Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 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, 2018
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, 000-50182 and 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
Delaware
Delaware
Delaware
 
43-1698480
43-1742520
43-1698481
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
 
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,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Ferrellgas Partners, L.P.:
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
(do not check if a smaller reporting company)
 
Smaller reporting company o
 
 
 
 
 
 
Emerging growth company ☐
 
Ferrellgas Partners Finance Corp, Ferrellgas, L.P. and Ferrellgas Finance Corp.:
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer x
(do not check if a smaller reporting company)
 
Smaller reporting company o
 
 
 
 
 
 
Emerging growth company ☐
If an 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-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  ¨


1

Table of Contents

At February 28, 2018, the registrants had common units or shares of common stock outstanding as follows:
Ferrellgas Partners, L.P.
 
97,152,665
 
Common Units
Ferrellgas Partners Finance Corp.
 
1,000
 
Common Stock
Ferrellgas, L.P.
 
n/a
 
n/a
Ferrellgas Finance Corp.
 
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-Q AND ARE THEREFORE, WITH RESPECT TO EACH SUCH REGISTRANT, FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.

FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.

  TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

3

Table of Contents

PART I - FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATE MENTS (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.

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Table of Contents

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.

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Table of Contents

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.

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Table of Contents

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, 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-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, 2018
97,152.7

 
989.9

 
$
(762,046
)
 
$
(67,604
)
 
$
24,332

 
$
(805,318
)
 
$
(4,444
)
 
$
(809,762
)
See notes to condensed consolidated financial statements.


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Table of Contents

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 expense
51,217

 
51,809

Non-cash employee stock ownership plan compensation charge
7,993

 
6,699

Non-cash stock-based compensation charge

 
3,298

Asset impairments
10,005

 

Loss on asset sales and disposals
40,144

 
6,468

Unrealized gain on derivative instruments
(91
)
 
(1,862
)
Provision for doubtful accounts
1,688

 
(283
)
Deferred income tax expense
364

 
35

Other
4,482

 
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 payable
11,510

 
40,444

Accrued interest expense
304

 
1,916

Other current liabilities
13,372

 
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 assets
4,207

 
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 debt
23,580

 
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 borrowings
97,000

 
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 activities
91,055

 
(14,378
)
 
 
 
 
Net change in cash and cash equivalents
8,413

 
9,745

Cash and cash equivalents - beginning of period
5,760

 
4,965

Cash and cash equivalents - end of period
$
14,173

 
$
14,710

See notes to condensed consolidated financial statements.

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Table of Contents

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 , Ferrell Companies, Inc. ("Ferrell Companies") beneficially owns 22.8 million Ferrellgas Partners common units. Ferrellgas, Inc. (the "general partner"), a wholly-owned subsidiary of Ferrell Companies, has retained an approximate 1% general partner interest in Ferrellgas Partners and also holds an approximate 1% general partner interest in the operating partnership, representing an effective 2% general partner interest in Ferrellgas on a combined basis. As general partner, it performs all management functions required by Ferrellgas. Unless contractually provided for, creditors of the operating partnership have no recourse with regards to Ferrellgas Partners.
 
Ferrellgas Partners is a holding entity that conducts no operations and has two subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners owns a 100% equity interest in Ferrellgas Partners Finance Corp., whose only business activity is to act as the co-issuer and co-obligor of debt issued by Ferrellgas Partners. The operating partnership is the only operating subsidiary of Ferrellgas Partners.

Ferrellgas is engaged in the following primary businesses:
Propane operations and related equipment sales consists of the distribution of propane and related equipment and supplies. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Ferrellgas serves residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all 50 states, the District of Columbia, and Puerto Rico.
Midstream operations consists of crude oil logistics and water solutions. Crude oil logistics primarily generates income by providing crude oil transportation and logistics services on behalf of producers and end-users of crude oil. Water solutions generates income primarily through the operation of salt water disposal wells in the Eagle Ford shale region of south Texas.

Due to seasonality, the results of operations for the six months ended January 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year ending July 31, 2018 .
 
The condensed consolidated financial statements of Ferrellgas reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal recurring nature. Certain prior period amounts have been reclassified to conform to the current period presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes included in Ferrellgas' Annual Report on Form 10-K for fiscal 2017 .

B.     Summary of significant accounting policies
 
(1) Accounting estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment assets, residual values of tanks, capitalization of customer tank installation costs, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, allowance for doubtful accounts, fair value of reporting units, recoverability of long-lived assets, assumptions used to value business combinations, fair values of derivative contracts and stock-based compensation calculations.

(2) 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.

9



(3) New accounting standards:

FASB Accounting Standard Update No. 2014-09
In May 2014, the Financial Accounting Standards Board, ("FASB") issued Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers. The issuance is part of a joint effort by the FASB and the International Accounting Standards Board ("IASB") to enhance financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards ("IFRS") and, thereby, improving the consistency of requirements, comparability of practices and usefulness of disclosures. The new standard will supersede much of the existing authoritative literature for revenue recognition. The standard and related amendments will be effective for Ferrellgas for its annual reporting period beginning August 1, 2018, including interim periods within that reporting period. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. Ferrellgas is 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 recognition 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 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.

FASB Accounting Standard Update No. 2015-11
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory, which requires that inventory within the scope of the guidance be measured at the lower of cost or net realizable value. We adopted ASU 2015-11 effective August 1, 2017. The adoption of this standard did not materially impact our consolidated financial statements.

FASB Accounting Standard Update No. 2016-02
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is   effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Ferrellgas is currently evaluating the impact of its pending adoption of ASU 2016-02 on the consolidated financial statements. Ferrellgas has formed an implementation team, completed training on the new standard, and is working on an initial assessment.

FASB Accounting Standard Update No. 2016-13
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Ferrellgas is currently evaluating the impact of its pending adoption of this standard on the consolidated financial statements.  

FASB Accounting Standard Update No. 2017-12
In August 2017, the FASB issued ASU 2017-12, Financial Instruments - Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities which is intended to improve the financial reporting for hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Ferrellgas is currently evaluating the impact of its pending adoption of this standard on the consolidated financial statements.

 
 

10


C. Supplemental financial statement information
 
Inventories consist of the following:
 
 
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 , Ferrellgas had committed, for supply procurement purposes, to take delivery of approximately 81.9 million gallons of propane at fixed prices.

Other assets, net consist of the following:
 
 
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:
 
 
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 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:

11


 
 
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 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:
 
 
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:

Date
 
Maximum consolidated leverage ratio
January 31, 2018
 
7.75

April 30, 2018
 
7.75

July 31, 2018 & thereafter
 
5.50


Ferrellgas' consolidated leverage ratio was 6.96 x 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.


12


The current minimum consolidated interest coverage ratios are as follows:

Date
 
Minimum consolidated interest coverage ratio
January 31, 2018
 
1.75

April 30, 2018
 
1.75

July 31, 2018 & thereafter
 
2.50


Ferrellgas' consolidated interest coverage ratio was 2.14 x 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 million of trade accounts receivable were pledged as collateral against $166.0 million of collateralized notes payable due to the commercial paper conduit. At July 31, 2017 , $ 109.4 million of trade accounts receivable were pledged as collateral against $69.0 million of collateralized notes payable due to the commercial paper conduit. These accounts receivable pledged as collateral are bankruptcy remote from the operating partnership. The operating partnership does not provide any guarantee or similar support to the collectability of these accounts receivable pledged as collateral. 
 
As of January 31, 2018 , Ferrellgas 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 had received cash proceeds of $69.0 million from trade accounts receivables securitized, with no remaining capacity to receive additional proceeds. Borrowings under the accounts receivable securitization facility had a weighted average interest rate of 4.0% and 4.0% as of January 31, 2018 and July 31, 2017 , respectively.

E.     Debt
 
Short-term borrowings
 
Since October 31, 2017, Ferrellgas classified all of its secured credit facility borrowings as short-term because the facility matures in October 2018. Prior to October 31, 2017, Ferrellgas classified as short-term the portion of its secured credit facility borrowings that were used to fund working capital needs that management intended to pay down within the 12 month period following the balance sheet date. As of January 31, 2018 and July 31, 2017 , $261.2 million and $59.8 million , respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.

Financial covenants

The indenture governing the outstanding notes of Ferrellgas Partners and the agreements governing the operating partnership’s indebtedness contain various covenants that limit Ferrellgas Partners' ability and the ability of specified subsidiaries to, among other things, make restricted payments and incur additional indebtedness. The general partner believes that the most restrictive of these covenants are the consolidated fixed charge coverage ratio, as defined in the indenture governing the outstanding notes of Ferrellgas Partners, and the consolidated leverage ratio and consolidated interest coverage ratio, as defined in the secured credit facility and the accounts receivable securitization facility.

Before a restricted payment (as defined in the secured credit facility and the operating partnership indentures) can be made by the operating partnership, the operating partnership must be in compliance with the consolidated leverage ratio and consolidated interest coverage ratio covenants under the secured credit facility and accounts receivable securitization facility and in compliance with the covenants under the operating partnership's indentures. If the operating partnership is unable to make restricted payments, Ferrellgas Partners will not have the ability to make semi-annual interest payments on its $357.0 million 8.625% unsecured senior notes due 2020 or distributions to Ferrellgas Partners common unitholders. If Ferrellgas Partners does not make interest payments on its unsecured notes, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The

13


accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If Ferrellgas' debt obligations are accelerated, Ferrellgas may be unable to borrow sufficient funds to refinance debt in which case unitholders and investors in our debt instruments could experience a partial or total loss of their investment.

Before a restricted payment (as defined in the Ferrellgas Partners indenture) can be made by Ferrellgas Partners, Ferrellgas Partners must be in compliance with the consolidated fixed charge coverage ratio covenant under the Ferrellgas Partners indenture. If Ferrellgas Partners is unable to make restricted payments, Ferrellgas Partners will not have the ability to make distributions to Ferrellgas Partners common unitholders.

A breach of the consolidated leverage ratio covenant or the consolidated interest coverage ratio covenant under the secured credit facility and the accounts receivable securitization facility would result in an event of default under those facilities resulting in the operating partnership’s inability to obtain funds under those facilities and would give the lenders and receivables purchasers the right to accelerate the operating partnership's obligations under those facilities and to exercise remedies to collect the outstanding amounts under those facilities. If the lenders and receivables purchasers accelerated the operating partnership's obligations, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If Ferrellgas' debt obligations are accelerated, Ferrellgas may be unable to borrow sufficient funds to refinance debt in which case unitholders and investors in our debt instruments could experience a partial or total loss of their investment.

Consolidated leverage ratio

The consolidated leverage ratio is defined as the ratio of total debt of the operating partnership to trailing four quarters EBITDA (both as adjusted for certain, defined items) of the operating partnership, as detailed in Ferrellgas' secured credit facility and accounts receivable securitization facility.

The current maximum consolidated leverage covenant ratios are as follows:

Date
 
Maximum consolidated leverage ratio
January 31, 2018
 
7.75

April 30, 2018
 
7.75

July 31, 2018 & thereafter
 
5.50


Ferrellgas' consolidated leverage ratio was 6.96 x 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:

Date
 
Minimum consolidated interest coverage ratio
January 31, 2018
 
1.75

April 30, 2018
 
1.75

July 31, 2018 & thereafter
 
2.50


Ferrellgas' consolidated interest coverage ratio was 2.14 x 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


14


The indenture governing the outstanding notes of Ferrellgas Partners includes a consolidated fixed charge coverage ratio test for the incurrence of debt and the making of restricted payments. This covenant requires that the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of Ferrellgas Partners be at least 1.75 x before a restricted payment (as defined in the indenture) can be made by Ferrellgas Partners. If this ratio were to drop below 1.75 x, the indenture allows Ferrellgas Partners to make restricted payments of up to $50.0 million in total over a 16 quarter period while below this ratio. As of January 31, 2018 , the ratio was 1.59 x. 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 our consolidated fixed charge coverage ratio does not improve to at least 1.75 x and we continue our current quarterly distribution rate of $0.10 per common unit, this covenant will not allow us to make common unit distributions for our quarter ending October 31, 2018 and beyond.

Debt and interest expense reduction strategy

Ferrellgas continues to execute on a strategy to 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.

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, or is unable to secure alternative liquidity sources, it may not have the liquidity to fund its operations after that maturity date.

Failure to maintain compliance with these and other covenants in our agreements or failure to renew or replace liquidity available under the secured credit facility could have a material, adverse effect on Ferrellgas' operating capacity and cash flows and could further restrict Ferrellgas' ability to incur debt, pay interest on the notes or to make cash distributions to unitholders. An inability to pay interest on the notes could result in an event of default that would permit the acceleration of all of Ferrellgas' indebtedness. The accelerated debt would become immediately due and payable, which would in turn trigger cross-acceleration under other debt. If the payment of Ferrellgas' debt is accelerated, Ferrellgas' assets may be insufficient to repay such debt in full and Ferrellgas may be unable to borrow sufficient funds to refinance debt, in which case investors in common units and our debt instruments could experience a partial or total loss of their investment.

As a result of the October 2018 maturity date of Ferrellgas' secured credit facility, the entire balance outstanding at 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 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 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 of capacity under the secured credit facility as of January 31, 2018 . As of July 31, 2017 , Ferrellgas had total borrowings outstanding under its secured credit facility of $245.5 million , of which $185.7 million was classified as long-term debt. Ferrellgas had $190.3 million of capacity under the secured credit facility as of July 31, 2017 . However, the consolidated leverage ratio covenant under this facility limited additional borrowings to $67.5 million as of July 31, 2017 . Borrowings outstanding at 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 million .

F.   Partners' deficit

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

 
 
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.

15



Partnership distributions paid
 
Ferrellgas Partners has paid the following distributions:
 
 
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 declared a cash distribution of $0.10 per common unit for the three months ended January 31, 2018 , which is expected to be paid on March 16, 2018 . Included in this cash distribution are the following amounts to be paid to related parties:
Ferrell Companies
 
$
2,253

FCI Trading Corp.
 
20

Ferrell Propane, Inc.
 
5

James E. Ferrell
 
476

General partner
 
98


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

Accumulated other comprehensive income (loss) (“AOCI”)
 
See Note H – Derivative instruments and hedging activities – for details regarding changes in the fair value of risk management financial derivatives recorded within AOCI for the three and six months ended January 31, 2018 and 2017 .
 
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 six months ended January 31, 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 ended January 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.


16


G.     Fair value measurements
 
Derivative financial instruments
 
The following table presents Ferrellgas’ financial assets and financial liabilities that are measured at fair value on a recurring basis for each of the fair value hierarchy levels, including both current and noncurrent portions, as of January 31, 2018 and July 31, 2017 :
 
 
Asset (Liability)
 
 
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Unobservable Inputs (Level 3)
 
Total
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.


17


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 notes receivable, financial instruments classified in "Other assets, net" on the condensed consolidated balance sheets, are approximately $32.1 million , or $4.3 million less than their carrying amount as of January 31, 2018 . 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, 2018 and July 31, 2017 , the estimated fair value of Ferrellgas’ long-term debt instruments was $1,728.3 million and $1,966.6 million , respectively. Ferrellgas estimates the fair value of long-term debt based on quoted market prices. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.

Ferrellgas has other financial instruments such as trade accounts receivable which could expose it to concentrations of credit risk. The credit risk from trade accounts receivable is limited because of a large customer base which extends across many different U.S. markets.


H.   Derivative instruments and hedging activities
 
Ferrellgas is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. Ferrellgas utilizes derivative instruments to manage its exposure to fluctuations in commodity prices. Of these, the propane commodity derivative instruments are designated as cash flow hedges. Prior to the sale of Bridger Energy, LLC in January 2018, all other commodity derivative instruments neither qualified nor were designated as cash flow 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 six months ended January 31, 2018 and 2017 , Ferrellgas did no t recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of financial derivative contract gains or losses from the assessment of hedge effectiveness related to commodity cash flow hedges.

18



The following tables provide a summary of the fair value of derivatives in Ferrellgas’ condensed consolidated balance sheets as of January 31, 2018 and July 31, 2017 :  
 
 
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



19


Ferrellgas' exchange traded commodity derivative contracts require cash margin deposit as collateral for contracts that are in a negative mark-to-market position. These cash margin deposits will be returned if mark-to-market conditions improve or will be applied against cash settlement when the contracts are settled. Liabilities represent cash margin deposits received by Ferrellgas for contracts that are in a positive mark-to-market position. The following tables provide a summary of cash margin balances as of January 31, 2018 and July 31, 2017 , respectively:

 
 
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 provide a summary of the effect on Ferrellgas' condensed consolidated statements of operations for the three and six months ended January 31, 2018 and 2017 due to derivatives designated as fair value hedging instruments:  
 
 
 
 
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
)
 
 
 
 
 
 
 
 
 
 
 



20


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



21


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

 
 
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 six months ended January 31, 2018 and 2017 were as follows:  

 
 
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 gains related to the risk management commodity derivatives of approximately $16.8 million to earnings during the next 12 months. These net gains are expected to be offset by decreased margins on propane sales commitments Ferrellgas has with its customers that qualify for the normal purchase normal sales exception.
 
During the six months ended January 31, 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 , Ferrellgas had financial derivative contracts covering  2.6 million barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.


22


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 , the maximum amount of loss due to credit risk that, based upon the gross fair values of the derivative financial instruments, Ferrellgas would incur is $ 7.5 million.
 
From time to time Ferrellgas enters into derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon Ferrellgas' debt rating. There were no open derivative contracts with credit-risk-related contingent features as of January 31, 2018 .

I.     Transactions with related parties
 
Ferrellgas has no employees and is managed and controlled by its general partner. Pursuant to Ferrellgas’ partnership agreements, the general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas and all other necessary or appropriate expenses allocable to Ferrellgas or otherwise reasonably incurred by 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 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.     Contingencies and commitments

Litigation

Ferrellgas’ operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane and crude oil. As a result, at any given time, Ferrellgas can be threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. Other than as discussed below, Ferrellgas is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that are reasonably expected to have a material adverse effect on the consolidated financial condition, results of operations and cash flows of Ferrellgas.
 
Ferrellgas has been named as a defendant, along with a competitor, in putative class action lawsuits filed in multiple jurisdictions. The lawsuits, which were consolidated in the Western District of Missouri on October 16, 2014, allege that Ferrellgas and a competitor coordinated in 2008 to reduce the fill level in barbeque cylinders and combined to persuade a common customer to accept that fill reduction, resulting in increased cylinder costs to direct customers and end-user customers in violation of federal and certain state antitrust laws. The lawsuits seek treble damages, attorneys’ fees, injunctive relief and costs on behalf of the putative class. These lawsuits have been consolidated into one case by a multidistrict litigation panel. The Federal Court for the Western District of Missouri 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. 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.


23


Ferrellgas has been named, along with several current and former officers, in several class action lawsuits alleging violations of certain securities laws based on alleged materially false and misleading statements in certain of our public disclosures. The lawsuits, the first of which was filed on October 6, 2016 in the Southern District of New York, seek unspecified compensatory damages. Derivative lawsuits with similar allegations have been filed naming Ferrellgas and several current and former officers and directors as defendants. Ferrellgas believes that it has defenses and will vigorously defend these cases. Ferrellgas does not believe loss is probable or reasonably estimable at this time related to the putative class action lawsuits or the derivative 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 or settled an arbitration against Jamex Transfer Services (“JTS”), then named Bridger Transfer Services, a former subsidiary of Bridger Logistics, LLC (“Bridger”). The arbitration involved a claim against JTS for money due for deficiency payments under a contract for the use of an Eddystone facility used to offload crude from rail onto barges. Eddystone alleges that Ferrellgas transferred assets out of JTS prior to the sale of the membership interest in JTS to Jamex Transfer Holdings, and that those transfers should be avoided so that the assets can be used to satisfy the amount owed by JTS to Eddystone under the arbitration. Eddystone also alleges that JTS was an “alter ego” of Bridger and Ferrellgas. Ferrellgas believes that Ferrellgas and Bridger have valid defenses to these claims and to Eddystone’s primary claim against JTS on the contract claim. The lawsuit does not specify a specific amount of damages that Eddystone is seeking; however, Ferrellgas believes that the amount of such damage claims, if ultimately owed to Eddystone, could be material to Ferrellgas. Ferrellgas intends to vigorously defend this claim. The lawsuit is in its early stages; as such, management does not currently believe a loss is probable or reasonably estimable at this time. On August 24, 2017, Ferrellgas filed a third-party complaint against JTS, Jamex Transfer Holdings, and other related persons and entities (the "Third-Party Defendants"), asserting claims for breach of contract, indemnification of any losses in the EDPA Lawsuit, tortious interference with contract, and contribution. The Third-Party Defendants have filed motions to dismiss the third-party complaint for alleged lack of personal jurisdiction, failure to state claim, and forum non-conveniens. Ferrellgas is vigorously opposing these motions.


K.     Net earnings (loss) per common unit
 
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 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 six months ended January 31, 2018 or 2017 .
 
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.

24


 
 
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
)


25


L.     Segment reporting

Ferrellgas has two primary operations that result in two reportable operating segments: propane operations and related equipment sales 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.

Following is a summary of segment information for the three and six months ended January 31, 2018 and 2017 :

 
 
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

 
 
 
 
 
 
 
 
 

(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".



26


Following is a reconciliation of Ferrellgas' total segment performance measure to condensed consolidated net earnings (loss):
 
 
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
 
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



27


Following are capital expenditures by segment:
 
 
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


28


M. Subsequent events
 
Ferrellgas evaluated events and transactions occurring after the balance sheet date through the date Ferrellgas' condensed consolidated financial statements were issued and concluded that, 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.

On February 20, 2018, Ferrellgas completed the sale of 1,072 rail cars utilized in the Midstream operations segment and received approximately $47.0 million in cash. Proceeds from the transaction were used to reduce outstanding debt on Ferrellgas' secured credit facility. See additional discussions on the completed rail car sale in Note C - Supplemental financial statement information.







29



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 capital
25,330

 
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.

30


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 contribution
275

 
92

Cash provided by financing activities
275

 
92

 
 
 
 
Net change in cash

 

Cash - beginning of period
1,000

 
1,000

Cash - end of period
$
1,000

 
$
1,000

See notes to condensed financial statements.

31


FERRELLGAS PARTNERS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas Partners, L.P.)
 (unaudited)
 
NOTES TO CONDENSED FINANCIAL STATEMENTS

A.     Formation
 
Ferrellgas Partners Finance Corp. (the “Finance Corp.”), a Delaware corporation, was formed on March 28, 1996 and is a wholly-owned subsidiary of Ferrellgas Partners, L.P. (the “Partnership”).
 
The condensed financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed financial statements were of a normal recurring nature.

The Finance Corp. has nominal assets, does not conduct any operations and has no employees.

B.     Contingencies and commitments
 
The Finance Corp. serves as co-issuer and co-obligor for debt securities of the Partnership.

The indenture governing the senior unsecured notes contains various restrictive covenants applicable to the Partnership and its subsidiaries, the most restrictive relating to additional indebtedness and restricted payments. As of January 31, 2018 , the Partnership is in compliance with all requirements, tests, limitations and covenants related to this debt agreement, except for the consolidated fixed charge coverage ratio.

The indenture governing the outstanding notes of the Partnership includes a consolidated fixed charge coverage ratio test for the incurrence of debt and the making of restricted payments. This covenant requires that the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the Partnership be at least 1.75 x before a restricted payment (as defined in the indenture) can be made by the Partnership. If this ratio were to drop below 1.75 x, the indenture allows the Partnership to make restricted payments of up to $50.0 million in total over a 16 quarter period while below this ratio. As of January 31, 2018 , the ratio was 1.59 x. 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 1.75 x 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.
 


32


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

Inventories
110,092

 
92,552

Assets held for sale
52,200

 

Prepaid expenses and other current assets
41,393

 
33,426

Total current assets
473,834

 
296,763

 
 
 
 
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
$
1,687,050

 
$
1,609,948

 
 
 
 
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
136,591

 
122,016

Total current liabilities
645,863

 
336,358

 
 
 
 
Long-term debt
1,462,973

 
1,649,270

Other liabilities
35,422

 
31,118

Contingencies and commitments (Note J)


 


 
 
 
 
Partners' deficit:
 

 
 

Limited partner
(477,096
)
 
(417,467
)
General partner
(4,705
)
 
(4,095
)
Accumulated other comprehensive income
24,593

 
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.

33


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.

34


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.

35


FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
(in thousands)
(unaudited)
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
other
 
Total
 
Limited
 
General
 
comprehensive
 
partners'
 
partner
 
partner
 
income
 
deficit
 
 
 
 
 
 
 
 
Balance at July 31, 2017
$
(417,467
)
 
$
(4,095
)
 
$
14,764

 
$
(406,798
)
Contributions in connection with non-cash ESOP and stock-based compensation charges
7,914

 
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.


36


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 expense
51,217

 
51,809

Non-cash employee stock ownership plan compensation charge
7,993

 
6,699

Non-cash stock-based compensation charge

 
3,298

Asset impairments
10,005

 

Loss on asset sales and disposals
40,144

 
6,468

Unrealized gain on derivative instruments
(91
)
 
(1,862
)
Provision for doubtful accounts
1,688

 
(283
)
Deferred income tax expense
364

 
35

Other
2,650

 
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 payable
11,510

 
40,444

Accrued interest expense
304

 
(12
)
Other current liabilities
13,662

 
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 assets
4,207

 
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 debt
23,580

 
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 borrowings
97,000

 
69,000

Cash paid for financing costs
(395
)
 
(1,422
)
Net cash provided by (used in) financing activities
75,659

 
(21,320
)
 
 
 
 
Net change in cash and cash equivalents
8,470

 
8,767

Cash and cash equivalents - beginning of period
5,701

 
4,890

Cash and cash equivalents - end of period
$
14,171

 
$
13,657

See notes to condensed consolidated financial statements.

37


FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise designated)
   (unaudited)
A.     Partnership organization and formation
 
Ferrellgas, L.P. is a limited partnership that owns and operates propane distribution and related assets, crude oil transportation and logistics related assets and salt water disposal wells in south Texas. Ferrellgas Partners, L.P. (“Ferrellgas Partners”), a publicly traded limited partnership, holds an approximate 99% limited partner interest in, and consolidates, Ferrellgas, L.P. Ferrellgas, Inc. (the “general partner”), a wholly-owned subsidiary of Ferrell Companies, Inc. (“Ferrell Companies”), holds an approximate 1% general partner interest in Ferrellgas, L.P. and performs all management functions required by Ferrellgas, L.P.
 
Ferrellgas, L.P. owns a 100% equity interest in Ferrellgas Finance Corp., whose only business activity is to act as the co-issuer and co-obligor of debt issued by Ferrellgas, L.P.

Ferrellgas, L.P. is engaged in the following primary businesses:
Propane operations and related equipment sales consists of the distribution of propane and related equipment and supplies. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Ferrellgas, L.P. serves residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all 50 states, the District of Columbia, and Puerto Rico.
Midstream operations consists of crude oil logistics and water solutions. Crude oil logistics primarily generates income by providing crude oil transportation and logistics services on behalf of producers and end-users of crude oil. Water solutions generates income primarily through the operation of salt water disposal wells in the Eagle Ford shale region of south Texas.

Due to seasonality, the results of operations for the six months ended January 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year ending July 31, 2018 .
 
The condensed consolidated financial statements of Ferrellgas, L.P. and subsidiaries reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal recurring nature. Certain prior period amounts have been reclassified to conform to the current period presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes included in Ferrellgas, L.P.’s Annual Report on Form 10-K for fiscal 2017 .

B.     Summary of significant accounting policies
 
(1)     Accounting estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the consolidated financial statements include accruals that have been established for contingent liabilities, pending claims and legal actions arising in the normal course of business, useful lives of property, plant and equipment assets, residual values of tanks, capitalization of customer tank installation costs, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, allowance for doubtful accounts, fair value of reporting units, recoverability of long-lived assets, assumptions used to value business combinations, fair values of derivative contracts and stock-based compensation calculations.

(2) 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
In May 2014, the Financial Accounting Standards Board, ("FASB") issued Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers. The issuance is part of a joint effort by the FASB and the International Accounting

38


Standards Board ("IASB") to enhance financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards ("IFRS") and, thereby, improving the consistency of requirements, comparability of practices and usefulness of disclosures. The new standard will supersede much of the existing authoritative literature for revenue recognition. The standard and related amendments will be effective for Ferrellgas, L.P. for its annual reporting period beginning August 1, 2018, including interim periods within that reporting period. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. Ferrellgas, L.P. is 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 recognition 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 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.

FASB Accounting Standard Update No. 2015-11
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory, which requires that inventory within the scope of the guidance be measured at the lower of cost or net realizable value. We adopted ASU 2015-11 effective August 1, 2017. The adoption of this standard did not materially impact our consolidated financial statements.

FASB Accounting Standard Update No. 2016-02
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is   effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Ferrellgas, L.P. is currently evaluating the impact of our pending adoption of ASU 2016-02 on the consolidated financial statements. Ferrellgas, L.P. has formed an implementation team, completed training on the new standard, and is working on an initial assessment.

FASB Accounting Standard Update No. 2016-13
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Ferrellgas, L.P. is currently evaluating the impact of its pending adoption of this standard on the consolidated financial statements.  

FASB Accounting Standard Update No. 2017-12
In August 2017, the FASB issued ASU 2017-12, Financial Instruments - Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities which is intended to improve the financial reporting for hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Ferrellgas, L.P. is currently evaluating the impact of its pending adoption of this standard on the consolidated financial statements.

C.     Supplemental financial statement information
 
Inventories consist of the following:
 
 
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 , Ferrellgas, L.P. had committed, for supply procurement purposes, to take delivery of approximately 81.9 million gallons of propane at fixed prices.

Other assets, net consist of the following:
 
 
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


39



Other current liabilities consist of the following:
 
 
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 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, L.P. 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, L.P. 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 L.P.'s secured credit facility.

During the quarter ended January 31, 2018 , Ferrellgas, L.P. 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 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:

40


 
 
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:

Date
 
Maximum consolidated leverage ratio
January 31, 2018
 
7.75

April 30, 2018
 
7.75

July 31, 2018 & thereafter
 
5.50


Ferrellgas, L.P.'s consolidated leverage ratio was 6.96 x 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:

Date
 
Minimum consolidated interest coverage ratio
January 31, 2018
 
1.75

April 30, 2018
 
1.75

July 31, 2018 & thereafter
 
2.50


Ferrellgas, L.P.'s consolidated interest coverage ratio was 2.14 x 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 million of trade accounts receivable were pledged as collateral against $166.0 million of collateralized notes payable due to a commercial paper conduit. At July 31, 2017 , $109.4 million of trade accounts receivable were pledged as collateral against $69.0 million of collateralized notes payable due to the commercial paper conduit. These

41


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 January 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 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% and 4.0% as of January 31, 2018 and July 31, 2017 , respectively.

E.     Debt
 
Short-term borrowings
 
Since October 31, 2017, Ferrellgas, L.P. classified all of its secured credit facility borrowings as short-term because the facility matures in October 2018. Prior to October 31, 2017, Ferrellgas, L.P. classified as short-term the portion of its secured credit facility borrowings that were used to fund working capital needs that management intended to pay down within the 12 month period following the balance sheet date. As of January 31, 2018 and July 31, 2017 , $261.2 million and $59.8 million , respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.

Financial covenants

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

Before a restricted payment (as defined in the secured credit facility and the operating partnership indentures) can be made by the operating partnership, the operating partnership must be in compliance with the consolidated leverage ratio and consolidated interest coverage ratio covenants under the secured credit facility and accounts receivable securitization facility and in compliance with the covenants under the operating partnerships indentures. If the operating partnership is unable to make restricted payments, Ferrellgas Partners will not have the ability to make semi-annual interest payments on its $357.0 million 8.625% unsecured senior notes due 2020 or distributions to Ferrellgas Partners common unitholders. If Ferrellgas Partners does not make interest payments on its unsecured notes, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If Ferrellgas, L.P.'s debt obligations are accelerated, Ferrellgas, L.P. may be unable to borrow sufficient funds to refinance debt in which case Ferrellgas Partners' unitholders and investors in our debt instruments could experience a partial or total loss of their investment.

A breach of the consolidated leverage ratio covenant or the consolidated interest coverage ratio covenant under the secured credit facility and the accounts receivable securitization facility would result in an event of default under those facilities resulting in the operating partnership’s inability to obtain funds under those facilities and would give the lenders and receivables purchasers the right to accelerate the operating partnership’s obligations under those facilities and to exercise remedies to collect the outstanding amounts under those facilities. If the lenders and receivables purchasers accelerated the operating partnership's obligations, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If Ferrellgas, L.P.'s debt obligations are accelerated, Ferrellgas, L.P. may be unable to borrow sufficient funds to refinance debt in which case Ferrellgas Partners unitholders and investors in our debt instruments could experience a partial or total loss of their investment.

Consolidated leverage ratio

The consolidated leverage ratio is defined as the ratio of total debt of the operating partnership to trailing four quarters EBITDA (both as adjusted for certain, specified items) of the operating partnership, as detailed in Ferrellgas, L.P.'s secured credit facility and accounts receivable securitization facility.

The current maximum consolidated leverage covenant ratios are as follows:


42


Date
 
Maximum consolidated leverage ratio
January 31, 2018
 
7.75

April 30, 2018
 
7.75

July 31, 2018 & thereafter
 
5.50


Ferrellgas, L.P.'s consolidated leverage ratio was 6.96 x as of January 31, 2018 ; the margin allows for approximately $193.2 million of additional borrowing capacity or approximately $24.9 million l ess EBITDA. This covenant also restricts Ferrellgas, L.P.'s ability to make payments to Ferrellgas Partners for purposes of funding distribution payments as discussed above.

Consolidated interest coverage ratio

The consolidated interest coverage ratio is defined as the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of the operating partnership, as detailed in Ferrellgas' secured credit facility and accounts receivable securitization facility.

The current minimum consolidated interest coverage ratios are as follows:

Date
 
Minimum consolidated interest coverage ratio
January 31, 2018
 
1.75

April 30, 2018
 
1.75

July 31, 2018 & thereafter
 
2.50


Ferrellgas, L.P.'s consolidated interest coverage ratio was 2.14 x at January 31, 2018 ; 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

Ferrellgas, L.P. continues 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. Ferrellgas, L.P. believes any debt and interest expense reduction strategies would remain in effect until Ferrellgas, L.P.'s consolidated leverage ratio reaches 4.5x or a level Ferrellgas, L.P. deems appropriate for its business.

If Ferrellgas, L.P. is unsuccessful with its strategy to 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.


43


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 of capacity under the secured credit facility as 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 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 paid the following distributions:
 
 
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 I – Transactions with related parties.

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

See Note H – Derivative instruments and hedging activities – for details regarding changes in the fair value of risk management financial derivatives recorded within AOCI for the three and six months ended January 31, 2018 and 2017 .
 
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 six months ended January 31, 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 Ferrellgas, L.P. to maintain its 1.0101% general partner interest.

G.     Fair value measurements
 
Derivative financial instruments
 
The following table presents Ferrellgas, L.P.’s financial assets and financial liabilities that are measured at fair value on a recurring basis for each of the fair value hierarchy levels, including both current and noncurrent portions, as of January 31, 2018 and July 31, 2017 :
 
 
Asset (Liability)
 
 
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Unobservable Inputs (Level 3)
 
Total
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.

44


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 notes receivable, financial instruments classified in "Other assets, net" on the condensed consolidated balance sheets, are approximately $32.1 million , or $4.3 million less than their carrying amount as of January 31, 2018 . 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, 2018 and July 31, 2017 , the estimated fair value of Ferrellgas, L.P.’s long-term debt instruments was $1,410.6 million and $1,645.3 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.    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 neither qualified nor were designated as cash flow hedges, therefore, changes in 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 six months ended January 31, 2018 and 2017 , Ferrellgas, L.P. did no t recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of financial derivative contract gains or losses from the assessment of hedge effectiveness related to commodity cash flow hedges.


45


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, 2018 and July 31, 2017
 
 
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



46


Ferrellgas, L.P.'s exchange traded commodity derivative contracts require cash margin deposit as collateral for contracts that are in a negative mark-to-market position. These cash margin deposits will be returned if mark-to-market conditions improve or will be applied against cash settlement when the contracts are settled. Liabilities represent cash margin deposits received by Ferrellgas, L.P. for contracts that are in a positive mark-to-market position. The following tables provide a summary of cash margin balances as of January 31, 2018 and July 31, 2017 , respectively:

 
 
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 provides a summary of the effect on Ferrellgas, L.P.’s condensed consolidated statements of operations for the three and six months ended January 31, 2018 and 2017 due to derivatives designated as fair value hedging instruments:

 
 
 
 
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
)




47


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 six months ended January 31, 2018 and 2017 due to derivatives designated as cash flow hedging instruments:  
 
 
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
)
 
$



48


The following tables provide a summary of the effect on Ferrellgas, L.P.'s condensed consolidated statements of operations for the three and six months ended January 31, 2018 and 2017 due to the change in fair value of derivatives not designated as hedging instruments:
 
 
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 six months ended January 31, 2018 and 2017 were as follows: 
 
 
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 gains related to the risk management commodity derivatives of approximately $16.8 million to earnings during the next 12 months. These net gains are expected to be offset by decreased margins on propane sales commitments Ferrellgas, L.P. has with its customers that qualify for the normal purchase normal sales exception.
 
During the six months ended January 31, 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 , Ferrellgas, L.P. had financial derivative contracts covering 2.6 million barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.

 

49


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 , the maximum amount of loss due to credit risk that, based upon the gross fair values of the derivative financial instruments, Ferrellgas, L.P. would incur is $ 7.5 million.  
 
From time to time Ferrellgas, L.P. enters into derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon Ferrellgas, L.P.’s debt rating. There were no open derivative contracts with credit-risk-related contingent features as of January 31, 2018 .

I.     Transactions with related parties  
 
Ferrellgas, L.P. has no employees and is managed and controlled by its general partner. Pursuant to Ferrellgas, L.P.’s partnership agreement, the general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas, L.P. and all other necessary or appropriate expenses allocable to Ferrellgas, L.P. or otherwise reasonably incurred by the general partner in connection with operating Ferrellgas, L.P.’s business. These costs primarily include compensation and benefits paid to employees of the general partner who perform services on Ferrellgas, L.P.’s behalf and are reported in the condensed consolidated statements of operations as follows:
 
 
For the three months ended 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.     Contingencies and commitments

Litigation
 
Ferrellgas, L.P.’s operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane and crude oil. As a result, at any given time, Ferrellgas, L.P. can be threatened with or named as a defendant in various lawsuits arising in the ordinary course of business. Other than as discussed below, Ferrellgas, L.P. is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that are reasonably expected to have a material adverse effect on the consolidated financial condition, results of operations and cash flows of Ferrellgas, L.P.
 
Ferrellgas, L.P. has been named as a defendant, along with a competitor, in putative class action lawsuits filed in multiple jurisdictions. The lawsuits, which were consolidated in the Western District of Missouri on October 16, 2014, allege that Ferrellgas, L.P. and a competitor coordinated in 2008 to reduce the fill level in barbeque cylinders and combined to persuade a common customer to accept that fill reduction, resulting in increased cylinder costs to direct customers and end-user customers in violation of federal and certain state antitrust laws. The lawsuits seek treble damages, attorneys’ fees, injunctive relief and costs on behalf of the putative class. These lawsuits have been consolidated into one case by a multidistrict litigation panel. The Federal Court for the Western District of Missouri 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. 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.


50


Ferrellgas, L.P. has been named, along with several current and former officers, in several class action lawsuits alleging violations of certain securities laws based on alleged materially false and misleading statements in certain of our public disclosures. The lawsuits, the first of which was filed on October 6, 2016 in the Southern District of New York, seek unspecified compensatory damages. Derivative lawsuits with similar allegations have been filed naming Ferrellgas, L.P. and several current and former officers and directors as defendants. Ferrellgas, L.P. believes that it has defenses and will vigorously defend these cases. Ferrellgas, L.P. does not believe loss is probable or reasonably estimable at this time related to the putative class action lawsuits or the derivative 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 or settled an arbitration against Jamex Transfer Services (“JTS”), then named Bridger Transfer Services, a former subsidiary of Bridger Logistics, LLC (“Bridger”). The arbitration involved a claim against JTS for money due for deficiency payments under a contract for the use of an Eddystone facility used to offload crude from rail onto barges. Eddystone alleges that Ferrellgas, L.P. transferred assets out of JTS prior to the sale of the membership interest in JTS to Jamex Transfer Holdings, and that those transfers should be avoided so that the assets can be used to satisfy the amount owed by JTS to Eddystone under the arbitration. Eddystone also alleges that JTS was an “alter ego” of Bridger and Ferrellgas. Ferrellgas, L.P. believes that Ferrellgas, L.P. and Bridger have valid defenses to these claims and to Eddystone’s primary claim against JTS on the contract claim. The lawsuit does not specify a specific amount of damages that Eddystone is seeking; however, Ferrellgas, L.P. believes that the amount of such damage claims, if ultimately owed to Eddystone, could be material to Ferrellgas, L.P. Ferrellgas, L.P. intends to vigorously defend this claim. The lawsuit is in its early stages; as such, management does not currently believe a loss is probable or reasonably estimable at this time. On August 24, 2017, Ferrellgas, L.P. filed a third-party complaint against JTS, Jamex Transfer Holdings, and other related persons and entities (the "Third-Party Defendants"), asserting claims for breach of contract, indemnification of any losses in the EDPA Lawsuit, tortious interference with contract, and contribution. The Third-Party Defendants have filed motions to dismiss the third-party complaint for alleged lack of personal jurisdiction, failure to state claim, and forum non-conveniens. Ferrellgas, L.P. is vigorously opposing these motions.

K.     Segment reporting

Ferrellgas, L.P. has two primary operations that result in two reportable operating segments: Propane operations and related equipment sales and Midstream operations. 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.




Following is a summary of segment information for the three and six months ended January 31, 2018 and 2017 :
 
 
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".


51


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


52


L.   Guarantor financial information

The $500.0 million aggregate principal amount of 6.75% senior notes due 2023 co-issued by Ferrellgas, L.P. and Ferrellgas Finance Corp. are fully and unconditionally and jointly and severally guaranteed by all of Ferrellgas, L.P.’s 100% owned subsidiaries except: (i) Ferrellgas Finance Corp; (ii) certain special purposes subsidiaries formed for use in connection with our accounts receivable securitization; and (iii) foreign subsidiaries. Guarantees of these senior notes will be released under certain circumstances, including (i) in connection with any sale or other disposition of (a) all or substantially all of the assets of a guarantor or (b) all of the capital stock of such guarantor (including by way of merger or consolidation), in each case, to a person that is not Ferrellgas, L.P. or a restricted subsidiary of Ferrellgas, L.P., (ii) if Ferrellgas, L.P. designates any restricted subsidiary that is a guarantor as an unrestricted subsidiary, (iii) upon defeasance or discharge of the notes, (iv) upon the liquidation or dissolution of such guarantor, or (v) at such time as such guarantor ceases to guarantee any other indebtedness of either of the issuers and any other guarantor.

The guarantor financial information discloses in separate columns the financial position, results of operations and the cash flows of Ferrellgas, L.P. (Parent), Ferrellgas Finance Corp. (co-issuer), Ferrellgas, L.P.’s guarantor subsidiaries on a combined basis, and Ferrellgas, L.P.’s non-guarantor subsidiaries on a combined basis. The dates and the periods presented in the guarantor financial information are consistent with the periods presented in Ferrellgas, L.P.’s condensed consolidated financial statements.



53


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 receivables
37,988

 

 

 

 
(37,988
)
 

Inventories
95,097

 

 
14,995

 

 

 
110,092

Assets held for sale

 

 
52,200

 

 

 
52,200

Prepaid expenses and other current assets
33,630

 

 
7,762

 
1

 

 
41,393

Total current assets
177,665

 
1

 
99,005

 
235,151

 
(37,988
)
 
473,834

 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
547,441

 

 
98,886

 

 

 
646,327

Goodwill, net
246,098

 

 

 

 

 
246,098

Intangible assets, net
127,316

 

 
115,763

 

 

 
243,079

Intercompany receivables
450,000

 

 

 

 
(450,000
)
 

Investments in consolidated subsidiaries
(80,685
)
 

 

 

 
80,685

 

Other assets, net
39,847

 

 
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 borrowings
261,200

 

 

 

 

 
261,200

Collateralized note payable

 

 

 
166,000

 

 
166,000

Intercompany payables

 

 
44,259

 
(6,271
)
 
(37,988
)
 

Other current liabilities
132,047

 

 
4,074

 
470

 

 
136,591

Total current liabilities
471,301

 

 
52,259

 
160,291

 
(37,988
)
 
645,863

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
1,462,936

 

 
450,037

 

 
(450,000
)
 
1,462,973

Other liabilities
30,653

 

 
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 income
24,593

 

 

 

 

 
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

 
 
 
 
 
 
 


54


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 receivables
39,877

 

 

 

 
(39,877
)
 

Inventories
78,963

 

 
13,589

 

 

 
92,552

Prepaid expenses and other current assets
26,106

 

 
7,314

 
6

 

 
33,426

Total current assets
147,141

 
1

 
79,894

 
109,604

 
(39,877
)
 
296,763

 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
537,582

 

 
194,341

 

 

 
731,923

Goodwill, net
246,098

 

 
10,005

 

 

 
256,103

Intangible assets, net
128,209

 

 
122,893

 

 

 
251,102

Intercompany receivables
450,000

 

 

 

 
(450,000
)
 

Investments in consolidated subsidiaries
(53,915
)
 

 

 

 
53,915

 

Other assets, net
35,862

 

 
37,618

 
577

 

 
74,057

Total assets
$
1,490,977

 
$
1

 
$
444,751

 
$
110,181

 
$
(435,962
)
 
$
1,609,948

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
 
 
 
 
 
 
 
 
Current liabilities:
 

 
 
 
 

 
 
 
 
 
 

Accounts payable
$
44,026

 
$

 
$
41,345

 
$
190

 
$

 
$
85,561

Short-term borrowings
59,781

 

 

 

 

 
59,781

Collateralized note payable

 

 

 
69,000

 

 
69,000

Intercompany payables

 

 
41,645

 
(1,768
)
 
(39,877
)
 

Other current liabilities
118,039

 

 
3,776

 
201

 

 
122,016

Total current liabilities
221,846

 

 
86,766

 
67,623

 
(39,877
)
 
336,358

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
1,649,139

 

 
450,131

 

 
(450,000
)
 
1,649,270

Other liabilities
26,790

 

 
4,300

 
28

 

 
31,118

Contingencies and commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Partners' capital (deficit):
 

 
 
 
 

 
 
 
 
 
 

Partners' equity
(421,562
)
 
1

 
(96,446
)
 
42,530

 
53,915

 
(421,562
)
Accumulated other comprehensive income
14,764

 

 

 

 

 
14,764

Total partners' capital (deficit)
(406,798
)
 
1

 
(96,446
)
 
42,530

 
53,915

 
(406,798
)
Total liabilities and partners' capital (deficit)
$
1,490,977

 
$
1

 
$
444,751

 
$
110,181

 
$
(435,962
)
 
$
1,609,948

 
 
 
 
 
 
 


55


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

Other
22,707

 

 
22,934

 

 

 
45,641

Total revenues
614,982

 

 
140,174

 

 

 
755,156

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales - propane and other gas liquids sales
362,927

 

 
(9
)
 

 

 
362,918

Cost of sales - midstream operations

 

 
107,067

 

 

 
107,067

Cost of sales - other
2,853

 

 
17,934

 

 

 
20,787

Operating expense
114,096

 

 
9,795

 
1,833

 
(2,008
)
 
123,716

Depreciation and amortization expense
18,521

 

 
6,893

 
71

 

 
25,485

General and administrative expense
13,833

 
3

 
1,054

 

 

 
14,890

Equipment lease expense
6,862

 

 
92

 

 

 
6,954

Non-cash employee stock ownership plan compensation charge
4,031

 

 

 

 

 
4,031

Asset impairments

 

 
10,005

 

 

 
10,005

Loss on asset sales and disposals
555

 

 
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), net
408

 

 
276

 
2,008

 
(2,008
)
 
684

 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
70,500

 
(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
)
 
 
 
 
 
 
 
 
 
 
 
 



56



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

Other
21,609

 

 
23,479

 

 

 
45,088

Total revenues
458,984

 

 
120,266

 

 

 
579,250

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales - propane and other gas liquids sales
235,029

 

 

 

 

 
235,029

Cost of sales - midstream operations

 

 
87,024

 

 

 
87,024

Cost of sales - other
2,571

 

 
18,086

 

 

 
20,657

Operating expense
103,986

 

 
9,642

 
539

 
(1,091
)
 
113,076

Depreciation and amortization expense
18,014

 

 
7,527

 
66

 

 
25,607

General and administrative expense
11,093

 
3

 
1,182

 

 

 
12,278

Equipment lease expense
7,267

 

 
149

 

 

 
7,416

Non-cash employee stock ownership plan compensation charge
2,945

 

 

 

 

 
2,945

Loss on asset sales and disposals
73

 

 
(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), net
304

 

 
459

 
1,091

 
(1,091
)
 
763

 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
57,221

 
(3
)
 
(13,859
)
 
(171
)
 

 
43,188

 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense
103

 

 
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 income
15,776

 

 

 

 

 
15,776

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
58,376

 
$
(3
)
 
$
(14,344
)
 
$
(171
)
 
$
14,518

 
$
58,376

 
 
 
 
 
 
 
 
 
 
 
 


57


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

Other
39,384

 

 
37,394

 

 

 
76,778

Total revenues
933,776

 

 
276,035

 

 

 
1,209,811

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales - propane and other gas liquids sales
541,746

 

 
687

 

 

 
542,433

Cost of sales - midstream operations

 

 
215,192

 

 

 
215,192

Cost of sales - other
5,562

 

 
28,927

 

 

 
34,489

Operating expense
215,328

 

 
19,058

 
3,015

 
(3,223
)
 
234,178

Depreciation and amortization expense
36,868

 

 
14,206

 
143

 

 
51,217

General and administrative expense
24,588

 
5

 
3,461

 

 

 
28,054

Equipment lease expense
13,510

 

 
185

 

 

 
13,695

Non-cash employee stock ownership plan compensation charge
7,993

 

 

 

 

 
7,993

Asset impairments

 

 
10,005

 

 

 
10,005

Loss on asset sales and disposals
1,463

 

 
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), net
623

 

 
572

 
3,223

 
(3,223
)
 
1,195

 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
45,735

 
(5
)
 
(76,719
)
 
(1,659
)
 

 
(32,648
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense
72

 

 
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 income
9,829

 

 

 

 

 
9,829

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
(23,023
)
 
$
(5
)
 
$
(76,851
)
 
$
(1,659
)
 
$
78,515

 
$
(23,023
)
 
 
 
 
 
 
 
 
 
 
 
 


58




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

Other
38,935

 

 
35,252

 

 

 
74,187

Total revenues
718,709

 

 
240,083

 

 

 
958,792

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales - propane and other gas liquids sales
354,241

 

 

 

 

 
354,241

Cost of sales - midstream operations

 

 
181,666

 

 

 
181,666

Cost of sales - other
5,001

 

 
27,402

 

 

 
32,403

Operating expense
201,641

 

 
19,888

 
(1,566
)
 
(1,801
)
 
218,162

Depreciation and amortization expense
36,291

 

 
15,399

 
119

 

 
51,809

General and administrative expense
23,956

 
5

 
2,586

 

 

 
26,547

Equipment lease expense
14,477

 

 
288

 

 

 
14,765

Non-cash employee stock ownership plan compensation charge
6,699

 

 

 

 

 
6,699

Loss on asset sales and disposals
1,520

 

 
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), net
257

 

 
1,014

 
1,798

 
(1,798
)
 
1,271

 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
33,699

 
(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 income
25,152

 

 

 

 

 
25,152

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
28,312

 
$
(5
)
 
$
(32,678
)
 
$
2,218

 
$
30,465

 
$
28,312

 
 
 
 
 
 
 
 
 
 
 
 

59





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 assets
4,207

 

 

 

 

 
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 entities
132,748

 

 

 

 
(132,748
)
 

Net cash provided by (used in) investing activities
87,702

 

 
(1,302
)
 
(97,000
)
 
(35,748
)
 
(46,348
)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Distributions
(35,380
)
 

 

 

 

 
(35,380
)
Proceeds from increase in long-term debt
23,580

 

 

 

 

 
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 equivalents
8,627

 

 
(157
)
 

 

 
8,470

Cash and cash equivalents - beginning of year
5,327

 
1

 
373

 

 

 
5,701

Cash and cash equivalents - end of year
$
13,954

 
$
1

 
$
216

 
$

 
$

 
$
14,171

 
 
 
 
 
 
 


60


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 assets
4,591

 

 

 

 

 
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 entities
28,408

 

 

 

 
(28,408
)
 

Other
(37
)
 

 

 

 

 
(37
)
Net cash provided by (used in) investing activities
13,276

 

 
(82
)
 
(69,000
)
 
40,592

 
(15,214
)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Distributions
(84,500
)
 

 

 

 

 
(84,500
)
Contributions from Partners
167,640

 

 

 

 

 
167,640

Proceeds from increase in long-term debt
36,444

 

 

 

 

 
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 equivalents
8,872

 

 
(105
)
 

 

 
8,767

Cash and cash equivalents - beginning of year
4,472

 
1

 
417

 

 

 
4,890

Cash and cash equivalents - end of year
$
13,344

 
$
1

 
$
312

 
$

 
$

 
$
13,657

 
 
 
 
 
 
 

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

61


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

On February 20, 2018, Ferrellgas, L.P. completed the sale of 1,072 rail cars utilized in the Midstream operations segment and received approximately $47.0 million in cash. Proceeds from the transaction were used to reduce outstanding debt on Ferrellgas L.P.'s secured credit facility. See additional discussions on the completed rail car sale in Note C - Supplemental financial statement information.




62



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 capital
71,052

 
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.

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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 assets
1,500

 
1,500

Cash used in operating activities
(3,716
)
 
(3,450
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Capital contribution
3,716

 
3,450

Cash provided by financing activities
3,716

 
3,450

 
 
 
 
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.

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FERRELLGAS FINANCE CORP.
(a wholly-owned subsidiary of Ferrellgas, L.P.)
  (unaudited)

NOTES TO CONDENSED FINANCIAL STATEMENTS
 
A.     Formation
 
Ferrellgas Finance Corp. (the “Finance Corp.”), a Delaware corporation, was formed on January 16, 2003 and is a wholly-owned subsidiary of Ferrellgas, L.P. (the “Partnership”).
 
The condensed financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed financial statements were of a normal recurring nature.

The Finance Corp. has nominal assets, does not conduct any operations and has no employees.

B.     Contingencies and commitments
 
The Finance Corp. serves as co-issuer and co-obligor for debt securities of the Partnership.

The indentures governing the senior notes agreements contains various restrictive covenants applicable to the Partnership and its subsidiaries, the most restrictive relating to additional indebtedness and restricted payments. As of January 31, 2018 , the Partnership is in compliance with all requirements, tests, limitations and covenants related to these debt agreements.


65


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, 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;

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

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

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

“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;


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“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.
 
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 a 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 our 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-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 condensed consolidated financial statements and accompanying Notes thereto included elsewhere in this Quarterly Report on Form 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 two material differences between Ferrellgas Partners and the operating partnership. Those material differences are:
 
because Ferrellgas Partners has outstanding $357.0 million in aggregate principal amount of 8.625% senior notes due fiscal 2020, the two partnerships incur different amounts of interest expense on their outstanding indebtedness; see the statements of operations in their respective condensed consolidated financial statements; and
Ferrellgas Partners repurchased common units in fiscal 2017.

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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:

Ferrellgas' ability to refinance or replace its secured credit facility and/or its accounts receivable securitization facility;
the effect of weather conditions on the demand for propane;
the prices of wholesale propane, motor fuel and crude oil;
disruptions to the supply of propane;
competition from other industry participants and other energy sources;
energy efficiency and technology advances;
the termination or non-renewal of certain arrangements or agreements;
adverse changes in our relationships with our national tank exchange customers;
significant delays in the collection of, or uncollectibility of, accounts or notes receivable;
customer, counterparty, supplier or vendor defaults;
changes in demand for, and production of, hydrocarbon products;
capacity overbuild of midstream energy infrastructure in our midstream operational areas;
increased trucking regulations;
cost increases that exceed contractual rate increases for our logistics services;
inherent operating and litigation risks in gathering, transporting, handling and storing propane and crude oil;
our inability to complete acquisitions or to successfully integrate acquired operations;
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-K for fiscal 2017 and under Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q. 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.



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Recent developments

Rail car sale

During the quarter ended January 31, 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 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".

In February 2018 we sold 1,072 rail cars and received approximately $47.0 million in cash, which we used to reduce borrowings under 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.

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 specified subsidiaries to, among other things, make restricted payments and incur additional indebtedness. Our general partner believes that the most restrictive of these covenants are the consolidated fixed charge coverage ratio, as defined in the indenture governing the outstanding notes of Ferrellgas Partners, and the consolidated leverage ratio and consolidated interest coverage ratio, as defined in our secured credit facility and our accounts receivable securitization facility.

Before a restricted payment (as defined in the secured credit facility and the operating partnership indentures) can be made by the operating partnership, the operating partnership must be in compliance with the consolidated leverage ratio and consolidated interest coverage ratio covenants under the secured credit facility and accounts receivable securitization facility and in compliance with the covenants under the operating partnership's indentures. If the operating partnership is unable to make restricted payments, Ferrellgas Partners will not have the ability to make semi-annual interest payments on its $357.0 million 8.625% unsecured senior notes due 2020 or distributions to Ferrellgas Partners common unitholders. If Ferrellgas Partners does not make interest payments on its unsecured notes, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If Ferrellgas' debt obligations are accelerated, Ferrellgas may be unable to borrow sufficient funds to refinance debt in which case unitholders and investors in our debt instruments could experience a partial or total loss of their investment.

Before a restricted payment (as defined in the Ferrellgas Partners indenture) can be made by Ferrellgas Partners, Ferrellgas Partners must be in compliance with the consolidated fixed charge coverage ratio covenant under the Ferrellgas Partners indenture. If Ferrellgas Partners is unable to make restricted payments, Ferrellgas Partners will not have the ability to make distributions to Ferrellgas Partners common unitholders.

A breach of the consolidated leverage ratio covenant or the consolidated interest coverage ratio covenant under the secured credit facility and the accounts receivable securitization facility would result in an event of default under those facilities resulting in the operating partnership’s inability to obtain funds under those facilities and would give the lenders and receivables purchasers the right to accelerate the operating partnership’s obligations under those facilities and to exercise remedies to collect the outstanding amounts under those facilities. If the lenders and receivables purchasers accelerated the operating partnership's obligations, that would constitute an event of default which would permit the acceleration of the obligations underlying the Ferrellgas Partners indenture, including all outstanding principal owed. The accelerated obligations would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If 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.


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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:

Date
 
Maximum leverage ratio
January 31, 2018
 
7.75

April 30, 2018
 
7.75

July 31, 2018 & thereafter
 
5.50


Our consolidated leverage ratio was 6.96 x 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, 2018
 
1.75

April 30, 2018
 
1.75

July 31, 2018 & thereafter
 
2.50


Our consolidated interest ratio was 2.14 x 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 that the ratio of trailing four quarters EBITDA to interest expense (both as adjusted for certain, specified items) of Ferrellgas Partners be at least 1.75x before a restricted payment (as defined in the indenture) can be made by Ferrellgas Partners. If this ratio were to drop below 1.75x, the indenture allows us 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 1.59 x. 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 our consolidated fixed charge coverage ratio 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, 2018 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.


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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. 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.

Segment disclosure
 
Propane operations and related equipment sales

Based on our propane sales volumes in fiscal 2017, 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 are the average of the last 30 years of information published by the

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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 2018 and 2019 sales commitments and, as of January 31, 2018 , have experienced net mark-to-market gains of approximately $24.3 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,” 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 gains are expected to be offset by decreased margins on propane sales commitments that qualify for the normal purchase normal sale exception. At January 31, 2018 , we estimate 72% 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
    
Our midstream operations primarily include crude oil logistics ("Bridger Logistics"). Bridger Logistics primarily generates income by providing crude oil transportation and logistics services on behalf of producers and end-users of crude oil. Bridger Logistics services include transportation through its operation of a fleet of trucks, tank trailers and pipeline injection terminals. We primarily operate in major oil and gas basins across the continental United States. Additionally, midstream operations includes water solutions which generates income primarily through the operation of salt water disposal wells in the Eagle Ford shale region of south Texas.


Summary Discussion of Results of Operations:

For the three months ended January 31, 2018 and 2017

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

Our propane operations and related equipment sales segment generated operating income of $101.8 million during the three months ended January 31, 2018 , compared to operating income of $95.3 million during the three 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. The increase in operating income resulted from a $27.0 million increase in gross margin largely offset by a

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$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 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 . This increase in operating loss is primarily due to a $35.5 million loss on the disposal of rail car assets recognized 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 million primarily due to increased interest rates on the 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 increased to $79.2 million in the current period from $68.9 million in the prior period primarily due to a $15.6 million increase in our Adjusted EBITDA, partially offset by a $5.0 million increase in net cash interest expense.

Distributable cash flow excess increased to $67.9 million in the current period from $57.8 million in the prior period, primarily due to a $15.6 million increase in our Adjusted EBITDA, partially offset by a $5.0 million increase in net cash interest expense.

For the six months ended January 31, 2018 and 2017

During the six months ended January 31, 2018 , we generated net loss attributable to Ferrellgas Partners L.P. of $49.8 million, compared to $5.0 million during the six months ended January 31, 2017 .

Our propane operations and related equipment sales segment generated operating income of $113.0 million during the six months ended January 31, 2018 , compared to operating income of $111.9 million during the six 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. The slight increase in operating income resulted from the $27.5 million increase in gross margin being largely offset by a $17.1 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 $45.1 million during the six months ended January 31, 2018 compared to an operating loss of $11.9 million during the six months ended January 31, 2017 . This increase in operating loss is primarily due to a $35.5 million loss on disposal of rail car assets recognized 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 million primarily due to increased interest rates on the 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 $59.9 million in the current period decreased from $62.7 million in the prior period primarily due to a $9.5 million increase in net cash interest expense, a $6.3 million 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 for the purchase of new propane delivery trucks.

Distributable cash flow excess increased to $39.3 million in the current period from $1.9 million in the prior period, primarily due to a $40.1 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.


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Consolidated Results of Operations

 
 
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
)


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

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, professional fees incurred related to a lawsuit, 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'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 distributable cash flow attributable to 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 may not be consistent with that of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP.


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The following table summarizes EBITDA, Adjusted EBITDA, Distributable cash flow attributable to equity investors and Distributable cash flow attributable to common unitholders for the three and six months ended January 31, 2018 and 2017 , respectively:
 
 
 
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.

Segment Operating Results for the three months ended January 31, 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

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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.


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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:

(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
 %

(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 three months ended January 31, 2018 increased 16% or 42.3 million gallons, from that of the prior year period due to 33.5 million and 8.8 million of increased gallon sales to retail and wholesale customers, respectively.

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Weather in the more highly concentrated geographic areas we serve for the three months ended January 31, 2018 was approximately 5% warmer than normal, but 12% colder than the prior year period. Retail and wholesale gallons increased due to a combination of efforts to increase market share and 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, Kansas during the three months ended January 31, 2018 averaged 46% and 45% greater than the prior year period, respectively. The wholesale market price at Mt. Belvieu, Texas averaged $0.95 and $0.65 per gallon during the three months ended January 31, 2018 and 2017 , respectively, while the wholesale market price at Conway, Kansas averaged $0.90 and $0.62 per gallon during the three months ended January 31, 2018 and 2017 , respectively.

Revenues
 
Retail sales increased $104.3 million compared to the prior period. This increase resulted from a $52.3 million increase in sales price per gallon and $52.0 million from increased sales volumes, both as discussed above.

Wholesale sales increased $25.4 million compared to the prior period. This increase resulted from a $13.9 million increase in sales volumes and an $11.5 million increase 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.

Other revenues increased $0.6 million compared to the prior year period, primarily due to an increase in the sales of certain lower margin equipment.

Gross margin - Propane and other gas liquids sales
 
Gross margin increased $27.0 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. The increase in retail gross margin of $23.8 million resulted from efforts to increase market share and to a lesser extent colder weather. The increase in wholesale gross margin primarily relates to increased volumes related to colder weather, partially offset by decreased gross margin per gallon.

Operating income

Operating income increased $6.4 million primarily due to a $27.0 million increase in Gross margin - Propane and other gas liquid sales, partially offset by a $10.7 million increase in "Operating, general and administrative expense" and a $10.0 million "Asset impairments". "Operating, general and administrative expense" increased primarily due to a $5.6 million increase in personnel costs and a $3.8 million increase in vehicle costs, both related to the increase in gallons sold 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 expense"" "Operating, general and administrative expense" increased primarily due to a $5.6 million increase in personnel costs and a $2.7 million increase in vehicle costs, both related to the increase in gallons sold as discussed above and a $1.3 million increase in bad debt expense.

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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.


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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 million decrease related to crude oil sales. 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 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 recognized 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.

Corporate

The following table summarizes the financial results of our corporate operations for the periods indicated:
(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.

Operating loss

Corporate 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.

Adjusted EBITDA

The Adjusted EBITDA loss within "Corporate" increased by $1.9 million primarily due to $2.4 million in increased legal costs, partially offset by a $0.5 million reduction in corporate personnel expenses, both as discussed above.


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Segment Operating Results for the six months ended January 31, 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:

(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
 %

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(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 six months ended January 31, 2018 increased 12% or 51.8 million gallons, from that of the prior year period due to 41.6 million and 10.2 million of increased gallon sales to retail and wholesale customers, respectively.

Weather in the more highly concentrated geographic areas we serve for the six months ended January 31, 2018 was approximately 7% warmer than normal, but 13% colder than the prior year period. Retail and wholesale gallons increased due to a combination of efforts to increase market share and 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, Kansas during the six months ended January 31, 2018 averaged 58% and 62% greater than the prior year period, respectively. The wholesale market price at Mt. Belvieu, Texas averaged $0.90 and $0.57 per gallon during the six months ended January 31, 2018 and 2017 , respectively, while the wholesale market price at Conway, Kansas averaged $0.86 and $0.53 per gallon during the six months ended January 31, 2018 and 2017 , respectively.

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

Wholesale sales increased $39.6 million compared to the prior period. This increase resulted from a $23.4 million increase in sales price per gallon and $16.2 million from increased sales volumes, both as discussed above.
 
Other gas sales increased $36.1 million compared to the prior year period primarily due to increased sales price per gallon and to a lesser extent an increase in sales volumes, as discussed above.

Other revenues increased $2.6 million compared to the prior year period, primarily due to an increase in the sales of certain lower margin equipment.

Gross margin - Propane and other gas liquids sales
 
Gross margin increased $27.0 million primarily due to the 51.8 million increase in gallon sales as discussed above, partially offset by a slight decrease in gross margin per gallon. The increase in retail gross margin of $20.8 million resulted from efforts to increase market share and to a lesser extent colder weather, partially offset by a decrease in gross margin per gallon. The increase in wholesale gross margin primarily relates to increased volumes related to colder weather, partially offset by a slight decreased gross margin per gallon.

Operating income

Operating income increased $1.1 million primarily due to a $27.0 million increase in Gross margin - Propane and other gas liquids sales offset by a $17.1 million increase in "Operating, general and administrative expense" and a $10.0 million "Asset impairment". "Operating, general and administrative expense" increased primarily due to a $7.4 million increase in personnel costs and a $5.7 million increase in vehicle costs, both related to the increase in gallons sold as discussed above and a $1.9 million increase in bad debt expense. The "Asset impairments" relates to an impairment of goodwill of an immaterial reporting unit.


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Adjusted EBITDA

Adjusted EBITDA increased $14.3 million primarily due to a $27.0 million increase in Gross margin - Propane and other gas liquids sales offset by a $13.9 million increase in "Operating, general and administrative expense." "Operating, general and administrative expense" increased primarily due to a $7.3 million increase in personnel costs related to the increase in gallons sold as discussed above, a $2.7 million increase in vehicle 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.

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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 million increase related to crude oil 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:
(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.

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Table of Contents

Operating loss

Corporate 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 an increase of $6.1 million 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.

Adjusted EBITDA

The Adjusted EBITDA loss within "Corporate" increased by $2.4 million primarily due to a $4.0 million increase in legal costs, partially offset by a $1.2 million reduction in corporate personnel expenses.

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. These liquidity and capital resources are intended to fund our working capital requirements, letter of credit requirements, debt service payments, acquisition and capital expenditures and distributions to our unitholders. Our liquidity and capital resources 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”, 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 on 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 renegotiating 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.

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;
a more volatile energy commodity cost environment;
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 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
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 per 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.

Distributable Cash Flow

Distributable cash flow to equity investors is reconciled to net loss attributable to Ferrellgas Partners, L.P. in Item 2. Management's Discuss and Analysis under the subheading "Non-GAAP Financial Measures." A comparison of distributable cash flow to distributions paid for the twelve months ended January 31, 2018 to the twelve months ended October 31, 2017 is as follows (in thousands):


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Table of Contents


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, 2017
77,182

 
(3,601
)
 
80,783

 

Less: Six months ended January 31, 2017
62,650

 
1,850

 
60,800

 

Twelve months ended January 31, 2018
$
74,435

 
$
34,468

 
$
39,967

 
1.86

 
 
 
 
 
 
 
 
Twelve months ended October 31, 2017
64,041

 
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 . Cash reserves, which we utilize to meet future anticipated expenditures, increased by $34.5 million during the twelve months ended January 31, 2018 compared to an increase of $24.2 million in the twelve months ended October 31, 2017 .

We believe that the liquidity available from our cash flows from operating activities, our secured credit facility, 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 and crude oil. 

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 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.
 
Operating Activities

Ferrellgas Partners
 

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Table of Contents

Net cash used in operating activities was $36.3 million for the six months ended January 31, 2018 , compared to net cash provided by operating activities of $39.3 million for the six months ended January 31, 2017 . This decrease in cash provided by operating activities was primarily due to a $69.8 million increase in working capital requirements and a $7.7 million unfavorable impact in 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.

The increase in cash flow from operations is primarily due to a $12.8 million increase in Adjusted EBITDA, as discussed above by segment, partially offset by an $11.2 million increase in "Interest expense", as discussed above.

The increase in working capital requirements for the six months ended January 31, 2018 compared to the six months ended January 31, 2017 was primarily due to a $27.9 million increase in requirements for accounts receivable due to increases in the the number of gallons sold and the average selling price of propane gas, an $11.7 million increase in requirements for 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.

The operating partnership
 
Net cash used in operating activities was $20.8 million for the six months ended January 31, 2018 , compared to net cash provided by operating activities of $45.3 million for the six months ended January 31, 2017 . This decrease in cash provided by operating activities was primarily due to a $67.5 million increase in working capital requirements and an $8.0 million unfavorable impact in 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.

The increase in cash flow from operations is primarily due to a $12.8 million increase in Adjusted EBITDA, as discussed above by segment, partially offset by a $2.1 million increase in "Interest expense" due to increased interest rates on the secured credit facility.

The increase in working capital requirements for the six months ended January 31, 2018 compared to the six months ended January 31, 2017 was primarily due to a $27.9 million increase in requirements for accounts receivable due to increases in the the number of gallons sold and the average selling price of propane gas, an $11.6 million increase in requirements for 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.

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.

Net cash used in investing activities was $46.3 million for the six months ended January 31, 2018 , compared to net cash used in investing activities of $15.2 million for the six months ended January 31, 2017 . This increase in net cash used in investing activities is primarily due to a $15.9 million increase in "Capital expenditures" and a $14.9 million increase in "Business acquisitions, net of cash acquired."
 

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Table of Contents

The increase in "Capital expenditures" is primarily due to increases in maintenance and growth capital expenditures in our Propane operations and related equipment sales segment during the six months ended January 31, 2018. The increase in maintenance capital expenditures is primarily related to the purchase of new propane delivery trucks. The increase in growth capital expenditures is primarily related to an increase in the number of cylinders purchased to support increases in tank exchange sales and selling locations.

The increase in "Business acquisitions, net of cash acquired" is attributable to four acquisitions by our Propane operations and related equipment sales segment during the six months ended January 31, 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. However, future fluctuations in growth capital expenditures could occur due to the opportunistic nature of these projects.

Financing Activities

Ferrellgas Partners
 
Net cash provided by financing activities was $91.1 million for the six months ended January 31, 2018 , compared to net cash used in financing activities of $14.4 million for the six months ended January 31, 2017 . This increase in cash flow provided by 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 million net increase in proceeds from short-term borrowings, and a $4.0 million reduction in cash paid for financing costs, partially offset by a $9.3 million net reduction in proceeds from long-term debt.

Distributions
 
During the six months ended January 31, 2018, Ferrellgas Partners paid quarterly per unit distributions on all common units of $0.10 in connection with the distributions declared for the three month periods ended July 31, 2017 and October 31, 2017. Total distributions paid to common unitholders during the six months ended January 31, 2018, including the related general partner distributions, was $19.6 million . The quarterly distribution of $0.10 on all common units and the related general partner distribution for the three months ended January 31, 2018 totaling $9.8 million are expected to be paid on March 16, 2018 to holders of record on March 9, 2018 .

Secured credit facility

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".
    
Since October 31, 2017, we classified all borrowings outstanding under our secured credit facility of $261.2 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 letters of credit of approximately $42.4 million.
 
Borrowings outstanding at January 31, 2018 under the secured credit facility had a weighted average interest rate of 6.5% . All borrowings under the secured credit facility bear interest, at our option, at a rate equal to either:

for Base Rate Loans or Swing Line Loans, the Base Rate, which 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.

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The obligations under this secured credit facility are secured by substantially all assets of the operating partnership, the general partner and certain subsidiaries of the operating partnership but specifically excluding (a) assets that are subject to the operating partnership’s accounts receivable securitization facility, (b) the general partner’s equity interest in Ferrellgas Partners and (c) equity interest in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiaries of the operating partnership.
 
Letters of credit outstanding at January 31, 2018 totaled $188.0 million and were used to secure commodity hedges, product purchases, and insurance arrangements. At January 31, 2018 , we had remaining letter of credit capacity of $12.0 million . As a result of the sale of Bridger Energy, LLC on January 16, 2018, we anticipate near-term reductions in outstanding letters of credit of approximately $80.0 million.
 
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 . We received net funding of $97.0 million from this facility during the six months ended January 31, 2018 as compared to receiving net funding of $69.0 million from this facility during the six 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.” 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 , we had received cash proceeds of $166.0 million related to the securitization of our trade accounts receivable, with no remaining capacity to receive additional proceeds. As of January 31, 2018 , the weighted average interest rate was 4.0% . 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 million and $84.5 million during the six months ended January 31, 2018 and 2017 , respectively. The operating partnership expects to pay cash distributions of $9.9 million on March 16, 2018 .

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,

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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 million for the six months ended January 31, 2018 , 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:

 
 
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

 

(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 six months ended January 31, 2018 , Ferrellgas Partners and the operating partnership together paid the general partner distributions of $0.6 million.

On March 16, 2018 , Ferrellgas Partners expects to pay 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.


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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We did not enter into any risk management trading activities during the six months ended January 31, 2018 . 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.
 
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, 2018 and July 31, 2017 , 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 million and $16.8 million as of January 31, 2018 and July 31, 2017 , 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.

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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 , we had $427.2 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 million for the twelve months ending January 31, 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, our 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:
Term
 
Notional Amount(s) (in thousands)
 
Type
May 2021
 
$140,000
 
Pay a floating rate and receive a fixed rate of 6.50%
Aug 2018
 
$100,000
 
Pay 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) or 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 , 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 , there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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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 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. 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. 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 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. The Third-Party Defendants have filed motions to dismiss the third-party complaint for alleged lack of personal jurisdiction, failure to state claim, and forum non-conveniens. Ferrellgas is vigorously opposing these motions.

ITEM 1A.     RISK FACTORS
 
Except as set forth below, 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-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

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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.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES
 
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. and Ferrellgas, L.P. 

Pursuant 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. Schott will serve in an advisory role 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 conditions of the Ferrell Companies, Inc. incentive compensation plan documents. The description of the Release is qualified in its entirety by reference to the full text of the agreement, a copy of which is attached as an Exhibit to this Quarterly Report on Form 10-Q.




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ITEM 6.     EXHIBITS
The exhibits listed below are furnished as part of this Quarterly Report on Form 10-Q. Exhibits required by Item 601 of Regulation S-K of the Securities Act, which are not listed, are not applicable.

 
 
Exhibit
Number
 
 
Description
 
 
3.1
 

 
 
3.2
 


 
 
3.3
 


 
 
3.4
 


 
 
3.5
 


 
 
3.6
 
 
 
3.7
 


 
 
3.8
 


 
 
3.9
 

 
 
3.10
 


 
 
3.11
 
 
 
3.12
 


 
 
3.13
 


 
 
4.1
 


 
 
4.2
 

 
 
4.3
 

 
 
4.4
 

 
 
4.5
 

 
 
4.6
 

 
 
4.7
 


E-1

Table of Contents

 
 
4.8
 

 
 
4.9
 

 
 
4.10
 

 
 
4.11
 

 
 
4.12
 

 
 
4.13
 

 
 
4.14
 

 
 
10.1
 

 
 
10.2
 

 
 
10.3
 

 
 
10.4
 

 
 
10.5
 

 
 
10.6
 

 
 
10.7
 

 
 
10.8
 

 
 
10.9
 

 
 
10.10
 

 
#
10.11
 

 
#
10.12
 

 
#
10.13
 

 
#
10.14
 

 
#
10.15
 


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#
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
 

 
 
10.36
 

 
 
10.37
 

 
 
10.38
 

 
#
10.39
 

 
#
10.40
 


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10.41
 

 
 
10.42
 

 
 
10.43
 

 
#
10.44
 
*
#
10.45
 


*
 
31.1
 

*
 
31.2
 

*
 
31.3
 

*
 
31.4
 

*
 
32.1
 

*
 
32.2
 

*
 
32.3
 

*
 
32.4
 

*
 
101.INS
 
XBRL Instance Document.
*
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
*
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
*
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
*
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
*
 
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.


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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
By
/s/ Doran N. Schwartz
 
 
 
Doran N. Schwartz
 
 
 
Senior Vice President; Chief Financial Officer; Treasurer (Principal Financial and Accounting Officer)
 
 
 
 
 
 
 
 
 
 
FERRELLGAS PARTNERS FINANCE CORP.
 
 
 
 
Date:
March 8, 2018
By
/s/ Doran N. Schwartz
 
 
 
Doran N. Schwartz
 
 
 
Chief Financial Officer and Sole Director
 
 
 
 
 
 
 
 
 
 
FERRELLGAS, L.P.
 
 
By Ferrellgas, Inc. (General Partner)
 
 
 
 
Date:
March 8, 2018
By
/s/ Doran N. Schwartz
 
 
 
Doran N. Schwartz
 
 
 
Senior Vice President; Chief Financial Officer; Treasurer (Principal Financial and Accounting Officer)
 
 
 
 
 
 
 
 
 
 
FERRELLGAS FINANCE CORP.
 
 
 
 
Date:
March 8, 2018
By
/s/ Doran N. Schwartz
 
 
 
Doran N. Schwartz
 
 
 
Chief Financial Officer and Sole Director


E-5
EXHIBIT 10.45
1

VOLUNTARY RETIREMENT AND RELEASE


This Voluntary Retirement and Release Agreement is entered on this 8 th day of March, 2018 (the “Effective Date”) among Ferrell Companies, Inc. ("FCI"), Ferrellgas, Inc. of Overland Park, Kansas (collectively, "Ferrellgas"), and their affiliates, including Ferrellgas Partners, L.P., and/or Ferrellgas, L.P., (all of which will collectively be referred to as "Ferrell") and Randy V. Schott ("Employee"), to set forth the terms of retirement from Employee’s employment relationship with Ferrellgas, a consulting arrangement for the following two (2) years, and for all benefits, rights, and obligations between Ferrellgas and Employee (referred to collectively as the “Parties”). Thus, in consideration of the mutual promises, covenants and agreements set forth below, the adequacy and sufficiency of which are hereby acknowledged by the Parties, the Parties agree as follows:

Employee has notified Ferrell that he is retiring from the company as of the Effective Date, and his regular employment will end on March 8, 2018; however, Employee will continue in an advisory role described in Section 2 below. Ferrell and Employee now desire to fully and finally resolve all issues among or between them arising from Employee's employment by Ferrell, his retirement and subsequent consulting relationship with Ferrell. Therefore, intending to be legally bound, Ferrell and Employee agree as follows:

1.
Employee has retired from his position as Sr. Vice President of Operations of Ferrellgas and all its affiliated entities on the Effective Date.
2.
Further, Ferrellgas agrees to pay Employee his regular base salary through May 23, 2018 and will retain Employee in a consulting and advisory role, from March 8, 2018 through March 8, 2020, (the “Advisory Period”). Employee will be paid $250,000 per annum on the usual bi-weekly pay periods of Ferrell, subject to withholdings and deductions, during and for the Advisory Period. Employee will not be granted any further options or stock appreciation rights. Employee will no longer be deemed to be an advisor to Ferrell, including any affiliates of any Ferrell entity, after the Advisory Period, and no further rights or benefits, including without limitation stock/common unit option or stock appreciation rights or vesting, shall accrue to Employee during or after the Advisory Period. Employee shall not make any 401(k) contributions nor receive any 401(k) matching during the Advisory Period and will voluntarily discontinue deferrals to his Supplemental Savings Plan. Employee will not be entitled to future ESOP allocations after the Effective Date. Employee shall cooperate fully with Ferrell in the transition of his duties, but shall not undertake any duties on behalf of Ferrell and shall not be considered to be operating within the course of any duties unless specifically directed in writing by Ferrell to do so. Employee shall not have the authority, apparent or actual, to enter into agreements on behalf of Ferrell or to otherwise bind the company, and Employee shall not hold himself out to be an officer of Ferrell. Employee shall have access to company offices, telephone systems, computer or email systems or other Ferrell property during the Advisory Period only as specifically authorized in writing by Ferrell. Employee will office from his home and all business communications by him shall be directed to Trent Hampton, Sr. Vice President of Ferrellgas. Employee shall be reimbursed only for previously authorized and reasonable out-of-pocket expenses incurred on behalf of Ferrellgas. Employee agrees to be available to assist and cooperate with Ferrell and to respond in a timely manner to reasonable inquiries from Ferrell senior management. Employee agrees that the confidentiality provisions of his Employee Agreement shall extend to any confidential information (as defined in his Employment Agreement) obtained or developed during this period.
3.
During the Advisory Period, Ferrellgas shall provide the employer share of any health, vision, and dental coverage in which Employee and his dependents were enrolled as of the Effective Date and Employee’s cost for these benefits will be consistent with the rates charged to active employees during the Advisory Period. Employee acknowledges that the end of the Advisory Period will constitute a "qualifying event" for COBRA purposes. Employee acknowledges such payments are greater than Ferrell’s COBRA obligations.     

During the Advisory Period, Ferrellgas shall also provide the employer share of the cost of any life


2

and AD&D coverage in which Employee and his dependents were enrolled as of the Effective Date, and Employee's cost for these benefits will be consistent with the rates paid by active employees. 

4.
In exchange for the mutual promises made here, Employee agrees to forever RELEASE and DISCHARGE Ferrell, all of Ferrell’s affiliated entities, and Ferrell's officers, employees, directors and agents from any and all claims arising from his employment and/or cessation of employment and all debts, obligations, claims, demands, or causes of action of any kind whatsoever, known or unknown, in tort, contract, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorney's fees), reimbursements or costs of any kind, including, but not limited to, any and all claims, demands, rights and/or causes of action, including those which might arise out of allegations relating to a claimed breach of an alleged oral or written employment contract, or relating to purported employment discrimination or civil rights violations, such as, but not limited to, those arising under Title VII of the Civil Rights Act of 1964 and all amendments thereto, Executive Order 11246, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Equal Pay Act, the Rehabilitation Act of 1973, the Americans with Disabilities Act, the Older Workers’ Benefits Protection Act, and/or any other applicable federal, state, or local employment discrimination or retaliation statute, ordinance or common law doctrine which Employee might assert against Ferrell. Employee waives any right to recover in any lawsuit brought on his behalf by any government agency or other person. Except as specifically provided, this paragraph does not release any rights or obligations under this Agreement or any rights or Employee’s interest existing (as of the Effective Date) in the Ferrell Companies, Inc. Incentive Compensation Plan, the Ferrellgas Unit Option Plan, the Ferrell Companies, Inc. Employee Stock Ownership Plan, the Ferrell Companies, Inc. 401(k) Investment Plan, or the Ferrell Companies, Inc. Supplemental Savings Plan. This provision specifically releases any claims by Employee pursuant any employment agreement with Ferrell.

5.
Employee acknowledges that he has been employed by Ferrell in a senior management capacity and has supervised employees conducting business throughout the United States, including employees directly involved in the sale, wholesale, and transportation of propane and the purchase and supply of propane, including sale and transport to national and government accounts. In the course of his employment, Employee has received significant Confidential Information (as defined in his Employee Agreement), including specific information regarding Ferrell’s strategies, suppliers, product costs and customers throughout the United States and has participated in all meetings of the executive committee and board of directors of Ferrell. For that reason, and in consideration of the financial benefits granted to Employee pursuant to this Agreement, Employee acknowledges that any employment or consulting engagement in the propane industry or direct or indirect solicitation of customer or employees of Ferrell during the Advisory Period would result in the inevitable disclosure and/or use of such Confidential Information to the detriment of Ferrell. Therefore, Employee agrees not to accept employment or consulting engagement in the retail or wholesale propane distribution or transportation industries in whole or in part within the United States during the Advisory Period or the two-year period immediately following the Effective Date of his retirement.      Further, Employee agrees not to divert customers or employees of Ferrell, nor interfere with the relationship between Ferrell and any of its customers and employee during the Advisory Period.    
    
6.
Employee agrees to cooperate with Ferrell in the transition plans of Ferrell with respect to his responsibilities . Employee shall not undertake any further day-to-day responsibilities, except as directed, and shall act in a substantially similar manner as described in Section 2, consistent with his role as an advisor in the Advisory Period.     

7.
Employee promises not to make any derogatory, disparaging or false statements to any third parties intended to harm the business or personal reputation of Ferrell, its directors, officers and employees, nor to disparage or act contrary to the transition plans of Ferrell.



3

8.
Employee understands and agrees that if he violates any promises, Ferrell may pursue all permissible remedies to redress such violations including seeking repayment of all payments made under this Voluntary Retirement and Release and recovery of costs and reasonable attorney's fees. If Employee violates any promises during the Advisory Period, in addition to its other remedies Ferrell may terminate Employee’s engagement as an advisor and all payments and benefits hereunder.

9.
Employee agrees that the surviving terms of his Employee Agreement, his FCI Option Grantee Agreements, any Ferrellgas Partners, L.P. Option Agreements, Stock Appreciation Rights Agreements and any similar employment agreements with Ferrell, which are incorporated herein by reference, are enforceable agreements by the Parties, that his obligations under these agreements inure to the benefit of Ferrell, and that this Voluntary Retirement and Release does not release him from any post-employment obligations under them or under any other contract which obligates Employee not to reveal the Confidential Information of Ferrellgas.     

10.
Employee acknowledges that there may be existing litigation or regulatory matters of which he may have knowledge. Employee agrees to remain available (upon reasonable prior notice) to consult with Ferrell in connection with any claims or litigation involving Ferrell and any transitional matters involving Employee's prior duties with Ferrell. Ferrell shall reimburse Employee for his reasonable out-of-pocket expenses in connection with such consultation.

11. This agreement shall be governed by the laws of the state of Kansas, except with respect to the issuance, ownership and exercise of options or stock appreciation rights, which shall be governed by the state of Delaware.




4

Additional Statement by Employee

I was given a copy of this Voluntary Retirement and Release and was notified that I have the right to consult with an attorney before signing. Furthermore, I acknowledge being given at least twenty-one (21) days within which to consider this Voluntary Retirement and Release. I have carefully read and fully understand this Voluntary Retirement and Release and have had sufficient time and opportunity to consult with my personal tax, financial, and legal advisors prior to signing. By signing this Voluntary Retirement and Release, I voluntarily indicate my intent to be legally bound by its terms. I understand that I may revoke this Voluntary Retirement and Release within seven days after signing it but that thereafter it is irrevocable.


THIS IS A RELEASE OF CLAIMS
READ CAREFULLY BEFORE SIGNING



 
 
/s/ Randy V. Schott
 
 
 
Randy V. Schott
 
 
 
 
 
 
 
 
 
 
 
3/8/2018
 
 
 
Date
 


FERRELLGAS, INC.;
FERRELL COMPANIES, INC.;
FERRELLGAS PARTNERS, L.P.
FERRELLGAS, L.P.
by FERRELLGAS, INC., a Delaware
Corporation, their General Partner


By
/s/ Trent Hampton
 
Date
3/8/2018
 
Trent Hampton
 
 
 
 
Sr. Vice President
 
 
 





EXHIBIT 31.1
CERTIFICATIONS
FERRELLGAS PARTNERS, L.P.

I, James E. Ferrell, certify that:

1.
I have reviewed this report on Form 10-Q for the period ended January 31, 2018 of Ferrellgas Partners, L.P. (the “Registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


Date: March 8, 2018                          /s/ James E. Ferrell
James E. Ferrell
Interim Chief Executive Officer and President;
Chairman of the Board of Directors of Ferrellgas, Inc., general partner of the Registrant



CERTIFICATIONS
FERRELLGAS PARTNERS, L.P.

I, Doran N. Schwartz, certify that:

1.
I have reviewed this report on Form 10-Q for the period ended January 31, 2018 of Ferrellgas Partners, L.P. (the “Registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


Date: March 8, 2018                          /s/ Doran N. Schwartz
Doran N. Schwartz
Senior Vice President; Chief Financial Officer; Treasurer (Principal Financial and Accounting Officer) of Ferrellgas, Inc., general partner of the Registrant
    

EXHIBIT 31.2
CERTIFICATIONS
FERRELLGAS PARTNERS FINANCE CORP.
 
I, James E. Ferrell, certify that:
 
1.
I have reviewed this report on Form 10-Q for the period ended January 31, 2018 of Ferrellgas Partners Finance Corp. (the “Registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


Date: March 8, 2018          /s/ James E. Ferrell
James E. Ferrell
Interim Chief Executive Officer and President





CERTIFICATIONS
FERRELLGAS PARTNERS FINANCE CORP.

I, Doran N. Schwartz, certify that:

1.
I have reviewed this report on Form 10-Q for the period ended January 31, 2018 of Ferrellgas Partners Finance Corp. (the “Registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
 
Date: March 8, 2018                          /s/ Doran N. Schwartz
Doran N. Schwartz
Chief Financial Officer and Sole Director

EXHIBIT 31.3
CERTIFICATIONS
FERRELLGAS, L.P.
 
I, James E. Ferrell, certify that:
 
1.
I have reviewed this report on Form 10-Q for the period ended January 31, 2018 of Ferrellgas, L.P. (the “Registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 
Date: March 8, 2018                          /s/ James E. Ferrell
James E. Ferrell
Interim Chief Executive Officer and President;
Chairman of the Board of Directors of Ferrellgas, Inc., general partner of the Registrant




CERTIFICATIONS
FERRELLGAS, L.P.
 
I, Doran N. Schwartz, certify that:
 
1.
I have reviewed this report on Form 10-Q for the period ended January 31, 2018 of Ferrellgas, L.P. (the “Registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 

Date: March 8, 2018                          /s/ Doran N. Schwartz
Doran N. Schwartz
Senior Vice President; Chief Financial Officer; Treasurer (Principal Financial and Accounting Officer) of Ferrellgas, Inc., general partner of the Registrant

EXHIBIT 31.4
CERTIFICATIONS
FERRELLGAS FINANCE CORP.
 
I, James E. Ferrell, certify that:
1.
I have reviewed this report on Form 10-Q for the period ended January 31, 2018 of Ferrellgas Finance Corp. (the “Registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: March 8, 2018                              /s/ James E. Ferrell
James E. Ferrell
Interim Chief Executive Officer and President
 



CERTIFICATIONS
FERRELLGAS FINANCE CORP.
 
I, Doran N. Schwartz, certify that:
 
1.
I have reviewed this report on Form 10-Q for the period ended January 31, 2018 of Ferrellgas Finance Corp. (the “Registrant”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5)
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


Date: March 8, 2018                          /s/ Doran N. Schwartz
Doran N. Schwartz
Chief Financial Officer and Sole Director

EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906
OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P. (the “Partnership”) for the period ended January 31, 2018 , as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certify pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.    The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and
2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated within the Report.
The foregoing certification is made solely for purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the “knowledge” and “willfulness” qualifications contained in 18 U.S.C. 1350(c).
This certification is being furnished to the SEC and is not to be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the Partnership or other filing of the Partnership made pursuant to the Exchange Act or Securities Act of 1933, as amended, unless specifically identified as being incorporated therein by reference.
 

Dated:   March 8, 2018                          /s/ James E. Ferrell
James E. Ferrell
Interim Chief Executive Officer and President; Chairman of the Board of Directors of Ferrellgas, Inc., general partner of the Registrant
 
/s/ Doran N. Schwartz
Doran N. Schwartz
Senior Vice President; Chief Financial Officer; Treasurer (Principal Financial and Accounting Officer) of Ferrellgas, Inc., general partner of the Registrant

*As required by 18 U.S.C. 1350, a signed original of this written statement has been provided to the Partnership.

EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906
OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of Ferrellgas Partners Finance Corp. for the period ended January 31, 2018 , as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certify pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.    The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and
2.     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ferrellgas Partners Finance Corp. at the dates and for the periods indicated within the Report.
The foregoing certification is made solely for purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the “knowledge” and “willfulness” qualifications contained in 18 U.S.C. 1350(c).
This certification is being furnished to the SEC and is not to be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of Ferrellgas Partners Finance Corp. or other filing of Ferrellgas Partners Finance Corp. made pursuant to the Exchange Act or Securities Act of 1933, as amended, unless specifically identified as being incorporated therein by reference.
 
Dated:   March 8, 2018                          /s/ James E. Ferrell
James E. Ferrell
Interim Chief Executive Officer and President
 
/s/ Doran N. Schwartz
Doran N. Schwartz
Chief Financial Officer and Sole Director
 

*As required by 18 U.S.C. 1350, a signed original of this written statement has been provided to Ferrellgas Partners Finance Corp.

EXHIBIT 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906
OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of Ferrellgas, L.P. (the “Partnership”) for the period ended January 31, 2018 , as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certify pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.    The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and
2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated within the Report.
The foregoing certification is made solely for purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the “knowledge” and “willfulness” qualifications contained in 18 U.S.C. 1350(c).
This certification is being furnished to the SEC and is not to be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the Partnership or other filing of the Partnership made pursuant to the Exchange Act or Securities Act of 1933, as amended, unless specifically identified as being incorporated therein by reference.
 
Dated:   March 8, 2018                          /s/ James E. Ferrell
James E. Ferrell
Interim Chief Executive Officer and President; Chairman of the Board of Directors of Ferrellgas, Inc., general partner of the Registrant
 
/s/ Doran N. Schwartz
Doran N. Schwartz
Senior Vice President; Chief Financial Officer; Treasurer (Principal Financial and Accounting Officer) of Ferrellgas, Inc., general partner of the Registrant


*As required by 18 U.S.C. 1350, a signed original of this written statement has been provided to the Partnership.

EXHIBIT 32.4
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906
OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of Ferrellgas Finance Corp. for the period ended January 31, 2018 , as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certify pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.    The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and
2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ferrellgas Finance Corp. at the dates and for the periods indicated within the Report.
The foregoing certification is made solely for purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the “knowledge” and “willfulness” qualifications contained in 18 U.S.C. 1350(c).
This certification is being furnished to the SEC and is not to be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of Ferrellgas Finance Corp. or other filing of Ferrellgas Finance Corp. made pursuant to the Exchange Act or Securities Act of 1933, as amended, unless specifically identified as being incorporated therein by reference.
 
Dated:   March 8, 2018                          /s/ James E. Ferrell
James E. Ferrell
Interim Chief Executive Officer and President
 
/s/ Doran N. Schwartz
Doran N. Schwartz
Chief Financial Officer and Sole Director
 
*As required by 18 U.S.C. 1350, a signed original of this written statement has been provided to Ferrellgas Finance Corp.