commodity derivatives propane swaps
|
|
Prepaid expenses and other current assets
|
|
$
|
1,049
|
|
|
Other current liabilities
|
|
$
|
12,069
|
|
Interest rate swap agreements, current portion
|
|
Prepaid expenses and other current assets
|
|
3,346
|
|
|
Other current liabilities
|
|
—
|
|
Interest rate swap agreements, noncurrent portion
|
|
Other assets, net
|
|
4,438
|
|
|
Other liabilities
|
|
1,778
|
|
|
|
Total
|
|
$
|
8,833
|
|
|
Total
|
|
$
|
13,847
|
|
The following table provides a summary of the effect on Ferrellgas L.P.’s condensed consolidated statements of earnings for the three and
nine months ended April 30, 2013
and
2012
due to derivatives that were 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 Gain Recognized on Derivative
|
|
For the three months ended April 30,
|
|
For the three months ended April 30,
|
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Interest rate swap agreements
|
|
Interest expense
|
|
$
|
805
|
|
|
$
|
—
|
|
|
$
|
(5,469
|
)
|
|
$
|
(5,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain Recognized on Derivative
|
|
Amount of Interest Expense Recognized on Fixed-Rated Debt (Related Hedged Item)
|
Derivative Instrument
|
|
Location of Gain Recognized on Derivative
|
|
For the nine months ended April 30,
|
|
For the nine months ended April 30,
|
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Interest rate swap agreements
|
|
Interest expense
|
|
$
|
2,412
|
|
|
$
|
—
|
|
|
$
|
(16,406
|
)
|
|
$
|
(16,406
|
)
|
The following tables provide a summary of the effect on Ferrellgas’ condensed consolidated statements of comprehensive income for the three and
nine months ended April 30, 2013
and
2012
due to the effective portion of derivatives that were designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30, 2013
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCL on Derivative
|
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
Commodity derivatives propane swaps
|
|
$
|
1,130
|
|
|
Cost of product sold- propane and other gas liquids sales
|
|
$
|
(1,723
|
)
|
Interest rate swap agreements
|
|
(98
|
)
|
|
Interest expense
|
|
—
|
|
|
|
$
|
1,032
|
|
|
|
|
$
|
(1,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30, 2012
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCL on Derivative
|
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
Commodity derivatives propane swaps
|
|
$
|
(5,725
|
)
|
|
Cost of product sold- propane and other gas liquids sales
|
|
$
|
(1,590
|
)
|
|
|
$
|
(5,725
|
)
|
|
|
|
$
|
(1,590
|
)
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30, 2013
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCL on Derivative
|
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
Commodity derivatives propane swaps
|
|
$
|
2,044
|
|
|
Cost of product sold- propane and other gas liquids sales
|
|
$
|
(10,348
|
)
|
Interest rate swap agreements
|
|
(941
|
)
|
|
Interest expense
|
|
—
|
|
|
|
$
|
1,103
|
|
|
|
|
$
|
(10,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30, 2012
|
Derivative Instrument
|
|
Amount of Gain (Loss) Recognized in AOCL on Derivative
|
|
Location of Gain (Loss) Reclassified from AOCL into Income
|
|
Amount of Gain (Loss) Reclassified from AOCL into Income
|
Commodity derivatives propane swaps
|
|
$
|
(9,600
|
)
|
|
Cost of product sold- propane and other gas liquids sales
|
|
$
|
1,123
|
|
|
|
$
|
(9,600
|
)
|
|
|
|
$
|
1,123
|
|
The changes in derivative gains (losses) included in accumulated other comprehensive loss (“AOCL”) for the
nine months ended April 30, 2013
and
2012
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30,
|
Derivative gains (losses) included in AOCL
|
|
2013
|
|
2012
|
Beginning balance
|
|
$
|
(12,799
|
)
|
|
$
|
5,161
|
|
Change in value on risk management commodity derivatives
|
|
2,044
|
|
|
(9,600
|
)
|
Reclassification of gains and losses of commodity hedges to cost of product sold - propane and other gas liquids sales
|
|
10,348
|
|
|
(1,123
|
)
|
Change in value on risk management interest rate derivatives
|
|
(941
|
)
|
|
—
|
|
Ending balance
|
|
$
|
(1,348
|
)
|
|
$
|
(5,562
|
)
|
Ferrellgas, L.P. expects to reclassify net gains of approximately
$0.9 million
to earnings during the next 12 months. These net losses are expected to be offset by 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 April 30, 2013
and
2012
, Ferrellgas, L.P. did not have any reclassifications to earnings resulting from discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship.
As of
April 30, 2013
, Ferrellgas, L.P. had financial derivative contracts covering
1.2 million
barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.
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, parental guarantees or cash. Although Ferrellgas, L.P. has concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties, 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 if these counterparties that make up the concentration failed to perform according to the terms of their contracts was
$1.6 million
at
April 30, 2013
.
Ferrellgas L.P. holds certain derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon the Partnership’s debt rating. As of
April 30, 2013
, a downgrade in the Partnership’s debt rating would not trigger any further reduction in credit limit. The aggregate fair value of all derivatives with credit-risk-related contingent features that are in a liability position on
April 30, 2013
is
$0.1 million
for which Ferrellgas L.P. has posted collateral of
$0.1 million
in the normal course of business. The credit-risk-related contingent features underlying these agreements will result in
no
additional collateral requirements as of
April 30, 2013
.
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 earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Operating expense
|
|
$
|
55,374
|
|
|
$
|
48,165
|
|
|
$
|
156,752
|
|
|
$
|
151,476
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
$
|
10,252
|
|
|
$
|
6,103
|
|
|
$
|
23,708
|
|
|
$
|
18,809
|
|
See additional discussions about transactions with the general partner and related parties in Note F – Partners’ capital.
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. As a result, at any given time, Ferrellgas, L.P. is threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. 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 received notice that the Offices of the District Attorneys of several counties in California and the Federal Trade Commission are investigating cylinder labeling and filling practices and any anti-trust issues relating to the amount of propane contained in propane tanks. These government agencies issued administrative subpoenas seeking documents and information relating to those practices and Ferrellgas, L.P. has responded. Ferrellgas, L.P. believes that its cylinders were correctly filled and labeled and will defend any claims that may result from this investigation. Ferrellgas, L.P. does not believe any loss is probable or reasonably estimable at this time related to these investigations.
Ferrellgas, L.P. has also been named as a defendant in a class action lawsuit filed in the United States District Court in Kansas. The complaint alleges that Ferrellgas, L.P. violates consumer protection laws in the manner Ferrellgas, L.P. sets prices and fees for its customers. Based on Ferrellgas, L.P.’s business practices, Ferrellgas, L.P. believes that the claims are without merit and intends to defend the claims vigorously. The court has permitted limited discovery into an individual claim and the case has not been certified for class treatment. Ferrellgas, L.P. does not believe loss is probable or reasonably estimable at this time related to this class action lawsuit.
FERRELLGAS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas, L.P.)
CONDENSED
BALANCE SHEETS
(in dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
April 30, 2013
|
|
July 31, 2012
|
ASSETS
|
|
|
|
|
|
|
|
Cash
|
$
|
1,100
|
|
|
$
|
1,100
|
|
Total assets
|
$
|
1,100
|
|
|
$
|
1,100
|
|
|
|
|
|
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
|
43,546
|
|
|
38,871
|
|
|
|
|
|
Accumulated deficit
|
(43,446
|
)
|
|
(38,771
|
)
|
Total stockholder's equity
|
$
|
1,100
|
|
|
$
|
1,100
|
|
See notes to condensed financial statements.
|
FERRELLGAS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas, L.P.)
CONDENSED
STATEMENTS OF EARNINGS
(in dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended April 30,
|
|
For the nine months ended April 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
General and administrative expense
|
$
|
—
|
|
|
$
|
—
|
|
|
4,675
|
|
|
3,165
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(4,675
|
)
|
|
$
|
(3,165
|
)
|
See notes to condensed financial statements.
|
FERRELLGAS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas, L.P.)
CONDENSED STATEMENTS OF
CASH FLOWS
(in dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
For the nine months ended April 30,
|
|
2013
|
|
2012
|
Cash flows provided by (used in) operating activities:
|
|
|
|
Net loss
|
$
|
(4,675
|
)
|
|
$
|
(3,165
|
)
|
Cash used in operating activities
|
(4,675
|
)
|
|
(3,165
|
)
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
Capital contribution
|
4,675
|
|
|
3,165
|
|
Cash provided by financing activities
|
4,675
|
|
|
3,165
|
|
|
|
|
|
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.
April 30, 2013
(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 statement of the interim periods presented. All adjustments to the condensed financial statements were of a normal, recurring nature.
The Finance Corp. has nominal assets, does not conduct any operations and has
no
employees.
B.
Contingencies and commitments
The Finance Corp. serves as co-issuer and co-obligor for the following debt securities of the Partnership:
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•
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$500.0
million fixed rate,
6.5%
due
2021
debt securities, and
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$300.0
million fixed rate,
9.125%
due
2017
debt securities.
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The senior notes agreements contain various restrictive covenants applicable to the Partnership and its subsidiaries, the most restrictive relating to additional indebtedness. As of
April 30, 2013
, the Partnership is in compliance with all requirements, tests, limitations and covenants related to these debt agreements.