Table of Contents


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

10‑Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2018April 30, 2019

or

or
o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file numbers: 001-11331, 333-06693, 000-50182001‑11331, 333‑06693, 000‑50182 and 000-50183

000‑50183

Ferrellgas Partners, L.P.

Ferrellgas Partners Finance Corp.

Ferrellgas, L.P.

Ferrellgas Finance Corp.

(Exact name of registrants as specified in their charters)

Delaware

43‑1698480

Delaware

43‑1742520

Delaware

Delaware
Delaware
Delaware

43-1698480
43-1742520
43-1698481
14-1866671

43‑1698481

Delaware

14‑1866671

(States or other jurisdictions of incorporation or organization)

(I.R.S. Employer Identification Nos.)

7500 College Boulevard,


Suite 1000, Overland Park, Kansas

66210

(Address of principal executive office)

(Zip Code)


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

661‑1500

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,“Large Accelerated Filer,“accelerated filer,“Accelerated Filer,“smaller reporting company,“Smaller Reporting Company,” and “emerging growth company”“Emerging Growth Company” in Rule 12b-212b‑2 of the Exchange Act.

Ferrellgas Partners, L.P.:

Large accelerated filer x

Accelerated Filer ☐

Accelerated filerFiler o

Non-accelerated Filer ☐

Non-accelerated filer o
(do not check if a smaller reporting company)

Smaller reporting company o

Reporting Company ☐

Emerging growth companyGrowth Company ☐

Ferrellgas Partners Finance Corp,  Ferrellgas, L.P. and Ferrellgas Finance Corp.:

Large accelerated filer o

Accelerated Filer ☐

Accelerated Filer ☐

Accelerated filer o

Non-accelerated filerFiler x

(do not check if a smaller reporting company)

Smaller reporting company o

Reporting Company ☐

Emerging growth companyGrowth Company ☐

If an emerging growth company,Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Ferrellgas Partners, L.P. and Ferrellgas, L.P. ¨

Ferrellgas Partners Finance Corp.  and Ferrellgas Finance Corp. ¨

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-212b‑2 of the Exchange Act).

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

Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. Yes x No ¨

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

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Common Units

FGP

New York Stock Exchange



At February 28, 2018,May 31, 2019, the registrants had common units or shares of common stock outstanding as follows:

Ferrellgas Partners, L.P.

97,152,665

97,152,665

Common Units

Ferrellgas Partners Finance Corp.

1,000

1,000

Common Stock

Ferrellgas, L.P.

n/a

n/a

n/a

Ferrellgas Finance Corp.

1,000

1,000

Common Stock

Documents Incorporated by Reference: None



EACH OF FERRELLGAS PARTNERS FINANCE CORP. AND FERRELLGAS FINANCE CORP. MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION 

H(1)(A) AND (B) OF FORM 10-Q10‑Q AND ARE THEREFORE, WITH RESPECT TO EACH SUCH REGISTRANT, FILING THIS FORM 10-Q10‑Q WITH THE REDUCED DISCLOSURE FORMAT.


FERRELLGAS PARTNERS, L.P.

FERRELLGAS PARTNERS FINANCE CORP.

FERRELLGAS, L.P.

FERRELLGAS FINANCE CORP.


TABLE OF CONTENTS

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EXHIBITS

87

2

PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS1.FINANCIAL STATEMENTS (unaudited)


FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
(unaudited)
  January 31, 2018 July 31, 2017
ASSETS    
Current assets:    
Cash and cash equivalents $14,173
 $5,760
 Accounts and notes receivable, net (including $235,150 and $109,407 of accounts receivable pledged as collateral at January 31, 2018 and July 31, 2017, respectively) 255,978
 165,084
Inventories 110,092
 92,552
Assets held for sale 52,200
 
Prepaid expenses and other current assets 41,400
 33,388
Total current assets 473,843
 296,784
     
Property, plant and equipment, net 646,327
 731,923
Goodwill, net 246,098
 256,103
Intangible assets (net of accumulated amortization of $452,283 and $436,428 at January 31, 2018 and July 31, 2017, respectively) 243,079
 251,102
Other assets, net 77,712
 74,057
Total assets $1,687,059
 $1,609,969
     
LIABILITIES AND PARTNERS' DEFICIT  
  
Current liabilities:  
  
Accounts payable $82,072
 $85,561
Short-term borrowings 261,200
 59,781
Collateralized note payable 166,000
 69,000
Other current liabilities 140,510
 126,224
Total current liabilities 649,782
 340,566
     
Long-term debt 1,811,617
 1,995,795
Other liabilities 35,422
 31,118
Contingencies and commitments (Note J) 

 

     
Partners' deficit:  
  
Common unitholders (97,152,665 units outstanding at January 31, 2018 and July 31, 2017) (762,046) (701,188)
General partner unitholder (989,926 units outstanding at January 31, 2018 and July 31, 2017) (67,604) (66,991)
Accumulated other comprehensive income 24,332
 14,601
Total Ferrellgas Partners, L.P. partners' deficit (805,318) (753,578)
Noncontrolling interest (4,444) (3,932)
Total partners' deficit (809,762) (757,510)
Total liabilities and partners' deficit $1,687,059
 $1,609,969
See notes to condensed consolidated financial statements.

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(unaudited)
     
  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
Revenues:        
Propane and other gas liquids sales $592,239
 $437,375
 $894,997
 $679,774
Midstream operations 117,276
 96,787
 238,036
 204,831
Other 45,641
 45,088
 76,778
 74,187
Total revenues 755,156
 579,250
 1,209,811
 958,792
         
Costs and expenses:        
Cost of sales - propane and other gas liquids sales 362,918
 235,029
 542,433
 354,241
Cost of sales - midstream operations 107,067
 87,024
 215,192
 181,666
Cost of sales - other 20,787
 20,657
 34,489
 32,403
Operating expense 123,716
 113,076
 234,178
 218,162
Depreciation and amortization expense 25,485
 25,607
 51,217
 51,809
General and administrative expense 14,891
 12,279
 28,055
 26,548
Equipment lease expense 6,954
 7,416
 13,695
 14,765
Non-cash employee stock ownership plan compensation charge 4,031
 2,945
 7,993
 6,699
Asset impairments 10,005
 
 10,005
 
Loss on asset sales and disposals 39,249
 45
 40,144
 6,468
         
Operating income 40,053
 75,172
 32,410
 66,031
         
Interest expense (42,673) (36,819) (83,480) (72,247)
Other income, net 684
 763
 1,195
 1,271
         
Earnings (loss) before income taxes (1,936) 39,116
 (49,875) (4,945)
         
Income tax expense (benefit) (162) 588
 215
 (2)
         
Net earnings (loss) (1,774) 38,528
 (50,090) (4,943)
         
Net earnings (loss) attributable to noncontrolling interest 69
 430
 (332) 32
         
Net earnings (loss) attributable to Ferrellgas Partners, L.P. (1,843) 38,098
 (49,758) (4,975)
         
Less: General partner's interest in net earnings (loss) (19) 381
 (498) (50)
         
Common unitholders' interest in net earnings (loss) $(1,824) $37,717
 $(49,260) $(4,925)
         
Basic and diluted net earnings (loss) per common unit $(0.02) $0.39
 $(0.51) $(0.05)
         
Cash distributions declared per common unit $0.10
 $0.10
 $0.20
 $0.20
See notes to condensed consolidated financial statements.

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
      
  For the three months ended January 31, For the six months ended January 31, 
  2018 2017 2018 2017 
          
Net earnings (loss) $(1,774) $38,528
 $(50,090) $(4,943) 
Other comprehensive income (loss):         
Change in value of risk management derivatives 1,072
 15,262
 23,521
 20,400
 
Reclassification of (gains) losses on derivatives to earnings, net (9,743) 514
 (13,692) 4,752
 
Other comprehensive income (loss) (8,671) 15,776
 9,829
 25,152
 
Comprehensive income (loss) (10,445) 54,304
 (40,261) 20,209
 
Less: Comprehensive income (loss) attributable to noncontrolling interest (19) 590
 (234) 286
 
Comprehensive income (loss) attributable to Ferrellgas Partners, L.P. $(10,426) $53,714
 $(40,027) $19,923
 
See notes to condensed consolidated financial statements.

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
(in thousands)
(unaudited)
  
  
  
  
        
 Number of units     Accumulated other comprehensive income Total
Ferrellgas
Partners, L.P. partners'
deficit
   Total partners'
deficit
 
Common
unitholders
 General partner unitholder Common
unitholders
 General partner unitholder   Non-controlling
interest
 
Balance at July 31, 201797,152.7
 989.9
 $(701,188) $(66,991) $14,601
 $(753,578) $(3,932) $(757,510)
Contributions in connection with non-cash ESOP and stock-based compensation charges
 
 7,833
 81
 
 7,914
 79
 7,993
Distributions
 
 (19,431) (196) 
 (19,627) (357) (19,984)
Net loss
 
 (49,260) (498) 
 (49,758) (332) (50,090)
Other comprehensive income
 
 
 
 9,731
 9,731
 98
 9,829
Balance at January 31, 201897,152.7
 989.9
 $(762,046) $(67,604) $24,332
 $(805,318) $(4,444) $(809,762)
See notes to condensed consolidated financial statements.


FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 For the six months ended January 31,
 2018 2017
Cash flows from operating activities:   
Net loss$(50,090) $(4,943)
Reconciliation of net loss to net cash provided by (used in) operating activities:   
Depreciation and amortization expense51,217
 51,809
Non-cash employee stock ownership plan compensation charge7,993
 6,699
Non-cash stock-based compensation charge
 3,298
Asset impairments10,005
 
Loss on asset sales and disposals40,144
 6,468
Unrealized gain on derivative instruments(91) (1,862)
Provision for doubtful accounts1,688
 (283)
Deferred income tax expense364
 35
Other4,482
 2,659
Changes in operating assets and liabilities, net of effects from business acquisitions:   
Accounts and notes receivable, net of securitization(102,315) (74,403)
Inventories(17,275) (24,268)
Prepaid expenses and other current assets(4,682) 7,060
Accounts payable11,510
 40,444
Accrued interest expense304
 1,916
Other current liabilities13,372
 19,951
Other assets and liabilities(2,920) 4,757
Net cash provided by (used in) operating activities(36,294) 39,337
    
Cash flows from investing activities:   
Business acquisitions, net of cash acquired(14,862) 
Capital expenditures(35,693) (19,768)
Proceeds from sale of assets4,207
 4,591
Other
 (37)
Net cash used in investing activities(46,348) (15,214)
    
Cash flows from financing activities:   
Distributions(19,627) (60,107)
Proceeds from issuance of long-term debt23,580
 204,444
Payments on long-term debt(1,267) (172,790)
Net reductions in short-term borrowings(7,879) (35,692)
Net additions to collateralized short-term borrowings97,000
 69,000
Cash paid for financing costs(395) (4,382)
Noncontrolling interest activity(357) 1,000
Repurchase of common units
 (15,851)
Net cash provided by (used in) financing activities91,055
 (14,378)
    
Net change in cash and cash equivalents8,413
 9,745
Cash and cash equivalents - beginning of period5,760
 4,965
Cash and cash equivalents - end of period$14,173
 $14,710
See notes to condensed consolidated financial statements.

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

(unaudited)

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,434

 

$

119,311

Accounts and notes receivable, net (including $160,959 and $120,079 of accounts receivable pledged as collateral at April 30, 2019 and July 31, 2018, respectively)

 

 

157,229

 

 

126,054

Inventories

 

 

78,449

 

 

83,694

Prepaid expenses and other current assets

 

 

25,489

 

 

34,862

Total current assets

 

 

306,601

 

 

363,921

 

 

 

  

 

 

  

Property, plant and equipment, net

 

 

603,923

 

 

557,723

Goodwill, net

 

 

247,508

 

 

246,098

Intangible assets (net of accumulated amortization of $411,766 and $399,629 at April 30, 2019 and July 31, 2018, respectively)

 

 

109,634

 

 

120,951

Other assets, net

 

 

62,326

 

 

74,588

Total assets

 

$

1,329,992

 

$

1,363,281

 

 

 

  

 

 

  

LIABILITIES AND PARTNERS' DEFICIT

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

41,408

 

$

46,820

Short-term borrowings

 

 

 —

 

 

32,800

Collateralized note payable

 

 

62,000

 

 

58,000

Other current liabilities

 

 

160,507

 

 

142,025

Total current liabilities

 

 

263,915

 

 

279,645

 

 

 

  

 

 

  

Long-term debt

 

 

2,084,506

 

 

2,078,637

Other liabilities

 

 

35,879

 

 

39,476

Contingencies and commitments (Note K)

 

 

 

 

 

 

 

 

 

  

 

 

  

Partners' deficit:

 

 

  

 

 

  

Common unitholders (97,152,665 units outstanding at April 30, 2019 and July 31, 2018)

 

 

(976,902)

 

 

(978,503)

General partner unitholder (989,926 units outstanding at April 30, 2019 and July 31, 2018)

 

 

(69,776)

 

 

(69,792)

Accumulated other comprehensive income (loss)

 

 

(846)

 

 

20,510

Total Ferrellgas Partners, L.P. partners' deficit

 

 

(1,047,524)

 

 

(1,027,785)

Noncontrolling interest

 

 

(6,784)

 

 

(6,692)

Total partners' deficit

 

 

(1,054,308)

 

 

(1,034,477)

Total liabilities and partners' deficit

 

$

1,329,992

 

$

1,363,281

See notes to condensed consolidated financial statements.

3

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except unit data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Propane and other gas liquids sales

 

$

459,556

 

$

451,302

 

$

1,344,634

 

$

1,346,299

 

Midstream operations

 

 

 —

 

 

22,595

 

 

 —

 

 

260,631

 

Other

 

 

20,069

 

 

41,913

 

 

60,677

 

 

118,691

 

Total revenues

 

 

479,625

 

 

515,810

 

 

1,405,311

 

 

1,725,621

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

Costs and expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

Cost of sales - propane and other gas liquids sales

 

 

250,389

 

 

260,419

 

 

766,056

 

 

802,852

 

Cost of sales - midstream operations

 

 

 —

 

 

14,518

 

 

 —

 

 

229,710

 

Cost of sales - other

 

 

2,320

 

 

19,850

 

 

8,789

 

 

54,339

 

Operating expense

 

 

119,991

 

 

116,579

 

 

351,541

 

 

350,757

 

Depreciation and amortization expense

 

 

20,617

 

 

25,348

 

 

59,214

 

 

76,565

 

General and administrative expense

 

 

11,516

 

 

11,678

 

 

42,037

 

 

39,733

 

Equipment lease expense

 

 

8,319

 

 

7,133

 

 

24,597

 

 

20,828

 

Non-cash employee stock ownership plan compensation charge

 

 

(4)

 

 

2,738

 

 

4,688

 

 

10,731

 

Asset impairments

 

 

 —

 

 

 —

 

 

 —

 

 

10,005

 

Loss on asset sales and disposals

 

 

1,683

 

 

6,270

 

 

8,403

 

 

46,414

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

Operating income

 

 

64,794

 

 

51,277

 

 

139,986

 

 

83,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(44,162)

 

 

(40,375)

 

 

(132,931)

 

 

(123,855)

 

Other income, net

 

 

251

 

 

227

 

 

356

 

 

1,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

 

20,883

 

 

11,129

 

 

7,411

 

 

(38,746)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

123

 

 

67

 

 

284

 

 

282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

 

20,760

 

 

11,062

 

 

7,127

 

 

(39,028)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) attributable to noncontrolling interest

 

 

299

 

 

201

 

 

337

 

 

(131)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) attributable to Ferrellgas Partners, L.P.

 

 

20,461

 

 

10,861

 

 

6,790

 

 

(38,897)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: General partner's interest in net earnings (loss)

 

 

205

 

 

109

 

 

68

 

 

(389)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common unitholders' interest in net earnings (loss)

 

$

20,256

 

$

10,752

 

$

6,722

 

$

(38,508)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net earnings (loss) per common unit

 

$

0.21

 

$

0.11

 

$

0.07

 

$

(0.40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash distributions declared per common unit

 

$

 —

 

$

0.10

 

$

 —

 

$

0.30

 

See notes to condensed consolidated financial statements.

4

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Net earnings (loss)

 

$

20,760

 

$

11,062

 

$

7,127

 

$

(39,028)

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in value of risk management derivatives

 

 

1,870

 

 

(159)

 

 

(27,364)

 

 

23,362

 

Reclassification of (gains) losses on derivatives to earnings, net

 

 

6,416

 

 

(6,568)

 

 

5,790

 

 

(20,260)

 

Other comprehensive income (loss)

 

 

8,286

 

 

(6,727)

 

 

(21,574)

 

 

3,102

 

Comprehensive income (loss)

 

 

29,046

 

 

4,335

 

 

(14,447)

 

 

(35,926)

 

Less: Comprehensive income (loss) attributable to noncontrolling interest

 

 

382

 

 

134

 

 

119

 

 

(100)

 

Comprehensive income (loss) attributable to Ferrellgas Partners, L.P.

 

$

28,664

 

$

4,201

 

$

(14,566)

 

$

(35,826)

 

See notes to condensed consolidated financial statements.

5

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ DEFICIT

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Number of units

    

 

 

    

 

 

    

Accumulated

    

Total Ferrellgas

    

 

 

    

 

 

 

 

 

 

General

 

 

 

 

General

 

other

 

Partner, L.P.

 

 

 

 

 

 

 

 

Common

 

Partner

 

Common

 

Partner

 

comprehensive

 

partners’

 

Non-controlling

 

Total partners’

 

    

unitholders

    

unitholder

    

unitholders

    

unitholder

    

income (loss)

    

deficit

    

interest

    

deficit

Balance at July 31, 2018

 

97,152.7

 

989.9

 

$

(978,503)

 

$

(69,792)

 

$

20,510

 

$

(1,027,785)

 

$

(6,692)

 

$

(1,034,477)

Contributions in connection with non-cash ESOP and stock and unit-based compensation charges

 

 

 

 

2,693

 

 

27

 

 

 

 

2,720

 

 

28

 

 

2,748

Distributions

 

 

 

 

(9,716)

 

 

(98)

 

 

 

 

(9,814)

 

 

(101)

 

 

(9,915)

Net loss

 

 

 

 

(56,445)

 

 

(570)

 

 

 

 

(57,015)

 

 

(493)

 

 

(57,508)

Other comprehensive loss

 

 

 

 

 

 

 

 

(12,460)

 

 

(12,460)

 

 

(127)

 

 

(12,587)

Balance at October 31, 2018

 

97,152.7

 

989.9

 

 

(1,041,971)

 

 

(70,433)

 

 

8,050

 

 

(1,104,354)

 

 

(7,385)

 

 

(1,111,739)

Contributions in connection with non-cash ESOP and stock and unit-based compensation charges

 

 

 

 

1,906

 

 

19

 

 

 

 

1,925

 

 

19

 

 

1,944

Distributions

 

 

 

 

 

 

 

 

 

 

 —

 

 

(157)

 

 

(157)

Net earnings

 

 

 

 

42,911

 

 

433

 

 

 

 

43,344

 

 

531

 

 

43,875

Other comprehensive loss

 

 

 

 

 

 

 

 

(17,099)

 

 

(17,099)

 

 

(174)

 

 

(17,273)

Balance at January 31, 2019

 

97,152.7

 

989.9

 

 

(997,154)

 

 

(69,981)

 

 

(9,049)

 

 

(1,076,184)

 

 

(7,166)

 

 

(1,083,350)

Contributions in connection with non-cash ESOP compensation charges

 

 

 

 

(4)

 

 

 —

 

 

 —

 

 

(4)

 

 

 —

 

 

(4)

Net earnings (loss)

 

 

 

 

20,256

 

 

205

 

 

 —

 

 

20,461

 

 

299

 

 

20,760

Other comprehensive income

 

 

 

 

 

 

 —

 

 

8,203

 

 

8,203

 

 

83

 

 

8,286

Balance at April 30, 2019

 

97,152.7

 

989.9

 

$

(976,902)

 

$

(69,776)

 

$

(846)

 

$

(1,047,524)

 

$

(6,784)

 

$

(1,054,308)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Number of units

    

 

 

    

 

 

    

Accumulated

    

Total Ferrellgas

    

 

 

    

 

 

 

 

 

 

General

 

 

 

 

General

 

other

 

Partner, L.P.

 

 

 

 

 

 

 

 

Common

 

Partner

 

Common

 

Partner

 

comprehensive

 

partners’

 

Non-controlling

 

Total partners’

 

    

unitholders

    

unitholder

    

unitholders

    

unitholder

    

income (loss)

    

deficit

    

interest

    

deficit

Balance at July 31, 2017

 

97,152.7

 

989.9

 

$

(701,188)

 

$

(66,991)

 

$

14,601

 

$

(753,578)

 

$

(3,932)

 

$

(757,510)

Contributions in connection with non-cash ESOP and stock and unit-based compensation charges

 

 

 —

 

 

3,883

 

 

40

 

 

 —

 

 

3,923

 

 

39

 

 

3,962

Distributions

 

 

 —

 

 

(9,715)

 

 

(98)

 

 

 —

 

 

(9,813)

 

 

(100)

 

 

(9,913)

Net loss

 

 

 —

 

 

(47,436)

 

 

(479)

 

 

 —

 

 

(47,915)

 

 

(401)

 

 

(48,316)

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

18,314

 

 

18,314

 

 

186

 

 

18,500

Balance at October 31, 2017

 

97,152.7

 

989.9

 

 

(754,456)

 

 

(67,528)

 

 

32,915

 

 

(789,069)

 

 

(4,208)

 

 

(793,277)

Contributions in connection with non-cash ESOP and stock and unit-based compensation charges

 

 

 

 

3,950

 

 

41

 

 

 —

 

 

3,991

 

 

40

 

 

4,031

Distributions

 

 

 

 

(9,716)

 

 

(98)

 

 

 —

 

 

(9,814)

 

 

(257)

 

 

(10,071)

Net earnings (loss)

 

 

 

 

(1,824)

 

 

(19)

 

 

 —

 

 

(1,843)

 

 

69

 

 

(1,774)

Other comprehensive loss

 

 

 

 

 —

 

 

 —

 

 

(8,583)

 

 

(8,583)

 

 

(88)

 

 

(8,671)

Balance at January 31, 2018

 

97,152.7

 

989.9

 

 

(762,046)

 

 

(67,604)

 

 

24,332

 

 

(805,318)

 

 

(4,444)

 

 

(809,762)

Contributions in connection with non-cash ESOP compensation charges

 

 

 

 

2,684

 

 

25

 

 

 —

 

 

2,709

 

 

29

 

 

2,738

Distributions

 

 

 

 

(9,715)

 

 

(98)

 

 

 —

 

 

(9,813)

 

 

(102)

 

 

(9,915)

Net earnings

 

 

 

 

10,752

 

 

109

 

 

 —

 

 

10,861

 

 

201

 

 

11,062

Other comprehensive loss

 

 

 

 

 

 

 —

 

 

(6,660)

 

 

(6,660)

 

 

(67)

 

 

(6,727)

Balance at April 30, 2018

 

97,152.7

 

989.9

 

$

(758,325)

 

$

(67,568)

 

$

17,672

 

$

(808,221)

 

$

(4,383)

 

$

(812,604)

See notes to condensed consolidated financial statements.

6

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

  

 

 

  

Net earnings (loss)

 

$

7,127

 

$

(39,028)

Reconciliation of net earnings (loss) to net cash provided by operating activities:

 

 

  

 

 

  

Depreciation and amortization expense

 

 

59,214

 

 

76,565

Non-cash employee stock ownership plan compensation charge

 

 

4,688

 

 

10,731

Asset impairments

 

 

 —

 

 

10,005

Loss on asset sales and disposals

 

 

8,403

 

 

46,414

Unrealized gain on derivative instruments

 

 

 —

 

 

(91)

Provision for doubtful accounts

 

 

1,938

 

 

1,906

Deferred income tax expense

 

 

143

 

 

423

Other

 

 

9,266

 

 

6,712

Changes in operating assets and liabilities, net of effects from business acquisitions:

 

 

  

 

 

  

Accounts and notes receivable, net of securitization

 

 

(33,113)

 

 

(46,771)

Inventories

 

 

5,245

 

 

7,755

Prepaid expenses and other current assets

 

 

(5,584)

 

 

(4,070)

Accounts payable

 

 

(5,713)

 

 

(18,429)

Accrued interest expense

 

 

30,216

 

 

31,915

Other current liabilities

 

 

(13,506)

 

 

(1,084)

Other assets and liabilities

 

 

2,453

 

 

(4,642)

Net cash provided by operating activities

 

 

70,777

 

 

78,311

 

 

 

  

 

 

  

Cash flows from investing activities:

 

 

  

 

 

  

Business acquisitions, net of cash acquired

 

 

(11,351)

 

 

(14,862)

Capital expenditures

 

 

(94,660)

 

 

(58,961)

Proceeds from sale of assets

 

 

2,416

 

 

57,802

Net cash used in investing activities

 

 

(103,595)

 

 

(16,021)

 

 

 

  

 

 

  

Cash flows from financing activities:

 

 

  

 

 

  

Distributions

 

 

(9,814)

 

 

(29,440)

Proceeds from issuance of long-term debt

 

 

 —

 

 

23,580

Payments on long-term debt

 

 

(1,656)

 

 

(1,892)

Net reductions in short-term borrowings

 

 

(32,800)

 

 

(84,179)

Net additions to collateralized short-term borrowings

 

 

4,000

 

 

35,000

Cash paid for financing costs

 

 

(531)

 

 

(1,161)

Noncontrolling interest activity

 

 

(258)

 

 

(459)

Net cash used in financing activities

 

 

(41,059)

 

 

(58,551)

 

 

 

  

 

 

  

Net change in cash and cash equivalents

 

 

(73,877)

 

 

3,739

Cash and cash equivalents - beginning of period

 

 

119,311

 

 

5,760

Cash and cash equivalents - end of period

 

$

45,434

 

$

9,499

See notes to condensed consolidated financial statements.

7

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

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 January 31, 2018,April 30, 2019, 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 primarily engaged in the following primary businesses:

Propane operations and related equipment sales consists of theretail distribution of propane and related equipment and supplies.sales. 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 sixnine months ended January 31, 2018April 30, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending July 31, 2018.

2019.

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-Q10‑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'Ferrellgas’ Annual Report on Form 10-K10‑K for fiscal 20172018.


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,

8

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) Assets held for sale: Assets held for sale represent rail cars that have met the criteria of “held for sale” accounting. During the second quarter of fiscal 2018, Ferrellgas committed to a plan to sell certain rail cars held by the Midstream operations segment. These assets were reclassified from Rail cars within "Property, plant and equipment, net" to "Assets held for sale" in the accompanying balance sheet as of January 31, 2018. Ferrellgas ceased depreciation on these assets during January 2018. Assets held for sale are recorded at the lower of the carrying amount or fair value less costs to sell. For further discussion of assets held for sale, see Note C - Supplemental financial statement information.


(3) New accounting standards:

FASB Accounting Standard Update No. 2014-09

2014‑09

In May 2014, the Financial Accounting Standards Board ("FASB")(FASB) issued Accounting Standard Update ("ASU") 2014-09, 2014‑09, Revenue from Contracts with Customers.Customers (“ASU 2014‑09”). 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 forUpon adoption, Ferrellgas for its annual reporting periodapplied ASU 2014‑09 only to contracts that were not completed, referred to as open contracts.

Ferrellgas adopted ASU 2014‑09 beginning on August 1, 2018 including interimusing the modified retrospective method. This method requires that the cumulative effect of initially applying ASU 2014‑09 be recognized in partner’s deficit at the date of adoption, August 1, 2018. ASU 2014‑09 has not materially impacted Ferrellgas’ consolidated financial statements, and as a result there was no cumulative effect to record as of the date of adoption. Results for reporting periods within that reporting period. Entitiesbeginning after August 1, 2018 are allowed to transition to the new standard by either recastingpresented under ASU 2014‑09, while amounts reported for prior periods or recognizing the cumulative effect. Ferrellgas ishave not been adjusted and continue to be reported under accounting standards in the final stages of analyzing the impact of the new guidance using an integrated approach which includes evaluating differences in the amount and timing of revenue recognitioneffect for those periods. See Note G - Revenue from applying the requirements of the new guidance, reviewing its accounting policies and practices, and assessing the need for changes to its processes, accounting systems and design of internal controls. Ferrellgas has completed the assessment of a significant number of its contracts with customers for additional information related to revenues and contract costs, including qualitative and quantitative disclosures required under the new guidance to determine the effect of the adoption of the new guidance. Although Ferrellgas has not completed its assessment of the impact of the new guidance, it does not expect its adoption will have a material impact on its consolidated financial statements.


ASU 2014‑09.

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
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. The new standard requires lessees to apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. An entity may elect the transition relief option in ASU 2018-11, “Leases: Targeted Improvements” which, among other things, provides entities with an option to recognize the cumulative-effect adjustment from the modified retrospective application to the opening balance of retained earnings in the period of adoption and consequently, continue to report comparative periods in compliance with the prior guidance (ASC 840). Ferrellgas expects to elect this additional transition method.

Ferrellgas is currently evaluatingcontinuing to evaluate the impact of its pending adoption of ASU 2016-02 on the consolidated financial statements. Ferrellgas has formed anmade significant progress in assessing the impact of the standard and planning for the adoption and implementation. The implementation team has completed trainingscoping and the data gathering process of our current lease portfolio. Ferrellgas continues to perform a completeness assessment over the lease population, analyze the financial statement impact of adopting the standards, and evaluate the impact of adoption on our existing accounting policies and disclosures. Further, our implementation team is in the process of determining appropriate changes to our business processes, systems, and controls to support recognition and disclosure under the new standard. Ferrellgas believes that the adoption of this standard, which will be effective for Ferrellgas August 1, 2019, will result in material increases to right of use assets and is workinglease liabilities on an initial assessment.


our consolidated balance sheet and a corresponding change in classification of certain expenses contained on our consolidated statement of operations.

FASB Accounting Standard Update No. 2016-13

2016‑13

In June 2016, the FASB issued ASU 2016-13,2016‑13, 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'sstandard’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.


9

FASB Accounting Standard Update No. 2017-12

2017‑12

In August 2017, the FASB issued ASU 2017-12,2017‑12, 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'sentity’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.



FASB Accounting Standard Update No. 2018‑15

In August 2018, the FASB issued ASU 2018‑15, Intangibles - Goodwill and Other - Internal-use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract which is intended to clarify the accounting for implementation costs related to a cloud computing arrangement that is a service contract. Costs for implementation activities in the application development stage are deferred, depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed. Any deferred costs are amortized over the term of the service contract. The new guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Ferrellgas adopted ASU 2018-15 on a prospective basis to all implementation costs incurred after January 31, 2019 with an immaterial impact on our consolidated results of operations for the three months ended April 30, 2019.

C.    Supplemental financial statement information

Inventories consist of the following:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Propane gas and related products

 

$

63,481

 

$

71,180

Appliances, parts and supplies, and other

 

 

14,968

 

 

12,514

Inventories

 

$

78,449

 

$

83,694

  January 31, 2018 July 31, 2017
Propane gas and related products $81,644
 $67,049
Appliances, parts and supplies, and other 28,448
 25,503
Inventories $110,092
 $92,552

In addition to inventories on hand, Ferrellgas enters into contracts to take delivery of propane for supply procurement purposes with terms that generally do not exceed 36 months. Most of these contracts call for payment based on market prices at the date of delivery. As of January 31, 2018,April 30, 2019, Ferrellgas had committed, for supply procurement purposes, to take delivery of approximately 81.93.3 million gallons of propane at fixed prices.


Other assets, net consist of the following:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Notes receivable, less current portion

 

$

18,745

 

$

27,491

Other

 

 

43,581

 

 

47,097

Other assets, net

 

$

62,326

 

$

74,588

  January 31, 2018 July 31, 2017
Notes receivable, less current portion $36,371
 $32,500
Other 41,341
 41,557
  Other assets, net $77,712
 $74,057

Other current liabilities consist of the following:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Accrued interest

 

$

52,438

 

$

22,222

Customer deposits and advances

 

 

20,681

 

 

22,829

Other

 

 

87,388

 

 

96,974

Other current liabilities

 

$

160,507

 

$

142,025

10

  January 31, 2018 July 31, 2017
Accrued interest
$18,975
 $18,671
Customer deposits and advances 24,676
 25,541
Other 96,859
 82,012
Other current liabilities $140,510
 $126,224

Shipping and handling expenses are classified in the following condensed consolidated statements of operations line items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Operating expense

 

$

54,753

 

$

48,351

 

$

162,474

 

$

146,279

 

Depreciation and amortization expense

 

 

1,934

 

 

1,340

 

 

4,396

 

 

3,575

 

Equipment lease expense

 

 

7,784

 

 

6,507

 

 

23,172

 

 

18,872

 

 

 

$

64,471

 

$

56,198

 

$

190,042

 

$

168,726

 

  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
Operating expense $54,613
 $47,157
 $97,928
 $88,883
Depreciation and amortization expense 1,123
 996
 2,235
 2,022
Equipment lease expense 6,296
 6,652
 12,364
 13,318
   Total shipping and handling expenses $62,032
 $54,805
 $112,527
 $104,223

During the quarter ended January 31, 2018, Ferrellgas committed to a plan to dispose of all of its rail cars utilized in the Midstream operations segment and as a result, reclassified 1,292 rail cars from "Property, plant and equipment, net" to "Assets held for sale" on our condensed consolidated balance sheets as of January 31, 2018. For the three and six months ended January 31, 2018, "Loss on asset sales and disposals" includes a loss of $35.5 million related to the write-down of these rail cars classified as "Assets held for sale". On February 20, 2018, Ferrellgas completed the sale of 1,072 of these rail cars and received approximately $47.0 million in cash. Proceeds from the transaction were used to reduce outstanding debt on Ferrellgas' secured credit facility.

During the quarter ended January 31, 2018, Ferrellgas completed the sale of Bridger Energy, LLC in the Midstream operations segment in exchange for an $8.5 million secured promissory note due in May 2020. For the three and six months ended January 31, 2018, "Loss on asset sales and disposals" includes a loss of $3.6 million related to this sale. 

"Loss on asset sales and disposals" during the three and six months ended January 31, 2018 and 2017 consists of:

  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
Loss on assets held for sale $35,515
 $
 $35,515
 $
Loss on sale of assets and other 3,734
 45
 4,629
 6,468
Loss on asset sales and disposals $39,249
 $45
 $40,144
 $6,468

Certain cash flow and significant non-cash activities are presented below:

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 

 

    

2019

    

2018

Cash paid (refunded) for:

 

 

  

 

 

  

Interest

 

$

93,465

 

$

85,171

Income taxes

 

$

21

 

$

(458)

Non-cash investing and financing activities:

 

 

 

 

 

  

Liabilities incurred in connection with acquisitions

 

$

1,174

 

$

1,508

Change in accruals for property, plant and equipment additions

 

$

1,202

 

$

386

  For the six months ended January 31,
  2018 2017
Cash paid for:    
Interest $78,682
 $69,572
Income taxes $12
 $26
Non-cash investing and financing activities:    
Liabilities incurred in connection with acquisitions $1,508
 $
Change in accruals for property, plant and equipment additions $47
 $(100)


D.  Accounts and notes receivable, net and accounts receivable securitization

Accounts and notes receivable, net consist of the following:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Accounts receivable pledged as collateral

 

$

160,959

 

$

120,079

Accounts receivable not pledged as collateral (including other reserves)

 

 

(468)

 

 

8,272

Note receivable - current portion

 

 

121

 

 

132

Other

 

 

37

 

 

26

Less: Allowance for doubtful accounts

 

 

(3,420)

 

 

(2,455)

Accounts and notes receivable, net

 

$

157,229

 

$

126,054

  January 31, 2018 July 31, 2017
Accounts receivable pledged as collateral $235,150
 $109,407
Accounts receivable 13,596
 47,346
Note receivable - current portion 10,000
 10,000
Other 284
 307
Less: Allowance for doubtful accounts (3,052) (1,976)
Accounts and notes receivable, net $255,978
 $165,084

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:

DateMaximum consolidated leverage ratio
January 31, 20187.75

At April 30, 2018

7.75
July 31, 2018 & thereafter5.50

Ferrellgas' consolidated leverage ratio was 6.96x as of January 31, 2018. 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:

DateMinimum consolidated interest coverage ratio
January 31, 20181.75
April 30, 20181.75
July 31, 2018 & thereafter2.50

Ferrellgas' consolidated interest coverage ratio was 2.14x as of January 31, 2018; the margin allows for approximately $25.3 million of additional interest expense or approximately $44.3 million less EBITDA. See additional disclosure about Ferrellgas' financial covenants in Note E - Debt.

This accounts receivable securitization facility matures on July 29, 2019, unless the secured credit facility matures or terminates at an earlier date. If Ferrellgas replaces the senior secured credit facility prior to the October 2018 maturity date, Ferrellgas will need to amend the accounts receivable securitization facility to modify the maturity date, or replace it with a new facility. Ferrellgas is working to renew or replace the accounts receivable securitization facility. Potential options include extending the current accounts receivable securitization facility, entering into a new accounts receivable securitization 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.

At January 31, 2018, $235.2$161.0 million of trade accounts receivable were pledged as collateral against $166.0$62.0 million of collateralized notes payable due to thea commercial paper conduit. At July 31, 2017, $109.42018, $120.1 million of trade accounts receivable were pledged as collateral against $69.0$58.0 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 January 31, 2018,April 30, 2019, Ferrellgas had received cash proceeds of $166.0$62.0 million from trade accounts receivables securitized, with no remaining capacity of $49.0 million to receive additional proceeds.proceeds or issue letters of credit. As of July 31, 2017,2018, Ferrellgas had received cash proceeds of $69.0$58.0 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 4.0%5.9% and 4.0%5.2% as of JanuaryApril 30, 2019 and July 31, 2018, and July 31, 2017, respectively.


E.Debt

Short-term borrowings

Since October 31, 2017,

Ferrellgas classified allclassifies borrowings on the Revolving Facility portion of its secured credit facility borrowingsSenior Secured Credit Facility (each, as defined below) 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 werethey are primarily used to fund working capital needs that management intendedintends to pay down within the 12twelve month period following the balance sheet date. As of JanuaryApril 30, 2019, there were no amounts

11

classified as short-term borrowings. As of July 31, 2018,  and July 31, 2017, $261.2$32.8 million and $59.8 million, respectively, werewas classified as short-term borrowings. For further discussion see the secured credit facilityfacilities section below.


Secured credit facilities

On May 4, 2018, the operating partnership entered into a new $575.0 million senior secured credit facility (the “Senior Secured Credit Facility”), consisting of a $300.0 million revolving line of credit (the “Revolving Facility”) and a $275.0 million term loan (the “Term Loan”).

As of April 30, 2019, the operating partnership had borrowings of $275.0 million under the Term Loan at an interest rate of 8.26%, which was classified as long-term debt, and no borrowings under the Revolving Facility. As of April 30, 2019, the operating partnership had available borrowing capacity under the Revolving Facility of $197.9 million. As of July 31, 2018, the operating partnership had borrowings of $275.0 million under the Term Loan at an interest rate of 7.86%, which was classified as long-term debt, and $32.8 million under the Revolving Facility at an interest rate of 9.75%, which was classified as short-term borrowings. As of July 31, 2018, the operating partnership had available borrowing capacity under the Revolving Facility of $159.3 million.

Letters of credit outstanding at April 30, 2019 and July 31, 2018 totaled $102.1 million and $107.9 million, respectively, and were used to secure insurance arrangements, product purchases and commodity hedges. At April 30, 2019, Ferrellgas had remaining available letter of credit capacity of $22.9 million. At July 31, 2018, Ferrellgas had remaining available letter of credit capacity of $17.1 million.

Subsequent to the quarter ended April 30, 2019, the operating partnership entered into an amendment to the agreement governing its Senior Secured Credit Facility. See Note N – Subsequent events for additional information related to the amendment.

Debt and interest expense reduction and refinancing strategy

Ferrellgas continues to pursue a strategy to further reduce its debt and interest expense. This strategy included entering into the new Senior Secured Credit Facility and amending our accounts receivable securitization facility in May 2018 and certain asset sales during fiscal 2018. Ferrellgas continues to evaluate its options to address its leverage.

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'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 those related to 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 interestfixed charge coverage ratio, as defined in the secured credit facility andindentures governing the accounts receivable securitization facility.


Beforeoutstanding notes of the operating partnership.

Consolidated fixed charge coverage ratio - Ferrellgas Partners, L.P., the master limited partnership

Under the Ferrellgas Partners indenture, 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 thesatisfy a consolidated fixed charge coverage ratio covenantrequirement or have unused capacity under a limited exception to the Ferrellgas Partners indenture.ratio requirement. 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

The restricted payments 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,requires that, would constitute an event of default which would permit the acceleration of the obligations underlying thefor 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:

DateMaximum consolidated leverage ratio
January 31, 20187.75
April 30, 20187.75
July 31, 2018 & thereafter5.50

Ferrellgas' consolidated leverage ratio was 6.96x as of January 31, 2018; the margin allows for approximately $193.2 million of additional borrowing capacity or approximately $24.9 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:

DateMinimum consolidated interest coverage ratio
January 31, 20181.75
April 30, 20181.75
July 31, 2018 & thereafter2.50

Ferrellgas' consolidated interest coverage ratio was 2.14x at January 31, 2018; the margin allows for approximately $25.3 million of additional interest expense or approximately $44.3 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 thatpayment, the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of Ferrellgas Partners be at least 1.75x beforeon a pro forma basis giving effect to the restricted payment (as defined inand, if applicable, certain other specified events, subject to its ability to make restricted payments under the indenture) can be made by Ferrellgas Partners.limited exception described below. If this pro forma ratio were to dropis below 1.75x, the indenture allows Ferrellgas Partners tomay make restricted payments of up to $50.0 million in total over a 16sixteen quarter period while below this ratio.period. As of January 31, 2018,April 30, 2019, the ratio was 1.59x.1.38x. As a result the $9.8 million distribution to beof distributions paid to common unitholders on March 16, 2018 will be taken from the $50.0 million restricted payment limitation, which after considering the $9.8 million deductions taken as a result of the distributions paid in September 2017, and December 2017, leaves $20.6 million forMarch 2018, June 2018, and September 2018, while this ratio was less than 1.75x, Ferrellgas Partners has used substantially all of its capacity under the limited exception and therefore is currently restricted by this covenant from making future restricted payments.payments, including distributions to common unitholders.

12

Accordingly, no distributions were paid to common unitholders in December 2018 and March 2019 for the three months ended October 31, 2018 and the three months ended January 31, 2019, respectively, and no distributions will be paid for the three months ended April 30, 2019. Unless thethis indenture governing the outstanding notes is amended or refinanced, if ourreplaced, or Ferrellgas Partners’ consolidated fixed charge coverage ratio does not improveimproves to at least 1.75x and we continue our current quarterly distribution rate of $0.10 per common unit, this covenant will not allow uscontinue to makerestrict Ferrellgas Partners from making common unit distributions for our quarter ending October 31, 2018 and beyond.


Debt and interest expense reduction strategy

distributions.

Consolidated fixed charge coverage ratio - Ferrellgas, continuesL.P., the operating partnership

Under the operating partnership indentures, before a restricted payment (as defined in the indentures) can be made by the operating partnership to execute onFerrellgas Partners, the operating partnership must satisfy a strategyconsolidated fixed charge coverage ratio requirement or have unused capacity under a limited exception to further reduce its debt and interest expense. This strategy may include amending or refinancing existing debt agreements, additional asset sales, a reduction in Ferrellgas Partners' annual distribution rate or the issuance of equity. 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.


requirement. If Ferrellgas is unsuccessful with its strategy to further reduce debt and interest expense, is unsuccessful in renegotiating its secured credit facility, which matures in October 2018, orthe operating partnership is unable to secure alternative liquidity sources, it maymake restricted payments, Ferrellgas Partners will not have the liquidityability to fundmake distributions to Ferrellgas Partners common unitholders or make interest payments on Ferrellgas Partners’ unsecured senior notes due 2020.

The restricted payment covenants require that, for the operating partnership to make a restricted payment, the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the operating partnership be at least 1.75x on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events, subject to its operations after that maturity date.


Failureability to maintain compliance with these and other covenants in our agreements or failure to renew or replace liquidity availablemake restricted payments under the secured credit facility could have a material, adverse effect on Ferrellgas'limited exception described below. If this pro forma ratio is below 1.75x, the operating capacity and cash flows and could further restrict Ferrellgas' ability to incur debt, pay interest onpartnership may make restricted payments in limited amounts determined under the notes or to make cash distributions to unitholders. An inability to pay interest onindentures. As of April 30, 2019, 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.

ratio was 1.72x. As a result, ofit’s likely the October 2018 maturity date of Ferrellgas' secured credit facility, the entire balance outstanding at January 31, 2018 has been classified as a current liability in the condensed consolidated balance sheet as of January 31, 2018. 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 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 probabledistribution 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

Asmade by the operating partnership on June 15, 2019 for payment of January 31, 2018,interest on Ferrellgas had total borrowings outstanding under its secured credit facility of $261.2 million, all of which was classified as short-term. Ferrellgas had $125.8 million ofPartners’ unsecured senior notes due 2020 will be made from capacity under the secured credit facility as of January 31, 2018. As of July 31, 2017, Ferrellgas had total borrowings outstanding underlimited exception to the ratio requirement. The operating partnership believes that its secured credit facility of $245.5 million, of which $185.7 million was classified as long-term debt. Ferrellgas had $190.3 million ofremaining capacity under the secured credit facility aslimited exception to the ratio requirement will allow it to make distributions to Ferrellgas Partners sufficient to cover interest payments on Ferrellgas Partners’ unsecured senior notes due 2020 through maturity 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 January 31, 2018 and July 31, 2017 under the secured credit facility had weighted average interest rates of 6.5% and 6.0%, respectively.
Letters of credit outstanding at January 31, 2018 totaled $188.0 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 January 31, 2018, Ferrellgas had remaining letter of credit capacity of $12.0 million. At July 31, 2017, Ferrellgas had remaining letter of credit capacity of $60.8 millionthose notes.

F.    Partners'Partners’ deficit


As of January 31, 2018April 30, 2019 and July 31, 2017,2018, Ferrellgas Partners limited partner units, which are listed on the New York Stock Exchange under the symbol “FGP,” were beneficially owned by the following:

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

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 April 30, 2019.

(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 our general partner; and is the Chairman of the Board of Directors of our general partner and a related party. JEF Capital Management owns 4,758,859 of these common units and is owned by the James E. Ferrell Revocable Trust Two and other family trusts, all of which James E. Ferrell and/or his family members are the trustees and beneficiaries. James E. Ferrell holds all voting common stock of JEF Capital Management. The remaining 4,616 common units are held by Ferrell Resources Holdings, Inc., which is wholly-owned by the James E. Ferrell Revocable Trust One, for which James E. Ferrell is the trustee and sole beneficiary.

13

  January 31, 2018 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 January 31, 2018.
(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 paidrecognized the following distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Public common unitholders

 

$

 —

 

$

6,961

 

$

6,962

 

$

20,884

 

Ferrell Companies

 

 

 —

 

 

2,253

 

 

2,253

 

 

6,759

 

FCI Trading Corp.

 

 

 —

 

 

20

 

 

20

 

 

60

 

Ferrell Propane, Inc.

 

 

 —

 

 

 5

 

 

 5

 

 

15

 

James E. Ferrell

 

 

 —

 

 

476

 

 

476

 

 

1,428

 

General partner

 

 

 —

 

 

98

 

 

98

 

 

294

 

 

 

$

 —

 

$

9,813

 

$

9,814

 

$

29,440

 

  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
Public common unitholders $6,962
 $6,961
 $13,923
 $42,639
Ferrell Companies 2,253
 2,253
 4,506
 13,799
FCI Trading Corp. 20
 20
 40
 120
Ferrell Propane, Inc. 5
 5
 10
 31
James E. Ferrell 476
 476
 952
 2,917
General partner 98
 98
 196
 601
  $9,814
 $9,813
 $19,627
 $60,107

On February 22, 2018,

Ferrellgas Partners declaredpaid cash distributions as detailed in the table above. Ferrellgas Partners did not declare a cash distribution of $0.10 per common unit forrelated to the three months ended October 31, 2018, the three months ended January 31, 2018, which is expected2019, or the three months ended April 30, 2019. As discussed in Note E – Debt, Ferrellgas Partners was not permitted, pursuant to be paid on March 16, 2018. Included in this cash distribution are the following amountsconsolidated fixed charge coverage ratio under its note indenture, to be paidmake restricted payments, including distributions to related parties:

Ferrell Companies $2,253
FCI Trading Corp. 20
Ferrell Propane, Inc. 5
James E. Ferrell 476
General partner 98

unitholders.

See additional discussions about transactions with related parties in Note IJ – Transactions with related parties.


Accumulated other comprehensive income (loss)(“AOCI”)

See Note HI – Derivative instruments and hedging activities – for details regarding changes in the fair value of risk management financial derivatives recorded within AOCI for the three and sixnine months ended January 31, 2018April 30, 2019 and 2017.

2018.

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 sixnine months ended January 31,April 30, 2019, the general partner made non-cash contributions of $0.1 million to Ferrellgas to maintain its effective 2% general partner interest.

During the nine months ended April 30, 2018, the general partner made non-cash contributions of $0.2 million to Ferrellgas to maintain its effective 2% general partner interest.


During the six months endedJanuary 31, 2017, the general partner made cash contributions of $1.7 million and non-cash contributions of $0.2 million to Ferrellgas to maintain its effective 2% general partner interest.


G.    Revenue from contracts with customers

Ferrellgas adopted ASU 2014‑09 beginning on August 1, 2018 using the modified retrospective method. Ferrellgas earns revenue from contracts with customers primarily through the distribution of propane, as well as through the sale of propane related equipment and supplies. Revenues from propane and other gas liquids sales are comprised of revenue earned from the delivery of propane to tanks on customers’ premises, from the delivery of propane filled cylinders to customers, or from the sale of portable propane tanks to nationwide and local retailers and end use customers. Other revenues primarily include sales of appliances and other materials as well as other fees charged to customers. Upon adoption, Ferrellgas applied ASU 2014‑09 only to contracts that were not completed.

Contracts with customers

Ferrellgas’ contracts with customers are principally for the bulk delivery of propane to tanks, delivery of propane filled cylinders or the delivery of portable propane tanks to retailers. Ferrellgas sells propane to a wide variety of customers, including residential, industrial/commercial, portable tank exchange, agricultural, wholesale and others. Ferrellgas’ performance obligations in these contracts are generally limited to the delivery of propane, and therefore revenues from these contracts are earned at the time product is delivered, or in the case of some of Ferrellgas’ portable tank exchange retailers who have consignment agreements, at the time the tanks are sold to the end use customer. Payment is generally

14

due within 30 days. Revenues from sales of propane are included in Propane and other gas liquids sales on the consolidated statements of operations.

Typically, Ferrellgas bills customers upon delivery and payment is generally due within 30 days. With its residential customers, Ferrellgas offers customers the ability to spread their annual heating costs over a longer period, typically twelve months. Customers who opt to spread their heating costs over a longer period are referred to as “even-pay” customers.

Ferrellgas charges other amounts to customers associated with the delivery of propane including hazardous materials fees and fuel surcharge fees. In some regions, Ferrellgas also sells appliances and related parts and fittings as well as other retail propane related services. Ferrellgas charges on an annual basis tank and equipment rental charges for customers that are using our equipment to store propane. Other revenues associated with deliveries of propane are earned at the time product is delivered. Revenues associated with sales of appliances and other materials or services are earned at the time of delivery or installation. Revenues associated with tank and equipment rentals are generally recognized on a straight-line basis over one year.

Accounting estimates related to recognition of revenue require that Ferrellgas make estimates and assumptions about various factors including credits issued for completed sales, future returns and total consideration payable in instances where we have customer incentives payable to the customer.

Disaggregation of revenue

Ferrellgas disaggregates revenues based upon the type of customer and on the type of revenue. The following table presents retail propane revenues, wholesale propane revenues and other revenues. Retail revenues result from sales to end use customers, wholesale revenues result from sales to or through resellers and all other revenues include sales of appliances and other materials, other fees charged to customers and equipment rental charges.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

 

2019

    

2018

    

2019

    

2018

 

Retail - Sales to End Users

 

$

350,151

 

$

330,320

 

$

983,742

 

$

931,495

 

Wholesale - Sales to Resellers

 

 

99,311

 

 

97,689

 

 

308,646

 

 

324,863

 

Other Gas Sales

 

 

10,094

 

 

23,293

 

 

52,246

 

 

89,941

 

Other

 

 

20,069

 

 

41,913

 

 

60,677

 

 

118,691

 

Propane and related equipment revenues

 

$

479,625

 

$

493,215

 

$

1,405,311

 

$

1,464,990

 

Contract assets and liabilities

Ferrellgas’ performance obligations are generally limited to the delivery of propane for our retail and wholesale contracts. Ferrellgas’ performance obligations with respect to sales of appliances and other materials and other revenues are limited to the delivery of the agreed upon good or service. Ferrellgas does not have material performance obligations that are delivered over time, thus all of our revenue is recognized at the time the goods, including propane, are delivered or installed. Ferrellgas offers “even pay” billing programs that can create customer deposits or advances, depending on whether Ferrellgas has delivered more propane than the customer has paid for or whether the customer has paid for more propane than what has been delivered. Revenue is recognized from these customer deposits or advances to customers at the time product is delivered. The advance or deposit is considered to be a contract asset or liability. Additionally, from time to time, we have customers that pay in advance for goods or services, and such amounts result in contract liabilities.

Ferrellgas incurs incremental commissions directly related to the acquisition or renewal of customer contracts. The commissions are calculated and paid based upon the number of gallons sold to the acquired or renewed customer. The total amount of commissions that we incur is not material, and the commissions are expensed commensurate with the deliveries to which they relate; therefore, Ferrellgas does not capitalize these costs.

15

The following table presents the opening and closing balances of our receivables, contract assets, and contract liabilities:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Accounts receivable

 

$

135,337

 

$

119,818

Contract assets

 

$

25,312

 

$

8,691

Contract liabilities

 

 

 

 

 

  

  Deferred revenue (1)

 

$

29,068

 

$

29,933


(1)

Of the beginning balance of deferred revenue, $22.7 million was recognized as revenue during the nine months ended April 30, 2019.

Remaining performance obligations

Ferrellgas’ remaining performance obligations are generally limited to situations where its customers have remitted payment but have not yet received deliveries of propane. This most commonly occurs in Ferrellgas’ even pay billing programs and Ferrellgas expects that these balances will be recognized within a year or less as the customer takes delivery of propane.

H.    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 January 31, 2018April 30, 2019 and July 31, 2017:2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset (Liability)

 

 

Quoted Prices in Active

    

 

 

    

 

 

    

 

 

 

 

Markets for Identical

 

Significant Other

 

 

 

 

 

 

 

 

Assets and Liabilities

 

Observable Inputs

 

Unobservable Inputs

 

 

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

April 30, 2019:

 

 

  

 

 

  

 

 

  

 

 

  

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Derivative financial instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Commodity derivatives

 

$

 —

 

$

5,489

 

$

 —

 

$

5,489

Liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

Derivative financial instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Commodity derivatives

 

$

 —

 

$

(6,502)

 

$

 —

 

$

(6,502)

 

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 2018:

 

 

  

 

 

  

 

 

  

 

 

  

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Derivative financial instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Commodity derivatives

 

$

 —

 

$

22,470

 

$

 —

 

$

22,470

Liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

Derivative financial instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Commodity derivatives

 

$

 —

 

$

(1,910)

 

$

 —

 

$

(1,910)

  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
January 31, 2018:        
Assets:        
Derivative financial instruments:        
Commodity derivatives $
 $25,725
 $
 $25,725
Liabilities:        
Derivative financial instruments:        
Interest rate swap agreements $
 $(2,423) $
 $(2,423)
Commodity derivatives $
 $(1,417) $
 $(1,417)
         
         
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.


As discussed in Note C - Supplemental financial statement information, during the quarter ended January 31, 2018, Ferrellgas committed to a plan to dispose of all of its rail cars in the Midstream operations segment. Ferrellgas measures long-lived assets held for sale at the lower of carrying amount or estimated fair value less estimated costs to sell. Ferrellgas recorded a loss on assets held for sale of $35.5 million during the three and six months ended January 31, 2018 to reduce the carrying amount of the rail cars to their estimated fair value less estimated costs to sell. At January 31, 2018, the estimated fair value less costs to sell was approximately $52.2 million. The fair value of the rail cars classified as assets held for sale is a Level 3 valuation based on the unobservable inputs used for this expected sale.


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 various notesnote receivable financial instruments classified in "Other assets, net" on the condensed consolidated balance

16

sheets, are approximately $32.1$16.0 million, or $4.3$2.8 million less than their carrying amount as of January 31, 2018.April 30, 2019. The estimated fair values of these notes receivable were calculated using a discounted cash flow method which relied on significant unobservable inputs. At January 31, 2018April 30, 2019 and July 31, 2017,2018, the estimated fair value of Ferrellgas’ long-term debt instruments was $1,728.3$1,851.4 million and $1,966.6$1,935.1 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.I.    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. Prior to the sale of Bridger Energy, LLC in January 2018, all other commodity derivative instruments were neither qualified nor were designated as cash flow hedges,hedges; therefore, changes in their fair value were 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 sixnine months ended January 31,April 30, 2019 and 2018, and 2017, 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 the fair value of derivatives in Ferrellgas’ condensed consolidated balance sheets as of January 31, 2018April 30, 2019 and July 31, 2017:  2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2019

 

 

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

 

$

5,049

 

Other current liabilities

 

$

5,726

Commodity derivatives-propane

 

Other assets, net

 

 

440

 

Other liabilities

 

 

776

 

 

Total

 

$

5,489

 

Total

 

$

6,502

 

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 2018

 

 

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

 

$

17,123

 

Other current liabilities

 

$

1,832

Commodity derivatives-propane

 

Other assets, net

 

 

5,347

 

Other liabilities

 

 

78

 

 

Total

 

$

22,470

 

Total

 

$

1,910

  January 31, 2018
  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 $18,188
 Other current liabilities $1,417
  Commodity derivatives-propane Other assets, net 7,537
 Other liabilities 
  Interest rate swap agreements Prepaid expenses and other current assets 
 Other current liabilities 319
  Interest rate swap agreements Other assets, net 
 Other liabilities 2,104
  Total $25,725
 Total $3,840
         
         
  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'

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

17

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 January 31, 2018April 30, 2019 and July 31, 2017,2018, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2019

 

 

Assets

 

Liabilities

Description

    

Location

    

Amount

    

Location

    

Amount

Margin Balances

 

Prepaid expense and other current assets

 

$

6,493

 

Other current liabilities

 

$

1,339

 

 

Other assets, net

 

 

1,728

 

Other liabilities

 

 

 —

 

 

 

 

$

8,221

 

  

 

$

1,339


 

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 2018

 

 

Assets

 

Liabilities

Description

    

Location

    

Amount

    

Location

    

Amount

Margin Balances

 

Prepaid expense and other current assets

 

$

2,851

 

Other current liabilities

 

$

12,308

 

 

Other assets, net

 

 

927

 

Other liabilities

 

 

4,235

 

 

 

 

$

3,778

 

  

 

$

16,543

  January 31, 2018
  Assets Liabilities
Description Location Amount Location Amount
Margin Balances Prepaid expenses and other current assets $3,018
 Other current liabilities $12,201
  Other assets, net 1,404
 Other liabilities 5,216
    $4,422
   $17,417
  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 providetable provides a summary of the effect on Ferrellgas'Ferrellgas’ condensed consolidated statements of operations for the three and sixnine months ended January 31,April 30, 2019 and 2018 and 2017 due to derivatives that were designated as fair value hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Interest Expense

 

 

 

 

Amount of Gain Recognized on

 

Recognized on Fixed-Rated Debt

 

 

Location of Gain

 

Derivative

 

(Related Hedged Item)

 

    

Recognized on

    

For the three months ended April 30, 

 

For the three months ended April 30, 

Derivative Instrument

    

Derivative

    

2019

    

2018

    

2019

    

2018

Interest rate swap agreements

 

Interest expense

 

$

 —

 

$

40

 

$

 —

 

$

(2,275)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Interest Expense

 

 

 

 

Amount of Gain Recognized on

 

Recognized on Fixed-Rated Debt

 

 

Location of Amounts

 

Derivative

 

(Related Hedged Item)

 

    

Recognized on

    

For the nine months ended April 30, 

 

For the nine months ended April 30, 

Derivative Instrument

    

Derivative

    

2019

    

2018

    

2019

    

2018

Interest rate swap agreements

 

Interest expense

 

$

 —

 

$

266

 

$

 —

 

$

(6,825)

    Amount of Gain Recognized on Derivative Amount of Interest Expense Recognized on Fixed-Rate Debt (Related Hedged Item)
Derivative Instrument Location of Amounts Recognized on Derivative For the three months ended January 31, For the three months ended January 31,
    2018 2017 2018 2017
Interest rate swap agreements Interest expense $88
 $328
 $(2,275) $(2,275)
           
    Amount of Gain Recognized on Derivative Amount of Interest Expense Recognized on Fixed-Rate Debt (Related Hedged Item)
Derivative Instrument Location of Amounts Recognized on Derivative For the six months ended January 31, For the six months ended January 31,
    2018 2017 2018 2017
Interest rate swap agreements Interest expense $226
 $748
 $(4,550) $(4,550)
           



The following tables provide a summary of the effect on Ferrellgas’ condensed consolidated statements of comprehensive income (loss) for the three and sixnine months ended January 31,April 30, 2019 and 2018 and 2017 due to derivatives designated as cash flow hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 2019

 

    

 

 

    

 

    

Amount of Gain (Loss) 

 

 

Amount of Gain

 

Location of Gain (Loss)

 

Reclassified from

 

 

(Loss) Recognized in

 

Reclassified from 

 

AOCI into Income

Derivative Instrument

    

AOCI

    

AOCI into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

 

$

1,870

 

Cost of product sold- propane and other gas liquids sales

 

$

(6,416)

 

$

 —

 

 

$

1,870

 

 

 

$

(6,416)

 

$

 —

18

  For the three months ended January 31, 2018  
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 $960
 Cost of sales-propane and other gas liquids sales $9,886
 $
Interest rate swap agreements 112
 Interest expense (143) 
  $1,072
   $9,743
 $
         
  For the three months ended January 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 $14,699
 Cost of sales-propane and other gas liquids sales $73
 $
Interest rate swap agreements 563
 Interest expense (587) 
  $15,262
   $(514) $
         
  For the six months ended January 31, 2018  
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 $23,283
 Cost of sales-propane and other gas liquids sales $14,018
 $
Interest rate swap agreements 238
 Interest expense (326) 
  $23,521
   $13,692
 $
         
  For the six months ended January 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 $19,572
 Cost of sales-propane and other gas liquids sales $(3,523) $
Interest rate swap agreements 828
 Interest expense (1,229) 
  $20,400
   $(4,752) $

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 2018

 

 

 

 

 

 

Amount of Gain (Loss)

 

 

Amount of Gain (Loss)

 

Location of Gain (Loss)

 

Reclassified from

 

 

Recognized in

 

Reclassified from

 

AOCI into Income

Derivative Instrument

    

AOCI

    

AOCI into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

 

$

(169)

 

Cost of sales-propane and other gas liquids sales

 

$

6,628

 

$

 —

Interest rate swap agreements

 

 

10

 

Interest expense

 

 

(60)

 

 

 —

 

 

$

(159)

 

 

 

$

6,568

 

$

 —


 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 2019

 

 

 

 

 

 

Amount of Gain (Loss)

 

 

Amount of Gain (Loss)

 

Location of Gain (Loss)

 

Reclassified from

 

 

Recognized in

 

Reclassified from 

 

AOCI into Income

Derivative Instrument

    

AOCI

    

AOCI into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

 

$

(27,364)

 

Cost of sales-propane and other gas liquids sales

 

$

(5,790)

 

$

 —

 

 

$

(27,364)

 

 

 

$

(5,790)

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 2018

 

 

 

 

 

 

Amount of Gain (Loss)

 

 

Amount of Gain (Loss)

 

Location of Gain (Loss)

 

Reclassified from

 

 

Recognized in

 

Reclassified from

 

AOCI into Income

Derivative Instrument

    

AOCI

    

AOCI into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

 

$

23,114

 

Cost of product sold- propane and other gas liquids sales

 

$

20,646

 

$

 —

Interest rate swap agreements

 

 

248

 

Interest expense

 

 

(386)

 

 

 —

 

 

$

23,362

 

 

 

$

20,260

 

$

 —

The following tables providetable provides a summary of the effect on Ferrellgas'Ferrellgas’ condensed consolidated statements of operations for the three and sixnine months ended January 31,April 30, 2019 and 2018 and 2017 due to the change in fair value of derivatives not designated as hedging instruments:

For the nine months ended April 30, 2018

Amount of Gain (Loss)

Location of Gain (Loss) 

Derivatives Not Designated as Hedging Instruments

Recognized in Income

Reclassified in Income

Commodity derivatives - crude oil

$

(3,470)

Cost of sales - midstream operations


  For the three months ended January 31, 2018
Derivatives Not Designated as Hedging Instruments Amount of Gain (Loss) Recognized in Income Location of Gain (Loss) Recognized in Income
Commodity derivatives - crude oil $(2,080) Cost of sales - midstream operations
     
  For the three months ended January 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 $(1,007) Cost of sales - midstream operations
Commodity derivatives - vehicle fuel $489
 Operating expense
     
  For the six months ended January 31, 2018
Derivatives Not Designated as Hedging Instruments Amount of Gain (Loss) Recognized in Income Location of Gain (Loss) Recognized in Income
Commodity derivatives - crude oil $(3,470) Cost of sales - midstream operations
     
  For the six months ended January 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 $(2,248) Cost of sales - midstream operations
Commodity derivatives - vehicle fuel $1,516
 Operating expense

The changes in derivatives included in AOCI for the sixnine months ended January 31,April 30, 2019 and 2018 and 2017 were as follows:

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 

Gains and losses on derivatives included in AOCI

    

2019

    

2018

Beginning balance

 

$

20,560

 

$

14,648

Change in value of risk management commodity derivatives

 

 

(27,364)

 

 

23,114

Reclassification of (gains) and losses on commodity hedges to cost of sales - propane and other gas liquids sales, net

 

 

5,790

 

 

(20,646)

Change in value of risk management interest rate derivatives

 

 

 —

 

 

248

Reclassification of losses on interest rate hedges to interest expense

 

 

 —

 

 

386

Ending balance

 

$

(1,014)

 

$

17,750


  For the six months ended January 31,
Gains and losses on derivatives included in AOCI 2018 2017
Beginning balance $14,648
 $(9,815)
Change in value of risk management commodity derivatives 23,283
 19,572
Reclassification of (gains) and losses on commodity hedges to cost of sales - propane and other gas liquids sales, net (14,018) 3,523
Change in value of risk management interest rate derivatives 238
 828
Reclassification of losses on interest rate hedges to interest expense 326
 1,229
Ending balance $24,477
 $15,337

Ferrellgas expects to reclassify net gainslosses related to the risk management commodity derivatives of approximately $16.8$0.7 million to earnings during the next 12 months. These net gainslosses are expected to be offset by decreasedincreased margins on propane sales commitments Ferrellgas has with its customers that qualify for the normal purchase normal sales exception.

19

During the sixnine months ended January 31,April 30, 2019 and 2018, and 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 January 31, 2018,April 30, 2019, Ferrellgas had financial derivative contracts covering 2.63.3 million barrelsgallons 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, 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 January 31, 2018,April 30, 2019, the maximum amount of loss due to credit risk that Ferrellgas would incur is $0.7 million, which is based upon the gross fair values of the derivative financial instruments, Ferrellgas would incur is $7.5 million.

instruments.

From time to time Ferrellgas enters into derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon Ferrellgas'Ferrellgas’ debt rating. There were no open derivative contracts with credit-risk-related contingent features as of January 31, 2018.


April 30, 2019.

I.J.    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 the 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 April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Operating expense

 

$

64,030

 

$

58,842

 

$

193,258

 

$

181,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expense

 

$

5,872

 

$

5,707

 

$

19,196

 

$

21,637

 

  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
Operating expense $65,291
 $61,492
 $122,642
 $117,206
         
General and administrative expense $8,422
 $8,217
 $15,930
 $16,800

See additional discussions about transactions with the general partner and related parties in Note F – Partners’ deficit.


J.K.    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, prior to the sales of midstream operations in fiscal 2018, 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

20

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 initially 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 filed a petition for a writ of certiorari which was denied. An appeal by the indirect customer plaintiffs remains pending.resulted in the court of appeals affirming the dismissal of the federal claims and remanding the case to the district court to decide whether to exercise supplemental jurisdiction over the remaining state law claims. 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. On April 2, 2018, the securities class action lawsuits were dismissed with prejudice. On April 30, 2018, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Second Circuit. On April 24, 2019 the United States Court of Appeals for the Second Circuit affirmed the judgment of the Southern District Court dismissing the class action lawsuits with prejudice. At this time the derivative lawsuits remain stayed by agreement. 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 actions.


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 in 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. TheOn June 25, 2018, Ferrellgas entered into an agreement with the Third-Party Defendants have filed motions to dismisswhich, among other things, resulted in a dismissal of the third-party complaint for alleged lack of personal jurisdiction, failure to state claim, and forum non-conveniens. Ferrellgasclaims against the Third-Party Defendants from the lawsuit. The lawsuit is vigorously opposing these motions.



in the discovery stage; as such, management does not currently believe a loss is probable or reasonably estimable at this time.

K.L.    Net earnings (loss) per common unit

Ferrellgas Partners is currently restricted by its debt covenants from making distributions to common unitholders. See Note E – Debt – for details regarding these restrictions. Below is a calculation of the basic and diluted net earnings (loss) per common unit in the condensed consolidated statements of operations for the periods indicated. Ferrellgas calculates net earnings (loss) per common unit 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

21

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 unit for the three and sixnine months ended January 31, 2018April 30, 2019 or 2017.

2018.

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 April 30, 

 

For the nine months ended April 30, 

 

 

 

2019

    

2018

    

2019

    

2018

 

 

 

(in thousands, except per common unit amounts)

 

Common unitholders’ interest in net earnings (loss)

 

$

20,256

 

$

10,752

 

$

6,722

 

$

(38,508)

 

Weighted average common units outstanding (in thousands)

 

 

97,152.7

 

 

97,152.7

 

 

97,152.7

 

 

97,152.7

 

Basic and diluted net earnings (loss) per common unit

 

$

0.21

 

$

0.11

 

$

0.07

 

$

(0.40)

 


A.

B.

  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
  (in thousands, except per common unit amounts)
Common unitholders’ interest in net earnings (loss) $(1,824) $37,717
 $(49,260) $(4,925)
         
Weighted average common units outstanding - basic and diluted 97,152.7
 97,152.7
 97,152.7
 97,305.1
         
Basic and diluted net earnings (loss) per common unit $(0.02) $0.39
 $(0.51) $(0.05)


L.M.    Segment reporting


As of April 30, 2019, Ferrellgas has two primary operations that result in twoone reportable operating segments:segment: propane operations and related equipment salessales. All remaining activities are included in Corporate and midstream operations. During the quarter ended January 31, 2018, Ferrellgas recorded a goodwill impairment of $10.0 million related to a decline in future expected cash flows of an immaterial reporting unit of our Propane operations and related equipment sales segment.


other.

Following is a summary of segment information for the three and sixnine months ended January 31, 2018April 30, 2019 and 2017:2018:

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 30, 2019

 

 

Propane operations

 

 

 

 

 

 

 

 

and related equipment

 

Corporate and

 

 

 

 

    

sales

    

other

    

Total

Segment revenues

 

$

479,625

 

$

 —

 

$

479,625

Direct costs (1)

 

 

380,637

 

 

10,427

 

 

391,064

Adjusted EBITDA

 

$

98,988

 

$

(10,427)

 

$

88,561

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 30, 2018

 

 

Propane operations

 

 

 

 

 

 

 

 

and related equipment

 

Corporate and

 

 

 

 

    

sales

    

other

    

Total

Segment revenues

 

$

493,215

 

$

22,595

 

$

515,810

Direct costs (1)

 

 

397,568

 

 

31,320

 

 

428,888

Adjusted EBITDA

 

$

95,647

 

$

(8,725)

 

$

86,922

 

 

 

 

 

 

 

 

 

 

   

 

Nine months ended April 30, 2019

 

 

Propane operations

 

 

 

 

 

 

 

 

and related equipment

 

Corporate and

 

 

 

 

    

sales

    

other

    

Total

Segment revenues

 

$

1,405,311

 

$

 —

 

$

1,405,311

Direct costs (1)

 

 

1,147,764

 

 

31,489

 

 

1,179,253

Adjusted EBITDA

 

$

257,547

 

$

(31,489)

 

$

226,058


22

  Three months ended January 31, 2018
  Propane operations and related equipment sales Midstream operations Corporate Total
Segment revenues $637,880
 $117,276
 $
 $755,156
Direct costs (1) 507,386
 114,929
 12,214
 634,529
Adjusted EBITDA $130,494
 $2,347
 $(12,214) $120,627
         
  Three months ended January 31, 2017
  Propane operations and related equipment sales Midstream operations Corporate Total
Segment revenues $482,463
 $96,787
 $
 $579,250
Direct costs (1) 370,175
 93,718
 10,327
 474,220
Adjusted EBITDA $112,288
 $3,069
 $(10,327) $105,030
         
  Six months ended January 31, 2018
  Propane operations and related equipment sales Midstream operations Corporate Total
Segment revenues $971,775
 $238,036
 $
 $1,209,811
Direct costs (1) 810,715
 228,830
 23,423
 1,062,968
Adjusted EBITDA $161,060
 $9,206
 $(23,423) $146,843
   
  Six months ended January 31, 2017
  Propane operations and related equipment sales Midstream operations Corporate Total
Segment revenues $753,961
 $204,831
 $
 $958,792
Direct costs (1) 607,189
 196,491
 21,063
 824,743
Adjusted EBITDA $146,772
 $8,340
 $(21,063) $134,049
         

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended April 30, 2018

 

 

Propane operations

 

 

 

 

 

 

 

 

and related equipment

 

Corporate and

 

 

 

 

    

sales

    

other

    

Total

Segment revenues

 

$

1,464,990

 

$

260,631

 

$

1,725,621

Direct costs (1)

 

 

1,208,283

 

 

283,573

 

 

1,491,856

Adjusted EBITDA

 

$

256,707

 

$

(22,942)

 

$

233,765

(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 , "severance charge", "professional fees incurred related to a lawsuit", and "unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments".

(1)

Direct costs are comprised of "cost of sales-propane and other gas liquids sales", "cost of sales- midstream operations", "cost of sales-other", "operating expense", "general and administrative expense", and "equipment lease expense" less "severance costs", "legal fees and settlements", "unrealized (non-cash) losses on changes in fair value of derivatives not designated as hedging instruments" and "multi-employer pension plan withdrawal settlement".



Following is a reconciliation of Ferrellgas'net earnings (loss) attributable to Ferrellgas Partners L.P. to the total segment performance measure to condensed consolidated net earnings (loss):measures of EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 30, 

 

Nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Net earnings (loss) attributable to Ferrellgas Partners, L.P.

 

$

20,461

 

$

10,861

 

$

6,790

 

$

(38,897)

 

Income tax expense

 

 

123

 

 

67

 

 

284

 

 

282

 

Interest expense

 

 

44,162

 

 

40,375

 

 

132,931

 

 

123,855

 

Depreciation and amortization expense

 

 

20,617

 

 

25,348

 

 

59,214

 

 

76,565

 

EBITDA

 

 

85,363

 

 

76,651

 

 

199,219

 

 

161,805

 

Non-cash employee stock ownership plan compensation charge

 

 

(4)

 

 

2,738

 

 

4,688

 

 

10,731

 

Asset impairments

 

 

 —

 

 

 —

 

 

 —

 

 

10,005

 

Loss on asset sales and disposals

 

 

1,683

 

 

6,270

 

 

8,403

 

 

46,414

 

Other income, net

 

 

(251)

 

 

(227)

 

 

(356)

 

 

(1,422)

 

Severance costs

 

 

 —

 

 

 —

 

 

1,600

 

 

1,663

 

Legal fees and settlements

 

 

1,471

 

 

1,289

 

 

10,643

 

 

3,407

 

Unrealized (non-cash) loss on changes in fair value of derivatives not designated as hedging instruments

 

 

 —

 

 

 —

 

 

 —

 

 

1,293

 

Multi-employer pension plan withdrawal settlement

 

 

 —

 

 

 —

 

 

1,524

 

 

 —

 

Net earnings (loss) attributable to noncontrolling interest

 

 

299

 

 

201

 

 

337

 

 

(131)

 

Adjusted EBITDA

 

$

88,561

 

$

86,922

 

$

226,058

 

$

233,765

 

  Three months ended January 31, Six months ended January 31,
  2018 2017 2018 2017
Net earnings (loss) attributable to Ferrellgas Partners, L.P. $(1,843) $38,098
 $(49,758) $(4,975)
Income tax expense (benefit) (162) 588
 215
 (2)
Interest expense 42,673
 36,819
 83,480
 72,247
Depreciation and amortization expense 25,485
 25,607
 51,217
 51,809
EBITDA 66,153
 101,112
 85,154
 119,079
Non-cash employee stock ownership plan compensation charge 4,031
 2,945
 7,993
 6,699
Non-cash stock-based compensation charge 
 1,417
 
 3,298
Asset impairments 10,005
 
 10,005
 
Loss on asset sales and disposals 39,249
 45
 40,144
 6,468
Other income, net (684) (763) (1,195) (1,271)
Severance costs 
 490
 1,663
 1,959
Professional fees 2,118
 
 2,118
 
Unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments (314) (646) 1,293
 (2,215)
Net earnings (loss) attributable to noncontrolling interest 69
 430
 (332) 32
Adjusted EBITDA $120,627
 $105,030
 $146,843
 $134,049

Following are total assets by segment:

 

 

 

 

 

 

 

Assets

    

April 30, 2019

    

July 31, 2018

Propane operations and related equipment sales

 

$

1,257,214

 

$

1,196,084

Corporate and other

 

 

72,778

 

 

167,197

Total consolidated assets

 

$

1,329,992

 

$

1,363,281

Assets January 31, 2018 July 31, 2017
Propane operations and related equipment sales $1,361,856
 $1,194,905
Midstream operations 309,952
 399,356
Corporate 15,251
 15,708
Total consolidated assets $1,687,059
 $1,609,969


Following are capital expenditures by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended April 30, 2019

 

 

Propane operations and

 

 

 

 

 

 

 

    

related equipment sales

    

Corporate and other

    

Total

Capital expenditures:

 

 

  

 

 

  

 

 

  

Maintenance

 

$

43,975

 

$

672

 

$

44,647

Growth

 

 

44,654

 

 

 —

 

 

44,654

Total

 

$

88,629

 

$

672

 

$

89,301

23

  Six months ended January 31, 2018
  Propane operations and related equipment sales Midstream operations Corporate Total
Capital expenditures:        
Maintenance $12,016
 $182
 $1,245
 $13,443
Growth 18,311
 1,013
 
 19,324
Total $30,327
 $1,195
 $1,245
 $32,767
         
         
  Six months ended January 31, 2017
  Propane operations and related equipment sales Midstream operations Corporate Total
Capital expenditures:        
Maintenance $5,551
 $204
 $1,484
 $7,239
Growth 9,857
 
 
 9,857
Total $15,408
 $204
 $1,484
 $17,096

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended April 30, 2018

 

 

Propane operations and

 

 

 

 

 

 

 

    

related equipment sales

    

Corporate and other

    

Total

Capital expenditures:

 

 

  

 

 

  

 

 

  

Maintenance

 

$

17,556

 

$

1,702

 

$

19,258

Growth

 

 

34,784

 

 

1,265

 

 

36,049

Total

 

$

52,340

 

$

2,967

 

$

55,307

M.N.    Subsequent events

Ferrellgas evaluated events and transactions occurring after the balance sheet date through the date Ferrellgas'Ferrellgas’ condensed consolidated financial statements were issued and concluded that other than as discussed below, there were no events or transactions occurring during this period that require recognition or disclosure in its condensed consolidated financial statements.


statements except as described below.

On February 20, 2018, Ferrellgas completedJune 6, 2019, the saleoperating partnership entered into an amendment to the agreement governing its Senior Secured Credit Facility. Among other matters, the amendment updated the calculation of 1,072 rail cars utilizedthe fixed charge coverage ratio for purposes of the fixed charge coverage ratio in the Midstream operations segment and received approximately $47.0 millionagreement to exclude certain maintenance capital expenditures related to the purchase of new propane delivery trucks which have historically been leased. The amendment provides that up to a specified amount of such maintenance capital expenditures will not be deducted from consolidated EBITDA for purposes of the calculation. The operating partnership was in cash. Proceeds fromcompliance with the transaction were usedfixed charge coverage ratio covenant, as amended, as of April 30, 2019. A copy of the amendment has been filed as Exhibit 10.31 to reduce outstanding debtthis Quarterly Report on Ferrellgas' secured credit facility. See additional discussions on the completed rail car sale in Note C - Supplemental financial statement information.Form 10-Q.


24







FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
CONDENSED BALANCE SHEETS
(unaudited)
 January 31, 2018 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 capital25,330
 25,055
Accumulated deficit(25,330) (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 January 31, For the six months ended January 31,
 2018 2017 2018 2017
        
General and administrative expense$225
 $
 $275
 $92
        
Net loss$(225) $
 $(275) $(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 six months ended January 31,
 2018 2017
Cash flows from operating activities:   
Net loss$(275) $(92)
Cash used in operating activities(275) (92)
    
Cash flows from financing activities:   
Capital contribution275
 92
Cash provided by financing activities275
 92
    
Net change in cash
 
Cash - beginning of period1,000
 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.)

CONDENSED BALANCE SHEETS

(unaudited)

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

ASSETS

 

 

 

 

 

 

Cash

 

$

1,000

 

$

1,000

Prepaid expenses and other current assets

 

 

 —

 

 

1,850

Total assets

 

$

1,000

 

$

2,850

 

 

 

 

 

 

 

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

 

 

30,837

 

 

29,020

Accumulated deficit

 

 

(30,837)

 

 

(27,170)

Total stockholder’s equity

 

$

1,000

 

$

2,850

See notes to condensed financial statements.

 (unaudited)

25

FERRELLGAS PARTNERS FINANCE CORP.

(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

General and administrative expense

 

$

1,725

    

$

1,840

 

$

3,666

 

$

2,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,725)

 

$

(1,840)

 

$

(3,666)

 

$

(2,115)

 

See notes to condensed financial statements.

26

FERRELLGAS PARTNERS FINANCE CORP.

(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

  

 

 

  

Net loss

 

$

(3,666)

 

$

(2,115)

Changes in operating assets and liabilities:

 

 

  

 

 

  

Prepaid expenses and other current assets

 

 

1,850

 

 

 —

Cash used in operating activities

 

 

(1,816)

 

 

(2,115)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

Capital contribution

 

 

1,816

 

 

2,115

Cash provided by financing activities

 

 

1,816

 

 

2,115

 

 

 

 

 

 

 

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.

27

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 PartnershipFinance Corp. is liable as co-issuer and its subsidiaries, the most restrictive relating to additional indebtedness and restricted payments. As of January 31, 2018, the Partnership is in compliance with all requirements, tests, limitations and covenants related to this debt agreement, exceptco-obligor for the consolidated fixed charge coverage ratio.

The indenture governing the outstanding notes$357 million aggregate principal amount of the Partnership includes aPartnership’s unsecured senior notes due June 15, 2020, which obligation is only reported on the Partnership’s 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 1.75x before a restricted payment (as defined in the indenture) can be made by the Partnership. If this ratio were to drop below 1.75x, 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 January 31, 2018, the ratio was 1.59x. As a result, the $9.8 million distribution to be paid to common unitholders on March 16, 2018 will be taken from the $50.0 million restricted payment limitation, which after considering the $9.8 million deductions taken as a result of the distributions paid in September 2017 and December 2017, leaves $20.6 million for future restricted payments. Unless the indenture governing the outstanding notes is amended or refinanced, if the Partnership's consolidated fixed charge coverage ratio does not improve to at least 1.75x and the Partnership continues its current quarterly distribution rate of $0.10 per common unit, this covenant will not allow the Partnership to make common unit distributions for the quarter ending October 31, 2018 and beyond.balance sheet.

28



FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

January 31, 2018 July 31, 2017
ASSETS   
Current assets:   
Cash and cash equivalents$14,171
 $5,701
 Accounts and notes receivable, net (including $235,150 and $109,407 of accounts receivable pledged as collateral at January 31, 2018 and July 31, 2017, respectively)255,978
 165,084
Inventories110,092
 92,552
Assets held for sale52,200
 
Prepaid expenses and other current assets41,393
 33,426
Total current assets473,834
 296,763
    
Property, plant and equipment, net646,327
 731,923
Goodwill, net246,098
 256,103
Intangible assets (net of accumulated amortization of $452,283 and $436,428 at January 31, 2018 and July 31, 2017, respectively)243,079
 251,102
Other assets, net77,712
 74,057
Total assets$1,687,050
 $1,609,948
    
LIABILITIES AND PARTNERS' DEFICIT 
  
Current liabilities: 
  
Accounts payable$82,072
 $85,561
Short-term borrowings261,200
 59,781
Collateralized note payable166,000
 69,000
Other current liabilities136,591
 122,016
Total current liabilities645,863
 336,358
    
Long-term debt1,462,973
 1,649,270
Other liabilities35,422
 31,118
Contingencies and commitments (Note J)

 

    
Partners' deficit: 
  
Limited partner(477,096) (417,467)
General partner(4,705) (4,095)
Accumulated other comprehensive income24,593
 14,764
Total partners' deficit(457,208) (406,798)
Total liabilities and partners' deficit$1,687,050
 $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 January 31, For the six months ended January 31, 
  2018 2017 2018 2017 
Revenues:         
Propane and other gas liquids sales $592,239
 $437,375
 $894,997
 $679,774
 
Midstream operations 117,276
 96,787
 238,036
 204,831
 
Other 45,641
 45,088
 76,778
 74,187
 
Total revenues 755,156
 579,250
 1,209,811
 958,792

          
Costs and expenses:         
Cost of sales - propane and other gas liquids sales 362,918
 235,029
 542,433
 354,241
 
Cost of sales - midstream operations 107,067
 87,024
 215,192
 181,666
 
Cost of sales - other 20,787
 20,657
 34,489
 32,403
 
Operating expense 123,716
 113,076
 234,178
 218,162
 
Depreciation and amortization expense 25,485
 25,607
 51,217
 51,809
 
General and administrative expense 14,890
 12,278
 28,054
 26,547
 
Equipment lease expense 6,954
 7,416
 13,695
 14,765
 
Non-cash employee stock ownership plan compensation charge 4,031
 2,945
 7,993
 6,699
 
Asset impairments 10,005
 
 10,005
 
 
Loss on asset sales and disposals 39,249
 45
 40,144
 6,468
 
          
Operating income 40,054
 75,173
 32,411
 66,032

          
Interest expense (34,058) (32,748) (66,254) (64,146) 
Other income, net 684
 763
 1,195
 1,271
 
          
Earnings (loss) before income taxes 6,680
 43,188
 (32,648) 3,157

          
Income tax expense (benefit) (167) 588
 204
 (3) 
          
Net earnings (loss) $6,847
 $42,600
 $(32,852) $3,160

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 January 31, For the six months ended January 31, 
  2018 2017 2018 2017 
          
Net earnings (loss) $6,847
 $42,600
 $(32,852) $3,160
 
Other comprehensive income (loss):         
Change in value of risk management derivatives 1,072
 15,262
 23,521
 20,400
 
Reclassification of (gains) losses on derivatives to earnings, net (9,743) 514
 (13,692) 4,752
 
Other comprehensive income (loss) (8,671) 15,776
 9,829
 25,152
 
Comprehensive income (loss) $(1,824) $58,376
 $(23,023) $28,312
 
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 charges7,914
 79
 
 7,993
Distributions(35,023) (357) 
 (35,380)
Net loss(32,520) (332) 
 (32,852)
Other comprehensive income
 
 9,829
 9,829
Balance at January 31, 2018$(477,096) $(4,705) $24,593
 $(457,208)
See notes to condensed consolidated financial statements.


FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 For the six months ended January 31,
 2018 2017
Cash flows from operating activities:   
Net earnings (loss)$(32,852) $3,160
Reconciliation of net earnings (loss) to net cash provided by operating activities:   
Depreciation and amortization expense51,217
 51,809
Non-cash employee stock ownership plan compensation charge7,993
 6,699
Non-cash stock-based compensation charge
 3,298
Asset impairments10,005
 
Loss on asset sales and disposals40,144
 6,468
Unrealized gain on derivative instruments(91) (1,862)
Provision for doubtful accounts1,688
 (283)
Deferred income tax expense364
 35
Other2,650
 2,448
Changes in operating assets and liabilities, net of effects from business acquisitions:   
Accounts and notes receivable, net of securitization(102,315) (74,403)
Inventories(17,275) (24,268)
Prepaid expenses and other current assets(4,637) 6,924
Accounts payable11,510
 40,444
Accrued interest expense304
 (12)
Other current liabilities13,662
 20,087
Other assets and liabilities(3,208) 4,757
Net cash provided by (used in) operating activities(20,841) 45,301
    
Cash flows from investing activities:   
Business acquisitions, net of cash acquired(14,862) 
Capital expenditures(35,693) (19,768)
Proceeds from sale of assets4,207
 4,591
Other
 (37)
Net cash used in investing activities(46,348) (15,214)
    
Cash flows from financing activities:   
Distributions(35,380) (84,500)
Contributions from partners
 167,640
Proceeds from issuance of long-term debt23,580
 36,444
Payments on long-term debt(1,267) (172,790)
Net reductions in short-term borrowings(7,879) (35,692)
Net additions to collateralized short-term borrowings97,000
 69,000
Cash paid for financing costs(395) (1,422)
Net cash provided by (used in) financing activities75,659
 (21,320)
    
Net change in cash and cash equivalents8,470
 8,767
Cash and cash equivalents - beginning of period5,701
 4,890
Cash and cash equivalents - end of period$14,171
 $13,657
See notes to condensed consolidated financial statements.

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

ASSETS

 

 

 

 

 

 

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

45,365

 

$

119,308

Accounts and notes receivable, net (including $160,959 and $120,079 of accounts receivable pledged as collateral at April 30, 2019 and July 31, 2018, respectively)

 

 

157,229

 

 

126,054

Inventories

 

 

78,449

 

 

83,694

Prepaid expenses and other current assets

 

 

25,427

 

 

34,830

Total current assets

 

 

306,470

 

 

363,886

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

603,923

 

 

557,723

Goodwill

 

 

247,508

 

 

246,098

Intangible assets (net of accumulated amortization of $411,766 and $399,629 at April 30, 2019 and July 31, 2018, respectively)

 

 

109,634

 

 

120,951

Other assets, net

 

 

62,326

 

 

74,588

Total assets

 

$

1,329,861

 

$

1,363,246

 

 

 

 

 

 

 

LIABILITIES AND PARTNERS' DEFICIT

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

41,408

 

$

46,820

Short-term borrowings

 

 

 —

 

 

32,800

Collateralized note payable

 

 

62,000

 

 

58,000

Other current liabilities

 

 

148,875

 

 

138,091

Total current liabilities

 

 

252,283

 

 

275,711

 

 

 

 

 

 

 

Long-term debt

 

 

1,730,874

 

 

1,728,137

Other liabilities

 

 

35,879

 

 

39,476

Contingencies and commitments (Note K)

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ deficit:

 

 

  

 

 

  

Limited partner

 

 

(681,545)

 

 

(693,896)

General partner

 

 

(6,789)

 

 

(6,915)

Accumulated other comprehensive income (loss)

 

 

(841)

 

 

20,733

Total partners’ deficit

 

 

(689,175)

 

 

(680,078)

Total liabilities and partners’ deficit

 

$

1,329,861

 

$

1,363,246

See notes to condensed consolidated financial statements.

29

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Propane and other gas liquids sales

 

$

459,556

 

$

451,302

 

$

1,344,634

 

$

1,346,299

 

Midstream operations

 

 

 —

 

 

22,595

 

 

 —

 

 

260,631

 

Other

 

 

20,069

 

 

41,913

 

 

60,677

 

 

118,691

 

Total revenues

 

 

479,625

 

 

515,810

 

 

1,405,311

 

 

1,725,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

Cost of sales - propane and other gas liquids sales

 

 

250,389

 

 

260,419

 

 

766,056

 

 

802,852

 

Cost of sales - midstream operations

 

 

 —

 

 

14,518

 

 

 —

 

 

229,710

 

Cost of sales - other

 

 

2,320

 

 

19,850

 

 

8,789

 

 

54,339

 

Operating expense

 

 

119,991

 

 

116,579

 

 

351,541

 

 

350,757

 

Depreciation and amortization expense

 

 

20,617

 

 

25,348

 

 

59,214

 

 

76,565

 

General and administrative expense

 

 

11,512

 

 

11,546

 

 

42,028

 

 

39,600

 

Equipment lease expense

 

 

8,319

 

 

7,133

 

 

24,597

 

 

20,828

 

Non-cash employee stock ownership plan compensation charge

 

 

(4)

 

 

2,738

 

 

4,688

 

 

10,731

 

Asset impairments

 

 

 —

 

 

 —

 

 

 —

 

 

10,005

 

Loss on asset sales and disposals

 

 

1,683

 

 

6,270

 

 

8,403

 

 

46,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

64,798

 

 

51,409

 

 

139,995

 

 

83,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(35,395)

 

 

(31,739)

 

 

(106,740)

 

 

(97,993)

 

Other income, net

 

 

251

 

 

227

 

 

356

 

 

1,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

 

29,654

 

 

19,897

 

 

33,611

 

 

(12,751)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

100

 

 

57

 

 

254

 

 

261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

29,554

 

$

19,840

 

$

33,357

 

$

(13,012)

 

See notes to condensed consolidated financial statements.

30

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Net earnings (loss)

 

$

29,554

 

$

19,840

 

$

33,357

 

$

(13,012)

 

Other comprehensive income (loss):

 

 

  

 

 

 

 

 

  

 

 

  

 

Change in value of risk management derivatives

 

 

1,870

 

 

(159)

 

 

(27,364)

 

 

23,362

 

Reclassification of (gains) losses on derivatives to earnings, net

 

 

6,416

 

 

(6,568)

 

 

5,790

 

 

(20,260)

 

Other comprehensive income (loss)

 

 

8,286

 

 

(6,727)

 

 

(21,574)

 

 

3,102

 

Comprehensive income (loss)

 

$

37,840

 

$

13,113

 

$

11,783

 

$

(9,910)

 

See notes to condensed consolidated financial statements.

31

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ DEFICIT

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

other

 

Total

 

 

Limited

 

General

 

comprehensive

 

partners’

 

    

partner

    

partner

    

income (loss)

    

deficit

Balance at July 31, 2018

 

$

(693,896)

 

$

(6,915)

 

$

20,733

 

$

(680,078)

Contributions in connection with non-cash ESOP and stock and unit-based compensation charges

 

 

2,720

 

 

28

 

 

 —

 

 

2,748

Distributions

 

 

(9,914)

 

 

(101)

 

 

 —

 

 

(10,015)

Net loss

 

 

(48,321)

 

 

(493)

 

 

 —

 

 

(48,814)

Other comprehensive loss

 

 

 —

 

 

 —

 

 

(12,587)

 

 

(12,587)

Balance at October 31, 2018

 

 

(749,411)

 

 

(7,481)

 

 

8,146

 

 

(748,746)

Contributions in connection with non-cash ESOP and stock and unit-based compensation charges

 

 

1,925

 

 

19

 

 

 —

 

 

1,944

Distributions

 

 

(15,396)

 

 

(157)

 

 

 —

 

 

(15,553)

Net earnings

 

 

52,086

 

 

531

 

 

 —

 

 

52,617

Other comprehensive loss

 

 

 —

 

 

 —

 

 

(17,273)

 

 

(17,273)

Balance at January 31, 2019

 

 

(710,796)

 

 

(7,088)

 

 

(9,127)

 

 

(727,011)

Contributions in connection with non-cash ESOP compensation charges

 

 

(4)

 

 

 —

 

 

 —

 

 

(4)

Net earnings

 

 

29,255

 

 

299

 

 

 —

 

 

29,554

Other comprehensive income

 

 

 —

 

 

 —

 

 

8,286

 

 

8,286

Balance at April 30, 2019

 

$

(681,545)

 

$

(6,789)

 

$

(841)

 

$

(689,175)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

other

 

Total

 

 

Limited

 

General

 

comprehensive

 

partners’

 

    

partner

    

partner

    

income (loss)

    

deficit

Balance at July 31, 2017

 

$

(417,467)

 

$

(4,095)

 

$

14,764

 

$

(406,798)

Contributions in connection with non-cash ESOP and stock and unit-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)

Contributions in connection with non-cash ESOP and stock and unit-based compensation charges

 

 

3,991

 

 

40

 

 

 —

 

 

4,031

Distributions

 

 

(25,210)

 

 

(257)

 

 

 —

 

 

(25,467)

Net earnings

 

 

6,778

 

 

69

 

 

 —

 

 

6,847

Other comprehensive loss

 

 

 —

 

 

 —

 

 

(8,671)

 

 

(8,671)

Balance at January 31, 2018

 

 

(477,096)

 

 

(4,705)

 

 

24,593

 

 

(457,208)

Contributions in connection with non-cash ESOP compensation charges

 

 

2,709

 

 

29

 

 

 —

 

 

2,738

Distributions

 

 

(10,013)

 

 

(102)

 

 

 —

 

 

(10,115)

Net earnings

 

 

19,639

 

 

201

 

 

 —

 

 

19,840

Other comprehensive loss

 

 

 —

 

 

 —

 

 

(6,727)

 

 

(6,727)

Balance at April 30, 2018

 

$

(464,761)

 

$

(4,577)

 

$

17,866

 

$

(451,472)

See notes to condensed consolidated financial statements.

32

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings (loss)

 

$

33,357

 

$

(13,012)

Reconciliation of net earnings (loss) to net cash provided by operating activities:

 

 

  

 

 

  

Depreciation and amortization expense

 

 

59,214

 

 

76,565

Non-cash employee stock ownership plan compensation charge

 

 

4,688

 

 

10,731

Asset impairments

 

 

 —

 

 

10,005

Loss on asset sales and disposals

 

 

8,403

 

 

46,414

Unrealized gain on derivative instruments

 

 

 —

 

 

(91)

Provision for doubtful accounts

 

 

1,938

 

 

1,906

Deferred income tax expense

 

 

143

 

 

423

Other

 

 

6,135

 

 

3,987

Changes in operating assets and liabilities, net of effects from business acquisitions:

 

 

  

 

 

  

Accounts and notes receivable, net of securitization

 

 

(33,113)

 

 

(46,771)

Inventories

 

 

5,245

 

 

7,755

Prepaid expenses and other current assets

 

 

(5,555)

 

 

(4,001)

Accounts payable

 

 

(5,713)

 

 

(18,429)

Accrued interest expense

 

 

22,518

 

 

24,217

Other current liabilities

 

 

(13,506)

 

 

(809)

Other assets and liabilities

 

 

2,453

 

 

(4,944)

Net cash provided by operating activities

 

 

86,207

 

 

93,946

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

  

 

 

  

Business acquisitions, net of cash acquired

 

 

(11,351)

 

 

(14,862)

Capital expenditures

 

 

(94,660)

 

 

(58,961)

Proceeds from sale of assets

 

 

2,416

 

 

57,802

Net cash used in investing activities

 

 

(103,595)

 

 

(16,021)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

Distributions

 

 

(25,568)

 

 

(45,495)

Proceeds from issuance of long-term debt

 

 

 —

 

 

23,580

Payments on long-term debt

 

 

(1,656)

 

 

(1,892)

Net reductions in short-term borrowings

 

 

(32,800)

 

 

(84,179)

Net additions to collateralized short-term borrowings

 

 

4,000

 

 

35,000

Cash paid for financing costs

 

 

(531)

 

 

(1,149)

Net cash used in financing activities

 

 

(56,555)

 

 

(74,135)

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(73,943)

 

 

3,790

Cash and cash equivalents - beginning of period

 

 

119,308

 

 

5,701

Cash and cash equivalents - end of period

 

$

45,365

 

$

9,491

See notes to condensed consolidated financial statements.

33

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.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 debt issued by Ferrellgas, L.P.


Ferrellgas, L.P. is primarily engaged in the following primary businesses:

Propane operations and related equipment sales consists of theretail distribution of propane and related equipment and supplies.sales. 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 sixnine months ended January 31, 2018April 30, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending July 31, 2018.

2019.

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-Q10‑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-K10‑K for fiscal 20172018.


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) Assets held for sale: Assets held for sale represent rail cars that have met the criteria of “held for sale” accounting. During the second quarter of fiscal 2018, Ferrellgas, L.P. committed to a plan to sell certain rail cars held by the Midstream operations segment. These assets were reclassified from Rail cars within "Property, plant and equipment, net" to "Assets held for sale" in the accompanying balance sheet as of January 31, 2018. Ferrellgas, L.P. ceased depreciation on these assets during January 2018. Assets held for sale are recorded at the lower of the carrying amount or fair value less costs to sell. For further discussion of assets held for sale, see Note C - Supplemental financial statement information.


(3) New accounting standards:

FASB Accounting Standard Update No. 2014-09

2014‑09

In May 2014, the Financial Accounting Standards Board ("FASB")(FASB) issued Accounting Standard Update ("ASU") 2014-09, 2014‑09, Revenue from Contracts with Customers.Customers (“ASU 2014‑09”). 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 forUpon adoption, Ferrellgas, L.P. for its annual reporting periodapplied ASU 2014‑09 only to contracts that were not completed, referred to as open contracts.

34

Ferrellgas, L.P. adopted ASU 2014‑09 beginning on August 1, 2018 including interimusing the modified retrospective method. This method requires that the cumulative effect of initially applying ASU 2014‑09 be recognized in partner’s deficit at the date of adoption, August 1, 2018. ASU 2014‑09 has not materially impacted Ferrellgas, L.P.’s consolidated financial statements, and as a result there was no cumulative effect to record as of the date of adoption. Results for reporting periods within that reporting period. Entitiesbeginning after August 1, 2018 are allowed to transition to the new standard by either recastingpresented under ASU 2014‑09, while amounts reported for prior periods or recognizing the cumulative effect. Ferrellgas, L.P. ishave not been adjusted and continue to be reported under accounting standards in the final stages of analyzing the impact of the new guidance using an integrated approach which includes evaluating differences in the amount and timing of revenue recognitioneffect for those periods. See Note G - Revenue from applying the requirements of the new guidance, reviewing its accounting policies and practices, and assessing the need for changes to its processes, accounting systems and design of internal controls. Ferrellgas, L.P. has completed the assessment of a significant number of its contracts with customers for additional information related to revenues and contract costs, including qualitative and quantitative disclosures required under the new guidance to determine the effect of the adoption of the new guidance. Although Ferrellgas, L.P. has not completed its assessment of the impact of the new guidance, it does not expect its adoption will have a material impact on its consolidated financial statements.


ASU 2014‑09.

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
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. The new standard requires lessees to apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. An entity may elect the transition relief option in ASU 2018-11, “Leases: Targeted Improvements” which, among other things, provides entities with an option to recognize the cumulative-effect adjustment from the modified retrospective application to the opening balance of retained earnings in the period of adoption and consequently, continue to report comparative periods in compliance with the prior guidance (ASC 840). Ferrellgas, L.P. expects to elect this additional transition method.

Ferrellgas, L.P. is currently evaluatingcontinuing to evaluate the impact of ourits pending adoption of ASU 2016-02 on the consolidated financial statements. Ferrellgas, L.P. has formed anmade significant progress in assessing the impact of the standard and planning for the adoption and implementation. The implementation team has completed trainingscoping and the data gathering process of our current lease portfolio. Ferrellgas, L.P. continues to perform a completeness assessment over the lease population, analyze the financial statement impact of adopting the standards, and evaluate the impact of adoption on our existing accounting policies and disclosures. Further, our implementation team is in the process of determining appropriate changes to our business processes, systems, and controls to support recognition and disclosure under the new standard. Ferrellgas, L.P. believes that the adoption of this standard, which will be effective for Ferrellgas, L.P. August 1, 2019, will result in material increases to right of use assets and is workinglease liabilities on an initial assessment.


our consolidated balance sheet and a corresponding change in classification of certain expenses contained on our consolidated statement of operations.

FASB Accounting Standard Update No. 2016-13

2016‑13

In June 2016, the FASB issued ASU 2016-13,2016‑13, 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'sstandard’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

2017‑12

In August 2017, the FASB issued ASU 2017-12,2017‑12, 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'sentity’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.

FASB Accounting Standard Update No. 2018‑15

In August 2018, the FASB issued ASU 2018‑15, Intangibles - Goodwill and Other - Internal-use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract which is intended to clarify the accounting for implementation costs related to a cloud computing


35

arrangement that is a service contract. Costs for implementation activities in the application development stage are deferred, depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed. Any deferred costs are amortized over the term of the service contract. The new guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Ferrellgas, L.P. adopted ASU 2018-15 on a prospective basis to all implementation costs incurred after January 31, 2019 with an immaterial impact on our consolidated results of operations for the three months ended April 30, 2019.

.

C.    Supplemental financial statement information

Inventories consist of the following:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Propane gas and related products

 

$

63,481

 

$

71,180

Appliances, parts and supplies, and other

 

 

14,968

 

 

12,514

Inventories

 

$

78,449

 

$

83,694

  January 31, 2018 July 31, 2017
Propane gas and related products $81,644
 $67,049
Appliances, parts and supplies, and other 28,448
 25,503
Inventories $110,092
 $92,552

In addition to inventories on hand, Ferrellgas, L.P. enters into contracts to take delivery of propane for supply procurement purposes with terms that generally do not exceed 36 months. Most of these contracts call for payment based on market prices at the date of delivery. As of January 31, 2018,April 30, 2019, Ferrellgas, L.P. had committed, for supply procurement purposes, to take delivery of approximately 81.93.3 million gallons of propane at fixed prices.


Other assets, net consist of the following:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Notes receivable, less current portion

 

$

18,745

 

$

27,491

Other

 

 

43,581

 

 

47,097

Other assets, net

 

$

62,326

 

$

74,588

  January 31, 2018 July 31, 2017
Notes receivable, less current portion $36,371
 $32,500
Other 41,341
 41,557
  Other assets, net $77,712
 $74,057

Other current liabilities consist of the following:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Accrued interest

 

 

40,806

 

 

18,288

Customer deposits and advances

 

 

20,681

 

 

22,829

Other

 

 

87,388

 

 

96,974

Other current liabilities

 

$

148,875

 

$

138,091

  January 31, 2018 July 31, 2017
Accrued interest $15,041
 $14,737
Customer deposits and advances 24,676
 25,541
Other 96,874
 81,738
Other current liabilities $136,591
 $122,016

Shipping and handling expenses are classified in the following condensed consolidated statements of operations line items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Operating expense

 

$

54,753

 

$

48,351

 

$

162,474

 

$

146,279

 

Depreciation and amortization expense

 

 

1,934

 

 

1,340

 

 

4,396

 

 

3,575

 

Equipment lease expense

 

 

7,784

 

 

6,507

 

 

23,172

 

 

18,872

 

 

 

$

64,471

 

$

56,198

 

$

190,042

 

$

168,726

 

36

  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
Operating expense $54,613
 $47,157
 $97,928
 $88,883
Depreciation and amortization expense 1,123
 996
 2,235
 2,022
Equipment lease expense 6,296
 6,652
 12,364
 13,318
   Total shipping and handling expenses $62,032
 $54,805
 $112,527
 $104,223



  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
Loss on assets held for sale $35,515
 $
 35,515
 
Loss on sale of assets and other 3,734
 45
 4,629
 6,468
Loss on asset sales and disposals $39,249
 $45
 $40,144
 $6,468

Certain cash flow and significant non-cash activities are presented below:

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 

 

    

2019

    

2018

Cash paid (refunded) for:

 

 

 

 

 

 

Interest

 

$

78,069

 

$

69,775

Income taxes

 

$

(9)

 

$

(479)

Non-cash investing and financing activities:

 

 

  

 

 

  

Liabilities incurred in connection with acquisitions

 

$

1,174

 

$

1,508

Change in accruals for property, plant and equipment additions

 

$

1,202

 

$

386

  For the six months ended January 31,
  2018 2017
Cash paid for:    
Interest $63,286
 $61,723
Income taxes $1
 $25
Non-cash investing and financing activities:    
Liabilities incurred in connection with acquisitions $1,508
 $
Change in accruals for property, plant and equipment additions $47
 $(100)

D.    Accounts and notes receivable, net and accounts receivable securitization


Accounts and notes receivable, net consist of the following:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Accounts receivable pledged as collateral

 

$

160,959

 

$

120,079

Accounts receivable not pledged as collateral (including other reserves)

 

 

(468)

 

 

8,272

Note receivable - current portion

 

 

121

 

 

132

Other

 

 

37

 

 

26

Less: Allowance for doubtful accounts

 

 

(3,420)

 

 

(2,455)

Accounts and notes receivable, net

 

$

157,229

 

$

126,054


  January 31, 2018 July 31, 2017
Accounts receivable pledged as collateral $235,150
 $109,407
Accounts receivable 13,596
 47,346
Note receivable - current portion 10,000
 10,000
Other 284
 307
Less: Allowance for doubtful accounts (3,052) (1,976)
Accounts and notes receivable, net $255,978
 $165,084

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:

DateMaximum consolidated leverage ratio
January 31, 20187.75

At April 30, 2018

7.75
July 31, 2018 & thereafter5.50

Ferrellgas, L.P.'s consolidated leverage ratio was 6.96x as of January 31, 2018. 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:

DateMinimum consolidated interest coverage ratio
January 31, 20181.75
April 30, 20181.75
July 31, 2018 & thereafter2.50

Ferrellgas, L.P.'s consolidated interest coverage ratio was 2.14x as of January 31, 2018; the margin allows for approximately $25.3 million of additional interest expense or approximately $44.3 million less EBITDA. See additional disclosure about Ferrellgas' financial covenants in Note E - Debt.

This accounts receivable securitization facility matures on July 29, 2019, unless the secured credit facility matures or terminates at an earlier date. If Ferrellgas, L.P. replaces the senior secured credit facility prior to the October 2018 maturity date, Ferrellgas, L.P. will need to amend the accounts receivable securitization facility to modify the maturity date, or replace it with a new facility. Ferrellgas, L.P. is working to renew or replace the accounts receivable securitization facility. Potential options include extending the current accounts receivable securitization facility, entering into a new accounts receivable securitization 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.

At January 31, 2018, $235.2$161.0 million of trade accounts receivable were pledged as collateral against $166.0$62.0 million of collateralized notes payable due to a commercial paper conduit. At July 31, 2017, $109.42018, $120.1 million of trade accounts receivable were pledged as collateral against $69.0$58.0 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 JanuaryApril 30, 2019, Ferrellgas, L.P. had received cash proceeds of $62.0 million from trade accounts receivables securitized, with capacity of $49.0 million to receive additional proceeds or issue letters of credit. As of July 31, 2018, Ferrellgas, L.P. had received cash proceeds of $166.0 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$58.0 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 4.0%5.9% and 4.0%5.2% as of JanuaryApril 30, 2019 and July 31, 2018, and July 31, 2017, respectively.


E.    Debt

Short-term borrowings

Since October 31, 2017,

Ferrellgas, L.P. classified allclassifies borrowings on the Revolving Facility portion of its secured credit facility borrowingsSenior Secured Credit Facility (each, as defined below) 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 werethey are primarily used to fund working capital needs that management intendedintends to pay down within the 12twelve month period following the balance sheet date. As of JanuaryApril 30, 2019, there were no amounts classified as short-term borrowings. As of July 31, 2018,  and July 31, 2017, $261.2$32.8 million and $59.8 million, respectively, werewas classified as short-term borrowings. For further discussion see the secured credit facilityfacilities section below.

Secured credit facilities

On May 4, 2018, Ferrellgas, L.P. entered into a new $575.0 million senior secured credit facility (the “Senior Secured Credit Facility”), consisting of a $300.0 million revolving line of credit (the “Revolving Facility”) and a $275.0 million term loan (the “Term Loan”).

As of April 30, 2019, Ferrellgas, L.P. had borrowings of $275.0 million under the Term Loan at an interest rate of 8.26%, which was classified as long-term debt, and no borrowings under the Revolving Facility. As of April 30, 2019, Ferrellgas, L.P. had available borrowing capacity under the Revolving Facility of $197.9 million. As of July 31, 2018, Ferrellgas, L.P. had borrowings of $275.0 million under the Term Loan at an interest rate of 7.86%, which was classified


37

as long-term debt, and $32.8 million under the Revolving Facility at an interest rate of 9.75%, which was classified as short-term borrowings. As of July 31, 2018, Ferrellgas, L.P. had available borrowing capacity under the Revolving Facility of $159.3 million.

Letters of credit outstanding at April 30, 2019 and July 31, 2018 totaled $102.1 million and $107.9 million, respectively, and were used to secure insurance arrangements, product purchases and commodity hedges. At April 30, 2019, Ferrellgas, L.P. had remaining available letter of credit capacity of $22.9 million. At July 31, 2018, Ferrellgas, L.P. had remaining available letter of credit capacity of $17.1 million.

Subsequent to the quarter ended April 30, 2019, Ferrellgas, L.P. entered into an amendment to the agreement governing its Senior Secured Credit Facility. See Note N – Subsequent events for additional information related to the amendment.

Debt and interest expense reduction and refinancing strategy

Ferrellgas, L.P. continues to pursue a strategy to further reduce its debt and interest expense. This strategy included entering into the new Senior Secured Credit Facility and amending our accounts receivable securitization facility in May 2018 and certain asset sales during fiscal 2018. Ferrellgas, L.P. continues to evaluate its options to address its leverage.

Financial covenants


The agreements governing the operating partnership’sFerrellgas, L.P.’s indebtedness contain various covenants that limit ourFerrellgas, L.P.’s ability and the ability of specified subsidiaries to, among other things, make restricted payments and incur additional indebtedness. OurThe general partner believes that the most restrictive of these covenants are those related to the consolidated leverage ratio and consolidated interestfixed charge coverage ratio, as defined in our secured credit facility and our accounts receivable securitization facility.


Beforethe indentures governing the outstanding notes of Ferrellgas, L.P.

Under the indentures governing the outstanding notes of Ferrellgas, L.P., 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 partnershipFerrellgas, L.P. to Ferrellgas Partners, Ferrellgas, L.P. must be in compliance with thesatisfy a consolidated leverage ratio and consolidated interestfixed charge coverage ratio covenantsrequirement or have unused capacity under a limited exception to the secured credit facility and accounts receivable securitization facility and in compliance with the covenants under the operating partnerships indentures.ratio requirement. If the operating partnershipFerrellgas, L.P. 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 Partnersits common unitholders. If Ferrellgas Partners does notunitholders or make interest payments on its unsecured senior notes due 2020.

The restricted payments covenants require 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. Iffor 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:


DateMaximum consolidated leverage ratio
January 31, 20187.75
April 30, 20187.75
July 31, 2018 & thereafter5.50

Ferrellgas, L.P.'s consolidated leverage ratio was 6.96x as of January 31, 2018; the margin allows for approximately $193.2 million of additional borrowing capacity or approximately $24.9 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 asa restricted payment, 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:

DateMinimum consolidated interest coverage ratio
January 31, 20181.75
April 30, 20181.75
July 31, 2018 & thereafter2.50

Ferrellgas, L.P.'s consolidated interest coverage be at least 1.75x on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events, subject to its ability to make restricted payments under the limited exception described below. If this pro forma ratio is below 1.75x, Ferrellgas, L.P. may make restricted payments in limited amounts determined under the indentures.  As of April 30, 2019, the ratio was 2.14x at January 31, 2018;1.72x.  As a result, it’s likely the margin allows for approximately $25.3 million of additional interest expense or approximately $44.3 million less EBITDA.

Debt and interest expense reduction strategy

distribution that will be made by Ferrellgas, L.P. continueson June 15, 2019 for payment of interest on Ferrellgas Partners’ unsecured senior notes due 2020 will be made from capacity under the limited exception to execute on a strategy to further reduce its debt and interest expense. This strategy may include amending or refinancing existing debt agreements, additional asset sales, a reduction in the operating partnership's funding of Ferrellgas Partners' annual distribution rate or the issuance of equity.ratio requirement. 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 forthat its business.

If Ferrellgas, L.P. is unsuccessful with its strategy to further 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 January 31, 2018 has been classified as a current liability in the condensed consolidated balance sheet as of January 31, 2018. 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 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

As of January 31, 2018, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of $261.2 million, all of which was classified as short-term. Ferrellgas, L.P. had $125.8 million ofremaining capacity under the secured credit facility aslimited exception to the ratio requirement will allow it to make distributions to Ferrellgas Partners’ to cover interest payments on Ferrellgas Partners’ unsecured senior notes due 2020 through the maturity of January 31, 2018. 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 January 31, 2018 and July 31, 2017 under the secured credit facility had weighted average interest rates of 6.5% and 6.0%, respectively.

Letters of credit outstanding at those notes.January 31, 2018 totaled $188.0 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 January 31, 2018, Ferrellgas, L.P. had remaining letter of credit capacity of $12.0 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 paidrecognized the following distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Ferrellgas Partners

 

$

 —

 

$

10,013

 

$

25,310

 

$

45,036

 

General partner

 

 

 —

 

 

102

 

 

258

 

 

459

 

 

 

$

 —

 

$

10,115

 

$

25,568

 

$

45,495

 

  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
Ferrellgas Partners $25,210
 $17,662
 $35,023
 $83,807
General partner 257
 180
 357
 693
  $25,467
 $17,842
 $35,380
 $84,500

On February 22, 2018, Ferrellgas, L.P. declared distributions for the three months ended January 31, 2018 to Ferrellgas Partners and the general partner of $9.8 million and $0.1 million, respectively, which are expected to be paid on March 16, 2018.

See additional discussions about transactions with related parties in Note IJ – Transactions with related parties.


38

Accumulated other comprehensive income (loss)(“AOCI”)


See Note HI – Derivative instruments and hedging activities – for details regarding changes in the fair value of risk management financial derivatives recorded within AOCI for the three and sixnine months ended January 31, 2018April 30, 2019 and 2017.

2018.

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 sixnine months ended January 31,April 30, 2019, 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 nine months ended April 30, 2018, 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 six months ended January 31, 2017, the general partner made cash contributions of $1.7 million and non-cash contributions of $0.1 million to G.    Revenue from contracts with customers

Ferrellgas, L.P. adopted ASU 2014‑09 beginning on August 1, 2018 using the modified retrospective method. Ferrellgas, L.P. earns revenue from contracts with customers primarily through the distribution of propane, as well as through the sale of propane related equipment and supplies. Revenues from propane and other gas liquids sales are comprised of revenue earned from the delivery of propane to maintaintanks on customers’ premises, from the delivery of propane filled cylinders to customers, or from the sale of portable propane tanks to nationwide and local retailers and end use customers. Other revenues primarily include sales of appliances and other materials as well as other fees charged to customers. Upon adoption, Ferrellgas, L.P. applied ASU 2014‑09 only to contracts that were not completed.

Contracts with customers

Ferrellgas, L.P.’s contracts with customers are principally for the bulk delivery of propane to tanks, delivery of propane filled cylinders or the delivery of portable propane tanks to retailers. Ferrellgas, L.P. sells propane to a wide variety of customers, including residential, industrial/commercial, portable tank exchange, agricultural, wholesale and others. Ferrellgas, L.P.’s performance obligations in these contracts are generally limited to the delivery of propane, and therefore revenues from these contracts are earned at the time product is delivered or in the case of some of Ferrellgas, L.P.’s portable tank exchange retailers who have consignment agreements, at the time the tanks are sold to the end use customer. Payment is generally due within 30 days. Revenues from sales of propane are included in Propane and other gas liquids sales on the consolidated statements of operations.

Typically, Ferrellgas, L.P. bills customers upon delivery and payment is generally due within 30 days. With its 1.0101% general partner interest.residential customers, Ferrellgas, L.P offers customers the ability to spread their annual heating costs over a longer period, typically twelve months. Customers who opt to spread their heating costs over a longer period are referred to as “even-pay” customers.

Ferrellgas, L.P. charges other amounts to customers associated with the delivery of propane including hazardous materials fees and fuel surcharge fees. In some regions, Ferrellgas, L.P. also sells appliances and related parts and fittings as well as other retail propane related services. Ferrellgas, L.P. charges on an annual basis tank and equipment rental charges for customers that are using our equipment to store propane. Other revenues associated with deliveries of propane are earned at the time product is delivered. Revenues associated with sales of appliances and other materials or services are earned at the time of delivery or installation. Revenues associated with tank and equipment rentals are generally recognized on a straight-line basis over one year.

Accounting estimates related to recognition of revenue require that Ferrellgas, L.P. make estimates and assumptions about various factors including credits issued for completed sales, future returns and total consideration payable in instances where we have customer incentives payable to the customer.


39

Disaggregation of revenue

Ferrellgas, L.P. disaggregates revenues based upon the type of customer and on the type of revenue. The following table presents retail propane revenues, wholesale propane revenues and other revenues. Retail revenues result from sales to end use customers, wholesale revenues result from sales to or through resellers and all other revenues include sales of appliances and other materials, other fees charged to customers and equipment rental charges.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

 

2019

    

2018

    

2019

    

2018

 

Retail - Sales to End Users

 

$

350,151

 

$

330,320

 

$

983,742

 

$

931,495

 

Wholesale - Sales to Resellers

 

 

99,311

 

 

97,689

 

 

308,646

 

 

324,863

 

Other Gas Sales

 

 

10,094

 

 

23,293

 

 

52,246

 

 

89,941

 

Other

 

 

20,069

 

 

41,913

 

 

60,677

 

 

118,691

 

Propane and related equipment revenues

 

$

479,625

 

$

493,215

 

$

1,405,311

 

$

1,464,990

 

Contract assets and liabilities

Ferrellgas, L.P.’s performance obligations are generally limited to the delivery of propane for our retail and wholesale contracts. Ferrellgas, L.P.’s performance obligations with respect to sales of appliances and other materials and other revenues are limited to the delivery of the agreed upon good or service. Ferrellgas, L.P. does not have material performance obligations that are delivered over time, thus all of our revenue is recognized at the time the goods, including propane, are delivered or installed. Ferrellgas, L.P. offers “even pay” billing programs that can create customer deposits or advances, depending on whether Ferrellgas, L.P. has delivered more propane than the customer has paid for or whether the customer has paid for more propane than what has been delivered. Revenue is recognized from these customer deposits or advances to customers at the time product is delivered. The advance or deposit is considered to be a contract asset or liability. Additionally, from time to time, we have customers that pay in advance for goods or services, and such amounts result in contract liabilities.

Ferrellgas, L.P. incurs incremental commissions directly related to the acquisition or renewal of customer contracts. The commissions are calculated and paid based upon the number of gallons sold to the acquired or renewed customer. The total amount of commissions that we incur is not material and the commissions are expensed commensurate with the deliveries to which they relate; therefore, Ferrellgas, L.P. does not capitalize these costs.

The following table presents the opening and closing balances of our receivables, contract assets, and contract liabilities:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Accounts receivable

 

$

135,337

 

$

119,818

Contract assets

 

$

25,312

 

$

8,691

Contract liabilities

 

 

  

 

 

  

  Deferred revenue (1)

 

$

29,068

 

$

29,933


(1)

Of the beginning balance of deferred revenue, $22.7 million was recognized as revenue during the nine months ended April 30, 2019.

Remaining performance obligations

Ferrellgas, L.P.’s remaining performance obligations are generally limited to situations where its customers have remitted payment but have not yet received deliveries of propane. This most commonly occurs in Ferrellgas, L.P.’s even pay billing programs and Ferrellgas, L.P. expects that these balances will be recognized within a year or less as the customer takes delivery of propane.

40

G.H.    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 January 31, 2018April 30, 2019 and July 31, 2017:2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset (Liability)

 

 

Quoted Prices in Active

 

 

 

 

 

 

 

 

 

 

 

Markets for Identical

 

Significant Other

 

 

 

 

 

 

 

 

Assets and Liabilities

 

Observable Inputs

 

Unobservable Inputs

 

 

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

April 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Derivative financial instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Commodity derivatives

 

$

 —

 

$

5,489

 

$

 —

 

$

5,489

Liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

Derivative financial instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Commodity derivatives

 

$

 —

 

$

(6,502)

 

$

 —

 

$

(6,502)

 

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 2018:

 

 

  

 

 

  

 

 

  

 

 

  

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Derivative financial instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Commodity derivatives

 

$

 —

 

$

22,470

 

$

 —

 

$

22,470

Liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

Derivative financial instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Commodity derivatives

 

$

 —

 

$

(1,910)

 

$

 —

 

$

(1,910)

  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
January 31, 2018:        
Assets:        
Derivative financial instruments:        
Commodity derivatives $
 $25,725
 $
 $25,725
Liabilities:        
Derivative financial instruments:        
Interest rate swap agreements $
 $(2,423) $
 $(2,423)
Commodity derivatives $
 $(1,417) $
 $(1,417)
         
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.


As discussed in Note C - Supplemental financial statement information, during the quarter ended January 31, 2018, Ferrellgas, L.P. committed to a plan to dispose of all of its rail cars in the Midstream operations segment. Ferrellgas, L.P. measures long-lived assets held for sale at the lower of carrying amount or estimated fair value less estimated costs to sell. Ferrellgas, L.P. recorded a loss on assets held for sale of $35.5 million during the three and six months ended January 31, 2018 to reduce the carrying amount of the rail cars to their estimated fair value less estimated costs to sell. At January 31, 2018, the estimated fair value less costs to sell was approximately $52.2 million. The fair value of the rail cars classified as assets held for sale is a Level 3 valuation based on the unobservable inputs used for this expected sale.

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 various notesnote receivable financial instruments classified in "Other assets, net" on the condensed consolidated balance sheets, are approximately $32.1$16.0 million, or $4.3$2.8 million less than their carrying amount as of January 31, 2018.April 30, 2019. The estimated fair values of these notes receivable were calculated using a discounted cash flow method which relied on significant unobservable inputs. At January 31, 2018April 30, 2019 and July 31, 2017,2018, the estimated fair value of Ferrellgas, L.P.’s long-term debt instruments was $1,410.6$1,585.4 million and $1,645.3$1,591.5 million, respectively. Ferrellgas, L.P. 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.I.    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. Prior to the sale of Bridger Energy, LLC in January 2018, all other commodity derivative instruments were neither qualified nor were designated as cash flow hedges,hedges; therefore, changes in

41

their fair value were 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 activity

During the sixnine months ended January 31, April 30, 2019 and 2018, and 2017, 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 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 January 31, 2018April 30, 2019 and July 31, 2017: 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2019

 

 

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

 

$

5,049

 

Other current liabilities

 

$

5,726

Commodity derivatives-propane

 

Other assets, net

 

 

440

 

Other liabilities

 

 

776

 

 

Total

 

$

5,489

 

Total

 

$

6,502

 

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 2018

 

 

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

 

$

17,123

 

Other current liabilities

 

$

1,832

Commodity derivatives-propane

 

Other assets, net

 

 

5,347

 

Other liabilities

 

 

78

 

 

Total

 

$

22,470

 

Total

 

$

1,910

  January 31, 2018
  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 $18,188
 Other current liabilities $1,417
  Commodity derivatives-propane Other assets, net 7,537
 Other liabilities 
  Interest rate swap agreements Prepaid expenses and other current assets 
 Other current liabilities 319
  Interest rate swap agreements Other assets, net 
 Other liabilities 2,104
  Total $25,725
 Total $3,840
         
  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, L.P.'s’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 JanuaryApril 30, 2019 and July 31, 2018, and July 31, 2017, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

April 30, 2019

 

 

Assets

 

Liabilities

Description

    

Location

    

Amount

    

Location

    

Amount

Margin Balances

 

Prepaid expense and other current assets

 

$

6,493

 

Other current liabilities

 

$

1,339

 

 

Other assets, net

 

 

1,728

 

Other liabilities

 

 

 —

 

 

 

 

$

8,221

 

  

 

$

1,339

 

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 2018

 

 

Assets

 

Liabilities

Description

    

Location

    

Amount

    

Location

    

Amount

Margin Balances

 

Prepaid expense and other current assets

 

$

2,851

 

Other current liabilities

 

$

12,308

 

 

Other assets, net

 

 

927

 

Other liabilities

 

 

4,235

 

 

 

 

$

3,778

 

  

 

$

16,543


42

  January 31, 2018
  Assets Liabilities
Description Location Amount Location Amount
Margin Balances Prepaid expenses and other current assets $3,018
 Other current liabilities $12,201
  Other assets, net 1,404
 Other liabilities 5,216
    $4,422
   $17,417
  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 tablestable provides a summary of the effect on Ferrellgas, L.P.’s condensed consolidated statements of operations for the three and sixnine months ended January 31,April 30, 2019 and 2018 and 2017 due to derivatives that were designated as fair value hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Interest Expense

 

 

Location of Amounts

 

Amount of Gain Recognized on

 

Recognized on Fixed-Rated Debt

 

 

Recognized on

 

Derivative

 

(Related Hedged Item)

Derivative Instrument

 

Derivative

 

For the three months ended April 30, 

 

For the three months ended April 30, 

 

    

 

    

2019

    

2018

    

2019

    

2018

Interest rate swap agreements

 

Interest expense

 

$

 —

 

$

40

 

$

 —

 

$

(2,275)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Interest Expense

 

 

Location of Gain

 

Amount of Gain Recognized on

 

Recognized on Fixed-Rated Debt

 

 

Recognized on

 

Derivative

 

(Related Hedged Item)

Derivative Instrument

 

Derivative

 

For the nine months ended April 30, 

 

For the nine months ended April 30, 

 

    

 

    

2019

    

2018

    

2019

    

2018

Interest rate swap agreements

 

Interest expense

 

$

 —

 

$

266

 

$

 —

 

$

(6,825)

    Amount of Gain Recognized on Derivative
Amount of Interest Expense Recognized on Fixed-Rate Debt (Related Hedged Item)
Derivative Instrument Location of Amounts Recognized on Derivative For the three months ended January 31, For the three months ended January 31,
    2018 2017 2018 2017
Interest rate swap agreements Interest expense $88
 $328
 $(2,275) $(2,275)
           
    Amount of Gain Recognized on Derivative Amount of Interest Expense Recognized on Fixed-Rate Debt (Related Hedged Item)
Derivative Instrument Location of Amounts Recognized on Derivative For the six months ended January 31, For the six months ended January 31,
    2018 2017 2018 2017
Interest rate swap agreements Interest expense $226
 $748
 $(4,550) $(4,550)




The following tables provide a summary of the effect on Ferrellgas, L.P.’s condensed consolidated statements of comprehensive income (loss) for the three and sixnine months ended January 31,April 30, 2019 and 2018 and 2017 due to derivatives designated as cash flow hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 2019

 

 

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Location of Gain (Loss)

 

Reclassified from

 

 

Amount of Gain (Loss)

 

Reclassified from AOCI

 

AOCI into Income

Derivative Instrument

    

Recognized in AOCI

    

into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

 

$

1,870

    

Cost of product sold- propane and other gas liquids sales

 

$

(6,416)

 

$

 —

 

 

$

1,870

 

  

 

$

(6,416)

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 2018

 

 

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Location of Gain (Loss)

 

Reclassified from

 

 

Amount of Gain (Loss)

 

Reclassified from AOCI

 

AOCI into Income

Derivative Instrument

    

Recognized in AOCI

    

into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

 

$

(169)

 

Cost of sales-propane and other gas liquids sales

 

$

6,628

 

$

 —

Interest rate swap agreements

 

 

10

 

Interest expense

 

 

(60)

 

 

 —

 

 

$

(159)

 

 

 

$

6,568

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 2019

 

 

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Location of Gain (Loss)

 

Reclassified from

 

 

Amount of Gain (Loss)

 

Reclassified from AOCI

 

AOCI into Income

Derivative Instrument

    

Recognized in AOCI

    

into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

 

$

(27,364)

 

Cost of sales-propane and other gas liquids sales

 

$

(5,790)

 

$

 —

 

 

$

(27,364)

 

 

 

$

(5,790)

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 2018

 

 

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

 

Location of Gain (Loss)

 

Reclassified from

 

 

Amount of Gain (Loss)

 

Reclassified from AOCI

 

AOCI into Income

Derivative Instrument

    

Recognized in AOCI

    

into Income

    

Effective portion

    

Ineffective portion

Commodity derivatives

 

$

23,114

 

Cost of product sold- propane and other gas liquids sales

 

$

20,646

 

$

 —

Interest rate swap agreements

 

 

248

 

Interest expense

 

 

(386)

 

 

 —

 

 

$

23,362

 

 

 

$

20,260

 

$

 —

43

  For the three months ended January 31, 2018  
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 $960
 Cost of sales-propane and other gas liquids sales $9,886
 $
Interest rate swap agreements 112
 Interest expense (143) 
  $1,072
   $9,743
 $
         
  For the three months ended January 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 $14,699
 Cost of sales-propane and other gas liquids sales $73
 $
Interest rate swap agreements 563
 Interest expense (587) 
  $15,262
   $(514) $
         
         
  For the six months ended January 31, 2018  
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 $23,283
 Cost of sales-propane and other gas liquids sales $14,018
 $
Interest rate swap agreements 238
 Interest expense (326) 
  $23,521
   $13,692
 $
         
  For the six months ended January 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 $19,572
 Cost of sales-propane and other gas liquids sales $(3,523) $
Interest rate swap agreements 828
 Interest expense (1,229) 
  $20,400
   $(4,752) $


The following tables providetable provides a summary of the effect on Ferrellgas, L.P.'s’s condensed consolidated statements of operations for the three and sixnine months ended January 31,April 30, 2019 and 2018 and 2017 due to the change in fair value of derivatives not designated as hedging instruments:

For the nine months ended April 30, 2018

Amount of Gain (Loss)

Location of Gain (Loss)

DerivativesNotDesignatedasHedgingInstruments

Recognized in Income

Reclassified in Income

Commodity derivatives - crude oil

$

(3,470)

Cost of sales - midstream operations

  For the three months ended January 31, 2018
Derivatives Not Designated as Hedging Instruments Amount of Gain (Loss) Recognized in Income Location of Gain (Loss) Recognized in Income
Commodity derivatives - crude oil $(2,080) Cost of sales - midstream operations
     
  For the three months ended January 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 $(1,007) Cost of sales - midstream operations
Commodity derivatives - vehicle fuel $489
 Operating expense
     
  For the six months ended January 31, 2018
Derivatives Not Designated as Hedging Instruments Amount of Gain (Loss) Recognized in Income Location of Gain (Loss) Recognized in Income
Commodity derivatives - crude oil $(3,470) Cost of sales - midstream operations
     
  For the six months ended January 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 $(2,248) Cost of sales - midstream operations
Commodity derivatives - vehicle fuel $1,516
 Operating expense

The changes in derivatives included in AOCI for the sixnine months ended January 31,April 30, 2019 and 2018 and 2017 were as follows:

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 

Gains and losses on derivatives included in AOCI

    

2019

    

2018

Beginning balance

 

$

20,560

 

$

14,648

Change in value of risk management commodity derivatives

 

 

(27,364)

 

 

23,114

Reclassification of (gains) and losses on commodity hedges to cost of sales - propane and other gas liquids sales, net

 

 

5,790

 

 

(20,646)

Change in value of risk management interest rate derivatives

 

 

 —

 

 

248

Reclassification of losses on interest rate hedges to interest expense

 

 

 —

 

 

386

Ending balance

 

$

(1,014)

 

$

17,750

  For the six months ended January 31,
Gains and losses on derivatives included in AOCI 2018 2017
Beginning balance $14,648
 $(9,815)
Change in value of risk management commodity derivatives 23,283
 19,572
Reclassification of (gains) and losses on commodity hedges to cost of sales - propane and other gas liquids sales, net (14,018) 3,523
Change in value of risk management interest rate derivatives 238
 828
Reclassification of losses on interest rate hedges to interest expense 326
 1,229
Ending balance $24,477
 $15,337

Ferrellgas, L.P. expects to reclassify net gainslosses related to the risk management commodity derivatives of approximately $16.8$0.7 million to earnings during the next 12 months. These net gainslosses are expected to be offset by decreasedincreased margins on propane sales commitments Ferrellgas, L.P. has with its customers that qualify for the normal purchase normal sales exception.

During the sixnine months ended January 31,April 30, 2019 and 2018, and 2017, 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 January 31, 2018,April 30, 2019, Ferrellgas, L.P. had financial derivative contracts covering 2.63.3 million barrelsgallons 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, 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 January 31, 2018,April 30, 2019, the maximum amount of loss due to credit risk that Ferrellgas, L.P. would incur is $0.7 million, which is based upon the gross fair values of the derivative financial instruments, Ferrellgas, L.P. would incur is $7.5 million.  

instruments.

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 January 31, 2018.


April 30, 2019.

I.J.    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 the general partner in connection with operating Ferrellgas, L.P.’s

44

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 April 30, 

 

For the nine months ended April 30, 

 

 

 

2019

 

2018

    

2019

    

2018

 

Operating expense

    

$

64,030

    

$

58,842

 

$

193,258

 

$

181,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expense

 

$

5,872

 

$

5,707

 

$

19,196

 

$

21,637

 

  For the three months ended January 31, For the six months ended January 31,
  2018 2017 2018 2017
Operating expense $65,291
 $61,492
 $122,642
 $117,206
         
General and administrative expense $8,422
 $8,217
 $15,930
 $16,800

See additional discussions about transactions with the general partner and related parties in Note F – Partners’ deficit.


J.K.    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, prior to the sales of midstream operations in fiscal 2018, 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 initially 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 filed a petition for a writ of certiorari which was denied. An appeal by the indirect customer plaintiffs remains pending.resulted in the court of appeals affirming the dismissal of the federal claims and remanding the case to the district court to decide whether to exercise supplemental jurisdiction over the remaining state law claims. 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. On April 2, 2018, the securities class action lawsuits were dismissed with prejudice. On April 30, 2018, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Second Circuit. On April 24, 2019 the United States Court of Appeals for the Second Circuit affirmed the judgment of the Southern District Court dismissing the class action lawsuits with prejudice. At this time the derivative lawsuits remain stayed by agreement. 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 actions.


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 in 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

45

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. 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. TheOn June 25, 2018, Ferrellgas, L.P. entered into an agreement with the Third-Party Defendants have filed motions to dismisswhich, among other things, resulted in a dismissal of the third-party complaint for alleged lack of personal jurisdiction, failure to state claim, and forum non-conveniens. Ferrellgas, L.P.claims against the Third-Party Defendants from the lawsuit. The lawsuit is vigorously opposing these motions.


in the discovery stage; as such, management does not currently believe a loss is probable or reasonably estimable at this time.

K.L.    Segment reporting


As of April 30, 2019, Ferrellgas, L.P. has two primary operations that result in twoone reportable operating segments: Propanesegment: propane operations and related equipment salessales. All remaining activities are included in Corporate and Midstream operations. During the quarter ended January 31, 2018, Ferrellgas, L.P. recorded a goodwill impairment of $10.0 million related to a decline in future expected cash flows of an immaterial reporting unit of our Propane operations and related equipment sales segment.





other.

Following is a summary of segment information for the three and sixnine months ended January 31,April 30, 2019 and 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 30, 2019

 

    

Propane operations

    

 

 

    

 

 

 

 

and related equipment

 

Corporate and

 

 

 

 

 

sales

 

other

 

Total

Segment revenues

 

$

479,625

 

$

 —

 

$

479,625

Direct costs (1)

 

 

380,637

 

 

10,423

 

 

391,060

Adjusted EBITDA

 

$

98,988

 

$

(10,423)

 

$

88,565

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 30, 2018

 

    

Propane operations

    

 

 

    

 

 

 

 

and related equipment

 

Corporate and

 

 

 

 

 

sales

 

other

 

Total

Segment revenues

 

$

493,215

 

$

22,595

 

$

515,810

Direct costs (1)

 

 

397,568

 

 

31,188

 

 

428,756

Adjusted EBITDA

 

$

95,647

 

$

(8,593)

 

$

87,054

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended April 30, 2019

 

    

Propane operations

    

 

 

    

 

 

 

 

and related equipment

 

Corporate and

 

 

 

 

 

sales

 

other

 

Total

Segment revenues

 

$

1,405,311

 

$

 —

 

$

1,405,311

Direct costs (1)

 

 

1,147,764

 

 

31,480

 

 

1,179,244

Adjusted EBITDA

 

$

257,547

 

$

(31,480)

 

$

226,067

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended April 30, 2018

 

    

Propane operations

    

 

 

    

 

 

 

 

and related equipment

 

Corporate and

 

 

 

 

 

sales

 

other

 

Total

Segment revenues

 

$

1,464,990

 

$

260,631

 

$

1,725,621

Direct costs (1)

 

 

1,208,283

 

 

283,440

 

 

1,491,723

Adjusted EBITDA

 

$

256,707

 

$

(22,809)

 

$

233,898


(1)

Direct costs are comprised of "cost of sales-propane and other gas liquids sales", "cost of sales- midstream operations", "cost of sales-other", "operating expense", "general and administrative expense", and "equipment lease expense" less "severance costs", "legal fees and settlements", "unrealized (non-cash) losses on changes in fair value of derivatives not designated as hedging instruments" and "multi-employer pension plan withdrawal settlement".

46

  Three months ended January 31, 2018
  Propane operations and related equipment sales Midstream operations Corporate Total
Segment revenues $637,880
 $117,276
 $
 $755,156
Direct costs (1) 507,386
 114,929
 12,213
 634,528
Adjusted EBITDA $130,494
 $2,347
 $(12,213) $120,628
         
  Three months ended January 31, 2017
  Propane operations and related equipment sales Midstream operations Corporate Total
Segment revenues $482,463
 $96,787
 $
 $579,250
Direct costs (1) 370,175
 93,718
 10,326
 474,219
Adjusted EBITDA $112,288
 $3,069
 $(10,326) $105,031
         
  Six months ended January 31, 2018
  Propane operations and related equipment sales Midstream operations Corporate Total
Segment revenues $971,775
 $238,036
 $
 $1,209,811
Direct costs (1) 810,715
 228,830
 23,422
 1,062,967
Adjusted EBITDA $161,060
 $9,206
 $(23,422) $146,844
         
  Six months ended January 31, 2017
  Propane operations and related equipment sales Midstream operations Corporate Total
Segment revenues $753,961
 $204,831
 $
 $958,792
Direct costs (1) 607,189
 196,490
 21,063
 824,742
Adjusted EBITDA $146,772
 $8,341
 $(21,063) $134,050
         
(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 , "severance charge", "professional fees incurred related to a lawsuit", and "unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments".


Following is a reconciliation of net earnings (loss) attributable to Ferrellgas, L.P.'s to the total segment performance measure to condensed consolidated net earnings (loss):measures of EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended April 30, 

    

Nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

29,554

 

$

19,840

 

$

33,357

 

$

(13,012)

 

Income tax expense

 

 

100

 

 

57

 

 

254

 

 

261

 

Interest expense

 

 

35,395

 

 

31,739

 

 

106,740

 

 

97,993

 

Depreciation and amortization expense

 

 

20,617

 

 

25,348

 

 

59,214

 

 

76,565

 

EBITDA

 

 

85,666

 

 

76,984

 

 

199,565

 

 

161,807

 

Non-cash employee stock ownership plan compensation charge

 

 

(4)

 

 

2,738

 

 

4,688

 

 

10,731

 

Asset impairments

 

 

 —

 

 

 —

 

 

 —

 

 

10,005

 

Loss on asset sales and disposals

 

 

1,683

 

 

6,270

 

 

8,403

 

 

46,414

 

Other income, net

 

 

(251)

 

 

(227)

 

 

(356)

 

 

(1,422)

 

Severance costs

 

 

 —

 

 

 —

 

 

1,600

 

 

1,663

 

Legal fees and settlements

 

 

1,471

 

 

1,289

 

 

10,643

 

 

3,407

 

Unrealized (non-cash) loss on changes in fair value of derivatives not designated as hedging instruments

 

 

 —

 

 

 —

 

 

 —

 

 

1,293

 

Multi-employer pension plan withdrawal settlement

 

 

 —

 

 

 —

 

 

1,524

 

 

 —

 

Adjusted EBITDA

 

$

88,565

 

$

87,054

 

$

226,067

 

$

233,898

 

  Three months ended January 31, Six months ended January 31,
  2018 2017 2018 2017
Net earnings (loss) $6,847
 $42,600
 $(32,852) $3,160
Income tax expense (benefit) (167) 588
 204
 (3)
Interest expense 34,058
 32,748
 66,254
 64,146
Depreciation and amortization expense 25,485
 25,607
 51,217
 51,809
EBITDA 66,223
 101,543
 84,823
 119,112
Non-cash employee stock ownership plan compensation charge 4,031
 2,945
 7,993
 6,699
Non-cash stock-based compensation charge 
 1,417
 
 3,298
Asset impairments 10,005
 
 10,005
 
Loss on asset sales and disposals 39,249
 45
 40,144
 6,468
Other income, net (684) (763) (1,195) (1,271)
Severance costs 
 490
 1,663
 1,959
Professional fees 2,118
 
 2,118
 
 Unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments (314) (646) 1,293
 (2,215)
Adjusted EBITDA $120,628
 $105,031
 $146,844
 $134,050

Following are total assets by segment:

 

 

 

 

 

 

 

 

    

April 30, 2019

    

July 31, 2018

Assets

 

 

  

 

 

  

Propane operations and related equipment sales

 

$

1,257,214

 

$

1,196,084

Corporate and other

 

 

72,647

 

 

167,162

Total consolidated assets

 

$

1,329,861

 

$

1,363,246

Assets January 31, 2018 July 31, 2017
Propane operations and related equipment sales $1,361,856
 $1,194,905
Midstream operations 309,952
 399,356
Corporate 15,242
 15,687
Total consolidated assets $1,687,050
 $1,609,948

Following are capital expenditures by segment:

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended April 30, 2019

 

    

Propane operations and

    

 

 

    

 

 

 

 

related equipment sales

 

Corporate and other

 

Total

Capital expenditures:

 

 

  

 

 

  

 

 

  

Maintenance

 

$

43,975

 

$

672

 

$

44,647

Growth

 

 

44,654

 

 

 —

 

 

44,654

Total

 

$

88,629

 

$

672

 

$

89,301

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended April 30, 2018

 

    

Propane operations and

    

 

 

    

 

 

 

 

related equipment sales

 

Corporate and other

 

Total

Capital expenditures:

 

 

  

 

 

  

 

 

  

Maintenance

 

$

17,556

 

$

1,702

 

$

19,258

Growth

 

 

34,784

 

 

1,265

 

 

36,049

Total

 

$

52,340

 

$

2,967

 

$

55,307

  Six months ended January 31, 2018
  Propane operations and related equipment sales Midstream operations Corporate Total
Capital expenditures:        
Maintenance $12,016
 $182
 $1,245
 $13,443
Growth 18,311
 1,013
 
 19,324
Total $30,327
 $1,195
 $1,245
 $32,767
         
         
  Six months ended January 31, 2017
  Propane operations and related equipment sales Midstream operations Corporate Total
Capital expenditures:        
Maintenance $5,551
 $204
 $1,484
 $7,239
Growth 9,857
 
 
 9,857
Total $15,408
 $204
 $1,484
 $17,096

L.M.    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

47

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.


48



FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 As of January 31, 2018
 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$13,954
 $1
 $216
 $
 $
 $14,171
Accounts and notes receivable, net(3,004) 
 23,832
 235,150
 
 255,978
   Intercompany receivables37,988
 
 
 
 (37,988) 
Inventories95,097
 
 14,995
 
 
 110,092
Assets held for sale
 
 52,200
 
 
 52,200
Prepaid expenses and other current assets33,630
 
 7,762
 1
 
 41,393
Total current assets177,665
 1
 99,005
 235,151
 (37,988) 473,834
            
Property, plant and equipment, net547,441
 
 98,886
 
 
 646,327
Goodwill, net246,098
 
 
 
 
 246,098
Intangible assets, net127,316
 
 115,763
 
 
 243,079
Intercompany receivables450,000
 
 
 
 (450,000) 
Investments in consolidated subsidiaries(80,685) 
 
 
 80,685
 
Other assets, net39,847
 
 37,432
 433
 
 77,712
Total assets$1,507,682
 $1
 $351,086
 $235,584
 $(407,303) $1,687,050
            
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)        
Current liabilities: 
    
      
Accounts payable$78,054
 $
 $3,926
 $92
 $
 $82,072
Short-term borrowings261,200
 
 
 
 
 261,200
Collateralized note payable
 
 
 166,000
 
 166,000
Intercompany payables
 
 44,259
 (6,271) (37,988) 
Other current liabilities132,047
 
 4,074
 470
 
 136,591
Total current liabilities471,301
 
 52,259
 160,291
 (37,988) 645,863
            
Long-term debt1,462,936
 
 450,037
 
 (450,000) 1,462,973
Other liabilities30,653
 
 4,769
 
 
 35,422
Contingencies and commitments        
            
Partners' capital (deficit): 
    
      
Partners' equity(481,801) 1
 (155,979) 75,293
 80,685
 (481,801)
Accumulated other comprehensive income24,593
 
 
 
 
 24,593
Total partners' capital (deficit)(457,208) 1
 (155,979) 75,293
 80,685
 (457,208)
Total liabilities and partners' capital (deficit)$1,507,682
 $1
 $351,086
 $235,584
 $(407,303) $1,687,050
       

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of April 30, 2019

 

    

Ferrellgas, L.P.

    

Ferrellgas

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Parent and

 

Finance Corp.

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

Co-Issuer)

 

(Co-Issuer)

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,364

 

$

 1

 

$

 —

 

$

 —

 

$

 —

 

$

45,365

Accounts and notes receivable, net

 

 

(9,208)

 

 

 —

 

 

150

 

 

166,287

 

 

 —

 

 

157,229

Intercompany receivables

 

 

49,313

 

 

 —

 

 

 —

 

 

 —

 

 

(49,313)

 

 

 —

Inventories

 

 

78,449

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

78,449

Prepaid expenses and other current assets

 

 

25,427

 

 

 —

 

 

(1)

 

 

 1

 

 

 —

 

 

25,427

Total current assets

 

 

189,345

 

 

 1

 

 

149

 

 

166,288

 

 

(49,313)

 

 

306,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

603,924

 

 

 —

 

 

(1)

 

 

 —

 

 

 —

 

 

603,923

Goodwill, net

 

 

247,508

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

247,508

Intangible assets, net

 

 

109,634

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

109,634

Investments in consolidated subsidiaries

 

 

52,776

 

 

 —

 

 

 —

 

 

 —

 

 

(52,776)

 

 

 —

Other assets, net

 

 

58,557

 

 

 —

 

 

2,875

 

 

894

 

 

 —

 

 

62,326

Total assets

 

$

1,261,744

 

$

 1

 

$

3,023

 

$

167,182

 

$

(102,089)

 

$

1,329,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Accounts payable

 

$

41,296

 

$

 —

 

$

 —

 

$

112

 

$

 —

 

$

41,408

Collateralized note payable

 

 

 —

 

 

 —

 

 

 —

 

 

62,000

 

 

 —

 

 

62,000

Intercompany payables

 

 

 —

 

 

 —

 

 

(192)

 

 

49,505

 

 

(49,313)

 

 

 —

Other current liabilities

 

 

142,937

 

 

 —

 

 

267

 

 

5,671

 

 

 —

 

 

148,875

Total current liabilities

 

 

184,233

 

 

 —

 

 

75

 

 

117,288

 

 

(49,313)

 

 

252,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,730,874

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,730,874

Other liabilities

 

 

35,812

 

 

 —

 

 

67

 

 

 —

 

 

 —

 

 

35,879

Contingencies and commitments

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners' capital (deficit):

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Partners' equity

 

 

(688,334)

 

 

 1

 

 

2,881

 

 

49,894

 

 

(52,776)

 

 

(688,334)

Accumulated other comprehensive loss

 

 

(841)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(841)

Total partners' capital (deficit)

 

 

(689,175)

 

 

 1

 

 

2,881

 

 

49,894

 

 

(52,776)

 

 

(689,175)

Total liabilities and partners' capital (deficit)

 

$

1,261,744

 

$

 1

 

$

3,023

 

$

167,182

 

$

(102,089)

 

$

1,329,861


49

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, net(3,132) 
 58,618
 109,598
 
 165,084
   Intercompany receivables39,877
 
 
 
 (39,877) 
Inventories78,963
 
 13,589
 
 
 92,552
Prepaid expenses and other current assets26,106
 
 7,314
 6
 
 33,426
Total current assets147,141
 1
 79,894
 109,604
 (39,877) 296,763
            
Property, plant and equipment, net537,582
 
 194,341
 
 
 731,923
Goodwill, net246,098
 
 10,005
 
 
 256,103
Intangible assets, net128,209
 
 122,893
 
 
 251,102
Intercompany receivables450,000
 
 
 
 (450,000) 
Investments in consolidated subsidiaries(53,915) 
 
 
 53,915
 
Other assets, net35,862
 
 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 borrowings59,781
 
 
 
 
 59,781
Collateralized note payable
 
 
 69,000
 
 69,000
Intercompany payables
 
 41,645
 (1,768) (39,877) 
Other current liabilities118,039
 
 3,776
 201
 
 122,016
Total current liabilities221,846
 
 86,766
 67,623
 (39,877) 336,358
            
Long-term debt1,649,139
 
 450,131
 
 (450,000) 1,649,270
Other liabilities26,790
 
 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 income14,764
 
 
 
 
 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 BALANCE SHEETS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of July 31, 2018

 

    

Ferrellgas, L.P.

    

Ferrellgas

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Parent and

 

Finance Corp.

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

Co-Issuer)

 

(Co-Issuer)

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

ASSETS

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Cash and cash equivalents

 

$

119,133

 

$

 1

 

$

174

 

$

 —

 

$

 —

 

$

119,308

Accounts and notes receivable, net

 

 

(3,420)

 

 

 —

 

 

9,395

 

 

120,079

 

 

 —

 

 

126,054

Intercompany receivables

 

 

15,660

 

 

 —

 

 

 —

 

 

 —

 

 

(15,660)

 

 

 —

Inventories

 

 

83,694

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

83,694

Prepaid expenses and other current assets

 

 

34,050

 

 

 —

 

 

775

 

 

 5

 

 

 —

 

 

34,830

Total current assets

 

 

249,117

 

 

 1

 

 

10,344

 

 

120,084

 

 

(15,660)

 

 

363,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

557,689

 

 

 —

 

 

34

 

 

 —

 

 

 —

 

 

557,723

Goodwill, net

 

 

246,098

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

246,098

Intangible assets, net

 

 

120,951

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

120,951

Investments in consolidated subsidiaries

 

 

59,937

 

 

 —

 

 

 —

 

 

 —

 

 

(59,937)

 

 

 —

Other assets, net

 

 

63,411

 

 

 —

 

 

9,961

 

 

1,216

 

 

 —

 

 

74,588

Total assets

 

$

1,297,203

 

$

 1

 

$

20,339

 

$

121,300

 

$

(75,597)

 

$

1,363,246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Accounts payable

 

$

45,171

 

$

 —

 

$

1,547

 

$

102

 

$

 —

 

$

46,820

Short-term borrowings

 

 

32,800

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

32,800

Collateralized note payable

 

 

 —

 

 

 —

 

 

 —

 

 

58,000

 

 

 —

 

 

58,000

Intercompany payables

 

 

 —

 

 

 —

 

 

(143)

 

 

15,803

 

 

(15,660)

 

 

 —

Other current liabilities

 

 

131,702

 

 

 —

 

 

6,036

 

 

353

 

 

 —

 

 

138,091

Total current liabilities

 

 

209,673

 

 

 —

 

 

7,440

 

 

74,258

 

 

(15,660)

 

 

275,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,728,137

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,728,137

Other liabilities

 

 

39,471

 

 

 —

 

 

 5

 

 

 —

 

 

 —

 

 

39,476

Contingencies and commitments

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners' capital (deficit):

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Partners' equity

 

 

(700,811)

 

 

 1

 

 

12,894

 

 

47,042

 

 

(59,937)

 

 

(700,811)

Accumulated other comprehensive income

 

 

20,733

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

20,733

Total partners' capital (deficit)

 

 

(680,078)

 

 

 1

 

 

12,894

 

 

47,042

 

 

(59,937)

 

 

(680,078)

Total liabilities and partners' capital (deficit)

 

$

1,297,203

 

$

 1

 

$

20,339

 

$

121,300

 

$

(75,597)

 

$

1,363,246


50

FERRELLGAS, L.P. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in thousands)
  
 For the three months ended January 31, 2018
 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$592,275
 $
 $(36) $
 $
 $592,239
Midstream operations
 
 117,276
 
 
 117,276
Other22,707
 
 22,934
 
 
 45,641
Total revenues614,982
 
 140,174
 
 
 755,156
            
Costs and expenses:           
Cost of sales - propane and other gas liquids sales362,927
 
 (9) 
 
 362,918
Cost of sales - midstream operations
 
 107,067
 
 
 107,067
Cost of sales - other2,853
 
 17,934
 
 
 20,787
Operating expense114,096
 
 9,795
 1,833
 (2,008) 123,716
Depreciation and amortization expense18,521
 
 6,893
 71
 
 25,485
General and administrative expense13,833
 3
 1,054
 
 
 14,890
Equipment lease expense6,862
 
 92
 
 
 6,954
Non-cash employee stock ownership plan compensation charge4,031
 
 
 
 
 4,031
Asset impairments
 
 10,005
 
 
 10,005
Loss on asset sales and disposals555
 
 38,694
 
 
 39,249
            
Operating income (loss)91,304
 (3) (51,351) (1,904) 2,008
 40,054
            
Interest expense(21,212) 
 (11,739) (1,107) 
 (34,058)
Other income (expense), net408
 
 276
 2,008
 (2,008) 684
            
Earnings (loss) before income taxes70,500
 (3) (62,814) (1,003) 
 6,680
            
Income tax expense (benefit)82
 
 (249) 
 
 (167)
Equity in earnings (loss) of subsidiary(63,571) 
 
 
 63,571
 
            
Net earnings (loss)6,847
 (3) (62,565) (1,003) 63,571
 6,847
            
Other comprehensive loss(8,671) 
 
 
 
 (8,671)
            
Comprehensive income (loss)$(1,824) $(3) $(62,565) $(1,003) $63,571
 $(1,824)
            

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the three months ended April 30, 2019

 

    

Ferrellgas, L.P.

    

Ferrellgas

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Parent and

 

Finance Corp.

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

Co-Issuer)

 

(Co-Issuer)

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Propane and other gas liquids sales

 

$

459,556

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

459,556

Other

 

 

20,069

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

20,069

Total revenues

 

 

479,625

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

479,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Cost of sales - propane and other gas liquids sales

 

 

250,389

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

250,389

Cost of sales - other

 

 

2,320

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,320

Operating expense

 

 

124,078

 

 

 —

 

 

(3)

 

 

968

 

 

(5,052)

 

 

119,991

Depreciation and amortization expense

 

 

20,506

 

 

 —

 

 

 —

 

 

111

 

 

 —

 

 

20,617

General and administrative expense

 

 

11,511

 

 

 1

 

 

 —

 

 

 —

 

 

 —

 

 

11,512

Equipment lease expense

 

 

8,319

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

8,319

Non-cash employee stock ownership plan compensation charge

 

 

(4)

 

 

 —

 

 

 —

 

 

 —

��

 

 —

 

 

(4)

Loss on asset sales and disposals

 

 

1,683

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

60,823

 

 

(1)

 

 

 3

 

 

(1,079)

 

 

5,052

 

 

64,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(34,206)

 

 

 —

 

 

 —

 

 

(1,189)

 

 

 —

 

 

(35,395)

Other income (expense), net

 

 

278

 

 

 —

 

 

(27)

 

 

2,834

 

 

(2,834)

 

 

251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

 

26,895

 

 

(1)

 

 

(24)

 

 

566

 

 

2,218

 

 

29,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

(49)

 

 

 —

 

 

149

 

 

 —

 

 

 —

 

 

100

Equity in earnings (loss) of subsidiaries

 

 

392

 

 

 —

 

 

 —

 

 

 —

 

 

(392)

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

 

27,336

 

 

(1)

 

 

(173)

 

 

566

 

 

1,826

 

 

29,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

8,286

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

8,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

35,622

 

$

(1)

 

$

(173)

 

$

566

 

$

1,826

 

$

37,840


51


FERRELLGAS, L.P. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in thousands)
  
 For the three months ended January 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$437,375
 $
 $
 $
 $
 $437,375
Midstream operations
 
 96,787
 
 
 96,787
Other21,609
 
 23,479
 
 
 45,088
Total revenues458,984
 
 120,266
 
 
 579,250
            
Costs and expenses:           
Cost of sales - propane and other gas liquids sales235,029
 
 
 
 
 235,029
Cost of sales - midstream operations
 
 87,024
 
 
 87,024
Cost of sales - other2,571
 
 18,086
 
 
 20,657
Operating expense103,986
 
 9,642
 539
 (1,091) 113,076
Depreciation and amortization expense18,014
 
 7,527
 66
 
 25,607
General and administrative expense11,093
 3
 1,182
 
 
 12,278
Equipment lease expense7,267
 
 149
 
 
 7,416
Non-cash employee stock ownership plan compensation charge2,945
 
 
 
 
 2,945
Loss on asset sales and disposals73
 
 (28) 
 
 45
            
Operating income (loss)78,006
 (3) (3,316) (605) 1,091
 75,173
            
Interest expense(21,089) 
 (11,002) (657) 
 (32,748)
Other income (expense), net304
 
 459
 1,091
 (1,091) 763
            
Earnings (loss) before income taxes57,221
 (3) (13,859) (171) 
 43,188
            
Income tax expense103
 
 485
 
 
 588
Equity in earnings (loss) of subsidiary(14,518) 
 
 
 14,518
 
            
Net earnings (loss)42,600
 (3) (14,344) (171) 14,518
 42,600
            
Other comprehensive income15,776
 
 
 
 
 15,776
            
Comprehensive income (loss)$58,376
 $(3) $(14,344) $(171) $14,518
 $58,376
            

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the three months ended April 30, 2018

 

    

Ferrellgas, L.P.

    

Ferrellgas

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Parent and

 

Finance Corp.

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

Co-Issuer)

 

(Co-Issuer)

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Propane and other gas liquids sales

 

$

451,212

 

$

 —

 

$

90

 

$

 —

 

$

 —

 

$

451,302

Midstream operations

 

 

 —

 

 

 —

 

 

22,595

 

 

 —

 

 

 —

 

 

22,595

Other

 

 

19,701

 

 

 —

 

 

22,212

 

 

 —

 

 

 —

 

 

41,913

Total revenues

 

 

470,913

 

 

 —

 

 

44,897

 

 

 —

 

 

 —

 

 

515,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Cost of sales - propane and other gas liquids sales

 

 

260,317

 

 

 —

 

 

102

 

 

 —

 

 

 —

 

 

260,419

Cost of sales - midstream operations

 

 

 —

 

 

 —

 

 

14,518

 

 

 —

 

 

 —

 

 

14,518

Cost of sales - other

 

 

2,328

 

 

 —

 

 

17,522

 

 

 —

 

 

 —

 

 

19,850

Operating expense

 

 

108,291

 

 

 —

 

 

9,262

 

 

1,459

 

 

(2,433)

 

 

116,579

Depreciation and amortization expense

 

 

19,105

 

 

 —

 

 

6,171

 

 

72

 

 

 —

 

 

25,348

General and administrative expense

 

 

10,460

 

 

 —

 

 

1,086

 

 

 —

 

 

 —

 

 

11,546

Equipment lease expense

 

 

7,045

 

 

 —

 

 

88

 

 

 —

 

 

 —

 

 

7,133

Non-cash employee stock ownership plan compensation charge

 

 

2,738

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,738

Loss on asset sales and disposals

 

 

2,243

 

 

 —

 

 

4,027

 

 

 —

 

 

 —

 

 

6,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

58,386

 

 

 —

 

 

(7,879)

 

 

(1,531)

 

 

2,433

 

 

51,409

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(20,297)

 

 

 —

 

 

(10,104)

 

 

(1,338)

 

 

 —

 

 

(31,739)

Other income (expense), net

 

 

(133)

 

 

 —

 

 

360

 

 

2,433

 

 

(2,433)

 

 

227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

 

37,956

 

 

 —

 

 

(17,623)

 

 

(436)

 

 

 —

 

 

19,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

102

 

 

 —

 

 

(45)

 

 

 —

 

 

 —

 

 

57

Equity in earnings (loss) of subsidiaries

 

 

(18,014)

 

 

 —

 

 

 —

 

 

 —

 

 

18,014

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

 

19,840

 

 

 —

 

 

(17,578)

 

 

(436)

 

 

18,014

 

 

19,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

(6,727)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,727)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

13,113

 

$

 —

 

$

(17,578)

 

$

(436)

 

$

18,014

 

$

13,113


52

FERRELLGAS, L.P. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in thousands)
  
 For the six months ended January 31, 2018
 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$894,392
 $
 $605
 $
 $
 $894,997
Midstream operations
 
 238,036
 
 
 238,036
Other39,384
 
 37,394
 
 
 76,778
Total revenues933,776
 
 276,035
 
 
 1,209,811
            
Costs and expenses:           
Cost of sales - propane and other gas liquids sales541,746
 
 687
 
 
 542,433
Cost of sales - midstream operations
 
 215,192
 
 
 215,192
Cost of sales - other5,562
 
 28,927
 
 
 34,489
Operating expense215,328
 
 19,058
 3,015
 (3,223) 234,178
Depreciation and amortization expense36,868
 
 14,206
 143
 
 51,217
General and administrative expense24,588
 5
 3,461
 
 
 28,054
Equipment lease expense13,510
 
 185
 
 
 13,695
Non-cash employee stock ownership plan compensation charge7,993
 
 
 
 
 7,993
Asset impairments
 
 10,005
 
 
 10,005
Loss on asset sales and disposals1,463
 
 38,681
 
 
 40,144
            
Operating income (loss)86,718
 (5) (54,367) (3,158) 3,223
 32,411
            
Interest expense(41,606) 
 (22,924) (1,724) 
 (66,254)
Other income (expense), net623
 
 572
 3,223
 (3,223) 1,195
            
Earnings (loss) before income taxes45,735
 (5) (76,719) (1,659) 
 (32,648)
            
Income tax expense72
 
 132
 
 
 204
Equity in earnings (loss) of subsidiary(78,515) 
 
 
 78,515
 
            
Net earnings (loss)(32,852) (5) (76,851) (1,659) 78,515
 (32,852)
            
Other comprehensive income9,829
 
 
 
 
 9,829
            
Comprehensive income (loss)$(23,023) $(5) $(76,851) $(1,659) $78,515
 $(23,023)
            

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 2019

 

    

Ferrellgas, L.P.

    

Ferrellgas

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Parent and

 

Finance Corp.

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

Co-Issuer)

 

(Co-Issuer)

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Propane and other gas liquids sales

 

$

1,344,634

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

1,344,634

Other

 

 

60,628

 

 

 —

 

 

49

 

 

 —

 

 

 —

 

 

60,677

Total revenues

 

 

1,405,262

 

 

 —

 

 

49

 

 

 —

 

 

 —

 

 

1,405,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Cost of sales - propane and other gas liquids sales

 

 

766,056

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

766,056

Cost of sales - other

 

 

8,675

 

 

 —

 

 

114

 

 

 —

 

 

 —

 

 

8,789

Operating expense

 

 

355,589

 

 

 —

 

 

36

 

 

3,869

 

 

(7,953)

 

 

351,541

Depreciation and amortization expense

 

 

58,880

 

 

 —

 

 

 —

 

 

334

 

 

 —

 

 

59,214

General and administrative expense

 

 

42,022

 

 

 6

 

 

 —

 

 

 —

 

 

 —

 

 

42,028

Equipment lease expense

 

 

24,597

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

24,597

Non-cash employee stock ownership plan compensation charge

 

 

4,688

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,688

Loss on asset sales and disposals

 

 

5,724

 

 

 —

 

 

2,679

 

 

 —

 

 

 —

 

 

8,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

139,031

 

 

(6)

 

 

(2,780)

 

 

(4,203)

 

 

7,953

 

 

139,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(103,209)

 

 

 —

 

 

(38)

 

 

(3,493)

 

 

 —

 

 

(106,740)

Other income (expense), net

 

 

393

 

 

 —

 

 

(37)

 

 

7,953

 

 

(7,953)

 

 

356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

 

36,215

 

 

(6)

 

 

(2,855)

 

 

257

 

 

 —

 

 

33,611

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

105

 

 

 —

 

 

149

 

 

 —

 

 

 —

 

 

254

Equity in earnings (loss) of subsidiary

 

 

(2,753)

 

 

 —

 

 

 —

 

 

 —

 

 

2,753

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

 

33,357

 

 

(6)

 

 

(3,004)

 

 

257

 

 

2,753

 

 

33,357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

(21,574)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(21,574)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

11,783

 

$

(6)

 

$

(3,004)

 

$

257

 

$

2,753

 

$

11,783


53

FERRELLGAS, L.P. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(in thousands)
  
 For the six months ended January 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$679,774
 $
 $
 $
 $
 $679,774
Midstream operations
 
 204,831
 
 
 204,831
Other38,935
 
 35,252
 
 
 74,187
Total revenues718,709
 
 240,083
 
 
 958,792
            
Costs and expenses:           
Cost of sales - propane and other gas liquids sales354,241
 
 
 
 
 354,241
Cost of sales - midstream operations
 
 181,666
 
 
 181,666
Cost of sales - other5,001
 
 27,402
 
 
 32,403
Operating expense201,641
 
 19,888
 (1,566) (1,801) 218,162
Depreciation and amortization expense36,291
 
 15,399
 119
 
 51,809
General and administrative expense23,956
 5
 2,586
 
 
 26,547
Equipment lease expense14,477
 
 288
 
 
 14,765
Non-cash employee stock ownership plan compensation charge6,699
 
 
 
 
 6,699
Loss on asset sales and disposals1,520
 
 4,948
 
 
 6,468
            
Operating income (loss)74,883
 (5) (12,094) 1,447
 1,801
 66,032
            
Interest expense(41,441) 
 (21,675) (1,027) (3) (64,146)
Other income (expense), net257
 
 1,014
 1,798
 (1,798) 1,271
            
Earnings (loss) before income taxes33,699
 (5) (32,755) 2,218
 
 3,157
            
Income tax expense (benefit)74
 
 (77) 
 
 (3)
Equity in earnings (loss) of subsidiary(30,465) 
 
 
 30,465
 
            
Net earnings (loss)3,160
 (5) (32,678) 2,218
 30,465
 3,160
            
Other comprehensive income25,152
 
 
 
 
 25,152
            
Comprehensive income (loss)$28,312
 $(5) $(32,678) $2,218
 $30,465
 $28,312
            

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the nine months ended April 30, 2018

 

    

Ferrellgas, L.P.

    

Ferrellgas

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Parent and

 

Finance Corp.

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

Co-Issuer)

 

(Co-Issuer)

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Propane and other gas liquids sales

 

$

1,345,604

 

$

 —

 

$

695

 

$

 —

 

$

 —

 

$

1,346,299

Midstream operations

 

 

 —

 

 

 —

 

 

260,631

 

 

 —

 

 

 —

 

 

260,631

Other

 

 

59,085

 

 

 —

 

 

59,606

 

 

 —

 

 

 —

 

 

118,691

Total revenues

 

 

1,404,689

 

 

 —

 

 

320,932

 

 

 —

 

 

 —

 

 

1,725,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Cost of sales - propane and other gas liquids sales

 

 

802,063

 

 

 —

 

 

789

 

 

 —

 

 

 —

 

 

802,852

Cost of sales - midstream operations

 

 

 —

 

 

 —

 

 

229,710

 

 

 —

 

 

 —

 

 

229,710

Cost of sales - other

 

 

7,890

 

 

 —

 

 

46,449

 

 

 —

 

 

 —

 

 

54,339

Operating expense

 

 

323,619

 

 

 —

 

 

28,320

 

 

4,474

 

 

(5,656)

 

 

350,757

Depreciation and amortization expense

 

 

55,973

 

 

 —

 

 

20,377

 

 

215

 

 

 —

 

 

76,565

General and administrative expense

 

 

35,048

 

 

 5

 

 

4,547

 

 

 —

 

 

 —

 

 

39,600

Equipment lease expense

 

 

20,555

 

 

 —

 

 

273

 

 

 —

 

 

 —

 

 

20,828

Non-cash employee stock ownership plan compensation charge

 

 

10,731

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,731

Asset impairments

 

 

 —

 

 

 —

 

 

10,005

 

 

 —

 

 

 —

 

 

10,005

Loss on asset sales and disposals

 

 

3,706

 

 

 —

 

 

42,708

 

 

 —

 

 

 —

 

 

46,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

145,104

 

 

(5)

 

 

(62,246)

 

 

(4,689)

 

 

5,656

 

 

83,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(61,903)

 

 

 —

 

 

(33,028)

 

 

(3,062)

 

 

 —

 

 

(97,993)

Other income (expense), net

 

 

490

 

 

 —

 

 

932

 

 

5,656

 

 

(5,656)

 

 

1,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

 

83,691

 

 

(5)

 

 

(94,342)

 

 

(2,095)

 

 

 —

 

 

(12,751)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

174

 

 

 —

 

 

87

 

 

 —

 

 

 —

 

 

261

Equity in earnings (loss) of subsidiary

 

 

(96,529)

 

 

 —

 

 

 —

 

 

 —

 

 

96,529

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

 

(13,012)

 

 

(5)

 

 

(94,429)

 

 

(2,095)

 

 

96,529

 

 

(13,012)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

3,102

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

(9,910)

 

$

(5)

 

$

(94,429)

 

$

(2,095)

 

$

96,529

 

$

(9,910)

54

FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
        
 For the six months ended January 31, 2018
 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$(57,734) $(5) $13,335
 $120,563
 $(97,000) $(20,841)
            
Cash flows from investing activities:           
Business acquisitions, net of cash acquired(14,862) 
 
 
 
 (14,862)
Capital expenditures(34,391) 
 (1,302) 
 
 (35,693)
Proceeds from sale of assets4,207
 
 
 
 
 4,207
Cash collected for purchase of interest in accounts receivable
 
 
 574,783
 (574,783) 
Cash remitted to Ferrellgas, L.P for accounts receivable
 
 
 (671,783) 671,783
 
Net changes in advances with consolidated entities132,748
 
 
 
 (132,748) 
Net cash provided by (used in) investing activities87,702
 
 (1,302) (97,000) (35,748) (46,348)
            
Cash flows from financing activities:           
Distributions(35,380) 
 
 
 
 (35,380)
Proceeds from increase in long-term debt23,580
 
 
 
 
 23,580
Payments on long-term debt(1,267) 
 
 
 
 (1,267)
Net reductions in short-term borrowings(7,879) 
 
 
 
 (7,879)
Net additions to collateralized short-term borrowings
 
 
 97,000
 
 97,000
Net changes in advances with parent
 5
 (12,190) (120,563) 132,748
 
Cash paid for financing costs(395) ���
 
 
 
 (395)
Net cash provided by (used in) financing activities(21,341) 5
 (12,190) (23,563) 132,748
 75,659
            
Increase (decrease) in cash and cash equivalents8,627
 
 (157) 
 
 8,470
Cash and cash equivalents - beginning of year5,327
 1
 373
 
 
 5,701
Cash and cash equivalents - end of year$13,954
 $1
 $216
 $
 $
 $14,171
       

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 2019

 

    

Ferrellgas, L.P.

    

Ferrellgas

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Parent and

 

Finance Corp.

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

Co-Issuer)

 

(Co-Issuer)

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Cash flows from operating activities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Net cash provided by (used in) operating activities

 

$

111,008

 

$

(6)

 

$

24,589

 

$

(45,384)

 

$

(4,000)

 

$

86,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Business acquisitions, net of cash acquired

 

 

(11,351)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(11,351)

Capital expenditures

 

 

(94,660)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(94,660)

Proceeds from sale of assets

 

 

2,416

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,416

Cash collected for purchase of interest in accounts receivable

 

 

 —

 

 

 —

 

 

 —

 

 

1,052,947

 

 

(1,052,947)

 

 

 —

Cash remitted to Ferrellgas, L.P. for accounts receivable

 

 

 —

 

 

 —

 

 

 —

 

 

(1,056,947)

 

 

1,056,947

 

 

 —

Net changes in advances with consolidated entities

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Intercompany loan to affiliate

 

 

(20,638)

 

 

 —

 

 

 —

 

 

 —

 

 

20,638

 

 

 —

Other

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net cash provided by (used in) investing activities

 

 

(124,233)

 

 

 —

 

 

 —

 

 

(4,000)

 

 

24,638

 

 

(103,595)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Distributions

 

 

(25,568)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(25,568)

Reductions in long-term debt

 

 

(1,656)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,656)

Net reductions in short-term borrowings

 

 

(32,800)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(32,800)

Net additions to collateralized short-term borrowings

 

 

 —

 

 

 —

 

 

 —

 

 

4,000

 

 

 —

 

 

4,000

Net changes in advances with consolidated entities

 

 

 —

 

 

 6

 

 

(24,763)

 

 

45,395

 

 

(20,638)

 

 

 —

Cash paid for financing costs

 

 

(520)

 

 

 —

 

 

 —

 

 

(11)

 

 

 —

 

 

(531)

Net cash provided by (used in) financing activities

 

 

(60,544)

 

 

 6

 

 

(24,763)

 

 

49,384

 

 

(20,638)

 

 

(56,555)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(73,769)

 

 

 —

 

 

(174)

 

 

 —

 

 

 —

 

 

(73,943)

Cash and cash equivalents - beginning of year

 

 

119,133

 

 

 1

 

 

174

 

 

 —

 

 

 —

 

 

119,308

Cash and cash equivalents - end of year

 

$

45,364

 

$

 1

 

$

 —

 

$

 —

 

$

 —

 

$

45,365


55

FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
        
 For the six months ended January 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$85,916
 $(5) $(47,221) $75,611
 $(69,000) $45,301
            
Cash flows from investing activities:           
Capital expenditures(19,686) 
 (82) 
 
 (19,768)
Proceeds from sale of assets4,591
 
 
 
 
 4,591
Cash collected for purchase of interest in accounts receivable
 
 
 469,600
 (469,600) 
Cash remitted to Ferrellgas, L.P for accounts receivable
 
 
 (538,600) 538,600
 
Net changes in advances with consolidated entities28,408
 
 
 
 (28,408) 
Other(37) 
 
 
 
 (37)
Net cash provided by (used in) investing activities13,276
 
 (82) (69,000) 40,592
 (15,214)
            
Cash flows from financing activities:           
Distributions(84,500) 
 
 
 
 (84,500)
Contributions from Partners167,640
 
 
 
 
 167,640
Proceeds from increase in long-term debt36,444
 
 
 
 
 36,444
Payments on long-term debt(172,790) 
 
 
 
 (172,790)
Net reductions in short-term borrowings(35,692) 
 
 
 
 (35,692)
Net additions to collateralized short-term borrowings
 
 
 69,000
 
 69,000
Net changes in advances with parent
 5
 47,198
 (75,611) 28,408
 
Cash paid for financing costs(1,422) 
 
 
 
 (1,422)
Net cash provided by (used in) financing activities(90,320) 5
 47,198
 (6,611) 28,408
 (21,320)
            
Increase (decrease) in cash and cash equivalents8,872
 
 (105) 
 
 8,767
Cash and cash equivalents - beginning of year4,472
 1
 417
 
 
 4,890
Cash and cash equivalents - end of year$13,344
 $1
 $312
 $
 $
 $13,657
       

FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 2018

 

    

Ferrellgas, L.P.

    

Ferrellgas

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(Parent and

 

Finance Corp.

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

Co-Issuer)

 

(Co-Issuer)

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Cash flows from operating activities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Net cash provided by (used in) operating activities

 

$

65,604

 

$

(5)

 

$

(3,531)

 

$

66,878

 

$

(35,000)

 

$

93,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Business acquisitions, net of cash acquired

 

 

(14,862)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(14,862)

Capital expenditures

 

 

(57,158)

 

 

 —

 

 

(1,803)

 

 

 —

 

 

 —

 

 

(58,961)

Proceeds from sale of assets

 

 

2,479

 

 

 —

 

 

55,323

 

 

 —

 

 

 —

 

 

57,802

Cash collected for purchase of interest in accounts receivable

 

 

 —

 

 

 —

 

 

 —

 

 

985,084

 

 

(985,084)

 

 

 —

Cash remitted to Ferrellgas, L.P. for accounts receivable

 

 

 —

 

 

 —

 

 

 —

 

 

(1,020,084)

 

 

1,020,084

 

 

 —

Net changes in advances with consolidated entities

 

 

116,871

 

 

 —

 

 

 —

 

 

 —

 

 

(116,871)

 

 

 —

Net cash provided by (used in) investing activities

 

 

47,330

 

 

 —

 

 

53,520

 

 

(35,000)

 

 

(81,871)

 

 

(16,021)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Distributions

 

 

(45,495)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(45,495)

Proceeds from increase in long-term debt

 

 

23,580

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

23,580

Payments on long-term debt

 

 

(1,892)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,892)

Net reductions in short-term borrowings

 

 

(84,179)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(84,179)

Net additions to collateralized short-term borrowings

 

 

 —

 

 

 —

 

 

 —

 

 

35,000

 

 

 —

 

 

35,000

Net changes in advances with parent

 

 

 —

 

 

 5

 

 

(49,998)

 

 

(66,878)

 

 

116,871

 

 

 —

Cash paid for financing costs

 

 

(1,149)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,149)

Net cash provided by (used in) financing activities

 

 

(109,135)

 

 

 5

 

 

(49,998)

 

 

(31,878)

 

 

116,871

 

 

(74,135)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

3,799

 

 

 —

 

 

(9)

 

 

 —

 

 

 —

 

 

3,790

Cash and cash equivalents - beginning of year

 

 

5,327

 

 

 1

 

 

373

 

 

 —

 

 

 —

 

 

5,701

Cash and cash equivalents - end of year

 

$

9,126

 

$

 1

 

$

364

 

$

 —

 

$

 —

 

$

9,491

M.N.    Subsequent events

Ferrellgas, L.P. evaluated events and transactions occurring after the balance sheet date through the date Ferrellgas, L.P.'s’s condensed consolidated financial statements were issued and concluded that other than as discussed below, there were no


events or

56

transactions occurring during this period that require recognition or disclosure in its condensed consolidated financial statements.


statements except as described below.

On February 20, 2018,June 6, 2019, Ferrellgas, L.P. completedentered into an amendment to the saleagreement governing its Senior Secured Credit Facility. Among other matters, the amendment updated the calculation of 1,072 rail cars utilizedthe fixed charge coverage ratio for purposes of the fixed charge coverage ratio in the Midstream operations segment and received approximately $47.0 millionagreement to exclude certain maintenance capital expenditures related to the purchase of new propane delivery trucks which have historically been leased. The amendment provides that up to a specified amount of such maintenance capital expenditures will not be deducted from consolidated EBITDA for purposes of the calculation. The operating partnership was in cash. Proceeds fromcompliance with the transaction were usedfixed charge coverage ratio covenant, as amended, as of April 30, 2019. A copy of the amendment has been filed as Exhibit 10.31 to reduce outstanding debtour Current Report on Ferrellgas L.P.'s secured credit facility. See additional discussions on the completed rail car sale in Note C - Supplemental financial statement information.Form 10-Q.


57




FERRELLGAS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas, L.P.)
CONDENSED BALANCE SHEETS
(unaudited)
 January 31, 2018 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 capital71,052
 67,336
Accumulated deficit(70,952) (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 January 31, For the six months ended January 31,
  2018 2017 2018 2017
         
General and administrative expense $3,666
 $3,400
 $5,216
 $4,950
         
Net loss $(3,666) $(3,400) $(5,216) $(4,950)
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 six months ended January 31,
 2018 2017
Cash flows from operating activities:   
Net loss$(5,216) $(4,950)
Changes in operating assets and liabilities:

  
Other current assets1,500
 1,500
Cash used in operating activities(3,716) (3,450)
    
Cash flows from financing activities:   
Capital contribution3,716
 3,450
Cash provided by financing activities3,716
 3,450
    
Net change in cash
 
Cash - beginning of period1,100
 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.)

CONDENSED BALANCE SHEETS

(unaudited)

 

 

 

 

 

 

 

 

 

April 30, 2019

 

July 31, 2018

ASSETS

 

 

  

 

 

  

Cash

 

$

1,100

 

$

1,100

Prepaid expenses and 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

 

 

76,677

 

 

72,552

Accumulated deficit

 

 

(76,577)

 

 

(70,952)

Total stockholder's equity

 

$

1,100

 

$

2,600

See notes to condensed financial statements.

  (unaudited)

58


FERRELLGAS FINANCE CORP.

(a wholly-owned subsidiary of Ferrellgas, L.P.)

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended April 30, 

 

For the nine months ended April 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

General and administrative expense

 

$

225

 

$

 —

 

$

5,625

 

$

5,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(225)

 

$

 —

 

$

(5,625)

 

$

(5,216)

 

See notes to condensed financial statements.

59

FERRELLGAS FINANCE CORP.

(a wholly-owned subsidiary of Ferrellgas, L.P.)

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

 

 

 

 

 

 

For the nine months ended April 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(5,625)

 

$

(5,216)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,500

 

 

1,500

Cash used in operating activities

 

 

(4,125)

 

 

(3,716)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Capital contribution

 

 

4,125

 

 

3,716

Cash provided by financing activities

 

 

4,125

 

 

3,716

 

 

 

 

 

 

 

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.

60

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 Finance Corp. is liable as co-issuer and co-obligor for (i) the $500 million aggregate principal amount of the Partnership’s unsecured senior notes due 2021, (ii) the $475 million aggregate principal amount of the Partnership’s unsecured senior notes due 2022, and (iii) the $500 million aggregate principal amount of the Partnership’s unsecured senior notes due 2023, which obligations are only reported on the Partnership’s consolidated balance sheet.

The indentures governing the Partnership’s unsecured senior notes agreements containscontain various restrictive covenants applicable to the Partnership and its subsidiaries, the most restrictive relating to additional indebtedness and restricted payments. The restricted payments covenants require that, for the Partnership to make a restricted payment, the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the Partnership be at least 1.75x on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events, subject to its ability to make restricted payments under the limited exception described below. If this pro forma ratio is below 1.75x, the Partnership may make restricted payments in limited amounts determined under the indentures.As of January 31, 2018,April 30, 2019, the ratio was 1.72x.  As a result, it’s likely the distribution that will be made by the Partnership is in compliance with all requirements, tests, limitations and covenants relatedon June 15, 2019 for payment of interest on Ferrellgas Partners’ unsecured senior notes due 2020 will be made from capacity under the limited exception to these debt agreements.the ratio requirement. the Partnership believes that its remaining capacity under the limited exception to the ratio requirement will allow it to make distributions to Ferrellgas Partners’ to cover interest payments on Ferrellgas Partners’ unsecured senior notes due 2020 through the maturity of those notes.


61


ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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

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


In this Item 2 of the Quarterly Report on Form 10-Q,10‑Q, unless the context indicates otherwise:

·

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


·

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

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

·

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


·

our “general partner” refers to Ferrellgas, Inc.;

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

·

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


·

“unitholders” refers to holders of common units of Ferrellgas Partners;

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

·

"GAAP" refers to accounting principles generally accepted in the United States;


·

“retail sales” refers to Propane and other gas liquid sales: Retail - Sales to End Users or the volume of propane sold primarily to our residential, industrial/commercial and agricultural customers;

our “general partner” refers to Ferrellgas, Inc.;

·

“wholesale sales” refers to Propane and other gas liquid sales: Wholesale - Sales to Resellers or the volume of propane sold primarily to our portable tank exchange customers and bulk propane sold to wholesale customers;


·

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

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

·

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


·

“Notes” refers to the notes of the condensed consolidated financial statements of Ferrellgas Partners or the operating partnership, as applicable;

“unitholders” refers to holders of common units of Ferrellgas Partners;

"GAAP" refers to accounting principles generally accepted in the United States;

“retail sales” refers to Propane and other gas liquid sales: Retail - Sales to End Users or the volume of propane sold primarily to our residential, industrial/commercial and agricultural customers;

“wholesale sales” refers to Propane and other gas liquid sales: Wholesale - Sales to Resellers or the volume of propane sold primarily to our portable tank exchange customers and bulk propane sold to wholesale customers;

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

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

“water solutions revenues” refers to fees charged for the processing and disposal of salt water as well as the sale of skimming oil;

"crude oil logistics revenues" refers to fees charged for crude oil transportation and logistics services on behalf of producers and end-users of crude oil;

"crude oil sales" refers to crude oil purchased and sold in connection with crude oil transportation and logistics services on behalf of producers and end-users of crude oil;

"crude oil hauled" refers to the crude oil volume in barrels transported through our operation of a fleet of trucks, tank trailers, rail cars and a barge;

"Jamex" refers to Jamex Marketing, LLC;


“salt water volume” refers to the number of barrels of salt water processed at our disposal sites;

“skimming oil” refers to the oil collected from the process used at our salt water disposal wells through a combination of gravity and chemicals to separate crude oil that is dissolved in the salt water;

“Notes” refers to the notes of the condensed consolidated financial statements of Ferrellgas Partners or the operating partnership, as applicable;

"MBbls/d" refers to one thousand barrels per day; and

Ferrellgas Partners is a holding entity that conducts no operations and has two direct subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners’ only significant assets are its approximate 99% limited partnership interest in the operating partnership and its 100% equity interest in Ferrellgas Partners Finance Corp. The common units of Ferrellgas Partners are listed on the New York Stock Exchange and our activities are primarily conducted through the operating partnership.

62

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


Our general partner performs all management functions for us and our subsidiaries and holds aan approximate 1% general partner interest in Ferrellgas Partners and an approximate 1% general partner interest in the operating partnership. The parent company of our general partner, Ferrell Companies, beneficially owns approximately 23% of our outstanding common units. Ferrell Companies is owned 100% by an employee stock ownership trust.

We file annual, quarterly, and other reports and information with the Securities and Exchange Commission (the "SEC"). You may read and download our SEC filings over the Internet from several commercial document retrieval services as well as at the SEC’s website at www.sec.gov. You may also read and copy ourOur SEC filings at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information concerning the Public Reference Room and any applicable copy charges. Because our common units are traded on the New York Stock Exchange under the ticker symbol “FGP,” we also provide our SEC filings and particular other information to the New York Stock Exchange. You may obtain copies of these filings and such other information at the offices of the New York Stock Exchange located at 11 Wall Street, New York, New York 10005. In addition, our SEC filings are available on our website at www.ferrellgas.com at no cost as soon as reasonably practicable after our electronic filing or furnishing thereof with the SEC. Please note that any Internet addresses provided in this Quarterly Report on Form 10-Q10‑Q are for informational purposes only and are not intended to be hyperlinks. Accordingly, no information found and/or provided at such Internet addresses is intended or deemed to be incorporated by reference herein.

The following is a discussion of our historical financial condition and results of operations and should be read in conjunction with our historical consolidated financial statements and accompanying Notes thereto included in our Annual Report on Form 10‑K for fiscal 2018 and in our historical condensed consolidated financial statements and accompanying Notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

10‑Q.

The discussions set forth in the “Results of Operations” and “Liquidity and Capital Resources” sections generally refer to Ferrellgas Partners and its consolidated subsidiaries. However, in these discussions there exist twoexists one material differencesdifference between Ferrellgas Partners and the operating partnership. Those material differences are:

becausepartnership: Ferrellgas Partners has outstanding $357.0$357 million in aggregate principal amount of 8.625% senior notes due fiscalJune 15, 2020, the two partnerships incur different amounts ofand accordingly has interest expense that the operating partnership does not have. Ferrellgas Partners’ access to liquidity is dependent on their outstanding indebtedness; seedistributions from the operating partnership. See the statements of operations in their respective condensed consolidated financial statements; and
Ferrellgas Partners repurchased common units in fiscal 2017.

statements.

Cautionary Note Regarding Forward-looking Statements

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


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

·

the effect of weather conditions on the demand for propane;


·

the prices of wholesale propane, motor fuel and crude oil;

Ferrellgas' ability to refinance or replace its secured credit facility and/or its accounts receivable securitization facility;

·

disruptions to the supply of propane;

the effect

·

competition from other industry participants and other energy sources;

·

energy efficiency and technology advances;

63

the prices of wholesale propane, motor fuel and crude oil;

·

adverse changes in our relationships with our national tank exchange customers;

disruptions to the supply of propane;

·

significant delays in the collection of accounts or notes receivable;

competition from other industry participants and other energy sources;

·

customer, counterparty, supplier or vendor defaults;

energy efficiency and technology advances;

·

changes in demand for, and production of, hydrocarbon products;

the termination or non-renewal of certain arrangements or agreements;

·

increased trucking and rail regulations;

adverse changes in our relationships with our national tank exchange customers;

·

inherent operating and litigation risks in gathering, transporting, handling and storing propane;

significant delays in the collection of, or uncollectibility of, accounts or notes receivable;

·

our inability to complete acquisitions or to successfully integrate acquired operations;

customer, counterparty, supplier or vendor defaults;

·

costs of complying with, or liabilities imposed under, environmental, health and safety laws;

changes in demand for, and production of, hydrocarbon products;

·

the impact of pending and future legal proceedings;

capacity overbuild of midstream energy infrastructure in our midstream operational areas;

·

the interruption, disruption, failure or malfunction of our information technology systems including due to cyber attack;

increased trucking regulations;

·

the impact of changes in tax law that could adversely affect the tax treatment of Ferrellgas Partners for federal income tax purposes;

cost increases that exceed contractual rate increases for our logistics services;

·

economic and political instability, particularly in areas of the world tied to the energy industry; and

inherent operating and litigation risks in gathering, transporting, handling and storing propane and crude oil;

·

disruptions in the capital and credit markets.

our inability to complete acquisitions or to successfully integrate acquired operations;

·

access to available capital to meet the our operating requirements up to and including the refinancing of maturing debt instruments

costs of complying with, or liabilities imposed under, environmental, health and safety laws;
the impact of pending and future legal proceedings;
the interruption, disruption, failure or malfunction of our information technology systems including due to cyber attack;
the impact of changes in tax law that could adversely affect the tax treatment of Ferrellgas Partners for federal income tax purposes;
economic and political instability, particularly in areas of the world tied to the energy industry; and
disruptions in the capital and credit markets.

When considering any forward-looking statement, you should also keep in mind the risk factors set forth in “Item 1A. Risk Factors” of our Annual Report on Form 10-K10‑K for fiscal 2017 and under Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q.2018. Any of these risks could impair our business, financial condition or results of operations. Any such impairment may affect our ability to make distributions to our unitholders or pay interest on the principal of any of our debt securities. In addition, the trading price of our securities could decline as a result of any such impairment.

Except for our ongoing obligations to disclose material information as required by federal securities laws, we undertake no obligation to update any forward-looking statements or risk factors after the date of this Quarterly Report on Form 10-Q.




10‑Q.

Recent developments


Rail car sale

During

Debt and interest expense reduction and refinancing strategy

We continue to pursue a strategy to further reduce our debt and interest expense. This strategy included entering into the quarter ended January 31,new Senior Secured Credit Facility and amending its accounts receivable securitization facility in May 2018 we committed to a plan to dispose of all of our rail cars utilized in the Midstream operations segment and as a result, reclassified 1,292 rail cars from "Property, plant and equipment, net" to "Assets held for sale" on our condensed consolidated balance sheet as of January 31, 2018. For the three and six months ended January 31, 2018, "Loss oncertain asset sales and disposals" includes a loss of $35.5 million relatedduring fiscal 2018. We continue to the write-down of these rail cars classified as "Assets held for sale".


In February 2018 we sold 1,072 rail cars and received approximately $47.0 million in cash, which we usedevaluate our options to reduce borrowings underaddress our senior secured credit facility. We expect that the sale will reduce our interest expense in future periods, improve our credit metrics, and lessen our reliance on our senior secured credit facility as we move forward with growth efforts. We expect that the liquidity benefits from the sale of these assets will be achieved without impacting our forecasted Adjusted EBTIDA.

Bridger Energy, LLC sale

In January 2018 we completed the sale of Bridger Energy, LLC, a subsidiary of Bridger Logistics, which is a subsidiary of Ferrellgas, L.P. With the sale, we exited Bridger Energy's oil purchase and sale activity, and as a result will be able to realize a near-term reduction of approximately $80 million in letters of credit issued on our senior secured credit facility to support Bridger Energy.

leverage.

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 our ability and the ability of specifiedits subsidiaries to, among other things, make restricted payments and incur additional indebtedness. Our general partner believes that the most restrictive of these covenants are those related to the consolidated fixed charge coverage ratio, as defined in the indenture governing

64

the outstanding notes of Ferrellgas Partners, and the consolidated fixed charge coverage ratio, as defined in the indenture governing the outstanding notes of the operating partnership.

Consolidated fixed charge coverage ratio - Ferrellgas Partners, andL.P., the consolidated leverage ratio and consolidated interest coverage ratio, as defined in our secured credit facility and our accounts receivable securitization facility.


Beforemaster limited partnership

Under the Ferrellgas Partners indenture, 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 thesatisfy a consolidated fixed charge coverage ratio covenantrequirement or have unused capacity under a limited exception to the Ferrellgas Partners indenture.ratio requirement. 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

The restricted payments 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,requires that, would constitute an event of default which would permit the acceleration of the obligations underlying thefor 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 our debt obligations are accelerated, we 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

Our 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 our secured credit facility and our accounts receivable securitization facility.

The current maximum consolidated leverage covenant ratios are as follows:

DateMaximum leverage ratio
January 31, 20187.75
April 30, 20187.75
July 31, 2018 & thereafter5.50

Our consolidated leverage ratio was 6.96x as of January 31, 2018; the margin allows for approximately $193.2 million of additional borrowing capacity or approximately $24.9 million less EBITDA. This covenant also restricts the operating partnership's ability to make payments to Ferrellgas Partners for purposes of funding quarterly common unit distributions 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 our secured credit facility and accounts receivable securitization facility.

The current minimum consolidated interest coverage ratios are as follows:

Date
Minimum consolidated interest coverage ratio

January 31, 20181.75
April 30, 20181.75
July 31, 2018 & thereafter2.50

Our consolidated interest ratio was 2.14x as of January 31, 2018; the margin allows for approximately $25.3 million of additional interest expense or approximately $44.3 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 thatpayment, the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of Ferrellgas Partners be at least 1.75x, beforeon a pro forma basis giving effect to the restricted payment (as defined inand, if applicable, certain other specified events, subject to its ability to make restricted payments under the indenture) can be made by Ferrellgas Partners.limited exception described below. If this pro forma ratio were to dropis below 1.75x, the indenture allows us toFerrellgas Partners may make restricted payments of up to $50.0 million in total over a 16sixteen quarter period while below this ratio.period. As of January 31, 2018,April 30, 2019, the ratio was 1.59x.1.38x. As a result of distributions paid to common unitholders in September 2017, December 2017, March 2018, June 2018, and September 2018 while this ratio was less than 1.75x, Ferrellgas Partners has used substantially all of its capacity under the $9.8 million distributionlimited exception and therefore is currently restricted by this covenant from making future restricted payments, including distributions to common unitholders. Accordingly, no distributions will be paid to common unitholders in June 2019 for the three months ended April 30, 2019. Unless this indenture is amended or replaced, or Ferrellgas Partners’ consolidated fixed charge coverage ratio improves to at least 1.75x, this covenant will continue to restrict Ferrellgas Partners from making common unit distributions.

Consolidated fixed charge coverage ratio - Ferrellgas, L.P., the operating partnership

Under the operating partnership indentures, before a restricted payment (as defined in the indentures) can be made by the operating partnership to Ferrellgas Partners, the operating partnership must satisfy a consolidated fixed charge coverage ratio requirement or have unused capacity under a limited exception to the ratio requirement. If the operating partnership is unable to make restricted payments, Ferrellgas Partners will not have the ability to make distributions to Ferrellgas Partners common unitholders or make interest payments on March 16, 2018Ferrellgas Partners’ unsecured senior notes due 2020.

The restricted payments covenants require that, for the operating partnership to make a restricted payment, the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the operating partnership be at least 1.75x on a pro forma basis giving effect to the restricted payment and, if applicable, certain other specified events, subject to its ability to make restricted payments under the limited exception described below. If this pro forma ratio is below 1.75x, the operating partnership may make restricted payments in limited amounts determined under the indentures. As of April 30, 2019, the ratio was 1.72x.  As a result, it’s likely the distribution that will be takenmade by the operating partnership on June 15, 2019 for payment of interest on Ferrellgas Partners’ unsecured senior notes due 2020 will be made from capacity under the $50.0 million restricted payment limitation, which after consideringlimited exception to the $9.8 million deductions taken as a resultratio requirement. The operating partnership believes that its remaining capacity under the limited exception to the ratio requirement will allow it to make distributions to Ferrellgas Partners’ to cover interest payments on Ferrellgas Partners’ unsecured senior notes due 2020 through the maturity of those notes.

Distributions

As discussed above, no distributions will be paid to common unitholders in June 2019 for the distributions paid in September 2017 and December 2017, leaves $20.6 million for future restricted payments.three months ended April 30, 2019. Unless the indenture governing the outstanding Ferrellgas Partners notes is amended or refinanced,replaced, if our consolidated fixed charge coverage ratio under that indenture does not improve to at least 1.75x, 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, 2018April 30, 2019 and beyond.


Debt and interest expense reduction strategy

We continue to execute on a strategy to further reduce our debt and interest expense. This strategy may include amending or refinancing existing debt agreements, additional asset sales (see Recent Developments above for such actions taken since October 31, 2017), a reduction in Ferrellgas Partners' annual distribution rate or the issuance of equity. We believe any debt and interest expense reduction strategies would remain in effect until our consolidated leverage ratio reaches 4.5x or a level that we deem appropriate for our business.


If we are unsuccessful with our strategy to further reduce debt and interest expense, or are unsuccessful in renegotiating our secured credit facility and our accounts receivable securitization facility, which both mature in October 2018, or are unable to secure alternative liquidity sources, we may not have the liquidity to fund our 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 and the accounts receivable securitization facility could have a material, adverse effect on our operating capacity and cash flows and could further restrict our 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 our indebtedness. The accelerated debt would become immediately due and payable, which would in turn trigger cross-acceleration under other debt. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full and we 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 January 31, 2018 has been classified as a current liability in the condensed consolidated balance sheets as of January 31, 2018. 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 and the accounts receivable securitization facility. Potential options include extending the current secured credit facility and accounts receivable securitization facility, entering into a new secured credit facility and accounts receivable securitization facility, or securing alternative financing from different sources. 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.

Distributions

On February 22, 2018 the board of directors of our general partner announced a quarterly distribution of $0.10, payable on March 16, 2018, to all unitholders of record as of March 9, 2018, which equates to an annual distribution rate of $0.40. On December 15, 2017 and September 14, 2017, we also paid a quarterly distribution of $0.10.

U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (“2017 Act”) was signed into law, which enacted significant changes to U.S. tax and related laws. Some of the provisions of the 2017 Act that could affect Ferrellgas and its subsidiaries include, but are not limited to, a reduction of the federal corporate income tax rate from 35% to 21%, limitations on the deductibility of interest expense, and full expensing for certain qualified property.
Ferrellgas has adjusted all federal net deferred tax assets of its corporate subsidiaries using the lower federal corporate income tax rate. Since the corporate subsidiaries are fiscal year tax filers with a tax year straddling the effective date of the 2017 Act, a blended corporate tax federal rate has been applied in accordance with the requirements of Internal Revenue Code Section 15.
While we do not expect the 2017 Act to have a material impact on our results, Ferrellgas will continue to analyze the 2017 Act to determine the full effects of the new law on its consolidated financial statements.

How We Evaluate Our Operations


We evaluate our overall business performance based primarily on Adjusted EBITDA.a metric we refer to as “Adjusted EBITDA”, which is not defined by GAAP and should not be considered an alternative to earnings measures defined by GAAP. We do not utilize depreciation, depletion and amortization expense in our key measures because we focus our performance management on cash flow generation and our revenue generating assets have long useful lives. For the definition of


65

Segment disclosure

Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net earnings (loss) attributable to Ferrellgas Partners, L.P., the most directly comparable GAAP measure, see the subheading “Non-GAAP Financial Measures” below.

Propane operations and related equipment sales


Based on our propane sales volumes in fiscal 2017,2018, we believe that we are the second largest retail marketer of propane in the United States and a leading national provider of propane by portable tank exchange. We serve residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all 50 states, the District of Columbia and Puerto Rico. Our operations primarily include the distribution and sale of propane and related equipment and supplies with concentrations in the Midwest, Southeast, Southwest and Northwest regions of the United States.


We use information on temperatures to understand how our results of operations are affected by temperatures that are warmer or colder than normal. Normal temperatures computed by us are the average of the last 3010 years of information published by the


National Oceanic and Atmospheric Administration. Based on this information we calculate a ratio of actual heating degree days to normal heating degree days. Heating degree days are a general indicator of weather impacting propane usage.

Weather conditions have a significant impact on demand for propane for heating purposes primarily during the months of November through March (the “winter heating season”). Accordingly, the volume of propane used by our customers for this purpose is directly affected by the severity of the winter weather in the regions we serve and can vary substantially from year to year. In any given region, sustained warmer-than-normal temperatures will tend to result in reduced propane usage, while sustained colder-than-normal temperatures will tend to result in greater usage. Although there is a strong correlation between weather and customer usage, general economic conditions in the United States and the wholesale price of propane can have a significant impact on this correlation. Additionally, there is a natural time lag between the onset of cold weather and increased sales to customers. If the United States were to experience a cooling trend we could expect nationwide demand for propane to increase which could lead to greater sales, income and liquidity availability. Conversely, if the United States were to experience a continued warming trend, we could expect nationwide demand for propane for heating purposes to decrease which could lead to a reduction in our sales, income and liquidity availability as well as impact our ability to maintain compliance with our debt covenants.

We employ risk management activities that attempt to mitigate price risks related to the purchase, storage, transport and sale of propane generally in the contract and spot markets from major domestic energy companies. We attempt to mitigate these price risks through the use of financial derivative instruments and forward propane purchase and sales contracts. We enter into propane sales commitments with a portion of our customers that provide for a contracted price agreement for a specified period of time. These commitments can expose us to product price risk if not immediately hedged with an offsetting propane purchase commitment.

Our open financial derivative propane purchase commitments are designated as hedges primarily for fiscal 20182019 and 20192020 sales commitments and, as of January 31, 2018,April 30, 2019, have experienced net mark-to-market gainslosses of approximately $24.3$1.0 million. Because these financial derivative purchase commitments qualify for hedge accounting treatment, the resulting asset, liability and related mark-to-market gains or losses are recorded on the condensed consolidated balance sheets as “Prepaid expenses and other current assets,” "Other assets, net," “Other current liabilities,” "Other liabilities" and “Accumulated other comprehensive income,loss,” respectively, until settled. Upon settlement, realized gains or losses on these contracts will be reclassified to “Cost of sales-propane and other gas liquid sales” in the condensed consolidated statements of operations as the underlying inventory is sold. These financial derivative purchase commitment net gainslosses are expected to be offset by decreasedincreased margins on propane sales commitments that qualify for the normal purchase normal sale exception. At January 31, 2018,April 30, 2019, we estimate 72%73% of currently open financial derivative purchase commitments, the related propane sales commitments and the resulting gross margin will be realized into earnings during the next twelve months.

Midstream Operations

66



Summary Discussion of Results of Operations:

Items Impacting the Comparability of Our Financial Results

Our current and future results of operations will not be comparable to our historical results of operations for the periods presented due to the following transactions:

·

During the fourth quarter of fiscal 2018, we completed the sale of a subsidiary and a group of assets within the Midstream operations segment. The subsidiary sold was Bridger Environmental LLC, which encompassed all saltwater disposal activities previously operated by us. The group of assets sold included all assets, excluding working capital, associated with the crude oil trucking operations previously operated by us. Additionally, the sale included two crude oil injection terminals.


·

During the third quarter of fiscal 2018, we sold all 1,292 rail tank cars utilized in our Midstream operations segment.

·

During the second quarter of fiscal 2018, we completed the sale of Bridger Energy, LLC, included in our Midstream operations segment.

·

During the fourth quarter of fiscal 2018, we completed the sale of a group of assets encompassing an immaterial reporting unit within our Propane operations segment that sold lower margin propane related equipment.

·

Operating loss and Adjusted EBITDA associated with these divestitures in the three months ended April 30, 2018 was $7.8 million and $2.3 million, respectively. Operating loss and Adjusted EBITDA associated with these divestitures in the nine months ended April 30, 2018 was $62.2 million and $13.4 million, respectively.

For the three months ended January 31,April 30, 2019 and 2018 and 2017


During the three months ended January 31, 2018,April 30, 2019, we generated net lossearnings attributable to Ferrellgas Partners L.P. of $1.8$20.5 million, compared to net earnings attributable to Ferrellgas Partners L.P. of $38.1$10.9 million during the three months ended January 31, 2017.


April 30, 2018.

Our propane operations and related equipment sales segment generated operating income of $101.8$77.1 million during the three months ended January 31, 2018,April 30, 2019, compared to operating income of $95.3$74.5 million earned during the three months ended April 30, 2018. The increase in operating income is primarily due to an $18.3 million increase in “Gross margin – Propane and other gas liquid sales”, largely offset by a $9.3 million increase in "Operating, general and administrative expense", a $4.3 million decrease in “Gross margin – other”, and a $1.3 million increase in "Equipment lease expense". The increase in "Operating, general and administrative expense" and "Gross margin - Propane and other gas liquid sales" primarily resulted from a 4% increase in retail customer count and the increase in total gallons sold. The impact of the sale of a group of assets that sold lower margin propane related equipment at the end of fiscal 2018 resulted in the decrease in "Gross margin - other". The increase in “Equipment lease expense” is due to continued investment in new propane delivery trucks both to serve our expanding customer base and to reduce the age of our fleet. In addition, we purchased new propane delivery trucks as discussed below.

Our corporate and other operations recognized an operating loss of $12.3 million during the three months ended January 31, 2017. DueApril 30, 2019, compared to the seasonal nature of demand for propane, sales volumes of our propane operations and related equipment sales segment typically are higher during the second and third quarters of the fiscal year than during the first and fourth quarters of the fiscal year. The increase in operating income resulted from a $27.0 million increase in gross margin largely offset by a


$10.7 million increase in operating expenses and a $10.0 million impairment of goodwill related to an immaterial reporting unit.

Our midstream operations segment generated an operating loss of $42.3$23.2 million during the three months ended January 31, 2018 compared to an operating loss of $4.4 million during the three months ended January 31, 2017.April 30, 2018. This increasedecrease in operating loss iswas primarily due to a $35.5the $8.5 million operating loss on the disposal of rail car assets recognizedrelated to our midstream operations in fiscal 2018.
Corporate operations recognized an operating loss of $19.4 million during the three months ended January 31, 2018, compared to an operating loss of $15.8 million recognized during the three months ended January 31, 2017. This increase in operating loss is primarily due to a $4.5 million increase in legal costs, partially offset by a $1.0 million decrease in corporate personnel costs.

“Interest expense” for Ferrellgas increased $5.9$3.8 million primarily due to increased interest rates on theour secured credit facility and accounts receivable securitization facility, as well as increased interest rates associated with the $175.0 million of debt issued by Ferrellgas Partners in January 2017, which replaced a portion of the borrowings under the secured credit facility.


Distributable cash flow attributable to equity investors increaseddecreased to $79.2$34.7 million in the current period from $68.9$43.9 million in the prior period primarily due to a $15.6$7.8 million increase in our Adjusted EBITDA, partially offset bymaintenance capital expenditures and a $5.0$2.9 million increase in net cash interest expense. This increase in maintenance capital expenditures primarily relates to the purchase of new propane delivery trucks which have historically been leased.


67

Distributable cash flow excess increased to $67.9$34.0 million in the current period from $57.8$33.3 million in the prior period, primarily due to a $15.6an $7.8 million increase in our Adjusted EBITDA,maintenance capital expenditures and a $2.9 million increase in cash interest expense, as discussed above, partially offset by a $5.0$9.7 million increasedecrease in net cash interest expense.


distributions to common unitholders.

For the sixnine months ended January 31,April 30, 2019 and 2018 and 2017


During the sixnine months ended January 31, 2018,April 30, 2019, we generated net earnings attributable to Ferrellgas Partners L.P. of $6.8 million, compared to net loss attributable to Ferrellgas Partners L.P. of $49.8 million, compared to $5.0$38.9 million during the sixnine months ended January 31, 2017.


April 30, 2018.

Our propane operations and related equipment sales segment generated operating income of $113.0$192.1 million during the sixnine months ended January 31, 2018,April 30, 2019, compared to operating income of $111.9$187.5 million earned during the sixnine months ended January 31, 2017. Due to the seasonal nature of demand for propane, sales volumes of our propane operations and related equipment sales segment typically are higher during the second and third quarters of the fiscal year than during the first and fourth quarters of the fiscal year.April 30, 2018. The slight increase in operating income resulted from the $27.5is primarily due to a $35.1 million increase in gross“Gross margin being largely offset by a $17.1 million increase in operating expenses– Propane and other gas liquid sales” and a $10.0 million impairment of goodwill in the nine months ended April 30, 2018 related to an immaterial reporting unit.


unit that was not repeated in the current period, partially offset by a $19.3 million increase in "Operating, general and administrative expense", and a $12.5 million decrease in "Gross margin – other”. The increase in "Operating, general and administrative expense" and "Gross margin - Propane and other gas liquid sales" primarily resulted from a 4% increase in retail customer count and the increase in total gallons sold. The impact of the sale of a group of assets that sold lower margin propane related equipment at the end of fiscal 2018 resulted in the decrease in "Gross margin - other".

Our midstreamcorporate and other operations segment generatedrecognized an operating loss of $45.1$52.1 million during the sixnine months ended January 31, 2018April 30, 2019, compared to an operating loss of $11.9$103.8 million recognized during the sixnine months ended January 31, 2017.April 30, 2018. This increasedecrease in operating loss iswas primarily due to a $35.5$53.6 million operating loss on disposal of rail car assets recognizedrelated to our midstream operations in fiscal 2018.

Corporate operations recognized an operating loss of $35.5 million during the six months ended January 31, 2018, compared to an operating loss of $33.9 million recognized during the six months ended January 31, 2017. This increase in operating loss is primarily due to a $6.1 million increase in legal costs, partially offset by $2.0 million of decreased non-cash compensation charges and a $2.7 million decrease in corporate personnel costs.

“Interest expense” for Ferrellgas increased $11.2$9.1 million primarily due to increased interest rates on theour secured credit facility and accounts receivable securitization facility, as well as increased interest rates associated with the $175.0 million of debt issued by Ferrellgas Partners in January 2017, which replaced a portion of the borrowings under the secured credit facility.


Distributable cash flow attributable to equity investors of $59.9decreased to $60.1 million in the current period decreased from $62.7$103.8 million in the prior period primarily due to a $9.5$26.0 million increase in netour maintenance capital expenditures, a $10.2 million decrease in our Adjusted EBITDA related to midstream operations in fiscal 2018 and a $7.7 million increase in cash interest expense, a $6.3 millionexpense. This increase in maintenance capital expenditures partially offset by a $12.8 million increase in our Adjusted EBITDA. The increase in maintenance capital expenditures was primarily forrelates to the purchase of new propane delivery trucks.


trucks, which have historically been leased.

Distributable cash flow excess increaseddecreased to $39.3$49.2 million in the current period from $1.9$72.6 million in the prior period, primarily due to a $40.1$26.0 million increase in our maintenance capital expenditures, a $10.2 million decrease in our Adjusted EBITDA related to midstream operations in fiscal 2018 and a $7.7 million increase in cash interest expense, partially offset by a $19.4 million decrease in distributions paid to common unitholders and a $12.8 million increase in our Adjusted EBITDA, partially offset by a $9.5 million increase in net cash interest expense and a $6.3 million increase in maintenance capital expenditures.unitholders.


68


Consolidated Results of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 30, 

 

Nine months ended April 30, 

 

(amounts in thousands)

    

2019

    

2018

    

2019

    

2018

 

Total revenues

 

$

479,625

 

$

515,810

 

$

1,405,311

 

$

1,725,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of sales

 

 

252,709

 

 

294,787

 

 

774,845

 

 

1,086,901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expense

 

 

119,991

 

 

116,579

 

 

351,541

 

 

350,757

 

Depreciation and amortization expense

 

 

20,617

 

 

25,348

 

 

59,214

 

 

76,565

 

General and administrative expense

 

 

11,516

 

 

11,678

 

 

42,037

 

 

39,733

 

Equipment lease expense

 

 

8,319

 

 

7,133

 

 

24,597

 

 

20,828

 

Non-cash employee stock ownership plan compensation charge

 

 

(4)

 

 

2,738

 

 

4,688

 

 

10,731

 

Asset impairments

 

 

 —

 

 

 —

 

 

 —

 

 

10,005

 

Loss on asset sales and disposals

 

 

1,683

 

 

6,270

 

 

8,403

 

 

46,414

 

Operating income

 

 

64,794

 

 

51,277

 

 

139,986

 

 

83,687

 

Interest expense

 

 

(44,162)

 

 

(40,375)

 

 

(132,931)

 

 

(123,855)

 

Other income, net

 

 

251

 

 

227

 

 

356

 

 

1,422

 

Earnings (loss) before income taxes

 

 

20,883

 

 

11,129

 

 

7,411

 

 

(38,746)

 

Income tax expense

 

 

123

 

 

67

 

 

284

 

 

282

 

Net earnings (loss)

 

 

20,760

 

 

11,062

 

 

7,127

 

 

(39,028)

 

Net earnings (loss) attributable to noncontrolling interest

 

 

299

 

 

201

 

 

337

 

 

(131)

 

Net earnings (loss) attributable to Ferrellgas Partners, L.P.

 

 

20,461

 

 

10,861

 

 

6,790

 

 

(38,897)

 

Less: General partner's interest in net earnings (loss)

 

 

205

 

 

109

 

 

68

 

 

(389)

 

Common unitholders' interest in net earnings (loss)

 

$

20,256

 

$

10,752

 

$

6,722

 

$

(38,508)

 


  Three months ended January 31, Six months ended January 31,
(amounts in thousands) 2018 2017 2018 2017
Total revenues $755,156
 $579,250
 $1,209,811
 $958,792
         
Total cost of sales 490,772
 342,710
 792,114
 568,310
         
Operating expense 123,716
 113,076
 234,178
 218,162
Depreciation and amortization expense 25,485
 25,607
 51,217
 51,809
General and administrative expense 14,891
 12,279
 28,055
 26,548
Equipment lease expense 6,954
 7,416
 13,695
 14,765
Non-cash employee stock ownership plan compensation charge 4,031
 2,945
 7,993
 6,699
Asset impairments 10,005
 
 10,005
 
Loss on asset sales and disposals 39,249
 45
 40,144
 6,468
Operating income 40,053
 75,172
 32,410
 66,031
Interest expense (42,673) (36,819) (83,480) (72,247)
Other income, net 684
 763
 1,195
 1,271
Earnings (loss) before income taxes (1,936) 39,116
 (49,875) (4,945)
Income tax expense (benefit) (162) 588
 215
 (2)
Net earnings (loss) (1,774) 38,528
 (50,090) (4,943)
Net earnings (loss) attributable to noncontrolling interest 69
 430
 (332) 32
Net earnings (loss) attributable to Ferrellgas Partners, L.P. (1,843) 38,098
 (49,758) (4,975)
Less: General partner's interest in net earnings (loss) (19) 381
 (498) (50)
Common unitholders' interest in net earnings (loss) $(1,824) $37,717
 $(49,260) $(4,925)


Non-GAAP Financial Measures

In this Quarterly Report we present three primarythe following non-GAAP financial measures: Adjusted EBITDA, Distributable cash flow attributable to equity investors, and Distributable cash flow attributable to common unitholders.


unitholders, and Distributable cash flow excess.

Adjusted EBITDA. Adjusted EBITDA is calculated as net earnings (loss) attributable to Ferrellgas Partners, L.P., less the sum of the following: income tax expense (benefit), interest expense, depreciation and amortization expense, non-cash employee stock ownership plan compensation charge, non-cash stock-based compensation charge, asset impairments, loss on asset sales and disposals, other income, net, severance costs, professionallegal fees incurred related to a lawsuit,and settlements, multi-employer pension withdrawal settlement, unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments, and net earnings (loss) attributable to noncontrolling interest. Management believes the presentation of this measure is relevant and useful because it allows investors to view the partnership'spartnership’s performance in a manner similar to the method management uses, adjusted for items management believes makes it easier to compare its results with other companies that have different financing and capital structures. This method of calculating Adjusted EBITDA may not be consistent with that of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP.


Distributable Cash Flow Attributable to Equity Investors. Distributable cash flow attributable to equity investors is calculated as Adjusted EBITDA minus net cash interest expense, maintenance capital expenditures and cash paid for taxes, plus proceeds from asset sales. Management considers distributable cash flow attributable to equity investors a meaningful measure of the partnership’s ability to declare and pay quarterly distributions to equity investors. Distributable cash flow attributable to equity investors, as management defines it, may not be comparable to distributable cash flow attributable to equity investors or similarly titled measurements used by other corporations and partnerships. Items added into our calculation of distributable cash flow attributable to equity investors that will not occur on a continuing basis may have associated cash payments. Distributable cash flow attributable to equity investors may not be consistent with that of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP.


Distributable Cash Flow Attributable to Common Unitholders. Distributable cash flow attributable to common unitholders is calculated as Distributable cash flow attributable to equity investors minus distributable cash flow attributable to general partner and noncontrolling interest. Management considers distributableDistributable cash flow attributable to

69

common unitholders a meaningful measure of the partnership’s ability to declare and pay quarterly distributions to common unitholders. Distributable cash flow attributable to common unitholders, as management defines it, may not be comparable to distributable cash flow attributable to common unitholders or similarly titled measurements used by other corporations and partnerships. Items added into our calculation of distributable cash flow attributable to common unitholders that will not occur on a continuing basis may have associated cash payments. Distributable cash flow attributable to common unitholders should be viewed in conjunction with measurements that are computed in accordance with GAAP.

Distributable Cash Flow Excess. Distributable cash flow excess is calculated as Distributable cash flow attributable to common unitholders minus Distributions paid to common unitholders. Distributable cash flow excess, if any, is retained to establish reserves to reduce debt, fund capital expenditures and for other partnership purposes and management considers Distributable cash flow excess a meaningful measure of the partnership’s ability to effectuate those purposes. Items added into our calculation of distributable cash flow excess that will not occur on a continuing basis may not be consistent with that of other companies andhave associated cash payments. Distributable cash excess should be viewed in conjunction with measurements that are computed in accordance with GAAP.



The following table summarizesreconciles EBITDA, Adjusted EBITDA, Distributable cash flow attributable to equity investors andinvestors. Distributable cash flow attributable to common unitholders and Distributable cash flow excess to Net earnings (loss) attributable to Ferrellgas Partners, L.P. for the three and sixnine months ended January 31, 2018April 30, 2019 and 2017, respectively:2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 30, 

 

Nine months ended April 30, 

 

(amounts in thousands)

 

2019

 

2018

 

2019

 

2018

 

Net earnings (loss) attributable to Ferrellgas Partners, L.P.

 

$

20,461

 

$

10,861

 

$

6,790

 

$

(38,897)

 

Income tax expense (benefit)

 

 

123

 

 

67

 

 

284

 

 

282

 

Interest expense

 

 

44,162

 

 

40,375

 

 

132,931

 

 

123,855

 

Depreciation and amortization expense

 

 

20,617

 

 

25,348

 

 

59,214

 

 

76,565

 

EBITDA

 

 

85,363

 

 

76,651

 

 

199,219

 

 

161,805

 

Non-cash employee stock ownership plan compensation charge

 

 

(4)

 

 

2,738

 

 

4,688

 

 

10,731

 

Assets impairments

 

 

 —

 

 

 —

 

 

 —

 

 

10,005

 

Loss on asset sales and disposals

 

 

1,683

 

 

6,270

 

 

8,403

 

 

46,414

 

Other income (expense), net

 

 

(251)

 

 

(227)

 

 

(356)

 

 

(1,422)

 

Severance costs

 

 

 —

 

 

 —

 

 

1,600

 

 

1,663

 

Legal fees and settlements

 

 

1,471

 

 

1,289

 

 

10,643

 

 

3,407

 

Multi-employer pension plan withdrawal settlement

 

 

 —

 

 

 —

 

 

1,524

 

 

 —

 

Unrealized (non-cash) loss on changes in fair value of derivatives not designated as hedging instruments

 

 

 —

 

 

 —

 

 

 —

 

 

1,293

 

Net earnings (loss) attributable to noncontrolling interest

 

 

299

 

 

201

 

 

337

 

 

(131)

 

Adjusted EBITDA

 

 

88,561

 

 

86,922

 

 

226,058

 

 

233,765

 

Net cash interest expense (a)

 

 

(40,747)

 

 

(37,873)

 

 

(123,325)

 

 

(115,664)

 

Maintenance capital expenditures (b)

 

 

(13,506)

 

 

(5,741)

 

 

(45,038)

 

 

(19,085)

 

Cash refund from (paid for) taxes

 

 

(23)

 

 

470

 

 

(21)

 

 

458

 

Proceeds from certain asset sales

 

 

456

 

 

148

 

 

2,416

 

 

4,355

 

Distributable cash flow attributable to equity investors

 

 

34,741

 

 

43,926

 

 

60,090

 

 

103,829

 

Distributable cash flow attributable to general partner and non-controlling interest

 

 

(695)

 

 

(879)

 

 

(1,202)

 

 

(2,077)

 

Distributable cash flow attributable to common unitholders

 

 

34,046

 

 

43,047

 

 

58,888

 

 

101,752

 

Less: Distributions paid to common unitholders

 

 

 —

 

 

(9,715)

 

 

(9,715)

 

 

(29,146)

 

Distributable cash flow excess

 

$

34,046

 

$

33,332

 

$

49,173

 

$

72,606

 


  Three months ended January 31, Six months ended January 31,
(amounts in thousands) 2018 2017 2018 2017
Net earnings (loss) attributable to Ferrellgas Partners, L.P. $(1,843) $38,098
 $(49,758) $(4,975)
Income tax expense (benefit) (162) 588
 215
 (2)
Interest expense 42,673
 36,819
 83,480
 72,247
Depreciation and amortization expense 25,485
 25,607
 51,217
 51,809
EBITDA 66,153
 101,112
 85,154
 119,079
Non-cash employee stock ownership plan compensation charge 4,031
 2,945
 7,993
 6,699
Non-cash stock-based compensation charge 
 1,417
 
 3,298
Asset impairments 10,005
 
 10,005


Loss on asset sales and disposals 39,249
 45
 40,144
 6,468
Other income, net (684) (763) (1,195) (1,271)
Severance costs 
 490
 1,663
 1,959
Professional fees (d) 2,118
 
 2,118
 
Unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments (314) (646) 1,293
 (2,215)
Net earnings (loss) attributable to noncontrolling interest 69
 430
 (332) 32
Adjusted EBITDA 120,627
 105,030
 146,843
 134,049
Net cash interest expense (a) (39,734) (34,712) (77,791) (68,330)
Maintenance capital expenditures (b) (4,640) (3,754) (13,344) (7,076)
Cash paid for taxes (6) (25) (12) (26)
Proceeds from asset sales 2,999
 2,313
 4,207
 4,033
Distributable cash flow attributable to equity investors 79,246
 68,852
 59,903
 62,650
Distributable cash flow attributable to general partner and non-controlling interest 1,585
 1,377
 1,198
 1,253
Distributable cash flow attributable to common unitholders 77,661
 67,475
 58,705
 61,397
Less: Distributions paid to common unitholders 9,716
 9,715
 19,431
 59,506
Distributable cash flow excess (c) $67,945
 $57,760
 $39,274
 $1,891

(a)

Net cash interest expense is the sum of interest expense less non-cash interest expense and other income (expense), net. This amount includes interest expense related to the accounts receivable securitization facility.

(b)

Maintenance capital expenditures include capitalized expenditures for betterment and replacement of property, plant and equipment.

(c)Distributable cash flow excess is retained to establish reserves for future distributions, reduce debt, fund capital expenditures and for other partnership purposes. Distributable cash flow shortages are funded from previously established reserves, cash on hand or borrowings under our secured credit facility or accounts receivable securitization facility.
(d)Professional fees incurred related to a lawsuit.

70

Segment Operating Results for the three months ended January 31,April 30, 2019 and 2018 and 2017


Items Impacting the Comparability of Our Financial Results

Our current and future results of operations may not be comparable to our historical results of operations for the periods presented due to the following transactions. In January 2018, we completed the sale of Bridger Energy, LLC, a subsidiary of Bridger Logistics, which is a subsidiary of Ferrellgas, L.P. After January 2018, we will no longer report oil purchase and sale activity within the midstream reporting segment. In February 2018, we announced the sale of 1,072 rail cars from our crude oil logistics operations. Most of these rail cars were in storage and incurring storage fees, while fewer were leased to a

third party under a multi-year contract. The sale of these rail cars will not significantly affect future revenues or operating income within the midstream reporting segment.


Propane operations and related equipment sales


The following table summarizes propane sales volumes and the Adjusted EBITDA results of our propane operations and related equipment sales segment for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

2018

 

Increase (Decrease)

 

As of April 30, 

 

 

 

 

 

 

 

 

 

 

 

 

Retail customers

 

 

705,605

 

 

679,678

 

 

25,927

 

 4

%

Tank exchange selling locations

 

 

54,308

 

 

51,165

 

 

3,143

 

 6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 30, 

 

 

 

 

 

 

 

 

 

 

 

 

Propane sales volumes (gallons):

 

 

  

 

 

  

 

 

  

 

  

 

Retail - Sales to End Users

 

 

204,441

 

 

189,183

 

 

15,258

 

 8

%

Wholesale - Sales to Resellers

 

 

59,641

 

 

57,121

 

 

2,520

 

 4

%

 

 

 

264,082

 

 

246,304

 

 

17,778

 

 7

%

Revenues -

 

 

  

 

 

  

 

 

  

 

  

 

Propane and other gas liquids sales:

 

 

  

 

 

  

 

 

  

 

  

 

Retail - Sales to End Users

 

$

350,151

 

$

330,320

 

$

19,831

 

 6

%

Wholesale - Sales to Resellers

 

 

99,311

 

 

97,689

 

 

1,622

 

 2

%

Other Gas Sales (a)

 

 

10,094

 

 

23,293

 

 

(13,199)

 

(57)

%

Other (b)

 

 

20,069

 

 

41,913

 

 

(21,844)

 

(52)

%

Propane and related equipment revenues

 

$

479,625

 

$

493,215

 

$

(13,590)

 

(3)

%

 

 

 

  

 

 

  

 

 

  

 

  

 

Gross Margin -

 

 

  

 

 

  

 

 

  

 

  

 

Propane and other gas liquids sales: (c)

 

 

  

 

 

  

 

 

  

 

  

 

Retail - Sales to End Users (a)

 

$

167,179

 

$

151,084

 

$

16,095

 

11

%

Wholesale - Sales to Resellers (a)

 

 

41,988

 

 

39,799

 

 

2,189

 

 6

%

Other (b)

 

 

17,749

 

 

22,063

 

 

(4,314)

 

(20)

%

Propane and related equipment gross margin

 

$

226,916

 

$

212,946

 

$

13,970

 

 7

%

 

 

 

  

 

 

  

 

 

  

 

  

 

Operating, general and administrative expense (d)

 

$

119,989

 

$

110,673

 

$

9,316

 

 8

%

Equipment lease expense

 

 

7,939

 

 

6,626

 

 

1,313

 

20

%

 

 

 

  

 

 

  

 

 

  

 

  

 

Operating income

 

$

77,118

 

$

74,479

 

$

2,639

 

 4

%

Depreciation and amortization expense

 

 

20,187

 

 

18,880

 

 

1,307

 

 7

%

Loss on asset sales and disposals

 

 

1,683

 

 

2,288

 

 

(605)

 

(26)

%

Adjusted EBITDA

 

$

98,988

 

$

95,647

 

$

3,341

 

 3

%



(a)

Gross margin for Other Gas Sales is allocated to Gross margin "Retail - Sales to End Users" and "Wholesale - Sales to Resellers" based on the volumes in each respective category.

(amounts in thousands)        
Three months ended January 31, 2018 2017 Increase (Decrease)
Propane sales volumes (gallons):        
Retail - Sales to End Users 235,071
 201,580
 33,491
 17 %
Wholesale - Sales to Resellers 74,942
 66,152
 8,790
 13 %
  310,013
 267,732
 42,281
 16 %
         
Revenues -        
Propane and other gas liquids sales:        
Retail - Sales to End Users $417,472
 $313,169
 $104,303
 33 %
Wholesale - Sales to Resellers 128,654
 103,223
 25,431
 25 %
Other Gas Sales (a) 46,113
 20,983
 25,130
 120 %
Other (b) 45,641
 45,088
 553
 1 %
Propane and related equipment revenues $637,880
 $482,463
 $155,417
 32 %
         
Gross Margin -        
Propane and other gas liquids sales: (c)        
Retail - Sales to End Users (a) $182,129
 $158,369
 $23,760
 15 %
Wholesale - Sales to Resellers (a) 47,192
 43,977
 3,215
 7 %
Other (b) 24,854
 24,431
 423
 2 %
Propane and related equipment gross margin $254,175
 $226,777
 $27,398
 12 %
         
Operating, general and administrative expense (d) $117,306
 $106,651
 $10,655
 10 %
Equipment lease expense 6,375
 6,704
 (329) (5)%
         
Operating income $101,767
 $95,332
 $6,435
 7 %
Depreciation and amortization expense 18,167
 18,017
 150
 1 %
Loss on asset sales and disposals 555
 73
 482
 660 %
Asset impairments
10,005



10,005

NM
Unrealized (non-cash) gains on changes in fair value of derivatives not designated as hedging instruments 
 (1,134) 1,134
 100 %
Adjusted EBITDA $130,494
 $112,288
 $18,206
 16 %

(b)

Other primarily includes appliance and material sales, and to a lesser extent various customer fee income.


(c)

Gross margin from "Propane and other gas liquids sales" represents "Revenues - Propane and other gas liquids sales" less "Cost of sales - Propane and other gas liquids sales" and does not include depreciation and amortization.

(a) Gross margin for Other Gas Sales is allocated to Gross margin "Retail - Sales to End Users" and "Wholesale - Sales to Resellers" based on the volumes in each respective category.

(d)

Operating, general, and administrative expenses are included in the calculation of Adjusted EBITDA. General and administrative expenses include only certain items that were directly attributable to the propane operations and related equipment sales segment.

(b) Other primarily includes appliance and material sales, and to a lesser extent various customer fee income.
(c) Gross margin from "Propane and other gas liquids sales" represents "Revenues - Propane and other gas liquids sales" less "Cost of sales - Propane and other gas liquids sales" and does not include depreciation and amortization.
(d) Operating, general, and administrative expenses are included in the calculation of Adjusted EBITDA. General and administrative expenses include only certain items that were directly attributable to the propane operations and related equipment sales segment.

Propane sales volumes during the three months ended January 31, 2018April 30, 2019 increased 16%7% or 42.317.8 million gallons from that of the prior year period due to 33.5 million and 8.8 million of increased gallon sales to retail customers of 15.2 million gallons, and an increase of 2.5 million gallons to wholesale customers. The increase in propane sales volumes to retail customers respectively.was primarily due to the 4% increase in retail customer count.


71

Weather in the more highly concentrated geographic areas we serve for the three months ended January 31, 2018April 30, 2019 was approximately 5% warmer6% colder than normal, but 12%and approximately 1% colder than the prior year period. Retail and wholesale gallons increased due to a combination of efforts to increase market share and to a lesser extent colder weather.


Our wholesale sales price per gallon largely correlates to the change in the wholesale market price of propane. The wholesale market price at major supply points in Mt. Belvieu, Texas and Conway, Kansasmajor supply point during the three months ended January 31, 2018April 30, 2019 averaged 46% and 45% greater20% less than the prior year period, respectively.while at the Conway, Kansas major supply point prices averaged 15% less than the prior period. The wholesale market price at Mt. Belvieu, Texas averaged $0.95$0.66 and $0.65$0.82 per gallon during the three months ended January 31,April 30, 2019 and 2018, and 2017, respectively, while the wholesale market price at Conway, Kansas averaged $0.90$0.58 and $0.62$0.68 per gallon during the three months ended January 31,April 30, 2019 and 2018, and 2017, respectively.


We believe this decrease in the wholesale cost of propane contributed to our decrease in revenues, but an increase in gross margin.

Revenues

Retail sales increased $104.3$19.8 million compared to the prior period. This increase resulted from a $52.3$26.6 million increase in sales volumes, partially offset by a $6.8 million decrease in sales price per gallon, and $52.0 million from increased sales volumes, both as discussed above.


Wholesale sales increased $25.4$1.6 million compared to the prior period. This increase primarily resulted from a $13.9$7.8 million increase in sales volumes, and an $11.5largely offset by a $6.1 million increasedecrease in sales price per gallon, both as discussed above.

Other gas sales increased $25.1 million compared to the prior year period due to both an increase in sales volumes and sales price per gallon, as discussed above.

above, and due to the impact of increased competitive pressures.

Other revenues increased $0.6gas sales decreased $13.2 million compared to the prior year period primarily due to an increasea decrease in sales volume.

Other revenues decreased $21.8 million compared to the salesprior year period primarily due to the sale of certainour lower margin equipment.


propane related equipment business at the end of fiscal 2018.

Gross margin - Propane and other gas liquids sales

Gross margin increased $27.0$18.3 million primarily due to the 42.3 million increase in gallon sales, as discussed above, partially offset by a slight decrease in gross margin per gallon.above. The increase in retail gross margin of $23.8$16.1 million resulted from efforts toan increase market sharein retail customer counts and to a lesser extent colder weather.increases in gross margin per gallon, both as discussed above. The increase in retail gross margin of $16.1 million resulted primarily from an increase in retail customer accounts and to a lesser extent an increase in gross margin per gallon. The $2.2 million increase in wholesale gross margin primarily relates to increased volumes, related to colder weather,as discussed above, partially offset by decreased gross margin per gallon.


gallon due to the impact of increased competitive pressures on the sales price per gallon, as discussed above

Gross margin - other

Gross margin decreased $4.3 million compared to the prior year period primarily due to the sale of our lower margin propane related equipment business at the end of fiscal 2018.

Operating income


Operating income increased $6.4$2.6 million primarily due to a $27.0an $18.3 million increase in Gross“Gross margin - Propane and other gas liquid sales, partiallysales”, as discussed above, largely offset by a $10.7$9.3 million increase in "Operating, general and administrative expense" primarily resulting from the increase in retail customer count, as discussed above, a $4.3 million decrease in “Gross margin – other”, as discussed above, and a $10.0$1.3 million "Asset impairments"increase in "Equipment lease expense". "Operating, general and administrative expense" increased primarily due to a $5.6$7.5 million increase in field personnel costs, a $4.2 million increase in general liability and worker compensation costs, and a $3.8$1.2 million increase in vehicle fuel costs, bothpartially offset by $3.3 million of costs incurred in the prior year period related to a business sold in fiscal 2018. Equipment lease expense increased due to continued investment in new propane delivery trucks both to serve our expanding customer base and to reduce the age of our fleet.

Adjusted EBITDA

Adjusted EBITDA increased $3.3 million primarily due to an $18.3 million increase in gallons sold“Gross margin – Propane and other gas liquid sales”, as discussed above, largely offset by a $9.3 million increase in "Operating, general and

72

administrative expense", a $4.3 million decrease in “Gross margin – other”, as discussed above, and a $1.3 million increase in bad debt expense. The "Asset impairments" relates to an impairment of goodwill of an immaterial reporting unit.


Adjusted EBITDA

Adjusted EBITDA increased $18.2 million primarily due to a $27.0 million increase in Gross margin - Propane and other gas liquid sales, partially offset by a $9.5 million increase in "Operating, general and administrative"Equipment lease expense"". "Operating, general and administrative expense" increased primarily due to a $5.6$7.5 million increase in field personnel costs, and a $2.7$4.2 million increase in vehiclegeneral liability and worker compensation costs, both related to the increase in gallons sold as discussed above and a $1.3 million increase in bad debt expense.

Midstream operations

The following table summarizes the volume of product hauled, sold and processed, as well as Adjusted EBITDA results of our midstream operations segment for the periods indicated:
(amounts in thousands)        
Three months ended January 31, 2018 2017 Increase (Decrease)
Volumes (barrels):        
Crude oil hauled 11,065
 13,005
 (1,940) (15)%
Crude oil sold 1,556
 1,326
 230
 17 %
Salt water volume processed 4,851
 4,002
 849
 21 %

        
Revenues -        
Crude oil and other logistics $15,886
 $19,573
 $(3,687) (19)%
Crude oil sales 97,646
 74,794
 22,852
 31 %
Other 3,744
 2,510
 1,234
 49 %

 $117,276
 $96,877
 $20,399
 21 %

        
Gross margin - (a) 
 
 
 

Crude oil and other logistics $6,550
 $3,829
 $2,721
 71 %
Crude oil sales 2,365
 4,888
 (2,523) (52)%
Other 1,294
 1,046
 248
 24 %

 $10,209
 $9,763
 $446
 5 %

        
Operating, general, and administrative expenses (b) $7,464
 $7,041
 $423
 6 %
Equipment lease expense 84
 141
 (57) (40)%

 
 
 
 

Operating loss $(42,299) $(4,400) $(37,899) NM
 Depreciation and amortization expense 6,266
 7,009
 (743) (11)%
 Loss (gain) on asset sales and disposals 38,694
 (28) 38,722
 NM
 Unrealized (non-cash) loss (gain) on changes in fair value of derivatives not designated as hedging instruments (314) 488
 (802) NM
Adjusted EBITDA $2,347
 $3,069
 $(722) (24)%

NM - Not meaningful
(a) Gross margin represents "Revenues - Midstream operations" less "Cost of sales - Midstream operations" and does not include depreciation and amortization.
(b) Operating, general, and administrative expenses are included in the calculation of Adjusted EBITDA. General and administrative expenses include only certain items that were directly attributable to the midstream operations segment.

Crude oil hauled during the three months ended January 31, 2018 decreased 15%, or 1.9 million barrels, from that of the prior period primarily due to decreased short haul trucking volumes.

Revenues

Crude oil sales increased 31% or $22.9 million compared to the prior period, while crude oil and other logistics revenue decreased 19% or $3.7 million. The increase in crude oil sales reflects $13.0 million related to the increase in the crude oil volumes sold and a $9.9 million increase due to the increase in the market price of crude oil. The decrease in crude oil and other logistics revenues is driven by the trucking industry related labor shortages.


Gross margin

Gross margin increased 5% or $0.4 million compared to the prior period, primarily due to a $2.7 million increase related to crude oil and other logistics hauling, partially offset by a $2.5$3.3 million decrease related to crude oil sales. Despite decreased volumes and revenues, crude oil and other logistics gross margin increased primarily due toof costs incurred in the benefits from the cessation of barge operationsprior year period related to a transportation and logistics agreement with Jamex Marketing, LLC (the "Jamex TLA"). Crude oil sales gross margin decreased primarily due to smaller margins on contracted physical crude deals from market conditions in the Niobrara region.

Operating loss

Operating loss increased by $37.9 million during the three months ended January 31, 2018 as compared to the three months ended January 31, 2017. This increase in operating loss was primarily due to a $35.5 million loss on disposal of rail car assets recognizedbusiness sold in fiscal 2018, partially offset by a $0.4 million decrease in gross margin as discussed above.

Adjusted EBITDA

Adjusted EBITDA decreased $0.7 million primarily due to $0.4 million decrease in gross margin, as discussed above.

2018.

Corporate


and other operations

The following table summarizes the financial results of our corporate operations for the periods indicated:indicated. Prior period amounts also include results of our midstream operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 30, 

    

2019

 

2018

 

Increase (Decrease)

 

Volumes (barrels):

 

 

  

 

 

  

 

 

  

    

  

 

Crude oil hauled

 

 

 —

 

 

11,640

 

 

(11,640)

 

NM

 

Crude oil sold

 

 

 —

 

 

27

 

 

(27)

 

NM

 

Salt water volume processed

 

 

 —

 

 

4,761

 

 

(4,761)

 

NM

 

 

 

 

  

 

 

  

 

 

  

 

  

 

Revenues -

 

 

  

 

 

  

 

 

  

 

  

 

Crude oil logistics

 

$

 —

 

$

17,500

 

$

(17,500)

 

NM

 

Crude oil sales

 

 

 —

 

 

1,619

 

 

(1,619)

 

NM

 

Other

 

 

 —

 

 

3,476

 

 

(3,476)

 

NM

 

 

 

$

 —

 

$

22,595

 

$

(22,595)

 

NM

 

Gross margin (a) -

 

 

  

 

 

  

 

 

  

 

  

 

Crude oil logistics

 

$

 —

 

$

5,540

 

$

(5,540)

 

NM

 

Crude oil sales

 

 

 —

 

 

1,400

 

 

(1,400)

 

NM

 

Other

 

 

 —

 

 

1,137

 

 

(1,137)

 

NM

 

 

 

$

 —

 

$

8,077

 

$

(8,077)

 

NM

 

 

 

 

  

 

 

  

 

 

  

 

  

 

Operating, general and administrative expense

 

$

11,518

 

$

17,584

 

$

(6,066)

 

(34)

%

Equipment lease expense

 

 

380

 

 

507

 

 

(127)

 

(25)

%

 

 

 

  

 

 

  

 

 

  

 

  

 

Operating loss

 

$

(12,324)

 

$

(23,202)

 

$

10,878

 

47

%

Depreciation and amortization expense

 

 

430

 

 

6,468

 

 

(6,038)

 

(93)

%

Non-cash employee stock ownership plan compensation charge

 

 

(4)

 

 

2,738

 

 

(2,742)

 

(100)

%

Loss on asset sales and disposals

 

 

 —

 

 

3,982

 

 

(3,982)

 

NM

 

Legal fees and settlements

 

 

1,471

 

 

1,289

 

 

182

 

14

%

Adjusted EBITDA

 

$

(10,427)

 

$

(8,725)

 

$

(1,702)

 

(20)

%


NM - Not meaningful

(a)

Gross margin represents "Revenues - Midstream operations" less "Cost of sales - Midstream operations" and does not include depreciation and amortization.

(amounts in thousands)        
Three months ended January 31, 2018 2017 Increase (Decrease)
         
Operating, general and administrative expense (a) $13,837
 $11,664
 $2,173
 19 %
Equipment lease expense 495
 570
 (75) (13)%
         
Operating loss $(19,415) $(15,760) $(3,655) (23)%
Depreciation and amortization expense 1,052
 581
 471
 81 %
Non-cash employee stock ownership plan compensation charge 4,031
 2,945
 1,086
 37 %
Non-cash stock based compensation charge 
 1,417
 (1,417) (100)%
Severance costs 
 490
 (490) NM
Professional fees (b) 2,118
 
 2,118
 NM
Adjusted EBITDA $(12,214) $(10,327) $(1,887) (18)%

(a) Some general and administrative expenses have been allocated to other segments.
(b) Professional fees incurred related to a lawsuit.

In various dispositions that occurred during fiscal 2018, we sold our midstream businesses. Accordingly, much of the significant variances reported above result from the cessation of the midstream business by the end of fiscal 2018.

Operating loss


Corporate recognized an operating

Operating loss of $19.4decreased by $10.9 million during the three months ended January 31, 2018,April 30, 2019 as compared to an operating loss of $15.8 million recognized during the three months ended January 31, 2017.April 30, 2018. This increasedecrease in operating loss iswas primarily due to the $8.5 million operating loss related to our midstream operations in fiscal 2018 and decreased corporate costs of $2.3 million. Corporate costs decreased primarily due to a $4.5$2.7 million decrease in non-cash employee stock ownership plan compensation costs, and $0.4 million decrease in depreciation and amortization, partially offset by a $1.2 million increase in legal costs, partially offset by acosts.

73

Adjusted EBITDA

Adjusted EBITDA decreased $1.7 million primarily due to the $1.0 million decrease in corporate personnel costs.


Adjusted EBITDA

The Adjusted EBITDA loss within "Corporate"related to our midstream operations in fiscal 2018 and a $0.7 million increase in Adjusted EBITDA related to corporate costs. Corporate costs increased by $1.9 million primarily due to $2.4a  $1.0 million increase in increased legal costs, partially offset by a $0.5 million reduction in corporate personnel expenses, both as discussed above.


costs.

Segment Operating Results for the sixnine months ended January 31,April 30, 2019 and 2018 and 2017


Items Impacting the Comparability of Our Financial Results

Our current and future results of operations may not be comparable to our historical results of operations for the periods presented due to the following transactions. In January 2018, we completed the sale of Bridger Energy, LLC, a subsidiary of Bridger Logistics, which is a subsidiary of Ferrellgas, L.P. After January 2018, we will no longer report oil purchase and sale activity within the midstream reporting segment. In February 2018, we announced the sale of 1,072 rail cars from our crude oil logistics operations. Most of these rail cars were in storage and incurring storage fees, while fewer were leased to a third party under a multi-year contract. Thus, this sale of rail cars will not significantly affect future revenues or operating income within the midstream reporting segment.

Propane operations and related equipment sales


The following table summarizes propane sales volumes and the Adjusted EBITDA results of our propane operations and related equipment sales segment for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

    

Increase (Decrease)

 

As of April 30, 

 

 

 

 

 

 

 

 

 

 

 

 

Retail customers

 

 

705,605

 

 

679,678

 

 

25,927

 

 4

%

Tank exchange selling locations

 

 

54,308

 

 

51,165

 

 

3,143

 

 6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended April 30, 

    

 

 

 

 

 

 

 

 

 

 

 

Propane sales volumes (gallons):

 

 

  

 

 

  

 

 

  

    

  

 

Retail - Sales to End Users

 

 

573,152

 

 

543,548

 

 

29,604

 

 5

%

Wholesale - Sales to Resellers

 

 

179,256

 

 

185,492

 

 

(6,236)

 

(3)

%

 

 

 

752,408

 

 

729,040

 

 

23,368

 

 3

%

Revenues -

 

 

  

 

 

  

 

 

  

 

  

 

Propane and other gas liquids sales:

 

 

  

 

 

  

 

 

  

 

  

 

Retail - Sales to End Users

 

$

983,742

 

$

931,495

 

$

52,247

 

 6

%

Wholesale - Sales to Resellers

 

 

308,647

 

 

324,863

 

 

(16,216)

 

(5)

%

Other Gas Sales (a)

 

 

52,245

 

 

89,941

 

 

(37,696)

 

(42)

%

Other (b)

 

 

60,677

 

 

118,691

 

 

(58,014)

 

(49)

%

Propane and related equipment revenues

 

$

1,405,311

 

$

1,464,990

 

$

(59,679)

 

(4)

%

 

 

 

  

 

 

  

 

 

  

 

  

 

Gross Margin -

 

 

  

 

 

  

 

 

  

 

  

 

Propane and other gas liquids sales: (c)

 

 

  

 

 

  

 

 

  

 

  

 

Retail - Sales to End Users (a)

 

$

450,401

 

$

411,644

 

$

38,757

 

 9

%

Wholesale - Sales to Resellers (a)

 

 

128,177

 

 

131,803

 

 

(3,626)

 

(3)

%

Other (b)

 

 

51,888

 

 

64,352

 

 

(12,464)

 

(19)

%

Propane and related equipment gross margin

 

$

630,466

 

$

607,799

 

$

22,667

 

 4

%

 

 

 

  

 

 

  

 

 

  

 

  

 

Operating, general and administrative expense (d)

 

$

351,537

 

$

332,244

 

$

19,293

 

 6

%

Equipment lease expense

 

 

23,596

 

 

19,206

 

 

4,390

 

23

%

 

 

 

  

 

 

  

 

 

  

 

  

 

Operating income

 

$

192,086

 

$

187,458

 

$

4,628

 

 2

%

Depreciation and amortization expense

 

 

57,523

 

 

55,135

 

 

2,388

 

 4

%

Loss on asset sales and disposals

 

 

5,724

 

 

3,751

 

 

1,973

 

53

%

Asset impairments

 

 

 —

 

 

10,005

 

 

(10,005)

 

NM

 

Severance costs

 

 

690

 

 

358

 

 

332

 

93

%

Multi-employer pension plan withdrawal settlement

 

 

1,524

 

 

 —

 

 

1,524

 

NM

 

Adjusted EBITDA

 

$

257,547

 

$

256,707

 

$

840

 

 0

%



(a)

Gross margin for Other Gas Sales is allocated to Gross margin "Retail - Sales to End Users" and "Wholesale - Sales to Resellers" based on the volumes in each respective category.

(b)

Other primarily includes appliance and material sales, and to a lesser extent various customer fee income.

(c)

Gross margin from "Propane and other gas liquids sales" represents "Revenues - Propane and other gas liquids sales" less "Cost of sales - Propane and other gas liquids sales" and does not include depreciation and amortization.

74

(amounts in thousands)        
Six months ended January 31, 2018 2017 Increase (Decrease)
Propane sales volumes (gallons):        
Retail - Sales to End Users 354,365
 312,768
 41,597
 13 %
Wholesale - Sales to Resellers 128,371
 118,142
 10,229
 9 %
  482,736
 430,910
 51,826
 12 %
         
Revenues -        
Propane and other gas liquids sales:        
Retail - Sales to End Users $601,266
 $461,786
 $139,480
 30 %
Wholesale - Sales to Resellers 227,083
 187,442
 39,641
 21 %
Other Gas Sales (a) 66,648
 30,546
 36,102
 118 %
Other (b) 76,778
 74,187
 2,591
 3 %
Propane and related equipment other revenues $971,775
 $753,961
 $217,814
 29 %
         
Gross Margin -        
Propane and other gas liquids sales: (c)        
Retail - Sales to End Users (a) $260,560
 $239,754
 $20,806
 9 %
Wholesale - Sales to Resellers (a) 92,004
 85,779
 6,225
 7 %
Other (b) 42,289
 41,784
 505
 1 %
Propane and related equipment gross margin $394,853
 $367,317
 $27,536
 7 %
         
Operating, general and administrative expense (d) $221,571
 $204,510
 $17,061
 8 %
Equipment lease expense 12,580
 13,277
 (697) (5)%
         
Operating income $112,979
 $111,860
 $1,119
 1 %
 Depreciation and amortization expense 36,255
 36,150
 105
  %
 Loss on asset sales and disposals 1,463
 1,520
 (57) (4)%
Asset impairments
10,005



10,005

NM
 Severance costs 358
 253
 105
 42 %
 Unrealized (non-cash) gains on changes in fair value of derivatives not designated as hedging instruments 
 (3,011) 3,011
 NM
Adjusted EBITDA $161,060
 $146,772
 $14,288
 10 %

(d)

Operating, general, and administrative expenses are included in the calculation of Adjusted EBITDA. General and administrative expenses include only certain items that were directly attributable to the propane operations and related equipment sales segment.

(a) Gross margin for Other Gas Sales is allocated to Gross margin "Retail - Sales to End Users" and "Wholesale - Sales to Resellers" based on the volumes in each respective category.
(b) Other primarily includes appliance and material sales, and to a lesser extent various customer fee income.
(c) Gross margin from "Propane and other gas liquids sales" represents "Revenues - Propane and other gas liquids sales" less "Cost of sales - Propane and other gas liquids sales" and does not include depreciation and amortization.

(d) Operating, general, and administrative expenses are included in the calculation of Adjusted EBITDA. General and administrative expenses include only certain items that were directly attributable to the propane operations and related equipment sales segment.


Propane sales volumes during the sixnine months ended January 31, 2018April 30, 2019 increased 12%3% or 51.823.4 million gallons, from that of the prior year period due to 41.6 million and 10.2 million of increased gallon sales to retail andcustomers of 29.6 million gallons, partially offset by a decrease of 6.2 million gallons to wholesale customers. The increase in propane sales volumes to retail customers was primarily due to the 4% increase in retail customer count. The decrease in propane sales to wholesale customers respectively.

relates to the impact of increased competitive pressures.

Weather in the more highly concentrated geographic areas we serve for the sixnine months ended January 31, 2018April 30, 2019 was approximately 7% warmer4% colder than normal but 13%and 2% colder than the prior year period. Retail and wholesale gallons increased due to a combination of efforts to increase market share and to a lesser extent colder weather.


Our wholesale sales price per gallon largelypartially correlates to the change in the wholesale market price of propane. The wholesale market price at major supply points in Mt. Belvieu, Texas and Conway, Kansas during the sixnine months ended January 31, 2018April 30, 2019 averaged 58% and 62% greater9% less than the prior year period, respectively.while at the Conway, Kansas major supply point prices averaged 18% less than the prior period. The wholesale market price at Mt. Belvieu, Texas averaged $0.90$0.79 and $0.57$0.87 per gallon during the sixnine months ended January 31,April 30, 2019 and 2018, and 2017, respectively, while the wholesale market price at Conway, Kansas averaged $0.86$0.66 and $0.53$0.80 per gallon during the sixnine months ended January 31,April 30, 2019 and 2018, and 2017, respectively.


We believe this decrease in the wholesale cost of propane contributed to our decrease in revenues, but an increase in gross margin.

Revenues

Retail sales increased $139.5$52.2 million compared to the prior period. This increase resulted from a $78.1$50.7 million increase in sales price per gallon and $61.4 million from increased sales volumes both as discussed above.


Wholesale sales increased $39.6decreased $16.2 million compared to the prior period. This increasedecrease primarily resulted from a $23.4$20.2 million increasedecrease in sales price per gallon and $16.2partially offset by a  $4.0 million from increasedincrease in sales volumes, both as discussed above.

Additionally, we believe the decrease in sales price per gallon was caused by the impact of increased competitive pressures.

Other gas sales increased $36.1decreased $37.7 million compared to the prior year period primarily due to increaseddecreased sales price per gallon and to a lesser extent an increase in sales volumes, as discussed above.


volumes.

Other revenues increased $2.6decreased $58.0 million compared to the prior year period primarily due to an increase in the salessale of certainour lower margin equipment.


propane related equipment business at the end of fiscal 2018.

Gross margin - Propane and other gas liquids sales

Gross margin increased $27.0$35.1 million primarily due to the 51.8 million increase in gallon sales, as discussed above, partially offset byand to a slight decrease inlesser extent increased gross margin per gallon. The increase in retail gross margin of $20.8$38.8 million resulted from efforts toan increase market sharein retail customer counts and to a lesser extent colder weather, partially offset by a decreasean increase in gross margin, per gallon.both as discussed above. The increase$3.7 million decrease in wholesale gross margin primarily relates to increased volumes related to colder weather, partially offset by a slight decreased gross margin per gallon.


gallon due to the impact of increased competitive pressures on the sales price per gallon, partially offset by increased volumes, both as discussed above.

Gross margin - other

Gross margin decreased $12.5 million compared to the prior year period primarily due to the sale of our lower margin propane related equipment business at the end of fiscal 2018.

Operating income


Operating income increased $1.1$4.6 million primarily due to a $27.0$35.1 million increase in Gross"Gross margin - Propane and other gas liquids salesliquid sales", as discussed above, and a $10.0 million impairment of goodwill related to an immaterial reporting unit that was not repeated in the current period, partially offset by a $17.1$19.3 million increase in "Operating, general and administrative expense" primarily resulting from the increase in retail customer count, as discussed above, and a $10.0$12.5 million "Asset impairment"decrease in "Gross margin - other", as discussed above, and a $4.4 million increase in "Equipment lease

75

expense". "Operating, general and administrative expense" increased primarily due to a $7.4$17.8 million increase in field personnel costs, a $6.7 million increase in general liability and worker compensation costs, a $5.7$2.9 million increase in vehicle fuel costs, bothand a $1.5 million pension settlement charge associated with the withdrawal from a multi-employer pension plan, partially offset by $9.8 million of costs incurred in the prior year period related to a business sold in fiscal 2018. Equipment lease expense increased due to continued investment in new propane delivery trucks to both serve our expanding customer base and to reduce the increase in gallons sold as discussed above and a $1.9 million increase in bad debt expense. The "Asset impairments" relates to an impairmentage of goodwill of an immaterial reporting unit.



our fleet.

Adjusted EBITDA


Adjusted EBITDA increased $14.3$0.8 million primarily due to a $27.0$35.1 million increase in Gross"Gross margin - Propane and other gas liquids salesliquid sales", as discussed above, partially offset by a $13.9$17.4 million increase in "Operating, general and administrative expense."expense" and a $12.5 million decrease in "Gross margin - other", as discussed above, and a $4.4 million increase in "Equipment lease expense". "Operating, general and administrative expense" increased primarily due to a $7.3$17.5 million increase in field personnel costs, related to thea $6.7 million increase in gallons sold as discussed above,general liability and worker compensation costs, and a $2.7$2.9 million increase in vehicle fuel costs, and a $1.9 million increase in bad debt expense.


Midstream operations

The following table summarizes the volume of product hauled, sold and processed, as well as Adjusted EBITDA results of our midstream operations segment for the periods indicated:
(amounts in thousands)        
Six months ended January 31, 2018 2017 Increase (Decrease)
Volumes (barrels):        
Crude oil hauled 23,215
 24,269
 (1,054) (4)%
Crude oil sold 3,385
 3,118
 267
 9 %
Salt water volume processed 9,791
 7,705
 2,086
 27 %
         
Revenues -        
Crude oil logistics $33,227
 $40,614
 $(7,387) (18)%
Crude oil sales 196,665
 159,481
 37,184
 23 %
Other 8,144
 4,736
 3,408
 72 %
  $238,036
 $204,831
 $33,205
 16 %
         
Gross margin (a)        
Crude oil logistics $17,506
 $10,994
 $6,512
 59 %
Crude oil sales 3,014
 10,292
 (7,278) (71)%
Other 2,324
 1,879
 445
 24 %
  $22,844
 $23,165
 $(321) (1)%
         
Operating, general, and administrative expenses (b) $16,068
 $15,578
 $490
 3 %
Equipment lease expense 168
 270
 (102) (38)%
         
Operating loss $(45,053) $(11,947) $(33,106) (277)%
 Depreciation and amortization expense 12,980
 14,316
 (1,336) (9)%
 Loss on asset sales and disposals 38,681
 4,948
 33,733
 682 %
 Severance costs 1,305
 227
 1,078
 475 %
 Unrealized (non-cash) loss on changes in fair value of derivatives not designated as hedging instruments 1,293
 796
 497
 NM
Adjusted EBITDA $9,206
 $8,340
 $866
 10 %

NM - Not meaningful
(a) Gross margin represents "Revenues - Midstream operations" less "Cost of sales - Midstream operations" and does not include depreciation and amortization.
(b) Operating, general, and administrative expenses are included in the calculation of Adjusted EBITDA. General and administrative expenses include only certain items that were directly attributable to the midstream operations segment.

Crude oil hauled during the six months ended January 31, 2018 decreased 4%, or 1.1 million barrels, from that of the prior period primarily due to decreased short haul trucking volumes.

Revenues

Crude oil sales increased 23% or $37.2 million compared to the prior period, while crude oil and other logistics revenue decreased 18% or $7.4 million. The increase in crude oil sales reflects a $23.6 million increase related to the increase in the market price of crude oil and a $13.6 million increase related to increased sales volumes. The decrease in crude oil and other logistics revenues is driven by the trucking industry related labor shortages.

Gross margin

Gross margin decreased 1% or $0.3 million compared to the prior period, primarily due to a $7.3 million decrease related to crude oil sales, partially offset by a $6.5$9.8 million increaseof costs incurred in the prior year period related to crude oila business sold in fiscal 2018.

Corporate and other logistics hauling. Crude oil sales gross margin decreased primarily due to smaller margins on contracted physical crude deals from market conditions in the Niobrara region. Despite decreased volumes and revenues, crude oil and other logistics gross margin increased primarily due to the benefits from the cessation of barge operations related to the Jamex TLA.


Operating loss

Operating loss increased by $33.1 million during the six months ended January 31, 2018 as compared to the six months ended January 31, 2017. This increase in operating loss was primarily due to a $35.5 million loss on disposal of rail car assets recognized in fiscal 2018.

Adjusted EBITDA

Adjusted EBITDA increased $0.9 million primarily due to a $0.6 million decrease in operating, general and administrative costs. Operating, general and administrative costs decreased $0.6 million primarily due to a $0.3 million decrease in personnel costs.

Corporate

The following table summarizes the financial results of our corporate operations for the periods indicated:indicated. Prior period amounts also include results of our midstream operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended April 30, 

    

2019

    

2018

    

Increase (Decrease)

 

Volumes (barrels):

 

 

  

 

 

  

 

 

  

 

  

 

Crude oil hauled

 

 

 —

 

 

34,855

 

 

(34,855)

 

NM

 

Crude oil sold

 

 

 —

 

 

3,412

 

 

(3,412)

 

NM

 

Salt water volume processed

 

 

 —

 

 

14,552

 

 

(14,552)

 

NM

 

 

 

 

  

 

 

  

 

 

  

 

  

 

Revenues -

 

 

  

 

 

  

 

 

  

 

  

 

Crude oil logistics

 

$

 —

 

$

50,727

 

$

(50,727)

 

NM

 

Crude oil sales

 

 

 —

 

 

198,283

 

 

(198,283)

 

NM

 

Other

 

 

 —

 

 

11,620

 

 

(11,620)

 

NM

 

 

 

$

 —

 

$

260,630

 

$

(260,630)

 

NM

 

Gross margin (a) -

 

 

  

 

 

  

 

 

  

 

  

 

Crude oil logistics

 

$

 —

 

$

23,046

 

$

(23,046)

 

NM

 

Crude oil sales

 

 

 —

 

 

4,414

 

 

(4,414)

 

NM

 

Other

 

 

 —

 

 

3,461

 

 

(3,461)

 

NM

 

 

 

$

 —

 

$

30,921

 

$

(30,921)

 

NM

 

 

 

 

  

 

 

  

 

 

  

 

  

 

Operating, general, and administrative expenses

 

$

42,041

 

$

58,246

 

$

(16,205)

 

(28)

%

Equipment lease expense

 

 

1,001

 

 

1,622

 

 

(621)

 

(38)

%

 

 

 

  

 

 

  

 

 

  

 

  

 

Operating loss

 

$

(52,100)

 

$

(103,771)

 

$

51,671

 

(50)

%

Depreciation and amortization expense

 

 

1,691

 

 

21,430

 

 

(19,739)

 

(92)

%

Non-cash employee stock ownership plan compensation charge

 

 

4,688

 

 

10,731

 

 

(6,043)

 

(56)

%

Loss on asset sales and disposals

 

 

2,679

 

 

42,663

 

 

(39,984)

 

(94)

%

Legal fees and settlements

 

 

10,643

 

 

3,407

 

 

7,236

 

212

%

Severance costs

 

 

910

 

 

1,305

 

 

(395)

 

(30)

%

Unrealized (non-cash) gain on changes in fair value of derivatives not designated as hedging instruments

 

 

 —

 

 

1,293

 

 

(1,293)

 

NM

 

Adjusted EBITDA

 

$

(31,489)

 

$

(22,942)

 

$

(8,547)

 

37

%


NM - Not meaningful

(a)

Gross margin represents "Revenues - Midstream operations" less "Cost of sales - Midstream operations" and does not include depreciation and amortization.

76

(amounts in thousands)        
Six months ended January 31, 2018 2017 Increase (Decrease)
         
Operating, general and administrative expense (a) $24,594
 $24,623
 $(29)  %
Equipment lease expense 947
 1,217
 (270) (22)%
         
Operating loss $(35,516) $(33,882) $(1,634) (5)%
Depreciation and amortization expense 1,982
 1,343
 639
 48 %
Non-cash employee stock ownership plan compensation charge 7,993
 6,699
 1,294
 19 %
Non-cash stock based compensation charge 
 3,298
 (3,298) NM
Severance costs 
 1,479
 (1,479) NM
Professional fees (b) 2,118
 
 2,118
 NM
Adjusted EBITDA $(23,423) $(21,063) $(2,360) (11)%

(a) Some general and administrative expenses have been allocated to other segments.
(b) Professional fees incurred related to a lawsuit.

In various dispositions that occurred during fiscal 2018, we sold our midstream businesses. Accordingly, much of the significant variances reported above result from the cessation of the midstream business by the end of fiscal 2018.

Operating loss


Corporate recognized an operating

Operating loss of $35.5decreased by $51.7 million during the sixnine months ended January 31, 2018,April 30, 2019 as compared to an operating loss of $33.9 million recognized during the sixnine months ended January 31, 2017.April 30, 2018. This increasedecrease in operating loss iswas primarily due to an increasethe $53.6 million operating loss related to our midstream operations in fiscal 2018 and decreased corporate costs of $6.1$0.8 million.

Adjusted EBITDA

Adjusted EBITDA decreased $8.5 million primarily due to the $10.2 million in legal costs,Adjusted EBITDA related to our midstream operations in fiscal 2018, partially offset by $2.0 million of decreased non-cash compensation charges and a $2.7$1.7 million decrease in corporate personnel costs.


Adjusted EBITDA

The Adjusted EBITDA loss within "Corporate" increased by $2.4 million Corporate costs decreased primarily due to a $4.0$0.6 million increasedecrease in legal costs partially offset byand a $1.2$0.4 million reductiondecrease in corporate personnel expenses.

equipment lease expense.

Liquidity and Capital Resources

General

Our primary sources of liquidity and capital resources are cash flows from operating activities, borrowings under our secured credit facility and our accounts receivable securitization facility and funds received from sales of debt and equity securities. As of April 30, 2019, our total liquidity was $292.3 million, which is comprised of $45.4 million in cash and $246.9 million of availability under our secured credit and accounts receivable securitization facilities. These sources of liquidity and short term capital resources are intended to fund our working capital requirements, letter of credit requirements, debt service payments,and acquisition and capital expenditures and distributionsexpenditures. Our access to our unitholders. Our liquidity andlong term capital resources, in order to address our leverage, may be affected by our ability to renegotiate our secured credit facility and our accounts receivable securitization facility or secure alternative liquidity sources, access the capital markets, covenants in our debt agreements, unforeseen demands on cash, or other events beyond our control.


Financial Covenants


As more fully described in Item 2. Management’s Discussion and Analysis under the subheading “Financial Covenants”, above, the indenture governing the outstanding notes of Ferrellgas Partners and the agreements governing the operating partnership’s indebtedness contain various covenants that limit our ability to, among other things, incur additional indebtedness and make distribution payments to our common unitholders. Given the limitations and the lack of headroom on these covenants, we continue to execute onpursue a strategy to reduce our debt and interest expense. If we are unsuccessful with our strategy to further reduce debt and interest expense, or in renegotiatingwe will continue to be restricted from making distribution payments to our secured credit facility and/or our accounts receivable securitization facility, which both mature in October 2018, or are unable to secure alternative liquidity sources, we may not have the liquidity to fund our operations after that maturity date.


common unitholders.

We may not meet the applicable financial tests in future quarters if we were to experience:

·

significantly warmer than normal temperatures during the winter heating season;


·

significant and sustained increases in the wholesale cost of propane that we are unable to pass along to our customers;

significantly warmer than normal temperatures during the winter heating season;

·

a more volatile energy commodity cost environment;

significant and sustained increases in the wholesale cost of propane that we are unable to pass along to our customers;

·

an unexpected downturn in business operations;

a more volatile energy commodity cost environment;

·

a significant delay in the collection of accounts or notes receivable;

an unexpected downturn in business operations;
a significant delay in the collection of accounts or notes receivable;

·

a failure to execute our debt and interest expense reduction and refinancing initiatives;

·

a change in customer retention or purchasing patterns due to economic or other factors in the United States;

·

a material downturn in the credit and/or equity markets; or

77

·

a large uninsured, unfavorable lawsuit judgment or settlement.

We may seek additional capital as part of our debt and interest expense reduction initiatives;

a changestrategy.

As discussed above, no distributions will be paid to common unitholders in customer retentionJune 2019 for the three months ended April 30, 2019. Unless the indenture governing the outstanding notes is amended or purchasing patterns duereplaced, or the Ferrellgas Partners’ consolidated fixed charge coverage ratio improves to economic or other factors in the United States;

a material downturn in the credit and/or equity markets; or
a large uninsured, unfavorable lawsuit judgment or settlement.

As described in financing activities below, on February 22, 2018, the board of directors of our general partner announced a quarterly distribution of $0.10 perat least 1.75x, this covenant will continue to restrict us from making common unit payable on March 16, 2018, to all unitholders of record as of March 9, 2018, which equates to an annual distribution rate of $0.40 per common unit.

distributions.

Distributable Cash Flow


Distributable cash flow attributable to equity investors is reconciled to net lossearnings (loss) attributable to Ferrellgas Partners, L.P., the most directly comparable GAAP measure, in Item 2. Management'sManagement’s Discuss and Analysis under the subheading "Non-GAAP Financial Measures."Measures" above. A comparison of distributable cash flow attributable to equity investors to cash distributions paid to equity investors for the twelve months ended April 30, 2019 to the twelve months ended January 31, 2019 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Distributable

    

Cash reserves

    

Cash distributions

    

 

 

 

cash flow attributable

 

(deficiency) approved 

 

paid to

 

 

 

 

to equity investors

 

by our General Partner

 

equity investors

 

DCF ratio

Nine months ended April 30, 2019

 

$

60,090

 

$

50,018

 

$

10,072

 

 

For the year ended July 31, 2018

 

 

62,904

 

 

22,934

 

 

39,970

 

 

Less: Nine months ended April 30, 2018

 

 

103,829

 

 

73,930

 

 

29,899

 

 

Twelve months ended April 30, 2019

 

$

19,165

 

$

(978)

 

$

20,143

 

0.95

 

 

 

 

 

 

 

 

 

 

 

 

Twelve months ended January 31, 2019

 

 

28,350

 

 

(1,708)

 

 

30,058

 

0.94

Change

 

$

(9,185)

 

$

730

 

$

(9,915)

 

0.01

(a)

DCF ratio is calculated as Distributable cash flow attributable to equity investors divided by Cash distributions paid to equity investors.

For the twelve months ended April 30, 2019, distributable cash flow attributable to equity investors decreased $9.2 million compared to the twelve months ended January 31, 2019, primarily due to the purchase of new propane delivery trucks funded with cash on hand. Cash distributions paid to equity investors decreased by $9.9 million during that twelve month period, because no distributions have been made for the nine months ended April 30, 2019. Our distribution coverage ratio increased to 0.95 for the twelve months ended April 30, 2019, compared with 0.94 for the twelve months ended January 31, 2018 to the twelve months ended October 31, 2017 is as follows (in thousands):




Distributable Cash Flow to equity investors Cash reserves (deficiency) approved by our General Partner Cash distributions paid to equity investors DCF ratio
Six months ended January 31, 2018$59,903
 $39,919
 $19,984
 
For the year ended July 31, 201777,182
 (3,601) 80,783
 
Less: Six months ended January 31, 201762,650
 1,850
 60,800
 
Twelve months ended January 31, 2018$74,435
 $34,468
 $39,967
 1.86
        
Twelve months ended October 31, 201764,041
 24,152
 39,889
 1.61
Change$10,394
 $10,316
 $78
 0.25

For the twelve months ended January 31, 2018, distributable cash flow attributable to equity investors increased $10.4 million compared to the twelve months ended October 31, 2017 primarily due to a $15.6 million increase in Adjusted EBITDA, partially offset by a $5.0 million increase in interest paid. The increase in Adjusted EBITDA is primarily due to an $18.2 million increase in our Propane operations and related equipment sales segment, partially offset by a $1.9 million decrease in Corporate, both as discussed above. The increase in interest paid is primarily due to increased interest rates on the secured credit facility and accounts receivable securitization facility, as well as increased interest expense associated with the $175.0 million of debt issued by Ferrellgas Partners in January 2017, which replaced a portion of the borrowings under the secured credit facility. Cash distributions paid to equity investors were unchanged because the number of common units outstanding and our annual distribution rate has not changed. Our distribution coverage ratio increased to 1.86 for the twelve months ended January 31, 2018.2019. Cash reserves, which we utilize to meet future anticipated expenditures, increaseddecreased by $34.5$1.0 million during the twelve months ended January 31, 2018April 30, 2019 compared to an increasea decrease of $24.2$1.7 million in the twelve months ended OctoberJanuary 31, 2017.

2019.

We believe that the liquidity available from our cash on hand, cash flows from operating activities, our senior secured credit facility, and the accounts receivable securitization facility, combined with our other debt and interest expense reduction initiatives, which may include issuance of equity, restructuring existing debt agreements, asset sales or a further reduction in our annualized distribution, will be sufficient to meet our capital expenditure, working capital and letter of credit requirements. If we are unsuccessful with our strategy to further reduce debt and interest expense, or are unsuccessful in renegotiating our secured credit facility and our accounts receivable securitization facility, which mature in October 2018, or are unable to secure alternative liquidity sources, we may not have the liquidity to meet our capital expenditure, working capital and letter of credit requirements.


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


Our working capital requirements are subject to, among other things, the price of propane, and crude oil, delays in the collection of receivables, volatility in energy commodity prices, liquidity imposed by insurance providers, downgrades in our credit ratings, decreased trade credit, significant acquisitions, the weather, customer retention and purchasing patterns and other changes in the demand for propane. Relatively colder weather or higher propane and crude oil. 


prices during the winter heating season are factors that could significantly increase our working capital requirements.

Our ability to satisfy our obligations is dependent upon our future performance, which will be subject to prevailing weather, economic, financial and business conditions and other factors, many of which are beyond our control. Due to the seasonality of the retail propane distribution business, a significant portion of our propane operations and related products cash flows from operations is generated during the winter heating season. Our Midstream operations segment is not expected to experience seasonality. Our net cash provided by operating

78

activities primarily reflects earnings from our business activities adjusted for depreciation and amortization and changes in our working capital accounts. Historically, we generate significantly lower net cash from operating activities in our first and fourth fiscal quarters as compared to the second and third fiscal quarters due to the seasonality of our propane operations and related equipment sales segment.

operations.

Operating Activities


Ferrellgas Partners


Net cash used inprovided by operating activities was $36.3$70.8 million for the sixnine months ended January 31, 2018,April 30, 2019, compared to net cash provided by operating activities of $39.3$78.3 million for the sixnine months ended January 31, 2017.April 30, 2018. This decrease in cash provided by operating activities was primarily due to a $69.8$22.9 million increasedecrease in cash flow from operations, partially offset by an $8.2 million decrease in working capital requirements and a $7.7$7.1 million unfavorable impact ininflow associated with other assets net, primarily due to an increase in crude oil barrels in linefill during the six months ended January 31, 2018, partially offset by a $1.8 million increase in cash flow from operations.


and other liabilities.

The increasedecrease in cash flow from operations is primarily due to an $8.3 million decrease in gross profit, as well as a $12.8 millionnet increase in Adjusted EBITDA, as discussed above by segment, partially offset by an $11.2"General and administrative expense" and "Equipment lease expense" of $6.1 million, and a $9.1 million increase in "Interest expense", as discussed above.


expense," due to increased interest rates on our secured credit facility.

The increasedecrease in working capital requirements for the sixnine months ended January 31, 2018April 30, 2019 compared to the sixnine months ended January 31, 2017April 30, 2018 was primarily due to a $27.9$13.7 million decrease in requirements for accounts receivable in our propane operations and related equipment sales segment due to declining propane prices in the current quarter, partially offset by increases in the volume of propane sold, and a $12.7 million decrease in accounts payable. These decreases were partially offset by a $12.4 million increase in requirements for accounts receivableother current liabilities due primarily to increasesan increase in margin deposits paid by us during the nine months ended April 30, 2019 compared to the number of gallons sold and the average selling price of propane gas, an $11.7nine months ended April 30, 2018, a $2.5 million increase in requirements for inventory due to decreases in inventory driven by increases in gallons sold, a $1.7 million increase in accrued interest expense and a $1.5 million increase in prepaid expenses and other assets due primarily to a decrease in margin deposits returned to us by our counterparties during the six months ended January 31, 2018 and a $28.9 million increase in requirements for accounts payable largely due to a decrease in days outstanding for our purchases of propane.


current assets.

The operating partnership

Net cash used inprovided by operating activities was $20.8$86.2 million for the sixnine months ended January 31, 2018,April 30, 2019, compared to net cash provided by operating activities of $45.3$93.9 million for the sixnine months ended January 31, 2017.April 30, 2018. This decrease in cash provided by operating activities was primarily due to a $67.5$23.1 million increasedecrease in cash flow from operations, partially offset by a $7.9 million decrease in working capital requirements and an $8.0a $7.4 million unfavorable impact ininflow associated with other assets net, primarily due to an increase in crude oil barrels in linefill during the six months ended January 31, 2018, partially offset by a $9.3 million increase in cash flow from operations.


and other liabilities.

The increasedecrease in cash flow from operations is primarily due to an $8.3 million decrease in gross profit, as well as a $12.8 millionnet increase in Adjusted EBITDA, as discussed above by segment, partially offset by"General and administrative expense" and "Equipment lease expense" of $6.2 million, and a $2.1$8.7 million increase in "Interest expense"expense," due to increased interest rates on theour secured credit facility.


The increasedecrease in working capital requirements for the sixnine months ended January 31, 2018April 30, 2019 compared to the sixnine months ended January 31, 2017April 30, 2018 was primarily due to a $27.9$13.7 million decrease in requirements for accounts receivable in our propane operations and related equipment sales segment due to declining propane prices in the current quarter partially offset by increases in the volume of propane sold, and a $12.7 million decrease in accounts payable. These decreases were partially offset by a $12.7 million increase in requirements for accounts receivableother current liabilities due primarily to increasesa increase in margin deposits paid by us during the nine months ended April 30, 2019 compared to the number of gallons sold and the average selling price of propane gas, an $11.6nine months ended April 30, 2018, a $2.5 million increase in requirements for inventory due to decreases in inventory driven by increases in gallons sold, a $1.7 million increase in accrued interest expense and a $1.6 million increase prepaid expenses and other assets due primarily to a decrease in margin deposits returned to us by our counterparties during the six months ended January 31, 2018 and a $28.9 million increase in requirements for accounts payable largely due to a decrease in days outstanding for our purchasescurrent assets. 

79


Investing Activities


Ferrellgas Partners

Capital Requirements


Our business requires continual investments to upgrade or enhance existing operations and to ensure compliance with safety and environmental regulations. Capital expenditures for our business consist primarily of:

·

Maintenance capital expenditures. These capital expenditures include expenditures for betterment and replacement of property, plant and equipment rather than to generate incremental distributable cash flow. Examples of maintenance capital expenditures include a routine replacement of a worn-out asset or replacement of major vehicle components; and


·

Growth capital expenditures. These expenditures are undertaken primarily to generate incremental distributable cash flow. Examples include expenditures for purchases of both bulk and portable propane tanks and other equipment to facilitate expansion of our customer base and operating capacity.

Maintenance capital expenditures. These capital expenditures include expenditures for betterment and replacement of property, plant and equipment rather than to generate incremental distributable cash flow. Examples of maintenance capital expenditures include a routine replacement of a worn-out asset or replacement of major vehicle components; and

Growth capital expenditures. These expenditures are undertaken primarily to generate incremental distributable cash flow. Examples include expenditures for purchases of both bulk and portable propane tanks and other equipment to facilitate expansion of our customer base and operating capacity.

Net cash used in investing activities was $46.3$103.6 million for the sixnine months ended January 31, 2018,April 30, 2019, compared to net cash used in investing activities of $15.2$16.0 million for the sixnine months ended January 31, 2017.April 30, 2018. This increase in net cash used in investing activities is primarily due to a $15.9decrease of $55.4 million in "Proceeds from sale of assets" which is primarily due to the sale of our midstream rail cars during the three months ended April 30, 2018, as well as a $35.7 million increase in "Capital expenditures" and, partially offset by a $14.9$3.5 million increasedecrease in "Business acquisitions, net of cash acquired."


acquired".

The increase in "Capital expenditures" is primarily due to increases in both  maintenance capital expenditures and in growth capital expenditures, in our Propane operations and related equipment sales segment during the sixnine months ended January 31, 2018.April 30, 2019. The increase in maintenance capital expenditures is primarily related to the purchase of new propane delivery trucks.trucks funded through cash on hand, compared to the nine months ended April 30, 2018. Funding for these trucks has historically been secured through lease financing. The increase in growth capital expenditures is primarily relateddue to an increasethe continued rise in the number of cylinders and cages purchased to support increases in tank exchange sales and selling locations.


locations, as well as the number of cylinders purchased for industrial and commercial forklift sales, and to a lesser extent, increases in growth capital expenditures related to the purchase of new propane delivery trucks.

The increasedecrease in "Business acquisitions, net of cash acquired" is attributable to fourseven smaller acquisitions by our Propane operations and related equipment sales segment during the sixnine months ended January 31,April 30, 2019 compared to the four acquisitions completed during the nine months ended April 30, 2018.


Due to the mature nature of our Propane operations and related equipment sales operations segment, we do not anticipate significant fluctuations in maintenance capital expenditures.expenditures, with the exception of future decisions regarding lease versus buy financing options. However, future fluctuations in growth capital expenditures could occur due to the opportunistic nature of these projects.


On February 20, 2019, we received full payment for our $8.5 million secured promissory note due in May 2020 from Bridger Energy, LLC.

The operating partnership

The investing activities discussed above also apply to the operating partnership.

Financing Activities


Ferrellgas Partners

Net cash provided byused in financing activities was $91.1$41.1 million for the sixnine months ended January 31, 2018,April 30, 2019, compared to net cash used in financing activities of $14.4$58.6 million for the sixnine months ended January 31, 2017.April 30, 2018. This increasedecrease in cash flow provided byused in financing activities was primarily due to a $40.5 million reduction in distributions, a $15.9 million reduction in common unit repurchases, a $55.8$51.4 million net increasereduction in proceeds from short-term borrowings and a $4.0$19.6 million

80

reduction in cash paid for financing costs,distributions, partially offset by a $9.3$23.6 million net reductiondecrease in proceeds from long-term debt.


debt and a $31.0 million reduction in net proceeds from the accounts receivable securitization.

Distributions

During the sixthree months ended JanuaryOctober 31, 2018, Ferrellgas Partners paid quarterlya per unit distributionsdistribution on all common units of $0.10 in connection with the distributions declared for the three month periodsperiod ended July 31, 2017 and2018. No distribution on common units was made for the three month periods ended October 31, 2017. 2018, January 31, 2019, or for the three month period ended April 30, 2019.

Total distributions paid to common unitholders during the sixnine months ended January 31, 2018,April 30, 2019, including the related general partner distributions, was $19.6$9.8 million. The quarterlyAs discussed above, no distribution of $0.10 on all common units was made in December 2018 or March 2019, and the related general partner distributionwill not be made in June 2019 for the threenine months ended January 31, 2018 totaling $9.8 million are expected to be paid on March 16, 2018 to holdersApril 30, 2019 or for any future quarterly period until Ferrellgas Partners’ fixed charge coverage ratio is at least 1.75x, or the indenture governing the notes of record on March 9, 2018.


Ferrellgas Partners is amended or replaced.

Secured credit facility


Refer to discussions

The Senior Secured Credit Facility consists of covenants in our debt agreements within the "Recent Developments" section and the "Liquidity and Capital Resources" section, both under the heading "Financial Covenants".

Since October 31, 2017, we classified all borrowings outstanding under our secured credit facility of $261.2a $300.0 million as short-term because the facility matures in October 2018. Additionally, Ferrellgas had $125.8 million of capacity under our secured credit facility as of January 31, 2018. As of March 5, 2018, Ferrellgas had $234.5 million of capacity under our secured credit facility. The increase from January 31, 2018 is primarily attributable to using cash proceeds of approximately $47.0 million from the sale of 1,072 rail cars to reduce borrowings under our senior secured credit facility and a reduction in outstanding lettersrevolving line of credit of approximately $42.4 million.
Borrowings outstanding at January 31, 2018 under the secured credit facility had(the "Revolving Facility") as well asweighted average interest rate of 6.5%. All$275.0 million term loan (the "Term Loan"), which mature on May 4, 2023. Revolving Facility borrowings under the secured credit facility bear interest at our option,the Prime Rate + 4.75% and Term Loan borrowings bear interest at LIBOR + 5.75%. The Revolving Facility includes rate equal$125.0 million sublimit for the issuance of letters of credit. Borrowings under the Senior Secured Credit Facility are available for working capital needs, capital expenditures and other general partnership purposes, including the refinancing of existing indebtedness and acquisitions, within certain limits.

The Term Loan does not include any scheduled principal payments and the Revolving Facility does not have any scheduled commitment reductions before maturity; however, the Term Loan requires prepayments pursuant to either:


for Base Rate Loans or Swing Line Loans, the Base Rate, whichfollowing: 1) certain asset sales, 2) 50% of any excess cash flow, as defined by the Term Loan, in any fiscal year beginning with fiscal year 2019, 3) certain insurance proceeds, and 4) certain tax refunds.

The Senior Secured Credit Facility is defined as the higher of (i) the federal funds rate plus 0.50%, (ii) Bank of America’s prime rate; or (iii) the Eurodollar Rate plus 1.00%; plus a margin varying from 0.75% to 3.00%; or

for Eurodollar Rate Loans, the Eurodollar Rate, which is defined as the LIBOR Rate plus a margin varying from 1.75% to 4.00%.
As of January 31, 2018, the federal funds rate and Bank of America’s prime rate were 1.34% and 4.50%, respectively. As of January 31, 2018, the one-month and three-month LIBOR Rates were 1.58% and 1.78%, respectively.
In addition, an annual commitment fee is payable at a per annum rate ranging from 0.35% to 0.50% times the actual daily amount by which the secured credit facility exceeds the sum of (i) the outstanding amount of revolving credit loans and (ii) the outstanding amount of letter of credit obligations.

The obligations under this secured credit facility are secured bywith substantially all of the assets of the operating partnership and its subsidiaries, and Ferrellgas Partners’ and the general partner and certain subsidiaries ofpartner’s partnership interests in the operating partnership, but specifically excluding (a) assets that are subjectand contains various affirmative and negative covenants and default provisions, as well as requirements with respect to the operating partnership’s accounts receivable securitization facility, (b)maintenance of specified financial ratios and limitations on the general partner’s equity interest in Ferrellgas Partnersmaking of loans and (c) equity interest in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiariesinvestments.

As of April 30, 2019, the operating partnership.

partnership had borrowings of $275.0 million under the Term Loan at a rate of 8.26%, which was classified as long-term debt, and no borrowings under the Revolving Facility. As of April 30, 2019, Ferrellgas had available borrowing capacity under the Revolving Facility of $197.9 million. As of July 31, 2018, the operating partnership had borrowings of $275.0 million under the Term Loan at a rate of 7.86%, which was classified as long-term debt, and $32.8 million under the Revolving Facility at a rate of 9.75%, which was classified as short-term borrowings. As of July 31, 2018, Ferrellgas had available borrowing capacity under its Revolving Facility of $159.3 million.

Letters of credit outstanding at January 31, 2018April 30, 2019 totaled $188.0$102.1 million and were used to secure commodity hedges,insurance arrangements, product purchases, and insurance arrangements.commodity hedges. At January 31, 2018,April 30, 2019, we had remaining letter of credit capacity of $12.0$22.9 million. As a result

On June 6, 2019, Ferrellgas, L.P. entered into an amendment to the agreement governing its Senior Secured Credit Facility. Among other matters, the amendment updated the calculation of the salefixed charge coverage ratio for purposes of Bridger Energy, LLCthe fixed charge coverage ratio in the agreement to exclude certain maintenance capital expenditures related to the purchase of new propane delivery trucks which have historically been leased. The amendment provides that up to a specified amount of such maintenance capital expenditures will not be deducted from consolidated EBITDA for purposes of the calculation. The operating partnership was in compliance with the fixed charge coverage ratio covenant, as amended, as of April 30, 2019. A copy of the amendment has been filed as Exhibit 10.31 to this Quarterly Report on January 16, 2018, we anticipate near-term reductions in outstanding lettersForm 10-Q.

81

All standby letter of credit commitments under our secured credit facility bear a per annum rate varying from 1.75% to 4.00% (as of January 31, 2018, the rate was 4.0%) times the daily maximum amount available to be drawn under such letter of credit. Letter of credit fees are computed on a quarterly basis in arrears.

Accounts receivable securitization

Refer to discussions of covenants in our debt agreements within the "Recent Developments" section and the "Liquidity and Capital Resources" section, both under the heading "Financial Covenants".

Ferrellgas Receivables is a consolidated subsidiary. Expenses associated with accounts receivable securitization transactions are recorded in “Interest expense” in the condensed consolidated statements of operations. Additionally, borrowings and repayments associated with these transactions are recorded in “Cash flows from financing activities” in the condensed consolidated statements of cash flows.

Cash flows from our accounts receivable securitization facility increased $28.0 million. Wedecreased $31.0 million, as we received net funding of $97.0$4.0 million from this facility during the sixnine months ended January 31, 2018April 30, 2019 as compared to receiving net funding of $69.0$35.0 million from this facility during the sixnine months ended January 31, 2017.

Our strategy is to maximize liquidity by utilizing the accounts receivable securitization facility along with borrowings under the secured credit facility. See additional discussion about the secured credit facility in “Financing Activities – Secured credit facility.” April 30, 2018.

Our utilization of the accounts receivable securitization facility is limited by the amount of accounts receivable that we are permitted to securitize according to the facility agreement. As of January 31, 2018,April 30, 2019, we had received cash proceeds of $166.0$62.0 million related to the securitization of our trade accounts receivable, with no$49.0 million remaining capacity to receive additional proceeds. As of January 31, 2018,April 30, 2019, the weighted average interest rate was 4.0%5.9%. As our trade accounts receivable increase during the winter heating season, the securitization facility permits us to receive greater proceeds as eligible trade accounts receivable increase, thereby providing additional cash for working capital needs.


Common unit repurchase

On September 1, 2016, utilizing borrowings under our secured credit facility, Ferrellgas Partners paid approximately $16.9 million to Jamex and in return received 0.9 million of Ferrellgas Partners' common units, which were cancelled upon receipt, and approximately 23 thousand barrels of crude oil.

The operating partnership


The financing activities discussed above also apply to the operating partnership except for the repurchase of common units discussed above, and cash flows related to distributions, as discussed below.

Distributions

The operating partnership paid cash distributions of $35.4$25.6 million and $84.5$45.5 million during the sixnine months ended January 31,April 30, 2019 and 2018, and 2017, respectively. The operating partnership expectswill make a distribution of $15.4 million to pay cash distributions of $9.9Ferrellgas Partners L.P. and $0.2 million to the general partner on March 16, 2018.


June 15, 2019 related to the three month period ended April 30, 2019.

Disclosures about Effects of Transactions with Related Parties

We have no employees and are managed and controlled by our general partner. Pursuant to our partnership agreements, our general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on our behalf,


and all other necessary or appropriate expenses allocable to us or otherwise reasonably incurred by our general partner in connection with operating our business. These reimbursable costs, which totaled $138.6$212.5 million for the sixnine months ended January 31, 2018,April 30, 2019, include operating expenses such as compensation and benefits paid to employees of our general partner who perform services on our behalf as well as related general and administrative expenses.

Related party common unitholder information consisted of the following:

 

 

 

 

 

 

 

    

 

    

Distributions

 

 

Common unit

 

(in thousands)

 

 

ownership at

 

paid during the nine months ended

 

 

April 30, 2019

 

April 30, 2019

Ferrell Companies (1)

 

22,529,361

 

$

2,253

FCI Trading Corp. (2)

 

195,686

 

 

20

Ferrell Propane, Inc. (3)

 

51,204

 

 

 5

James E. Ferrell (4)

 

4,763,475

 

 

476



(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 April 30, 2019.

(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

82

  Common unit ownership at Distributions (in thousands) paid during the six months ended
  January 31, 2018 January 31, 2018
Ferrell Companies (1) 22,529,361
 $4,506
FCI Trading Corp. (2) 195,686
 40
Ferrell Propane, Inc. (3) 51,204
 10
James E. Ferrell (4) 4,763,475
 952

common units and is wholly-owned by the James E. Ferrell Revocable Trust Two and other family trusts, all of which James E. Ferrell and/or his family members are the trustees and beneficiaries. James E. Ferrell holds all voting common stock of JEF Capital Management. 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.


(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 January 31, 2018.
(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.

During the sixnine months ended January 31, 2018,April 30, 2019, Ferrellgas Partners and the operating partnership together paid the general partner distributions of $0.6$0.4 million.


On March 16, 2018,

As discussed previously, Ferrellgas Partners expectswas not in compliance with the consolidated fixed charge coverage ratio under its note indenture, and thus was unable to paymake restricted payments, including distributions to Ferrell Companies, FCI Trading Corp., Ferrell Propane, Inc., James E. Ferrell (indirectly), and the general partner of $2.3 million, $20 thousand, $5 thousand, $0.5 million, and $0.1 million, respectively.



unitholders after September 2018.

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We did not enter into any risk management trading activities during the sixnine months ended January 31, 2018.April 30, 2019. Our remaining market risk sensitive instruments and positions have been determined to be “other than trading.”


We are no longer subject to price risks related to crude oil line fill and inventory as result of our January 2018 sale of Bridger Energy, LLC. This sale resulted in our exit from crude oil purchase and sale activity.

Commodity price risk management

Our risk management activities primarily attempt to mitigate price risks related to the purchase, storage, transport and sale of propane generally in the contract and spot markets from major domestic energy companies. We attempt to mitigate these price risks through the use of financial derivative instruments and forward propane purchase and sales contracts.


Our risk management strategy involves taking positions in the forward or financial markets that are equal and opposite to our positions in the physical products market in order to minimize the risk of financial loss from an adverse price change. This risk management strategy is successful when our gains or losses in the physical product markets are offset by our losses or gains in the forward or financial markets. Propane related financial derivatives are designated as cash flow hedges.


Our risk management activities include the use of financial derivative instruments including, but not limited to, price swaps, options, futures and basis swaps to seek protection from adverse price movements and to minimize potential losses. We enter into these financial derivative instruments directly with third parties in the over-the-counter market and with brokers who are clearing members with the Intercontinental Exchange or the Chicago Mercantile Exchange. We also enter into forward propane purchase and sales contracts with counterparties. These forward contracts qualify for the normal purchase normal sales exception within GAAP guidance and are therefore not recorded on our financial statements until settled.

Transportation Fuel Price Risk


From time to time, our risk management activities also attempt to mitigate price risks related to the purchase of gasoline and diesel fuel for use in the transport of propane from retail fueling stations. When employed, we attempt to mitigate these price risks through the use of financial derivative instruments.


When employed, our risk management strategy involves taking positions in the financial markets that are not more than the forecasted purchases of fuel for our internal use in the retail and supply propane delivery fleet in order to minimize the risk of decreased earnings from an adverse price change. This risk management strategy locks in our purchase price and is successful when our gains or losses in the physical product markets are offset by our losses or gains in the financial markets. Our transport fuel financial derivatives are not designated as cash flow hedges.


Risk Policy and Sensitivity Analysis


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

83

We have prepared a sensitivity analysis to estimate the exposure to market risk of our energy commodity positions. Forward contracts, futures, swaps and options outstanding as of January 31, 2018April 30, 2019 and July 31, 2017,2018, that were used in our risk management activities were analyzed assuming a hypothetical 10% adverse change in prices for the delivery month for all energy commodities. The potential loss in future earnings from these positions due to a 10% adverse movement in market prices of the underlying energy commodities was estimated at $14.8$9.2 million and $16.8$13.7 million as of January 31, 2018April 30, 2019 and July 31, 2017,2018, respectively. The preceding hypothetical analysis is limited because changes in prices may or may not equal 10%, thus actual results may differ. Our sensitivity analysis does not include the anticipated transactions associated with these transactions, which we anticipate will be 100% effective.

Credit risk

We maintain credit policies with regard to our counterparties that we believe significantly minimize overall credit risk. These policies include an evaluation of counterparties’ financial condition (including credit ratings), and entering into agreements with counterparties that govern credit guidelines.


Our other counterparties consist of major energy companies who are suppliers, marketers, wholesalers, retailers, end users and financial institutions. The overall impact due to certain changes in economic, regulatory and other events may impact our overall exposure to credit risk, either positively or negatively in that counterparties may be similarly impacted. Based on our policies, exposures, credit and other reserves, management does not anticipate a material adverse effect on financial position or results of operations as a result of counterparty performance.


On September 1, 2016, we entered into a group of agreements with Jamex which, among other things, Jamex agreed to execute and deliver a secured promissory note ("Jamex Secured Promissory Note") in favor of Bridger in satisfaction of all obligations owed to Bridger under the Jamex TLA. The Jamex Secured Promissory Note is guaranteed, pursuant to a Guaranty Agreement, jointly by James Ballengee and Bacchus Capital Trading, LLC, an entity controlled by Mr. Ballengee (up to a maximum aggregate amount of $20.0 million), and pursuant to Guaranty Agreements, by the other Jamex entities. The obligations of Jamex and the other Jamex entities under the Note are secured, pursuant to a Security Agreement, by a lien on certain of those entities’ assets, actively traded marketable securities and cash, which are held in a controlled account that can be seized by Ferrellgas in the event of default. The sum of the amounts available under the controlled account and the $20.0 million guarantee approximate the $37.5 million note receivable as of January 31, 2018.

Interest rate risk


At January 31, 2018,April 30, 2019, we had $427.2a total of $337.0 million in variable rate secured credit facility and collateralized note payable borrowings. We also have an interest rate swap that hedges a portion of the interest rate risk associated with these variable rate borrowings, as discussed in the table below. Thus, assuming a one percent increase in our variable interest rate, our interest rate risk related to these borrowings would result in a reduction to future earnings of $3.8$3.4 million for the twelve months ending January 31,April 30, 2019. The preceding hypothetical analysis is limited because changes in interest rates may or may not equal one percent, thus actual results may differ. We manage a portion of our interest rate exposure by utilizing interest rate swaps. To the extent that we have debt with variable interest rates that is not hedged, ourOur results of operations, cash flows and financial condition could be materially adversely affected by significant increases in interest rates.


We also manage a portion of our interest rate exposure associated with our fixed rate debt by utilizing an interest rate swap. A hypothetical one percent change in interest rates would result in a reduction to future earnings of $1.4 million for the twelve months ending January 31, 2019.

As discussed above, the following interest rate swaps are outstanding as of January 31, 2018, and are all designated as hedges for accounting purposes:
TermNotional Amount(s) (in thousands)Type
May 2021$140,000Pay a floating rate and receive a fixed rate of 6.50%
Aug 2018$100,000Pay a fixed rate of 1.95% and receive a floating rate

ITEM 4.      CONTROLS AND PROCEDURES

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

The management of Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P., and Ferrellgas Finance Corp. does not expect that our disclosure controls and procedures will prevent all errors and all fraud. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Based on the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the above mentioned partnerships and corporations have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Our disclosure controls and procedures are designed to provide such reasonable assurances of achieving our desired control objectives, and the principal executive officer and principal financial officer of our general partner have concluded, as of January 31, 2018,April 30, 2019, that our disclosure controls and procedures are effective in achieving that level of reasonable assurance.

During the most recent fiscal quarter ended January 31, 2018,April 30, 2019, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f)13a‑15(f) or Rule 15d-15(f)15d‑15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


84


PART II - OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

Our operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane and, prior to the sales of midstream operations in fiscal 2018, crude oil. As a result, at any given time, we can be threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. Other than as discussed below, we are not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that are reasonably expected to have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

We have 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 we 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 initially 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 filed a petition for a writ of certiorari which was denied. An appeal by the indirect customer plaintiffs remains pending.resulted in the court appeals affirming the dismissal of the federal claims and remanding the case to the district court to decide whether to exercise supplemental jurisdiction over the remaining state law claims. We believe we have strong defenses to the claims and intend to vigorously defend against the consolidated case. We do not believe loss is probable or reasonably estimable at this time related to the putative class action lawsuit.


We have 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. On April 2, 2018, the securities class action lawsuits were dismissed with prejudice. On April 30, 2018, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Second Circuit. On April 24, 2019 the United States Court of Appeals for the Second Circuit affirmed the judgment of the Southern District Court dismissing the class action lawsuits with prejudice. At this time the derivative lawsuits remain stayed by agreement. We believe that we have defenses and will vigorously defend these cases. We do not believe loss is probable or reasonably estimable at this time related to the putative class action lawsuits or the derivative actions.


We 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 in 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 we 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. We believe that we 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, we believe that the amount of such damage claims, if ultimately owed to Eddystone, could be material. We intend 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, we 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. TheOn June 25, 2018, we entered into an agreement with the Third-Party Defendants have filed motions to dismisswhich, among other things, resulted in a dismissal of the third-party complaint for alleged lackclaims against the Third-Party Defendants from the lawsuit. The lawsuit is in the discovery stage; as such, management does not currently believe a loss is probable or reasonably estimable at this time.

85


ITEM 1A.   RISK FACTORS

Except as set forth below, there

There have been no material changes from the risk factors set forth under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K10‑K for fiscal 2017.


You may be required to pay taxes on your share of our taxable income even if you do not receive cash distributions from us.
You may be required to pay federal income taxes and, in some cases, state and local income taxes on your share of our taxable income, including our taxable income associated with a disposition of property or cancellation of debt, whether or not

you receive cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability which results from that income.
We are currently undertaking a debt and interest expense reduction strategy. As such, we may engage in transactions that could have significant adverse tax consequences to our unitholders. For example, we may sell some of our assets and use the proceeds to pay down debt or fund capital expenditures rather than distributing the proceeds to our unitholders, and some or all of our unitholders may be allocated substantial taxable income and gain resulting from the sale without receiving a cash distribution. We may also engage in transactions to further reduce our existing debt, such as debt exchanges, debt repurchases, or modifications of our existing debt, that could result in cancellation of indebtedness income (COD income), or other income, being allocated to our unitholders as taxable income. This may cause a unitholder to be allocated taxable income with respect to our units with no corresponding distribution of cash to fund the payment of the resulting tax liability to the unitholder.
The ultimate effect of any such allocations will depend on the unitholder's individual tax position with respect to its units. Unitholders are encouraged to consult their tax advisors with respect to the consequences to them of this income.

2018.

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

None.

None.

ITEM 4.      MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.      OTHER INFORMATION

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangement of Certain Officers

On March 8, 2018, Randy V. Schott, resigned as Senior Vice President of Retail Operations of Ferrellgas, Inc. Ferrellgas, Inc. is the general partner of Ferrellgas Partners, L.P. andJune 6, 2019, Ferrellgas, L.P.


Pursuantentered into an amendment to the agreement governing its Senior Secured Credit Facility. Among other matters, the amendment updated the calculation of the fixed charge coverage ratio for purposes of the fixed charge coverage ratio in the agreement to exclude certain maintenance capital expenditures related to the purchase of new propane delivery trucks which have historically been leased. The amendment provides that up to a voluntary retirement and release agreement (the “Release”) effective March 8, 2018 between Mr. Schott and Ferrellgas, Inc., Ferrell Companies, Inc., Ferrellgas Partners, L.P. and Ferrellgas, L.P., Mr. Schottspecified amount of such maintenance capital expenditures will serve in an advisory rolenot be deducted from consolidated EBITDA for a two-year period. In consideration for his advisory services, Mr. Schott will receive $0.5 million to be paid in bi-weekly installments over the next 24 months, and Ferrellgas, Inc. will cover the employer share of Mr. Schott's medical insurance premiums for 24 months. All existing stock options that Mr. Schott has will, through the term of his employment and thereafter, continue to be subject to the terms and conditionspurposes of the Ferrell Companies, Inc. incentive compensation plan documents.calculation. The descriptionoperating partnership was in compliance with the fixed charge coverage ratio covenant, as amended, as of April 30, 2019. A copy of the Release is qualified in its entirety by reference to the full text of the agreement, a copy of which is attachedamendment has been filed as an Exhibit 10.31 to this Quarterly Report on Form 10-Q.10-Q.


86



ITEM 6.      EXHIBITS

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


Exhibit 
N
umber

Description

3.1

Exhibit
Number
Description
3.1

3.2

3.2


3.3


3.4


3.5


3.6

3.3

3.7


3.4

3.8


3.5

3.9

3.6

3.10


3.7

3.11
3.12


3.8

3.13


4.1

4.1


4.2

4.2

4.3

4.3

4.4

4.4

4.5

4.5

4.6

4.6

4.7

4.7


87


4.9

4.9

4.10

4.10

4.11

4.11

4.12

4.12

4.13

4.14

10.1

10.1

10.2

10.2

10.3

10.3

10.4

10.4

10.5

10.5

10.6

10.6

10.7

10.8

10.9

10.10

#10.11

#10.12

#10.13

#10.14

#10.15


#10.16

#10.17

#10.18

#10.19
.
#10.20

#10.21

10.22

#10.23

#10.24

+10.25

10.26


10.27

10.28


10.29


10.30


10.31


10.32

10.33

10.34

10.35

10.7

10.36

10.37

+10.8

10.38

Financing Agreement, dated as of May 4, 2018, among Ferrellgas, L.P., Ferrellgas, Inc., as the general partner of Ferrellgas, L.P., certain subsidiaries of Ferrellgas, L.P., as guarantors, the lenders party thereto, TPG Specialty Lending, Inc. as administrative agent, collateral agent and lead arranger, and PNC Bank, National Association, as syndication agent. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8‑K filed September 7, 2018.

10.9

Amended and Restated Receivable Sale Agreement dated as of January 19, 2012, between Ferrellgas, L.P. and Blue Rhino Global Sourcing, Inc., as originators, and Ferrellgas Receivables, LLC, as buyer. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8‑K filed January 20, 2012; File No. 001‑11331; 000‑50182; 000‑50183 and 333‑06693.

88

10.10

Receivables Purchase Agreement dated as of January 19, 2012, among Ferrellgas Receivables, LLC, as seller, Ferrellgas, L.P., as servicer, the purchasers from time to time party hereto, Fifth Third Bank and SunTrust Bank, as co-agents, and Wells Fargo Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8‑K filed January 20, 2012; File No. 001‑11331; 000‑50182; 000‑50183 and 333‑06693.

10.11

First Amendment to Receivables Purchase Agreement dated as of April 30, 2012, among Ferrellgas Receivables, LLC, as seller, Ferrellgas, L.P., as servicer, the purchasers from time to time party hereto, Fifth Third Bank and SunTrust Bank, as co-agents, and Wells Fargo Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10‑Q filed June 8, 2012; File No. 001‑11331; 000‑50182; 000‑50183 and 333‑06693.

10.12

Second Amendment to Receivables Purchase Agreement dated as of April 1, 2014, among Ferrellgas Receivables, LLC, as seller, Ferrellgas, L.P., as servicer, the purchasers from time to time party hereto, Fifth Third Bank and SunTrust Bank, as co-agents, and Wells Fargo Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8‑K filed April 4, 2014.

10.13

Third Amendment to Receivables Purchase Agreement dated as of July 27, 2016, among Ferrellgas Receivables, LLC, as seller, Ferrellgas, L.P., as servicer, the purchasers from time to time party hereto, Fifth Third Bank and SunTrust Bank, as co-agents, and Wells Fargo Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8‑K filed July 27, 2016.

10.14

Fourth Amendment to Receivables Purchase Agreement dated as of September 27, 2016, among Ferrellgas Receivables, LLC, as seller, Ferrellgas, L.P., as servicer, the purchasers from time to time party hereto, Fifth Third Bank and SunTrust Bank, as co-agents, and Wells Fargo Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.38 to our Current Report on Form 10‑K filed September 28, 2016.

10.15

Amendment No. 5 to Receivables Purchase Agreement dated as of April 28, 2017, among Ferrellgas Receivables, LLC, as seller, Ferrellgas, L.P., as servicer, the purchasers from time to time party hereto, Fifth Third Bank and SunTrust Bank, as co-agents, and Wells Fargo Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K8‑K filed May 2, 2017.


+ 10.16

#

10.39

# 10.17

#

10.40

Ferrell Companies, Inc. Supplemental Savings Plan, as amended and restated effective January 1, 2010. Incorporated by reference to Exhibit 10.14 to our Quarterly Report on Form 10‑Q filed March 10, 2010; File No. 001‑11331; 000‑50182; 000‑50183 and 333‑06693.

# 10.18

# 10.19

Amendment to Ferrell Companies, Inc. 1998 Incentive Compensation Plan, dated as of March 7, 2010. Incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10‑Q filed June 9, 2010; File No. 001‑11331; 000‑50182; 000‑50183 and 333‑06693.

# 10.20

Employment, Confidentiality, and Noncompete Agreement dated as of July 17, 1998 by and among Ferrell Companies, Inc. as the company, Ferrellgas, Inc. as the company, James E. Ferrell as the executive and LaSalle National Bank as trustee of the Ferrell Companies, Inc. Employee Stock Ownership Trust. Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10‑K filed September 29, 2014.

# 10.21

Form of Director/Officer Indemnification Agreement, by and between Ferrellgas, Inc. and each director and executive officer. Incorporated by reference to Exhibit 10.16 to our Quarterly Report on Form 10‑Q filed March 9, 2012; File No. 001‑11331; 000‑50182; 000‑50183 and 333‑06693.

# 10.22

Ferrell Companies, Inc. 2015 Deferred Appreciation Rights Plan, dated as of July 31, 2015. Incorporated by reference to Exhibit 10.23 to our Annual Report on Form 10‑K filed September 29, 2015.

# 10.23

Employment agreement dated July 10, 2015 by and between Ferrellgas, Inc. as the company and Alan C. Heitmann as the executive. Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8‑K filed July 15, 2015.

# 10.24

Employment agreement dated as of May 28, 2015 by and between Ferrellgas, Inc. as the company and Thomas M. Van Buren as the executive. Incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10‑K filed September 29, 2015.

# 10.25

Thomas M. Van Buren Agreement and Release. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K8‑K filed September 15, 2017.



89

10.26

10.41

# 10.27

10.42

10.43

#10.44

*

# 10.28

#

10.45


*

# 10.29

31.1

Separation Agreement and release dated December 1, 2018 by and between Doran Schwartz and Ferrellgas, Inc., Ferrell Companies, Inc., Ferrellgas Partners, L.P. and Ferrellgas, L.P. Incorporated by reference to Exhibit 10.29 to our Quarterly Report on Form 10-Q filed March 8, 2019.

# 10.30

* 10.31

First Amendment to Financing Agreement, dated as of June 6, 2019, by and among Ferrellgas, L.P., Ferrellgas, Inc., as the general partner of Ferrellgas, L.P., certain subsidiaries of Ferrellgas, L.P., as guarantors, the lenders party thereto, and TPG Specialty Lending, Inc., as collateral agent.

* 31.1

Certification of Ferrellgas Partners, L.P. pursuant to Rule 13a-14(a)13a‑14(a) or Rule 15d-14(a)15d‑14(a) of the Exchange Act.


* 31.2

31.2

* 31.3

31.3

* 31.4

31.4

* 32.1

32.1

* 32.2

32.2

* 32.3

32.3

* 32.4

32.4

* 101.INS

101.INS

XBRL Instance Document.

* 101.SCH

101.SCH

XBRL Taxonomy Extension Schema Document.

* 101.CAL

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

* 101.DEF

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

* 101.LAB

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

* 101.PRE

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

*Filed herewith
#Management contracts or compensatory plans. 
+Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.



*Filed herewith

#Management contracts or compensatory plans.

+Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.


90

SIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


FERRELLGAS PARTNERS, L.P.

By Ferrellgas, Inc. (General Partner)

Date:

March 8, 2018

June 10, 2019

By

/s/ Doran N. SchwartzWilliam E. Ruisinger

Doran N. Schwartz

William E. Ruisinger

Senior Vice President;

Interim Chief Financial Officer; Treasurer (Principal Financial and Accounting Officer)

FERRELLGAS PARTNERS FINANCE CORP.

Date:

March 8, 2018

June 10, 2019

By

/s/ Doran N. SchwartzWilliam E. Ruisinger

Doran N. Schwartz

William E. Ruisinger

Interim Chief Financial Officer and Sole Director

FERRELLGAS, L.P.

By Ferrellgas, Inc. (General Partner)

Date:

March 8, 2018

June 10, 2019

By

/s/ Doran N. SchwartzWilliam E. Ruisinger

Doran N. Schwartz

William E. Ruisinger

Senior Vice President;

Interim Chief Financial Officer; Treasurer (Principal Financial and Accounting Officer)

FERRELLGAS FINANCE CORP.

Date:

March 8, 2018

June 10, 2019

By

/s/ Doran N. SchwartzWilliam E. Ruisinger

Doran N. Schwartz

William E. Ruisinger

Interim Chief Financial Officer and Sole Director



91

E-5