Derivative Instruments and Hedging Activities | 3 Months Ended |
Oct. 31, 2014 |
Derivative Instruments and Hedging Activities | ' |
Derivative instruments and hedging activities |
|
Ferrellgas is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. Ferrellgas utilizes derivative instruments to manage its exposure to fluctuations in commodity prices. Ferrellgas also periodically utilizes derivative instruments to manage its exposure to fluctuations in interest rates. |
|
Derivative instruments and hedging activities |
|
During the three months ended October 31, 2014 and 2013, Ferrellgas did not recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of financial derivative contract gains or losses from the assessment of hedge effectiveness related to commodity cash flow hedges. |
|
The following tables provide a summary of fair value derivatives that were designated as hedging instruments in Ferrellgas’ condensed consolidated balance sheets as of October 31, 2014 and July 31, 2014: |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| | October 31, 2014 | | | | | | |
| | Asset Derivatives | | Liability Derivatives | | | | | | |
Derivative Instrument | | Location | | Fair value | | Location | | Fair value | | | | | | |
Propane commodity derivatives | | Prepaid expenses and other current assets | | $ | 1,042 | | | Other current liabilities | | $ | 6,229 | | | | | | | |
| | | | | |
Propane commodity derivatives | | Other assets, net | | 236 | | | Other liabilities | | 2,012 | | | | | | | |
| | | | | |
Interest rate swap agreements | | Prepaid expenses and other current assets | | 2,138 | | | Other current liabilities | | 407 | | | | | | | |
| | | | | |
Interest rate swap agreements | | Other assets, net | | — | | | Other liabilities | | 4,440 | | | | | | | |
| | | | | |
| | Total | | $ | 3,416 | | | Total | | $ | 13,088 | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | July 31, 2014 | | | | | | |
| | Asset Derivatives | | Liability Derivatives | | | | | | |
Derivative Instrument | | Location | | Fair value | | Location | | Fair value | | | | | | |
Propane commodity derivatives | | Prepaid expenses and other current assets | | $ | 5,301 | | | Other current liabilities | | $ | 83 | | | | | | | |
| | | | | |
Propane commodity derivatives | | Other assets, net | | 1,705 | | | Other liabilities | | — | | | | | | | |
| | | | | |
Interest rate swap agreements | | Prepaid expenses and other current assets | | 2,101 | | | Other current liabilities | | — | | | | | | | |
| | | | | |
Interest rate swap agreements | | Other assets, net | | — | | | Other liabilities | | 5,075 | | | | | | | |
| | | | | |
| | Total | | $ | 9,107 | | | Total | | $ | 5,158 | | | | | | | |
| | | | | |
|
Our exchange traded propane 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 to us if mark-to-market conditions improve or will be applied against our cash settlement when the contracts are settled. The following table provides a summary of cash margin deposit balances as of October 31, 2014 and July 31, 2014: |
|
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| | October 31, 2014 | | July 31, 2014 | | | | | | |
| | | | | |
Description | | Location | | Amount | | Location | | Amount | | | | | | |
| | | | | |
Margin Deposits | | Prepaid expenses and other current assets | | $ | 7,831 | | | Prepaid expenses and other current assets | | $ | 156 | | | | | | | |
| | | | | |
| | Other assets, net | | 3,207 | | | Other assets, net | | 189 | | | | | | | |
| | | | | |
| | | | $ | 11,038 | | | | | $ | 345 | | | | | | | |
| | | | | |
|
|
The following tables provide a summary of the effect on Ferrellgas' condensed consolidated statements of earnings for the three months ended October 31, 2014 and 2013 due to derivatives designated as fair value hedging instruments: |
|
| | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain Recognized on Derivative | | Amount of Interest Expense Recognized on Fixed-Rated Debt (Related Hedged Item) |
Derivative Instrument | | Location of Gain Recognized on Derivative | | For the three months ended October 31, | | For the three months ended October 31, |
| | | | 2014 | | 2013 | | 2014 | | 2013 |
Interest rate swap agreements | | Interest expense | | $ | 457 | | | $ | 832 | | | $ | (2,275 | ) | | $ | (5,365 | ) |
|
|
|
|
The following tables provide a summary of the effect on Ferrellgas’ condensed consolidated statements of comprehensive income for the three months ended October 31, 2014 and 2013 due to the effective portion of derivatives designated as cash flow hedging instruments: |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | For the three months ended October 31, 2014 | | | | | | | | |
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 | | | | | | | | |
Propane commodity derivatives | | $ | (12,758 | ) | | Cost of product sold- propane and other gas liquids sales | | $ | (1,128 | ) | | | | | | | | |
Interest rate swap agreements | | (1,139 | ) | | Interest expense | | — | | | | | | | | | |
| | | | | | | |
| | $ | (13,897 | ) | | | | $ | (1,128 | ) | | | | | | | | |
|
| | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | For the three months ended October 31, 2013 | | | | | | | | |
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 | | | | | | | | |
Propane commodity derivatives | | $ | 11,617 | | | Cost of product sold- propane and other gas liquids sales | | $ | 929 | | | | | | | | | |
| | | | | | | |
Interest rate swap agreements | | (1,013 | ) | | Interest expense | | — | | | | | | | | | |
| | | | | | | |
| | $ | 10,604 | | | | | $ | 929 | | | | | | | | | |
| | | | | | | |
|
|
The changes in derivatives included in AOCI for the three months ended October 31, 2014 and 2013 were as follows: |
|
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | For the three months ended October 31, | | | | | | | | | | |
Gains and losses on derivatives included in AOCI | | 2014 | | 2013 | | | | | | | | | | |
Beginning balance | | $ | 6,483 | | | $ | 2,066 | | | | | | | | | | | |
| | | | | | | | | |
Change in value of risk management commodity derivatives | | (12,758 | ) | | 11,617 | | | | | | | | | | | |
| | | | | | | | | |
Reclassification of gains and losses on commodity hedges to cost of product sold - propane and other gas liquids sales, net | | (1,128 | ) | | (929 | ) | | | | | | | | | | |
Change in value of risk management interest rate derivatives | | (1,139 | ) | | (1,013 | ) | | | | | | | | | | |
Ending balance | | $ | (8,542 | ) | | $ | 11,741 | | | | | | | | | | | |
| | | | | | | | | |
|
Ferrellgas expects to reclassify net losses of approximately $5.2 million to earnings during the next 12 months. These net losses are expected to be offset by increased margins on propane sales commitments Ferrellgas has with its customers that qualify for the normal purchase normal sales exception. |
|
During the three months ended October 31, 2014 and 2013, Ferrellgas had no reclassifications to earnings resulting from the discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship. |
|
As of October 31, 2014, Ferrellgas had financial derivative contracts covering 2.5 million barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane. |
|
Derivative financial instruments credit risk |
|
Ferrellgas is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Ferrellgas’ counterparties principally consist of major energy companies and major U.S. financial institutions. Ferrellgas maintains credit policies with regard to its counterparties that it believes reduces its overall credit risk. These policies include evaluating and monitoring its counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by Ferrellgas in the forms of letters of credit, parental guarantees or cash. Although Ferrellgas has concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties, the maximum amount of loss due to credit risk that, based upon the gross fair values of the derivative financial instruments, Ferrellgas would incur if these counterparties that make up the concentration failed to perform according to the terms of their contracts was $0.8 million at October 31, 2014. |
|
Ferrellgas holds certain derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon the operating partnership’s debt rating. At October 31, 2014, a downgrade in the operating partnership’s debt rating would not trigger any further reduction in credit limit. There were no derivatives with credit-risk-related contingent features in a liability position on October 31, 2014 and Ferrellgas had no collateral posted in the normal course of business related to such derivatives. |
Ferrellgas, L.P. [Member] | ' |
Derivative Instruments and Hedging Activities | ' |
Derivative instruments and hedging activities |
|
Ferrellgas, L.P. is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. Ferrellgas, L.P. utilizes derivative instruments to manage its exposure to fluctuations in commodity prices. Ferrellgas, L.P. also periodically utilizes derivative instruments to manage its exposure to fluctuations in interest rates. |
|
Derivative instruments and hedging activities |
|
During the three months ended October 31, 2014 and 2013, 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 derivatives that were designated as hedging instruments in Ferrellgas, L.P.’s condensed consolidated balance sheets as of October 31, 2014 and July 31, 2014: |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| | October 31, 2014 | | | | | | |
| | Asset Derivatives | | Liability Derivatives | | | | | | |
Derivative Instrument | | Location | | Fair value | | Location | | Fair value | | | | | | |
Propane commodity derivatives | | Prepaid expenses and other current assets | | $ | 1,042 | | | Other current liabilities | | $ | 6,229 | | | | | | | |
| | | | | |
Propane commodity derivatives | | Other assets, net | | 236 | | | Other liabilities | | 2,012 | | | | | | | |
| | | | | |
Interest rate swap agreements | | Prepaid expenses and other current assets | | 2,138 | | | Other current liabilities | | 407 | | | | | | | |
| | | | | |
Interest rate swap agreements | | Other assets, net | | — | | | Other liabilities | | 4,440 | | | | | | | |
| | | | | |
| | Total | | $ | 3,416 | | | Total | | $ | 13,088 | | | | | | | |
| | | | | |
| | | | | | | | | | | | | | |
| | July 31, 2014 | | | | | | |
| | Asset Derivatives | | Liability Derivatives | | | | | | |
Derivative Instrument | | Location | | Fair value | | Location | | Fair value | | | | | | |
Propane commodity derivatives | | Prepaid expenses and other current assets | | $ | 5,301 | | | Other current liabilities | | $ | 83 | | | | | | | |
| | | | | |
Propane commodity derivatives | | Other assets, net | | 1,705 | | | Other liabilities | | — | | | | | | | |
| | | | | |
Interest rate swap agreements | | Prepaid expenses and other current assets | | 2,101 | | | Other current liabilities | | — | | | | | | | |
| | | | | |
Interest rate swap agreements | | Other assets, net | | — | | | Other liabilities | | 5,075 | | | | | | | |
| | | | | |
| | Total | | $ | 9,107 | | | Total | | $ | 5,158 | | | | | | | |
| | | | | |
|
Our exchange traded propane 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 to us if mark-to-market conditions improve or will be applied against our cash settlement when the contracts are settled. The following table provides a summary of cash margin deposit balances as of October 31, 2014 and July 31, 2014: |
| | | | | | |
| | | | | | | | | | | | | | | | | | |
| | October 31, 2014 | | July 31, 2014 | | | | | | |
| | | | | |
Description | | Location | | Amount | | Location | | Amount | | | | | | |
| | | | | |
Margin Deposits | | Prepaid expenses and other current assets | | $ | 7,831 | | | Prepaid expenses and other current assets | | $ | 156 | | | | | | | |
| | | | | |
| | Other assets, net | | 3,207 | | | Other assets, net | | 189 | | | | | | | |
| | | | | |
| | | | $ | 11,038 | | | | | $ | 345 | | | | | | | |
| | | | | |
|
The following table provides a summary of the effect on Ferrellgas, L.P.’s condensed consolidated statements of earnings for the three months ended October 31, 2014 and 2013 due to derivatives designated as fair value hedging instruments: |
|
| | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain Recognized on Derivative | | Amount of Interest Expense Recognized on Fixed-Rated Debt (Related Hedged Item) |
Derivative Instrument | | Location of Gain Recognized on Derivative | | For the three months ended October 31, | | For the three months ended October 31, |
| | | | 2014 | | 2013 | | 2014 | | 2013 |
Interest rate swap agreements | | Interest expense | | $ | 457 | | | $ | 832 | | | $ | (2,275 | ) | | $ | (5,365 | ) |
|
|
|
The following tables provide a summary of the effect on Ferrellgas, L.P.’s condensed consolidated statements of comprehensive income for the three months ended October 31, 2014 and 2013 due to the effective portion of derivatives designated as cash flow hedging instruments: |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | For the three months ended October 31, 2014 | | | | | | | | |
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 | | | | | | | | |
Propane commodity derivatives | | $ | (12,758 | ) | | Cost of product sold- propane and other gas liquids sales | | $ | 1,128 | | | | | | | | | |
| | | | | | | |
Interest rate swap agreements | | (1,139 | ) | | Interest expense | | — | | | | | | | | | |
| | | | | | | |
| | $ | (13,897 | ) | | | | $ | 1,128 | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | |
| | For the three months ended October 31, 2013 | | | | | | | | |
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 | | | | | | | | |
Propane commodity derivatives | | $ | 11,617 | | | Cost of product sold- propane and other gas liquids sales | | $ | 929 | | | | | | | | | |
| | | | | | | |
Interest rate swap agreements | | (1,013 | ) | | Interest expense | | — | | | | | | | | | |
| | | | | | | |
| | $ | 10,604 | | | | | $ | 929 | | | | | | | | | |
| | | | | | | |
|
|
The changes in derivatives included in AOCI for the three months ended October 31, 2014 and 2013 were as follows: |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | For the three months ended October 31, | | | | | | | | | | |
Gains and losses on derivatives included in AOCI | | 2014 | | 2013 | | | | | | | | | | |
Beginning balance | | $ | 6,483 | | | $ | 2,066 | | | | | | | | | | | |
| | | | | | | | | |
Change in value of risk management commodity derivatives | | (12,758 | ) | | 11,617 | | | | | | | | | | | |
| | | | | | | | | |
Reclassification of gains and losses on commodity hedges to cost of product sold - propane and other gas liquids sales, net | | (1,128 | ) | | (929 | ) | | | | | | | | | | |
Change in value of risk management interest rate derivatives | | (1,139 | ) | | (1,013 | ) | | | | | | | | | | |
Ending balance | | $ | (8,542 | ) | | $ | 11,741 | | | | | | | | | | | |
| | | | | | | | | |
|
Ferrellgas, L.P. expects to reclassify net losses of approximately $5.2 million to earnings during the next 12 months. These net losses are expected to be offset by increased margins on propane sales commitments Ferrellgas, L.P. has with its customers that qualify for the normal purchase normal sales exception. |
|
During the three months ended October 31, 2014 and 2013, Ferrellgas, L.P. had no reclassifications to earnings resulting from the discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship. |
|
As of October 31, 2014, Ferrellgas, L.P. had financial derivative contracts covering 2.5 million barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane. |
|
Derivative financial instruments credit risk |
|
Ferrellgas, L.P. is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Ferrellgas, L.P.’s counterparties principally consist of major energy companies and major U.S. financial institutions. Ferrellgas, L.P. maintains credit policies with regard to its counterparties that it believes reduces its overall credit risk. These policies include evaluating and monitoring its counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by Ferrellgas, L.P. in the forms of letters of credit, parental guarantees or cash. Although Ferrellgas, L.P. has concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties, the maximum amount of loss due to credit risk that, based upon the gross fair values of the derivative financial instruments, Ferrellgas, L.P. would incur if these counterparties that make up the concentration failed to perform according to the terms of their contracts was $0.8 million at October 31, 2014. |
|
Ferrellgas, L.P. holds certain derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon the Ferrellgas, L.P.’s debt rating. At October 31, 2014, a downgrade in the Ferrellgas, L.P.’s debt rating would not trigger any further reduction in credit limit. There were no derivatives with credit-risk-related contingent features in a liability position on October 31, 2014 and Ferrellgas, L.P. had no posted collateral in the normal course of business related to such derivatives. |