EX-99.3 5 exhibit9932016.htm EXHIBIT 99.3 Exhibit

FERRELLGAS, L.P.


F-1


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

January 31, 2016
 
July 31, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
11,711

 
$
5,600

Accounts and notes receivable, net (including $190,063 and $123,791 of accounts receivable pledged as collateral at January 31, 2016 and July 31, 2015, respectively)
264,382

 
196,918

Inventories
92,488

 
96,754

Prepaid expenses and other current assets
57,128

 
64,211

Total current assets
425,709

 
363,483

 
 
 
 
Property, plant and equipment, net
966,995

 
965,217

Goodwill, net
445,659

 
478,747

Intangible assets (net of accumulated amortization of $406,004 and $375,119 at January 31, 2016 and July 31, 2015, respectively)
564,964

 
580,043

Assets held for sale
3,120

 
—

Other assets, net
73,228

 
72,472

Total assets
$
2,479,675

 
$
2,459,962

 
 
 
 
LIABILITIES AND PARTNERS' CAPITAL
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
136,100

 
$
83,974

Short-term borrowings
86,200

 
75,319

Collateralized note payable
119,000

 
70,000

Other current liabilities
148,928

 
176,176

Total current liabilities
490,228

 
405,469

 
 
 
 
Long-term debt
1,712,790

 
1,622,392

Other liabilities
40,335

 
41,975

Contingencies and commitments (Note L)


 


 
 
 
 
Partners' capital:
 

 
 

Limited partner
267,236

 
425,105

General partner
2,731

 
4,339

Accumulated other comprehensive loss
(33,645
)
 
(39,318
)
Total partners' capital
236,322

 
390,126

Total liabilities and partners' capital
$
2,479,675

 
$
2,459,962

See notes to condensed consolidated financial statements.

F-2

FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands)
(unaudited)
 
 
 
 
 
For the three months ended January 31,
 
For the six months ended January 31,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Propane and other gas liquids sales
$
376,856

 
$
560,867

 
$
622,157

 
$
955,228

Midstream operations
188,333

 
7,153

 
382,003

 
15,069

Other
84,049

 
97,953

 
116,224

 
139,031

Total revenues
649,238

 
665,973

 
1,120,384

 
1,109,328

 
 
 
 
 
 
 
 
Costs of sales:
 
 
 
 
 
 
 
Cost of sales - propane and other gas liquids sales
174,829

 
330,692

 
296,580

 
595,506

Cost of sales - midstream operations
148,443

 
2,219

 
302,047

 
4,187

Cost of sales - other
55,774

 
68,071

 
70,222

 
89,963

Operating expense
115,997

 
107,214

 
232,196

 
213,645

Depreciation and amortization expense
37,367

 
23,943

 
74,346

 
47,252

General and administrative expense
9,674

 
10,872

 
28,818

 
34,267

Equipment lease expense
7,278

 
5,795

 
14,310

 
11,327

Non-cash employee stock ownership plan compensation charge
3,141

 
3,788

 
8,397

 
8,162

Goodwill impairment
—

 
—

 
29,316

 
—

Loss on disposal of assets and other
2,524

 
1,414

 
17,441

 
2,375

 
 
 
 
 
 
 
 
Operating income
94,211

 
111,965

 
46,711

 
102,644

 
 
 
 
 
 
 
 
Interest expense
(30,701
)
 
(20,341
)
 
(60,459
)
 
(40,219
)
Other expense, net
(298
)
 
(178
)
 
(420
)
 
(627
)
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
63,212

 
91,446

 
(14,168
)
 
61,798

 
 
 
 
 
 
 
 
Income tax expense
1,025

 
1,037

 
181

 
526

 
 
 
 
 
 
 
 
Net earnings (loss)
$
62,187

 
$
90,409

 
$
(14,349
)
 
$
61,272

See notes to condensed consolidated financial statements.
 
 
 


F-3

FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
For the three months ended January 31,
 
For the six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net earnings (loss)
 
$
62,187

 
$
90,409

 
$
(14,349
)
 
$
61,272

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Change in value of risk management derivatives
 
(11,504
)
 
(45,127
)
 
(11,120
)
 
(59,024
)
Reclassification of losses on derivatives to earnings, net
 
8,567

 
7,559

 
16,793

 
6,431

Foreign currency translation adjustment
 
—

 
—

 
—

 
(2
)
Other comprehensive income (loss)
 
(2,937
)
 
(37,568
)
 
5,673

 
(52,595
)
Comprehensive income (loss)
 
$
59,250

 
$
52,841

 
$
(8,676
)
 
$
8,677

See notes to condensed consolidated financial statements.

F-4

FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
other
 
Total
 
Limited
 
General
 
comprehensive
 
partners'
 
partner
 
partner
 
loss
 
capital
 
 
 
 
 
 
 
 
Balance at July 31, 2015
$
425,105

 
$
4,339

 
$
(39,318
)
 
$
390,126

Contributions in connection with non-cash ESOP and stock-based compensation charges
13,921

 
142

 


 
14,063

Contributions in connection with acquisitions
(284
)
 
—

 
—

 
(284
)
Distributions
(157,302
)
 
(1,605
)
 
—

 
(158,907
)
Net loss
(14,204
)
 
(145
)
 
—

 
(14,349
)
Other comprehensive income
—

 
—

 
5,673

 
5,673

Balance at January 31, 2016
$
267,236

 
$
2,731

 
$
(33,645
)
 
$
236,322

See notes to condensed consolidated financial statements.


F-5

FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
For the six months ended January 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net earnings (loss)
$
(14,349
)
 
$
61,272

Reconciliation of net earnings (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization expense
74,346

 
47,252

Non-cash employee stock ownership plan compensation charge
8,397

 
8,162

Non-cash stock-based compensation charge
5,666

 
16,430

Goodwill impairment
29,316

 
—

Loss on disposal of assets and other
17,441

 
2,375

Change in fair value of contingent consideration
(100
)

(6,300
)
Provision for doubtful accounts
952

 
1,859

Deferred income tax expense
88

 
157

Other
2,321

 
1,479

Changes in operating assets and liabilities, net of effects from business acquisitions:
 
 
 
Accounts and notes receivable, net of securitization
(77,782
)
 
(96,797
)
Inventories
4,280

 
13,696

Prepaid expenses and other current assets
9,073

 
(38,426
)
Accounts payable
29,266

 
32,126

Accrued interest expense
(420
)
 
47

Other current liabilities
(26,685
)
 
(9,904
)
Other assets and liabilities
2,651

 
(11,817
)
Net cash provided by operating activities
64,461

 
21,611

 
 
 
 
Cash flows from investing activities:
 
 
 
Business acquisitions, net of cash acquired
(12,718
)
 
(68,655
)
Capital expenditures
(39,461
)
 
(29,413
)
Proceeds from sale of assets
6,441

 
2,729

Other
(28
)
 
—

Net cash used in investing activities
(45,766
)
 
(95,339
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Distributions
(158,907
)
 
(92,332
)
Contributions from partners
30

 
42,655

Proceeds from issuance of long-term debt
92,959


90,643

Payments on long-term debt
(6,149
)
 
(45,063
)
Net additions to (reductions in) short-term borrowings
10,881

 
(2,088
)
Net additions to collateralized short-term borrowings
49,000

 
84,000

Cash paid for financing costs
(398
)
 
(204
)
Net cash provided by (used in) financing activities
(12,584
)
 
77,611

 
 
 
 
Effect of exchange rate changes on cash
—

 
(2
)
 
 
 
 
Net change in cash and cash equivalents
6,111

 
3,881

Cash and cash equivalents - beginning of period
5,600

 
8,283

Cash and cash equivalents - end of period
$
11,711

 
$
12,164

See notes to condensed consolidated financial statements.

F-6

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 services 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 reportable business segment activities:
•
Propane 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 two reportable operating segments: crude oil logistics and water solutions. The crude oil logistics segment ("Bridger") primarily generates income by providing crude oil transportation and logistics services on behalf of producers and end-users of crude oil. Bridger services include transportation through its operation of a fleet of trucks, tank trailers, railcars, pipeline injection terminals, and a barge. Bridger primarily operates in major oil and gas basins across the continental United States. Bridger also enters into crude oil purchase and sales arrangements. The salt water disposal wells within the water solutions segment are located in the Eagle Ford shale region of south Texas and are a critical component of the oil and natural gas well drilling industry. Oil and natural gas wells generate significant volumes of salt water. In the oil and gas fields Ferrellgas, L.P. services, these volumes of water are transported by truck away from the fields to salt water disposal wells where a combination of gravity and chemicals are used to separate crude oil from the salt water through a process that results in the collection of "skimming oil". This skimming oil is then captured and sold before the salt water is injected into underground geologic formations using high-pressure pumps.

Due to seasonality, the results of operations for the six months ended January 31, 2016 are not necessarily indicative of the results to be expected for a full fiscal year ending July 31, 2016.
 
The condensed consolidated financial statements of Ferrellgas, L.P. and subsidiaries reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal recurring nature. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with (i) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) the consolidated financial statements and accompanying notes included in Ferrellgas, L.P.’s Annual Report on Form 10-K for fiscal 2015.


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

(2)    Goodwill: Ferrellgas, L.P. records goodwill as the excess of the cost of acquisitions over the fair value of the related net assets at the date of acquisition. Ferrellgas, L.P. has determined that it has five reporting units for goodwill impairment testing purposes. Three of these reporting units contain goodwill that is subject to at least an annual assessment for impairment by applying a fair-value-based test. Under this test, the carrying value of each reporting unit is determined by assigning the assets

F-7

and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of the evaluation on a specific identification basis. To the extent a reporting unit’s carrying value exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the second step of the impairment test must be performed. In the second step, the implied fair value of goodwill is determined by assigning the fair value of a reporting unit to all the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized for that excess. We completed our last annual goodwill impairment test on January 31, 2016 and did not incur an impairment loss.
During the three months ended October 31, 2015, Ferrellgas determined that the continued and prolonged decline in the price of crude oil constituted a triggering event for its Midstream operations - water solutions business that required an update to the goodwill impairment assessment as of October 31, 2015. See Note F – Goodwill and intangible assets, net – for further discussion of Ferrellgas, L.P.'s goodwill impairment assessment.

(3) Assets held for sale: Assets held for sale represent tractor trucks that have met the criteria of “held for sale” accounting. During the first quarter of fiscal 2016, Ferrellgas, L.P. committed to a plan to sell certain trucks held by the Midstream operations - crude oil logistics segment. These assets were reclassified from "Vehicles, including transport trailers" to Assets held for sale in the accompanying balance sheet as of October 31, 2015. Ferrellgas, L.P. ceased depreciation on these assets during October 2015. Assets held for sale are recorded at the lower of the carrying amount or fair value less costs to sell. See Note D – Supplemental financial statement information – for further discussion of these held for sale assets.

(4) 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. Early application is not permitted. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. Ferrellgas is currently evaluating the newly issued guidance, including which transition approach will be applied and the estimated impact it will have on the consolidated financial statements.

FASB Accounting Standard Update No. 2015-02
In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis, which provides additional guidance on the consolidation of limited partnerships and on the evaluation of variable interest entities. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. Ferrellgas is currently evaluating the impact of our pending adoption of ASU 2015-02 on the consolidated financial statements.

FASB Accounting Standard Update No. 2015-03
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the debt liability. ASU 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted, and retrospective application required. Ferrellgas is currently evaluating the impact of our pending adoption of ASU 2015-03 on the consolidated financial statements.

FASB Accounting Standard Update No. 2015-06
In September 2015, the FASB issued ASU 2015-06, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments, which requires all entities to record the effects on earnings, if any, of changes in provisional amounts for items in a business combination in the same period in which the adjustment amounts are determined. The requirement to retrospectively account for the adjustments is eliminated by this amendment. ASU 2015-06 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. Ferrellgas, L.P. is currently evaluating the impact of our pending adoption of ASU 2015-06 on the 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. ASU 2015-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. Ferrellgas is currently evaluating the impact of our pending adoption of ASU 2015-11 on the consolidated financial

F-8

statements. Ferrellgas, L.P. does not expect the adoption of this ASU to have a material impact on its current accounting policies.

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.

(5)    Supplemental cash flow information: For purposes of the condensed consolidated statements of cash flows, Ferrellgas, L.P. considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less. Certain cash flow and significant non-cash activities are presented below:
 
For the six months ended January 31,
 
2016
 
2015
CASH PAID FOR:
 
 
 
Interest
$
56,558

 
$
38,591

Income taxes
$
—

 
$
262

NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Liabilities incurred in connection with acquisitions
$
426

 
$
—

Change in accruals for property, plant and equipment additions
$
22,860

 
$
1,216


C. Business combinations

Ferrellgas, L.P. records the assets acquired and liabilities assumed in a business combination at their acquisition date fair values. An entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair values of the assets acquired and liabilities assumed in a business combination. The Bridger acquisition, which occurred during the year ended July 31, 2015 and is described below, is still within this measurement period, and as a result, the acquisition date fair values Ferrellgas, L.P. recorded for the assets acquired and liabilities assumed are subject to change. Ferrellgas, L.P. made certain adjustments during the six months ended January 31, 2016 to its estimates of the acquisition date fair values of the Bridger assets acquired and liabilities assumed.


F-9

On June 24, 2015, Ferrellgas Partners acquired Bridger and formed a new midstream operations - crude oil logistics segment based near Dallas, Texas. Ferrellgas paid $560.0 million of cash, net of cash acquired and issued $260.0 million of Ferrellgas Partners common units to the seller, along with $2.5 million of other seller costs and consideration for an aggregate value of $822.5 million. Ferrellgas Partners then contributed the Bridger assets and liabilities to Ferrellgas, L.P. The purchase agreement for the Bridger acquisition contemplates post-closing payments for certain working capital items. Ferrellgas, L.P. is in the process of identifying and determining the fair values of the assets acquired and liabilities assumed in this business combination, and as a result, the estimates of fair value at January 31, 2016 are subject to change. Ferrellgas, L.P. is currently determining the appropriate value of working capital acquired with the former owners of Bridger. Ferrellgas, L.P. has preliminarily estimated the fair values of the assets acquired and liabilities assumed as follows:

 
 
Estimated At
 
 

 
January 31, 2016 (as adjusted)
 
July 31, 2015 (as initially reported)
 
Measurement period adjustments
Working capital
 
$
(6,657
)
 
$
1,783

 
$
(8,440
)
Transportation equipment
 
293,491

 
293,491

 
—

Injection stations and pipelines
 
41,632

 
41,632

 
—

Goodwill
 
187,662

 
193,311

 
(5,649
)
Customer relationships
 
277,100

 
261,811

 
15,289

Non-compete agreements
 
10,000

 
14,800

 
(4,800
)
Trade names & trademarks
 
9,400

 
5,800

 
3,600

Office equipment
 
7,449

 
7,449

 
—

Other
 
2,375

 
2,375

 
—

Aggregate fair value of net assets acquired
 
$
822,452

 
$
822,452

 
$
—


Pro forma results of operations (unaudited):

The following summarized unaudited pro forma consolidated statement of earnings information assumes that the acquisition of Bridger during fiscal 2015 occurred as of August 1, 2014. These unaudited pro forma results are for comparative purposes only and may not be indicative of the results that would have occurred had this acquisition been completed on August 1, 2014 or the results that would be attained in the future.
 
For the three months ended January 31,
 
For the six months ended January 31,
 
2015
 
2015
Revenue
$
751,229

 
$
1,279,841

Net earnings
87,382

 
54,896



The unaudited pro forma consolidated data presented above has also been prepared as if the following transaction had been completed on August 1, 2014:

•
the issuance of senior secured notes in June 2015.


F-10


D.    Supplemental financial statement information
 
Inventories consist of the following:
 
 
January 31, 2016
 
July 31, 2015
Propane gas and related products
 
$
60,248

 
$
68,731

Crude oil
 
5,720

 
—

Appliances, parts and supplies
 
26,520

 
28,023

Inventories
 
$
92,488

 
$
96,754


In addition to inventories on hand, Ferrellgas, L.P. enters into contracts primarily to buy propane for supply procurement purposes with terms up to 36 months. Most of these contracts call for payment based on market prices at the date of delivery. As of January 31, 2016, Ferrellgas, L.P. had committed, for supply procurement purposes, to take delivery of approximately 102.7 million gallons of propane at fixed prices.

Property, plant and equipment, net consist of the following:

 
 
 
January 31,
 
July 31,
 
Estimated useful lives
 
2016
 
2015
Land
Indefinite
 
$
35,581

 
$
34,389

Land improvements
2-20
 
13,441

 
13,249

Building and improvements
20
 
72,248

 
71,923

Vehicles, including transport trailers
8-20
 
213,038

 
228,646

Bulk equipment and district facilities
5-30
 
111,669

 
111,657

Tanks, cylinders and customer equipment
2-30
 
768,720

 
772,904

Salt water disposal wells and related equipment
2-30
 
52,095

 
38,460

Rail cars
30
 
173,513

 
150,235

Injection stations
20
 
32,178

 
37,619

Pipeline
15
 
4,074

 
4,074

Computer and office equipment
2-5
 
121,055

 
123,386

Construction in progress
n/a
 
23,503

 
16,841

 
 
 
1,621,115

 
1,603,383

Less: accumulated depreciation
 
 
654,120

 
638,166

Property, plant and equipment, net
 
 
$
966,995

 
$
965,217


Other current liabilities consist of the following:
 
 
January 31, 2016
 
July 31, 2015
Accrued interest
 
$
14,855

 
$
15,275

Accrued payroll
 
13,978

 
17,485

Customer deposits and advances
 
30,226

 
28,792

Price risk management liabilities
 
34,907

 
31,450

Other
 
54,962

 
83,174

Other current liabilities
 
$
148,928

 
$
176,176



F-11

Shipping and handling expenses are classified in the following condensed consolidated statements of earnings line items:
 
 
For the three months ended January 31,
 
For the six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Operating expense
 
$
43,881

 
$
48,125

 
$
84,225

 
$
93,915

Depreciation and amortization expense
 
1,082

 
1,327

 
2,197

 
2,777

Equipment lease expense
 
6,486

 
5,713

 
12,915

 
10,578

 
 
$
51,449

 
$
55,165

 
$
99,337

 
$
107,270


During the three month period ended October 31, 2015, Ferrellgas, L.P. committed to a plan to dispose of certain assets in its Midstream operations - crude oil logistics segment. As of October 31, 2015, this plan resulted in 69 tractor trucks sold and 136 tractor trucks reclassified from "Vehicles, including transport trailers" to Assets held for sale and were recorded at the lower of carrying value or estimated fair value, less an estimate of costs to sell. The estimate of fair value included significant unobservable inputs (Level 3 fair value). During the three month period ended January 31, 2016, 15 of these tractor trailers were sold, 69 were repurposed and reclassified to property, plant, and equipment as held for use within other Ferrellgas businesses, which constitutes a change in plan, and 52 tractor trucks remain classified as held for sale. Loss on disposal of assets and other during the three and six month periods ended January 31, 2016 consists of:

 
 
For the three months ended January 31,
 
For the six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Loss on assets held for sale
 
$
—

 
$
—

 
$
12,112

 
$
—

(Gain) loss on sale of assets held for sale
 
(468
)
 
—

 
791

 
—

Loss on sale of assets
 
2,992

 
1,414

 
4,538

 
2,375

Loss on disposal of assets and other
 
$
2,524

 
$
1,414

 
$
17,441

 
$
2,375


E. Accounts and notes receivable, net and accounts receivable securitization
 
Accounts and notes receivable, net consist of the following:
 
January 31, 2016
 
July 31, 2015
Accounts receivable pledged as collateral
$
190,063

 
$
123,791

Accounts receivable
79,682

 
77,636

Other
426

 
307

Less: Allowance for doubtful accounts
(5,789
)
 
(4,816
)
Accounts and notes receivable, net
$
264,382

 
$
196,918

 
 

At January 31, 2016, $190.1 million of trade accounts receivable were pledged as collateral against $119.0 million of collateralized notes payable due to a commercial paper conduit. At July 31, 2015, $123.8 million of trade accounts receivable were pledged as collateral against $70.0 million of collateralized notes payable due to the commercial paper conduit. These accounts receivable pledged as collateral are bankruptcy remote from Ferrellgas, L.P. Ferrellgas, L.P. does not provide any guarantee or similar support to the collectability of these accounts receivable pledged as collateral. 
 
As of January 31, 2016, Ferrellgas, L.P. had received cash proceeds of $119.0 million from trade accounts receivables securitized, with no remaining capacity to receive additional proceeds. As of July 31, 2015, Ferrellgas, L.P. had received cash proceeds of $70.0 million from trade accounts receivables securitized, with no remaining capacity to receive additional proceeds. Borrowings under the accounts receivable securitization facility had a weighted average interest rate of 2.9% and 2.3% as of January 31, 2016 and July 31, 2015, respectively.


F. Goodwill and intangible assets, net


F-12

Ferrellgas, L.P. records goodwill as the excess of the cost of acquisitions over the fair value of the related net assets at the date of acquisition.

Ferrellgas, L.P. tests goodwill for impairment annually during the second quarter or more frequently if events or changes in circumstances indicate that it is more likely than not the fair value of a reporting unit is less than the carrying value. During the three months ended October 31, 2015, Ferrellgas, L.P. determined that the continued and prolonged decline in the price of crude oil constituted a triggering event for its Midstream operations - water solutions business that required an update to the goodwill impairment assessment as of October 31, 2015.

The first step of this test primarily consists of a discounted future cash flow model to predict fair value. The result of this first step is based on the following critical assumptions: (1) the NYMEX West Texas Intermediate (“WTI”) crude oil curve was used to estimate future oil prices; (2) the oil skimming rate was expected to increase or decrease consistent with the projected increases/decreases in the NYMEX WTI crude oil curve consistent with past history; and (3) certain organic growth projects were projected to increase the salt water volumes processed as new drilling activity increases associated with the projected NYMEX WTI crude oil curve. As noted in our discussion of this reporting unit in Ferrellgas, L.P.'s Annual Report on Form 10-K for the year ended July 31, 2015, Ferrellgas, L.P. believes that the results of this business are closely tied to the price of WTI crude oil. The daily average closing price for WTI crude oil for the three months ended July 31, 2015 of $56.63 decreased 20.7% to $44.90 during the three months ended October 31, 2015. Additionally, the projected NYMEX WTI crude oil curve decreased approximately 6.5% from August 31, 2015 to October 31, 2015. These events have led to an overall decline in drilling activity and volumes in the Eagle Ford shale region of Texas. These market changes negatively affected Ferrellgas, L.P.'s current period results and future projections sufficiently to indicate that the fair value of the reporting unit likely no longer exceeded its carrying value.

In the second step, the implied fair value of goodwill is determined by assigning the fair value of a reporting unit to all the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized for that excess.

As of October 31, 2015, Ferrellgas, L.P. performed the first step of the goodwill impairment test for the Midstream operations - water solutions reporting unit and determined that the carrying value of the reporting unit exceeded the fair value. Ferrellgas, L.P. then completed the second step of the goodwill impairment analysis comparing the implied fair value of the reporting unit to the carrying amount of goodwill and determined that goodwill was completely impaired and has written off the entire $29.3 million of goodwill related to this reporting unit.

During the three months ended January 31, 2016, Ferrellgas, L.P. completed its annual impairment testing for goodwill by comparing the estimated fair value of each reporting unit to its respective carrying value. Ferrellgas, L.P. estimated the fair values of the reporting units tested by weighing the market and income approaches. These approaches, which are based on significant unobservable inputs (Level 3 fair value), include numerous estimates and key assumptions, including forecasted cash flows, growth rates, discount rates and comparable multiples from other companies. Based on these tests, Ferrellgas, L.P. determined that the estimated fair values of each reporting unit tested exceeded its respective carrying value, thus no impairments were recorded during the three months ended January 31, 2016.

Changes in the carrying amount of goodwill, by reportable segment, are as follows:

 
Propane and related equipment sales
 
Midstream operations - water solutions
 
Midstream operations - crude oil logistics
 
Total
Balance at July 31, 2015
$
256,120

 
$
29,316

 
$
193,311

 
$
478,747

Acquisitions
—

 
—

 
1,892

 
1,892

Measurement period adjustments
—

 
—

 
(5,649
)
 
(5,649
)
Dispositions
(15
)
 
—

 
—

 
(15
)
Impairment
—

 
(29,316
)
 
—

 
(29,316
)
Balance at January 31, 2016
$
256,105

 
$
—

 
$
189,554

 
$
445,659

 
 
 
 
 
 
 
 


F-13

G.    Debt
 
Short-term borrowings
 
Ferrellgas, L.P. classified a portion of its secured credit facility borrowings as short-term because it was used to fund working capital needs that management had intended to pay down within the 12 month period following each balance sheet date. As of January 31, 2016 and July 31, 2015, $86.2 million and $75.3 million, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.

Secured credit facility
 
As of January 31, 2016, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of $311.6 million, of which $225.4 million was classified as long-term debt. As of July 31, 2015, Ferrellgas, L.P. had total borrowings outstanding under its secured credit facility of $211.4 million, of which $136.1 million was classified as long-term debt. Borrowings outstanding at January 31, 2016 and July 31, 2015 under the secured credit facility had weighted average interest rates of 3.7% and 3.5%, respectively.

The obligations under this credit facility are secured by substantially all assets of Ferrellgas, L.P., the general partner and certain subsidiaries of Ferrellgas, L.P. but specifically excluding (a) assets that are subject to Ferrellgas, L.P.’s accounts receivable securitization facility, (b) the general partner’s equity interest in Ferrellgas Partners and (c) equity interest in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiaries of Ferrellgas, L.P.
 
Letters of credit outstanding at January 31, 2016 totaled $72.0 million and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. Letters of credit outstanding at July 31, 2015 totaled $61.2 million and were used primarily to secure insurance arrangements and, to a lesser extent, product purchases. At January 31, 2016, Ferrellgas, L.P. had remaining letter of credit capacity of $128.0 million. At July 31, 2015 Ferrellgas, L.P. had remaining letter of credit capacity of $138.8 million. 

H.  Partners’ capital

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,
 
 
2016
 
2015
 
2016
 
2015
Ferrellgas Partners
 
$
105,339

 
$
49,626

 
$
157,302

 
$
91,400

General partner
 
1,075

 
506

 
1,605

 
932

 
 
$
106,414

 
$
50,132

 
$
158,907

 
$
92,332


On February 25, 2016, Ferrellgas, L.P. declared distributions for the three months ended January 31, 2016 to Ferrellgas Partners and the general partner of $50.7 million and $0.5 million, respectively, which are expected to be paid on March 16, 2016.
 
See additional discussions about transactions with related parties in Note K – Transactions with related parties.

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

See Note J – Derivative instruments and hedging activities – for details regarding changes in the fair value of risk management financial derivatives recorded within AOCI for the six months ended January 31, 2016 and 2015.
 
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, 2016, the general partner made non-cash contributions of $0.1 million to Ferrellgas, L.P. to maintain its 1.0101% general partner interest.
 

F-14

During the six months ended January 31, 2015, the general partner made cash contributions of $0.4 million and non-cash contributions of $0.2 million to Ferrellgas, L.P. to maintain its 1.0101% general partner interest.


I.    Fair value measurements
 
Derivative financial instruments, assets held for sale, goodwill impairment and contingent consideration
 
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, 2016 and July 31, 2015:
 
 
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, 2016:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
—

 
$
3,890

 
$
—

 
$
3,890

Commodity derivatives
 
$
—

 
$
6,957

 
$
—

 
$
6,957

Liabilities:
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
—

 
$
(4,210
)
 
$
—

 
$
(4,210
)
Commodity derivatives
 
$
—

 
$
(42,745
)
 
$
—

 
$
(42,745
)
 
 
 
 
 
 
 
 
 
July 31, 2015:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
—

 
$
1,828

 
$
—

 
$
1,828

Commodity derivatives
 
$
—

 
$
4,655

 
$
—

 
$
4,655

Liabilities:
 
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
—

 
$
(4,748
)
 
$
—

 
$
(4,748
)
Commodity derivatives
 
$
—

 
$
(42,375
)
 
$
—

 
$
(42,375
)
Contingent consideration

$
—


$
—


$
(100
)

$
(100
)

The following is a reconciliation of the opening and closing balances for the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period ended January 31, 2016:

 
Contingent consideration liability
Balance at July 31, 2015
 
$
100

     Increase in fair value related to accretion
 
—

     Change in fair value included in earnings
 
(100
)
Balance at January 31, 2016
 
$
—

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. The fair value of the trucks classified as assets held for sale represents Ferrellgas, L.P.'s estimate of expected sales

F-15

price less costs to sell. The fair value measurements used to determine this value of the assets held for sale were based on a market approach utilizing prices from prior transactions and third party pricing information.

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. At January 31, 2016 and July 31, 2015, the estimated fair value of Ferrellgas, L.P.’s long-term debt instruments was $1,446.3 million and $1,700.5 million, respectively. Ferrellgas estimates the fair value of long-term debt based on quoted market prices. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.

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

F-16



J.   Derivative instruments and hedging activities
 
Ferrellgas, L.P. is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. Ferrellgas, L.P. utilizes derivative instruments to manage its exposure to fluctuations in commodity prices. Of these, the propane commodity derivative instruments are designated as cash flow hedges. All other commodity derivative instruments do not qualify or are not designated as cash flow hedges, therefore, the change in their fair value are recorded currently in earnings. Ferrellgas, L.P. also periodically utilizes derivative instruments to manage its exposure to fluctuations in interest rates.
 
Derivative instruments and hedging activities  
 
During the six months ended January 31, 2016 Ferrellgas, L.P. did not recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of financial derivative contract gains or losses from the assessment of hedge effectiveness related to commodity cash flow hedges. During the six months ended January 31, 2015, Ferrellgas, L.P. recognized a $0.2 million loss 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.
 

F-17

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, 2016 and July 31, 2015: 
 
 
January 31, 2016
 
 
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
 
$
4,330

 
Other current liabilities
 
$
25,956

  Commodity derivatives-propane
 
Other assets, net
 
415

 
Other liabilities
 
8,011

  Interest rate swap agreements
 
Prepaid expenses and other current assets
 
1,723

 
Other current liabilities
 
2,374

  Interest rate swap agreements
 
Other assets, net
 
2,167

 
Other liabilities
 
1,836

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
  Commodity derivatives-vehicle fuel
 
Prepaid expenses and other current assets
 
—

 
Other current liabilities
 
4,945

  Commodity derivatives-vehicle fuel
 
Other assets, net
 
—

 
Other liabilities
 
2,201

  Commodity derivatives- crude oil line-fill
 
Prepaid expenses and other current assets
 
2,212

 
Other current liabilities
 
1,632

 
 
Total
 
$
10,847

 
Total
 
$
46,955

 
 
 
 
 
 
 
 
 
 
 
July 31, 2015
 
 
Asset Derivatives
 
Liability Derivatives
Derivative Instrument
 
Location
 
 Fair value
 
Location
 
 Fair value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
  Commodity derivatives
 
Prepaid expenses and other current assets
 
$
3,614

 
Other current liabilities
 
$
27,929

  Commodity derivatives
 
Other assets, net
 
1,041

 
Other liabilities
 
12,034

  Interest rate swap agreements
 
Prepaid expenses and other current assets
 
1,828

 
Other current liabilities
 
2,241

  Interest rate swap agreements
 
Other assets, net
 
—

 
Other liabilities
 
2,507

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
  Commodity derivatives - vehicle fuel
 
Prepaid expenses and other current assets
 
—

 
Other current liabilities
 
1,280

  Commodity derivatives - vehicle fuel
 
Other assets, net
 
—

 
Other liabilities
 
1,132

 
 
Total
 
$
6,483

 
Total
 
$
47,123



F-18

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. The following tables provide a summary of cash margin deposit balances as of January 31, 2016 and July 31, 2015, respectively:

 
 
January 31, 2016
 
 
Assets
 
Liabilities
Description
 
Location
 
Amount
 
Location
 
Amount
Margin Deposits
 
Prepaid expenses and other current assets
 
$
18,786

 
Other current liabilities
 
$
—

 
 
Other assets, net
 
12,483

 
Other liabilities
 
—

 
 
 
 
$
31,269

 
 
 
$
—

 
 
July 31, 2015
 
 
Assets
 
Liabilities
Description
 
Location
 
Amount
 
Location
 
Amount
Margin Deposits
 
Prepaid expenses and other current assets
 
$
18,009

 
Other current liabilities
 
$
15

 
 
Other assets, net
 
11,786

 
Other liabilities
 
—

 
 
 
 
$
29,795

 
 
 
$
15


The following table provides a summary of the effect on Ferrellgas, L.P.’s condensed consolidated statements of earnings for the three and six months ended January 31, 2016 and 2015 due to derivatives designated as fair value hedging instruments:

 
 
 
 
Amount of Gain Recognized on Derivative

Amount of Interest Expense Recognized on Fixed-Rated Debt (Related Hedged Item)
Derivative Instrument
 
Location of Gain Recognized on Derivative
 
For the three months ended January 31,
 
For the three months ended January 31,
 
 
 
 
2016
 
2015
 
2016
 
2015
Interest rate swap agreements
 
Interest expense
 
$
505

 
$
587

 
$
(2,275
)
 
$
(2,275
)

 
 
 
 
Amount of Gain Recognized on Derivative
 
Amount of Interest Expense Recognized on Fixed-Rated Debt (Related Hedged Item)
Derivative Instrument
 
Location of Gain Recognized on Derivative
 
For the six months ended January 31,
 
For the six months ended January 31,
 
 
 
 
2016
 
2015
 
2016
 
2015
Interest rate swap agreements
 
Interest expense
 
$
1,042

 
$
1,043

 
$
(4,550
)
 
$
(4,550
)



F-19

The following tables provide a summary of the effect on Ferrellgas, L.P.’s condensed consolidated statements of comprehensive income for the three and six months ended January 31, 2016 and 2015 due to derivatives designated as cash flow hedging instruments:  
 
 
For the three months ended January 31, 2016
 
 
Derivative Instrument
 
Amount of Gain (Loss) Recognized in AOCI
 
Location of Gain (Loss) Reclassified from AOCL into Income
 
Amount of Gain (Loss) Reclassified from AOCL into Income
 
 
 
Effective portion
 
Ineffective portion
Commodity derivatives
 
$
(10,760
)
 
Cost of sales-propane and other gas liquids sales
 
$
(7,813
)
 
$
—

Interest rate swap agreements
 
(744
)
 
Interest expense
 
(754
)
 
—

 
 
$
(11,504
)
 
 
 
$
(8,567
)
 
$
—


 
 
For the three months ended January 31, 2015
 
 
Derivative Instrument
 
Amount of Gain (Loss) Recognized in AOCI
 
Location of Gain (Loss) Reclassified from AOCL into Income
 
Amount of Gain (Loss) Reclassified from AOCL into Income
 
 
 
Effective portion
 
Ineffective portion
Commodity derivatives
 
$
(42,910
)
 
Cost of sales-propane and other gas liquids sales
 
$
(7,360
)
 
$
—

Interest rate swap agreements
 
(2,217
)
 
Interest expense
 
—

 
(199
)
 
 
$
(45,127
)
 
 
 
$
(7,360
)
 
$
(199
)

 
 
For the six months ended January 31, 2016
 
 
Derivative Instrument
 
Amount of Gain (Loss) Recognized in AOCI
 
Location of Gain (Loss) Reclassified from AOCL into Income
 
Amount of Gain (Loss) Reclassified from AOCL into Income
 
 
 
Effective portion
 
Ineffective portion
Commodity derivatives
 
$
(9,175
)
 
Cost of sales-propane and other gas liquids sales
 
$
(15,262
)
 
$
—

Interest rate swap agreements
 
(1,945
)
 
Interest expense
 
(1,531
)
 
—

 
 
$
(11,120
)
 
 
 
$
(16,793
)
 
$
—


 
 
For the six months ended January 31, 2015
 
 
Derivative Instrument
 
Amount of Gain (Loss) Recognized in AOCI
 
Location of Gain (Loss) Reclassified from AOCL into Income
 
Amount of Gain (Loss) Reclassified from AOCL into Income
 
 
 
Effective portion
 
Ineffective portion
Commodity derivatives
 
$
(55,668
)
 
Cost of sales-propane and other gas liquids sales
 
$
(6,232
)
 
$
—

Interest rate swap agreements
 
(3,356
)
 
Interest expense
 
—

 
(199
)
 
 
$
(59,024
)
 
 
 
$
(6,232
)
 
$
(199
)


F-20

The following tables provide a summary of the effect on Ferrellgas, L.P.'s condensed consolidated statements of earnings for the three and six months ended January 31, 2016 due to the change in fair value of derivatives not designated as hedging instruments:

 
 
For the three months ended January 31, 2016
Derivatives Not Designated as Hedging Instruments
 
Amount of Gain (Loss) Recognized in Income
 
Location of Gain (Loss) Recognized in Income
Commodity derivatives - crude oil linefill
 
$
2,992

 
Cost of sales - midstream operations
Commodity derivatives - vehicle fuel
 
$
(3,696
)
 
Operating expense
 
 
 
 
 
 
 
For the six months ended January 31, 2016
Derivatives Not Designated as Hedging Instruments
 
Amount of Gain (Loss) Recognized in Income
 
Location of Gain (Loss) Recognized in Income
Commodity derivatives - crude oil linefill
 
$
4,020

 
Cost of sales - midstream operations
Commodity derivatives - vehicle fuel
 
$
(4,734
)
 
Operating expense

Ferrellgas, L.P. did not hold derivatives not designated as hedging instruments for the three and six months ended January 31, 2015.

The changes in derivatives included in AOCI for the six months ended January 31, 2016 and 2015 were as follows: 
 
 
For the six months ended January 31,
Gains and losses on derivatives included in AOCI
 
2016
 
2015
Beginning balance
 
$
(38,906
)
 
$
6,483

Change in value of risk management commodity derivatives
 
(9,175
)
 
(55,668
)
Reclassification of gains and losses on commodity hedges to cost of sales - propane and other gas liquids sales, net
 
15,262

 
6,232

Change in value of risk management interest rate derivatives
 
(1,945
)
 
(3,356
)
Reclassification of gains and losses on interest rate hedges to interest expense
 
$
1,531

 
$
199

Ending balance
 
$
(33,233
)
 
$
(46,110
)

Ferrellgas expects to reclassify net losses related to the risk management commodity derivatives of approximately $21.6 million to earnings during the next 12 months. These net losses are expected to be offset by increased margins on propane sales commitments Ferrellgas, L.P. has with its customers that qualify for the normal purchase normal sales exception.
 
During the six months ended January 31, 2016 and 2015, Ferrellgas, L.P. had no reclassifications to earnings resulting from the discontinuance of any cash flow hedges arising from the probability of the original forecasted transactions not occurring within the originally specified period of time defined within the hedging relationship.
 
As of January 31, 2016, Ferrellgas, L.P. had financial derivative contracts covering 3.1 million barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.

As of January 31, 2016, Ferrellgas, L.P. had financial derivative contracts covering 0.2 million barrels of diesel and 41 thousand barrels of unleaded gasoline related to fuel hedges in transportation of propane.

As of January 31, 2016, Ferrellgas, L.P. financial derivative contracts covering 0.4 million barrels of crude oil related to the hedging of crude oil line fill and inventory.
 

F-21

Derivative financial instruments credit risk
 
Ferrellgas, L.P. is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Ferrellgas, L.P.’s counterparties principally consist of major energy companies and major U.S. financial institutions. Ferrellgas, L.P. maintains credit policies with regard to its counterparties that it believes reduces its overall credit risk. These policies include evaluating and monitoring its counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by Ferrellgas, L.P. in the forms of letters of credit, parental guarantees or cash. 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, 2016, 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 zero.  
 
Ferrellgas, L.P. holds certain derivative contracts that have credit-risk-related contingent features which dictate credit limits based upon Ferrellgas, L.P.’s debt rating. As of January 31, 2016, a downgrade in Ferrellgas, L.P.'s debt rating could trigger a reduction in credit limit and would result in an additional collateral requirement of zero. There were no derivatives with credit-risk-related contingent features in a liability position on January 31, 2016 and Ferrellgas, L.P. had posted no collateral in the normal course of business related to such derivatives.


K.    Transactions with related parties 
 
Ferrellgas, L.P. has no employees and is managed and controlled by its general partner. Pursuant to Ferrellgas, L.P.’s partnership agreement, the general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas, L.P. and all other necessary or appropriate expenses allocable to Ferrellgas, L.P. or otherwise reasonably incurred by its general partner in connection with operating Ferrellgas, L.P.’s business. These costs primarily include compensation and benefits paid to employees of the general partner who perform services on Ferrellgas, L.P.’s behalf and are reported in the condensed consolidated statements of earnings as follows:
 
 
For the three months ended January 31,
 
For the six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Operating expense
 
$
55,856

 
$
59,142

 
$
115,036

 
$
110,262

 
 
 
 
 
 
 
 
 
General and administrative expense
 
$
7,247

 
$
8,068

 
$
14,340

 
$
14,665


In connection with the closing of the Bridger acquisition, Ferrellgas Partners, L.P. issued common units to Bridger Marketing, LLC (now known as Jamex Marketing, LLC) and Ferrellgas, L.P. entered into a ten-year transportation and logistics agreement (the "TLA") with Jamex Marketing, LLC. As a result of that issuance, As of January 31, 2016, Jamex Marketing, LLC owned 6.6% (1) of Ferrellgas Partners' limited partners' interest. Jamex Marketing, LLC, in connection with the TLA, enters into transactions with Ferrellgas, L.P. and its subsidiaries. Bridger provides crude oil logistics services for Jamex Marketing, LLC, including the transportation and storage of crude oil by truck, terminal and pipeline.

During the three and six months ended January 31, 2016, Ferrellgas L.P.'s total revenues from these transactions were $5.7 million and $10.1 million, respectively. During the three and six months ended January 31, 2016, Ferrellgas L.P.'s total cost of sales from these transactions were $1.0 million and $1.6 million, respectively. There was no activity for the three months ended January 31, 2015. The amounts due from and due to Jamex Marketing, LLC at January 31, 2016, were $1.5 million and $0.1 million, respectively. The amounts due from and due to Jamex Marketing, LLC at July 31, 2015, were $4.8 million and $4.2 million, respectively.

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

(1) Beneficially owned limited partner units are based on the most recent Schedule 13G or Schedule 13D SEC filing.


F-22

L.    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 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 retailers 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. 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.

In addition, putative class action cases have been filed in California relating to residual propane remaining in the tank after use. 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.

M.    Segment reporting

Ferrellgas, L.P. has two primary operations: propane and related equipment sales and midstream operations. These two operations result in three reportable operating segments: propane and related equipment sales, midstream operations - water solutions and midstream operations - crude oil logistics.

The chief operating decision maker evaluates the operating segments using an Adjusted EBITDA performance measure which is based on earnings before income tax expense, interest expense, depreciation and amortization expense, non-cash employee stock ownership plan compensation charge, non-cash stock-based compensation charge, goodwill impairment, loss on disposal of assets and other, other expense, net, change in fair value of contingent consideration, severance costs, litigation accrual and related legal fees associated with a class action lawsuit, unrealized (non-cash) loss on changes in fair value of derivatives not designated as hedging instruments and acquisition and transition expenses. This performance measure is not a GAAP measure, however, the components are computed using amounts that are determined in accordance with GAAP. A reconciliation of this performance measure to net earnings, which is its nearest comparable GAAP measure, is included in the tables below. In management's evaluation of performance, costs such as compensation for certain administrative staff and executive management, are not allocated by segment and, accordingly, the following reportable segment results do not include such unallocated costs. The accounting policies of the operating segments are otherwise the same as those described in Note B - Summary of Significant Accounting Policies.

Assets reported within a segment are those assets that can be identified to a segment and primarily consist of trade receivables, property, plant and equipment, inventories, identifiable intangible assets and goodwill. Cash, certain prepaid assets and other assets are not allocated to segments. Although Ferrellgas, L.P. can and does identify long-lived assets such as property, plant and equipment and identifiable intangible assets to reportable segments, Ferrellgas, L.P. does not allocate the related depreciation and amortization to the segment as management evaluates segment performance exclusive of these non-cash charges.

The propane and related equipment sales segment primarily includes 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. Sales from propane distribution are generated principally from transporting propane purchased from third parties to propane distribution locations and then to tanks on customers’ premises or to portable propane tanks delivered to nationwide and local retailers. Sales from portable tank exchanges, nationally branded under the name Blue Rhino, are generated through a network of independent and partnership-owned distribution outlets.

The midstream operations - crude oil logistics segment primarily includes a domestic crude oil transportation and logistics provider with an integrated portfolio of midstream assets. These assets connect crude oil production in prolific unconventional resource plays to downstream markets. Bridger's truck, pipeline terminal, pipeline, rail and maritime assets form a comprehensive, fee-for-service business model, and substantially all of its cash flow is generated from fee-based commercial

F-23

agreements. Bridger's fee-based business model generates income by providing crude oil transportation and logistics services on behalf of producers and end users of crude oil.

The midstream operations - water solutions segment primarily includes salt water disposal wells that are a critical component of the oil and natural gas well drilling industry. Oil and gas wells generate significant volumes of salt water known as “flowback” and “production” water. Flowback is a water based solution that flows back to the surface during and after the completion of the hydraulic fracturing (“fracking”) process whereby large volumes of water, sand and chemicals are injected under high pressures into rock formations to stimulate production. Production water is salt water from underground formations that are brought to the surface during the normal course of oil or gas production. In the oil and gas fields Ferrellgas, L.P. services, these volumes of water are transported by truck away from the fields to salt water disposal wells where it is injected into underground geologic formations using high-pressure pumps. Revenue is derived from fees charged to customers to dispose of salt water at the disposal facilities and crude oil sales from the skimming oil process.

Following is a summary of segment information for the three and six months ended January 31, 2016 and 2015.

 
 
Three months ended January 31, 2016
 
 
Propane and related equipment sales
 
Midstream operations - Crude oil logistics
 
Midstream operations - Water Solutions
 
Corporate and other
 
Total
Segment revenues
 
$
460,905

 
$
183,793

 
$
4,540

 
$
—

 
$
649,238

Direct costs (1)
 
338,795

 
155,072

 
5,461

 
11,183

 
510,511

Adjusted EBITDA
 
$
122,110

 
$
28,721

 
$
(921
)
 
$
(11,183
)
 
$
138,727

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended January 31, 2015
 
 
Propane and related equipment sales
 
Midstream operations - Crude oil logistics
 
Midstream operations - Water Solutions
 
Corporate and other
 
Total
Segment revenues
 
$
658,820

 
$
—

 
$
7,153

 
$
—

 
$
665,973

Direct costs (1)
 
513,006

 
—

 
5,137

 
10,902

 
529,045

Adjusted EBITDA
 
$
145,814

 
$
—

 
$
2,016

 
$
(10,902
)
 
$
136,928



F-24

 
 
Six months ended January 31, 2016
 
 
Propane and related equipment sales
 
Midstream operations - Crude oil logistics
 
Midstream operations - Water Solutions
 
Corporate and other
 
Total
Segment revenues
 
$
738,381

 
$
373,166

 
$
8,837

 
$
—

 
$
1,120,384

Direct costs (1)
 
580,672

 
319,642

 
10,237

 
22,207

 
932,758

Adjusted EBITDA
 
$
157,709

 
$
53,524

 
$
(1,400
)
 
$
(22,207
)
 
$
187,626

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended January 31, 2015
 
 
Propane and related equipment sales
 
Midstream operations - Crude oil logistics
 
Midstream operations - Water Solutions
 
Corporate and other
 
Total
Segment revenues
 
$
1,094,259

 
$
—

 
$
15,069

 
$
—

 
$
1,109,328

Direct costs (1)
 
906,814

 
—

 
9,870

 
21,358

 
938,042

Adjusted EBITDA
 
$
187,445

 
$
—

 
$
5,199

 
$
(21,358
)
 
$
171,286

 
(1) Direct costs are comprised of "cost of sales-propane and other gas liquids sales", "cost of products sold-midstream operations", "cost of products sold-other", "operating expense", "general and administrative expense", and "equipment lease expense" less "non-cash stock-based compensation charge", "change in fair value of contingent consideration", "severance charge", "litigation accrual and related legal fees associated with a class action lawsuit", "unrealized (non-cash) loss on changes in fair value of derivatives not designated as hedging instruments" and "acquisition and transition expenses".

Following is a reconciliation of Ferrellgas, L.P.'s total segment performance measure to condensed consolidated net earnings:
 
 
Three months ended January 31,
 
Six months ended January 31,
 
 
2016
 
2015
 
2016
 
2015
Net earnings (loss)
 
$
62,187

 
$
90,409

 
$
(14,349
)
 
$
61,272

Income tax expense
 
1,025

 
1,037

 
181

 
526

Interest expense
 
30,701

 
20,341

 
60,459

 
40,219

Depreciation and amortization expense
 
37,367

 
23,943

 
74,346

 
47,252

EBITDA
 
131,280

 
135,730

 
120,637

 
149,269

Non-cash employee stock ownership plan compensation charge
 
3,141

 
3,788

 
8,397

 
8,162

Non-cash stock-based compensation charge
 
(2,456
)
 
318

 
5,666

 
16,430

Goodwill impairment
 
—

 
—

 
29,316

 
—

Loss on disposal of assets and other
 
2,524

 
1,414

 
17,441

 
2,375

Other expense, net
 
298

 
178

 
420

 
627

Change in fair value of contingent consideration
 
—

 
(4,500
)
 
(100
)
 
(6,300
)
Severance costs
 
—

 
—

 
856

 
—

Litigation accrual and related legal fees associated with a class action lawsuit
 
—

 
—

 
—

 
723

 Unrealized (non-cash) loss on changes in fair value of derivatives not designated as hedging instruments
 
3,870

 
—

 
4,908

 
—

Acquisition and transition expenses
 
70

 
—

 
85

 
—

Adjusted EBITDA
 
$
138,727

 
$
136,928

 
$
187,626

 
$
171,286



F-25

Following are total assets by segment:
Assets
 
January 31, 2016
 
July 31, 2015
Propane and related equipment sales
 
$
1,353,923

 
$
1,291,737

Midstream operations - crude oil logistics
 
907,932

 
917,325

Midstream operations - water logistics
 
176,869

 
205,358

Corporate and unallocated
 
40,951

 
45,542

Total consolidated assets
 
$
2,479,675

 
$
2,459,962


Following are capital expenditures by segment:
 
 
Six months ended January 31, 2016
 
 
Propane and related equipment sales
 
Midstream operations - Crude oil logistics
 
Midstream operations - Water Solutions
 
Corporate and other
 
Total
Capital expenditures:
 
 
 
 
 
 
 
 
 
 
Maintenance
 
$
8,588

 
$
—

 
$
195

 
$
516

 
$
9,299

Growth
 
16,035

 
26,638

 
8,478

 
—

 
51,151

Total
 
$
24,623

 
$
26,638

 
$
8,673

 
$
516

 
$
60,450

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended January 31, 2015
 
 
Propane and related equipment sales
 
Midstream operations - Crude oil logistics
 
Midstream operations - Water Solutions
 
Corporate and other
 
Total
Capital expenditures:
 
 
 
 
 
 
 
 
 
 
Maintenance
 
$
8,873

 
$
—

 
$
350

 
$
676

 
$
9,899

Growth
 
14,324

 
—

 
2,910

 
—

 
17,234

Total
 
$
23,197

 
$
—

 
$
3,260

 
$
676

 
$
27,133


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

O.  Guarantor financial information

The $500.0 million aggregate principal amount of unregistered 6.75% senior notes due 2023 co-issued by Ferrellgas, L.P. and Ferrellgas Finance Corp. are, and any notes registered under the Securities Act of 1933 and issued in exchange for such unregistered notes will be, fully and unconditionally and joint 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

F-26

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 consolidated financial statements.


FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
As of January 31, 2016
 
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
$
10,564

 
$
1

 
$
1,146

 
$
—

 
$
—

 
$
11,711

Accounts and notes receivable
(3,564
)
 
—

 
81,603

 
186,343

 
—

 
264,382

Intercompany receivables
43,980

 
—

 
—

 
—

 
(43,980
)
 
—

Inventories
71,992

 
—

 
20,496

 
—

 
—

 
92,488

Prepaid expenses and other current assets
38,572

 
—

 
18,554

 
2

 
—

 
57,128

Total current assets
161,544

 
1

 
121,799

 
186,345

 
(43,980
)
 
425,709

 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
563,096

 
—

 
403,899

 
—

 
—

 
966,995

Goodwill
245,429

 
—

 
200,230

 
—

 
—

 
445,659

Intangible assets, net
148,730

 
—

 
416,234

 
—

 
—

 
564,964

Intercompany receivables
450,000

 
—

 
—

 
—

 
(450,000
)
 
—

Investments in consolidated subsidiaries
648,875

 
—

 
—

 
—

 
(648,875
)
 
—

Assets held for sale
—

 
—

 
3,120

 
—

 
—

 
3,120

Other assets, net
62,242

 
—

 
10,743

 
243

 
—

 
73,228

Total assets
$
2,279,916

 
$
1

 
$
1,156,025

 
$
186,588

 
$
(1,142,855
)
 
$
2,479,675

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND PARTNERS' CAPITAL
 
 
 
 
 
 
 
 
Current liabilities:
 

 
 
 
 

 
 
 
 
 
 

Accounts payable
$
68,773

 
$
—

 
$
67,327

 
$
—

 
$
—

 
$
136,100

Short-term borrowings
86,200

 
—

 
—

 
—

 
—

 
86,200

Collateralized note payable
—

 
—

 
—

 
119,000

 
—

 
119,000

Intercompany payables
—

 
—

 
32,903

 
11,077

 
(43,980
)
 
—

Other current liabilities
140,797

 
—

 
7,885

 
246

 
—

 
148,928

Total current liabilities
295,770

 
—

 
108,115

 
130,323

 
(43,980
)
 
490,228

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
1,711,805

 
—

 
450,985

 
—

 
(450,000
)
 
1,712,790

Other liabilities
36,019

 
—

 
4,091

 
225

 
—

 
40,335

Contingencies and commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Partners' capital:
 

 
 
 
 

 
 
 
 
 
 

Partners' equity
269,967

 
1

 
593,806

 
55,715

 
(649,522
)
 
269,967

Accumulated other comprehensive income (loss)
(33,645
)
 
—

 
(972
)
 
325

 
647

 
(33,645
)
Total partners' capital
236,322

 
1

 
592,834

 
56,040

 
(648,875
)
 
236,322

Total liabilities and partners' capital
$
2,279,916

 
$
1

 
$
1,156,025

 
$
186,588

 
$
(1,142,855
)
 
$
2,479,675

 
 
 
 
 
 
 


F-27

FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
 
As of July 31, 2015
 
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
$
5,579

 
$
1

 
$
20

 
$
—

 
$
—

 
$
5,600

Accounts and notes receivable
(2,858
)
 
—

 
80,657

 
119,119

 
—

 
196,918

Intercompany receivables
39,238

 
—

 
—

 
—

 
(39,238
)
 
—

Inventories
78,132

 
—

 
18,622

 
—

 
—

 
96,754

Prepaid expenses and other current assets
42,069

 
—

 
22,140

 
2

 
—

 
64,211

Total current assets
162,160

 
1

 
121,439

 
119,121

 
(39,238
)
 
363,483

 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
569,640

 
—

 
395,577

 
—

 
—

 
965,217

Goodwill
246,116

 
—

 
232,631

 
—

 
—

 
478,747

Intangible assets, net
155,659

 
—

 
424,384

 
—

 
—

 
580,043

Intercompany receivables
450,000

 
—

 
—

 
—

 
(450,000
)
 
—

Investments in consolidated subsidiaries
661,081

 
—

 
—

 
—

 
(661,081
)
 
—

Other assets, net
62,019

 
—

 
10,087

 
366

 
—

 
72,472

Total assets
$
2,306,675

 
$
1

 
$
1,184,118

 
$
119,487

 
$
(1,150,319
)
 
$
2,459,962

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND PARTNERS' CAPITAL
 
 
 
 
 
 
 
 
Current liabilities:
 

 
 
 
 

 
 
 
 
 
 

Accounts payable
$
40,210

 
$
—

 
$
43,764

 
$
—

 
$
—

 
$
83,974

Short-term borrowings
75,319

 
—

 
—

 
—

 
—

 
75,319

Collateralized note payable
—

 
—

 
—

 
70,000

 
—

 
70,000

Intercompany payables
—

 
—

 
30,289

 
8,949

 
(39,238
)
 
—

Other current liabilities
142,137

 
—

 
33,903

 
136

 
—

 
176,176

Total current liabilities
257,666

 
—

 
107,956

 
79,085

 
(39,238
)
 
405,469

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
1,621,439

 
—

 
450,953

 
—

 
(450,000
)
 
1,622,392

Other liabilities
37,444

 
—

 
4,306

 
225

 
—

 
41,975

Contingencies and commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Partners' capital:
 

 
 
 
 

 
 
 
 
 
 

Partners' equity
429,444

 
1

 
621,550

 
39,852

 
(661,403
)
 
429,444

Accumulated other comprehensive income (loss)
(39,318
)
 
—

 
(647
)
 
325

 
322

 
(39,318
)
Total partners' capital
390,126

 
1

 
620,903

 
40,177

 
(661,081
)
 
390,126

Total liabilities and partners' capital
$
2,306,675

 
$
1

 
$
1,184,118

 
$
119,487

 
$
(1,150,319
)
 
$
2,459,962

 
 
 
 
 
 
 


F-28

FERRELLGAS, L.P. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(in thousands)
 
 
 
For the three months ended January 31, 2016
 
Ferrellgas, L.P. (Parent and Co-Issuer)
 
Ferrellgas Finance Corp. (Co-Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Propane and other gas liquids sales
$
376,856

 
$
—

 
$
—

 
$
—

 
$
—

 
$
376,856

Midstream operations
—

 
—

 
188,333

 
—

 
—

 
188,333

Other
21,571

 
—

 
62,478

 
—

 
—

 
84,049

Total revenues
398,427

 
—

 
250,811

 
—

 
—

 
649,238

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales - propane and other gas liquids sales
174,832

 
—

 
(3
)
 
—

 
—

 
174,829

Cost of sales - midstream operations
—

 
—

 
148,443

 
—

 
—

 
148,443

Cost of sales - other
2,257

 
—

 
53,517

 
—

 
—

 
55,774

Operating expense
101,688

 
—

 
14,722

 
235

 
(648
)
 
115,997

Depreciation and amortization expense
18,805

 
—

 
18,562

 
—

 
—

 
37,367

General and administrative expense
8,306

 
—

 
1,368

 
—

 
—

 
9,674

Equipment lease expense
7,161

 
—

 
117

 
—

 
—

 
7,278

Non-cash employee stock ownership plan compensation charge
3,141

 
—

 
—

 
—

 
—

 
3,141

Loss on disposal of assets
2,100

 
—

 
424

 
—

 
—

 
2,524

 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
80,137

 
—

 
13,661

 
(235
)
 
648

 
94,211

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(19,630
)
 
—

 
(10,632
)
 
(692
)
 
253

 
(30,701
)
Other income (expense), net
(298
)
 
—

 
—

 
901

 
(901
)
 
(298
)
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
60,209

 
—

 
3,029

 
(26
)
 
—

 
63,212

 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense
110

 
—

 
915

 
—

 
—

 
1,025

Equity in earnings (loss) of subsidiaries
2,088

 
—

 
—

 
—

 
(2,088
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings (loss)
62,187

 
—

 
2,114

 
(26
)
 
(2,088
)
 
62,187

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
(2,937
)
 
—

 
—

 
—

 
—

 
(2,937
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
59,250

 
$
—

 
$
2,114

 
$
(26
)
 
$
(2,088
)
 
$
59,250



F-29

FERRELLGAS, L.P. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(in thousands)
 
 
 
For the three months ended January 31, 2015
 
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
$
560,867

 
$
—

 
$
—

 
$
—

 
$
—

 
$
560,867

Midstream operations
—

 
—

 
7,153

 
—

 
—

 
7,153

Other
22,539

 
—

 
75,414

 
—

 
—

 
97,953

Total revenues
583,406

 
—

 
82,567

 
—

 
—

 
665,973

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales - propane and other gas liquids sales
330,692

 
—

 
—

 
—

 
—

 
330,692

Cost of sales - midstream operations
—

 
—

 
2,219

 
—

 
—

 
2,219

Cost of sales - other
1,947

 
—

 
66,124

 
—

 
—

 
68,071

Operating expense
104,841

 
—

 
2,565

 
1,483

 
(1,675
)
 
107,214

Depreciation and amortization expense
19,700

 
—

 
4,243

 
—

 
—

 
23,943

General and administrative expense
10,872

 
—

 
—

 
—

 
—

 
10,872

Equipment lease expense
5,788

 
—

 
7

 
—

 
—

 
5,795

Non-cash employee stock ownership plan compensation charge
3,788

 
—

 
—

 
—

 
—

 
3,788

Loss on disposal of assets
1,414

 
—

 
—

 
—

 
—

 
1,414

 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
104,364

 
—

 
7,409

 
(1,483
)
 
1,675

 
111,965

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(18,553
)
 
—

 
(1,200
)
 
(629
)
 
41

 
(20,341
)
Other income (expense), net
(178
)
 
—

 
—

 
1,716

 
(1,716
)
 
(178
)
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
85,633

 
—

 
6,209

 
(396
)
 
—

 
91,446

 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense
114

 
—

 
923

 
—

 
—

 
1,037

Equity in earnings (loss) of subsidiaries
4,890

 
—

 
—

 
—

 
(4,890
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings (loss)
90,409

 
—

 
5,286

 
(396
)
 
(4,890
)
 
90,409

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
(37,568
)
 
—

 
—

 
—

 
—

 
(37,568
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
52,841

 
$
—

 
$
5,286

 
$
(396
)
 
$
(4,890
)
 
$
52,841




F-30

FERRELLGAS, L.P. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(in thousands)
 
 
 
For the six months ended January 31, 2016
 
Ferrellgas, L.P. (Parent and Co-Issuer)
 
Ferrellgas Finance Corp. (Co-Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Propane and other gas liquids sales
$
622,157

 
$
—

 
$
—

 
$
—

 
$
—

 
$
622,157

Midstream operations
—

 
—

 
382,003

 
—

 
—

 
382,003

Other
38,948

 
—

 
77,276

 
—

 
—

 
116,224

Total revenues
661,105

 
—

 
459,279

 
—

 
—

 
1,120,384

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales - propane and other gas liquids sales
296,580

 
—

 
—

 
—

 
—

 
296,580

Cost of sales - midstream operations
—

 
—

 
302,047

 
—

 
—

 
302,047

Cost of sales - other
4,795

 
—

 
65,427

 
—

 
—

 
70,222

Operating expense
198,662

 
—

 
32,381

 
2,605

 
(1,452
)
 
232,196

Depreciation and amortization expense
37,355

 
—

 
36,991

 
—

 
—

 
74,346

General and administrative expense
25,735

 
3

 
3,080

 
—

 
—

 
28,818

Equipment lease expense
14,043

 
—

 
267

 
—

 
—

 
14,310

Non-cash employee stock ownership plan compensation charge
8,397

 
—

 
—

 
—

 
—

 
8,397

Goodwill impairment
—

 
—

 
29,316

 
—

 
—

 
29,316

Loss on disposal of assets
3,645

 
—

 
13,796

 
—

 
—

 
17,441

 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
71,893

 
(3
)
 
(24,026
)
 
(2,605
)
 
1,452

 
46,711

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(38,151
)
 
—

 
(21,320
)
 
(1,133
)
 
145

 
(60,459
)
Other income (expense), net
(420
)
 
—

 
—

 
1,597

 
(1,597
)
 
(420
)
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
33,322

 
(3
)
 
(45,346
)
 
(2,141
)
 
—

 
(14,168
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
278

 
—

 
(97
)
 
—

 
—

 
181

Equity in earnings (loss) of subsidiaries
(47,393
)
 
—

 
—

 
—

 
47,393

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Net loss
(14,349
)
 
(3
)
 
(45,249
)
 
(2,141
)
 
47,393

 
(14,349
)
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income
5,673

 
—

 
—

 
—

 
—

 
5,673

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss
$
(8,676
)
 
$
(3
)
 
$
(45,249
)
 
$
(2,141
)
 
$
47,393

 
$
(8,676
)


F-31

FERRELLGAS, L.P. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
(in thousands)
 
 
 
For the six months ended January 31, 2015
 
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
$
955,228

 
$
—

 
$
—

 
$
—

 
$
—

 
$
955,228

Midstream operations
—

 
—

 
15,069

 
—

 
—

 
15,069

Other
40,587

 
—

 
98,444

 
—

 
—

 
139,031

Total revenues
995,815

 
—

 
113,513

 
—

 
—

 
1,109,328

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales - propane and other gas liquids sales
595,506

 
—

 
—

 
—

 
—

 
595,506

Cost of sales - midstream operations
—

 
—

 
4,187

 
—

 
—

 
4,187

Cost of sales - other
3,998

 
—

 
85,965

 
—

 
—

 
89,963

Operating expense
206,029

 
—

 
7,325

 
3,040

 
(2,749
)
 
213,645

Depreciation and amortization expense
38,854

 
—

 
8,398

 
—

 
—

 
47,252

General and administrative expense
34,264

 
3

 
—

 
—

 
—

 
34,267

Equipment lease expense
11,315

 
—

 
12

 
—

 
—

 
11,327

Non-cash employee stock ownership plan compensation charge
8,162

 
—

 
—

 
—

 
—

 
8,162

Loss on disposal of assets
2,375

 
—

 
—

 
—

 
—

 
2,375

 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
95,312

 
(3
)
 
7,626

 
(3,040
)
 
2,749

 
102,644

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(37,248
)
 
—

 
(2,383
)
 
(1,133
)
 
545

 
(40,219
)
Other income (expense), net
(627
)
 
—

 
—

 
3,294

 
(3,294
)
 
(627
)
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) before income taxes
57,437

 
(3
)
 
5,243

 
(879
)
 
—

 
61,798

 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense
163

 
—

 
363

 
—

 
—

 
526

Equity in earnings (loss) of subsidiaries
3,998

 
—

 
—

 
—

 
(3,998
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
Net earnings (loss)
61,272

 
(3
)
 
4,880

 
(879
)
 
(3,998
)
 
61,272

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
(52,595
)
 
—

 
—

 
—

 
—

 
(52,595
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
8,677

 
$
(3
)
 
$
4,880

 
$
(879
)
 
$
(3,998
)
 
$
8,677





F-32

FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
 
 
 
 
 
 
For the six months ended January 31, 2016
 
Ferrellgas, L.P. (Parent and Co-Issuer)
 
Ferrellgas Finance Corp. (Co-Issuer)
 
 Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
141,275

 
$
(3
)
 
$
(8,728
)
 
$
(19,083
)
 
$
(49,000
)
 
$
64,461

 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Business acquisitions, net of cash acquired
(12,718
)
 
—

 
—

 
—

 
—

 
(12,718
)
Capital expenditures
(26,102
)
 
—

 
(13,359
)
 
—

 
—

 
(39,461
)
Proceeds from sale of assets
6,441

 
—

 
—

 
—

 
—

 
6,441

Cash collected for purchase of interest in accounts receivable
—

 
—

 
—

 
453,652

 
(453,652
)
 
—

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

 
—

 
—

 
(502,652
)
 
502,652

 
—

Net changes in advances with consolidated entities
(42,301
)
 
—

 
—

 
—

 
42,301

 
—

Other
(28
)
 
—

 
—

 
—

 
—

 
(28
)
Net cash used in investing activities
(74,708
)
 
—

 
(13,359
)
 
(49,000
)
 
91,301

 
(45,766
)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Distributions
(158,907
)
 
—

 
—

 
—

 
—

 
(158,907
)
Contributions from Partners
30

 
—

 
—

 
—

 
—

 
30

Proceeds from increase in long-term debt
92,959

 
—

 
—

 
—

 
—

 
92,959

Reductions in long-term debt
(6,149
)
 
—

 
—

 
—

 
—

 
(6,149
)
Net additions to short-term borrowings
10,881

 
—

 
—

 
—

 
—

 
10,881

Net additions to collateralized short-term borrowings
—

 
—

 
—

 
49,000

 
—

 
49,000

Net changes in advances with parent
—

 
3

 
23,213

 
19,085

 
(42,301
)
 
—

Cash paid for financing costs
(398
)
 
—

 
—

 
—

 
—

 
(398
)
Net cash provided by (used in) financing activities
(61,584
)
 
3

 
23,213

 
68,085

 
(42,301
)
 
(12,584
)
 
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash
2

 
—

 
—

 
(2
)
 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Increase in cash and cash equivalents
4,985

 
—

 
1,126

 
—

 
—

 
6,111

Cash and cash equivalents - beginning of year
5,579

 
1

 
20

 
—

 
—

 
5,600

Cash and cash equivalents - end of year
$
10,564

 
$
1

 
$
1,146

 
$
—

 
$
—

 
$
11,711

 
 
 
 
 
 
 

F-33

FERRELLGAS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
 
 
 
 
 
 
For the six months ended January 31, 2015
 
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
$
161,214

 
$
(3
)
 
$
(43,566
)
 
$
(12,034
)
 
$
(84,000
)
 
$
21,611

 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
Business acquisitions, net of cash acquired
(68,655
)
 
—

 
—

 
—

 
—

 
(68,655
)
Capital expenditures
(24,984
)
 
—

 
(4,429
)
 
—

 
—

 
(29,413
)
Proceeds from sale of assets
2,729

 
—

 
—

 
—

 
—

 
2,729

Cash collected for purchase of interest in accounts receivable
—

 
—

 
—

 
666,521

 
(666,521
)
 
—

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

 
—

 
—

 
(750,521
)
 
750,521

 
—

Net changes in advances with consolidated entities
(59,576
)
 
—

 
—

 
—

 
59,576

 
—

Other
—

 
—

 
—

 
—

 
—

 
—

Net cash used in investing activities
(150,486
)
 
—

 
(4,429
)
 
(84,000
)
 
143,576

 
(95,339
)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
Distributions
(92,332
)
 
—

 
—

 
—

 
—

 
(92,332
)
Contributions from Partners
42,655

 
—

 
—

 
—

 
—

 
42,655

Proceeds from increase in long-term debt
90,643

 
—

 
—

 
—

 
—

 
90,643

Reductions in long-term debt
(45,063
)
 
—

 
—

 
—

 
—

 
(45,063
)
Net additions to short-term borrowings
(2,088
)
 
—

 
—

 
—

 
—

 
(2,088
)
Net additions to collateralized short-term borrowings
—

 
—

 
—

 
84,000

 
—

 
84,000

Net changes in advances with parent
—

 
3

 
47,537

 
12,036

 
(59,576
)
 
—

Cash paid for financing costs
(204
)
 
—

 
—

 
—

 
—

 
(204
)
Net cash provided by (used in) financing activities
(6,389
)
 
3

 
47,537

 
96,036

 
(59,576
)
 
77,611

 
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash
—

 
—

 
—

 
(2
)
 
—

 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in cash and cash equivalents
4,339

 
—

 
(458
)
 
—

 
—

 
3,881

Cash and cash equivalents - beginning of year
7,798

 
1

 
484

 
—

 
—

 
8,283

Cash and cash equivalents - end of year
$
12,137

 
$
1

 
$
26

 
$
—

 
$
—

 
$
12,164

 
 
 
 
 
 
 

F-34