References and Defined Terms
In this Item 2 of this Quarterly Report on Form 10-Q, unless the context
indicates otherwise:
"us," "we," "our," "ours," "consolidated," the "Company" or "Ferrellgas" are
references to Ferrellgas Partners, L.P. together with its consolidated
? subsidiaries, including Ferrellgas, L.P., Ferrellgas Partners Finance Corp. and
Ferrellgas Finance Corp., except when used in connection with "Class A Units"
or "Class B 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 (except where
? the context indicates otherwise) 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;
? "Board of Directors" or "Board" refers to the board of directors of our general
partner;
? "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;
"Class A Units" refers to the Class A Units of Ferrellgas Partners, one of
? which was issued for every twenty of Ferrellgas Partners' then-outstanding
common units in a 1-for-20 reverse unit split effected on March 30, 2021;
? "Class B Units" refers to the Class B Units of Ferrellgas Partners;
? "Preferred Units" refers to the Senior Preferred Units of the operating
partnership;
"Unitholders" or "unitholders" refers to holders of Class A Units, holders of
? Class B Units or holders of Preferred Units, as indicated or as the context
requires for each such reference; and
? references to any fiscal year are to the fiscal year ended or ending on July 31
of the applicable year.
Also, the following terms are defined in this Item 2 of this Quarterly Report on
Form 10-Q:
? Amended Ferrellgas Partners LPA
? Amended OpCo LPA
? Credit Agreement
? Credit Facility
? Ferrellgas Partners Notes
? OpCo LPA Amendment
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 financial position or our ability to generate sales,
income or cash flow are forward-looking statements.
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Forward-looking statements are not guarantees of performance. You should not put
undue reliance on any forward-looking statements. All forward-looking statements
are subject to risks, uncertainties and assumptions that could cause our actual
results to differ materially from those expressed in or implied by these
forward-looking statements. Many of the factors that will affect our future
results are beyond our ability to control or predict. Some of the risk factors
that may affect our business, financial condition or results of operations
include:
? the effect of weather conditions on the demand for propane;
? the prices of wholesale propane, motor fuel and crude oil;
? disruptions to the supply of propane;
? competition from other industry participants and other energy sources;
? energy efficiency and technology advances;
? significant delays in the collection of accounts or notes receivable;
? customer, counterparty, supplier or vendor defaults;
? changes in demand for, and production of, hydrocarbon products;
? increased trucking and rail regulations;
? inherent operating and litigation risks in gathering, transporting, handling
and storing propane;
? 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;
? disruptions in the capital and credit markets; and
? access to available capital to meet our operating and debt-service
requirements.
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 2022 and in any more recent filings with the SEC. 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.
Overview
Our management's discussion and analysis of financial condition and results of
operations relates to Ferrellgas Partners and the operating partnership.
Ferrellgas Partners is a holding entity that conducts no operations and has two
direct subsidiaries, the operating partnership and Ferrellgas Partners Finance
Corp. Our activities are primarily conducted through the operating partnership.
Ferrellgas Partners and the Preferred Unitholders are the only limited partners
of the operating partnership. Ferrellgas, Inc. is the sole general partner of
Ferrellgas Partners and the operating partnership and, excluding the economic
interests attributable to the Class B Units and the Preferred Units, owns an
approximate 1% general partner economic interest in each, and, therefore, an
effective 2% general partner economic interest in the operating partnership.
Excluding the economic interests attributable to the Preferred Units, Ferrellgas
Partners owns an approximate 99% limited partner interest in the operating
partnership. For information regarding the economic and other terms of the Class
B Units and the Preferred Units, see Note G - Equity (Deficit) and Note F -
Preferred units to our condensed consolidated financial statements included
elsewhere herein.
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Our general partner performs all management functions for us. The parent company
of our general partner, Ferrell Companies, currently beneficially owns
approximately 23.4% of our outstanding Class A units. Ferrell Companies is owned
100% by an employee stock ownership trust.
The operating partnership was formed on April 22, 1994, and accounts for
substantially all of our consolidated assets, sales and operating earnings.
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. has served as co-issuer and co-obligor for
debt securities of Ferrellgas Partners, while Ferrellgas Finance Corp., a
subsidiary of the operating partnership, 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 section.
The Class A Units of Ferrellgas Partners are traded on the OTC Pink Market under
the symbol "FGPR".
We file annual, quarterly, and current reports and other 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. Our SEC filings are
also 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 audited historical
consolidated financial statements and accompanying notes thereto included in our
Annual Report on Form 10-K for fiscal 2022 and in our unaudited 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.
COVID-19 developments
COVID-19, and variants thereof, continues to evolve and impact the economy of
the United States and other countries around the world. While the majority of
areas in the United States have reduced most or all COVID-19 restrictions, there
remains uncertainty as to the magnitude and duration COVID-19 could have on our
operations and sales. We will continue to monitor the situation and adapt to
changing circumstances as needed for our business.
How We Evaluate Our Operations
We evaluate our overall business performance based primarily on a metric we
refer to as "Adjusted EBITDA," which is not defined by GAAP and should not be
considered an alternative to earnings measures defined by GAAP. We do not
utilize depreciation, depletion and amortization expense in our key measures
because we focus our performance management on cash flow generation and our
revenue generating assets have long useful lives. For the definition of Adjusted
EBITDA and a reconciliation of Adjusted EBITDA to net earnings attributable to
Ferrellgas Partners, L.P., the most directly comparable GAAP measure, see the
subheading "Non-GAAP Financial Measures" below.
Propane operations and related equipment sales
Based on our propane sales volumes in fiscal 2022, 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 retail distribution and sale of propane and
related equipment and supplies with concentrations in the Midwest, Southeast,
Southwest and Northwest regions of the United States.
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We use information on temperatures to understand how our results of operations
are affected by temperatures that are warmer or colder than normal. Normal
temperatures computed by us are the average of the last 10 years of information
published by the National Oceanic and Atmospheric Administration ("NOAA"). 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 2023 and 2024 sales commitments and, as of January
31, 2023, we have experienced net mark-to-market losses of approximately $10.2
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 (loss) 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 losses are expected to be offset by increased
margins on propane sales commitments that qualify for the normal purchase normal
sale exception. At January 31, 2023, we estimate 92% 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.
Summary Discussion of Results of Operations:
Executive Overview
For the three months ended January 31, 2023 and 2022
During the three months ended January 31, 2023 and 2022, we recognized net
earnings attributable to Ferrellgas Partners, L.P. of $98.1 million and $108.4
million, respectively. This $10.3 million decrease was primarily driven by
increases of $29.3 million in "Operating expense - personnel, vehicle, plant and
other" and $7.3 million in "General and administrative expense." Additionally,
we recognized a $0.3 million loss compared to a $9.3 million gain on asset sales
and disposals during the three months ended January 31, 2023 and 2022,
respectively. These unfavorable variances were partially offset by a $34.0
million increase in "Gross margin."
Distributable cash flow attributable to equity investors increased to $131.5
million for the three months ended January 31, 2023 compared to $121.4 million
for the prior year period, primarily due to a $4.5 million increase in Adjusted
EBITDA and a $7.4 million decrease in net cash interest expense, which was
partially offset by a $1.3 million decrease in proceeds from asset sales.
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For the three months ended January 31, 2023 and 2022, distributable cash flow
excess was $112.7 million and $101.0 million, respectively. This $11.7 million
increase was primarily due to the $10.1 million increase in distributable cash
flow attributable to equity investors noted above and a $1.8 million decrease in
distributions accrued or paid to preferred unitholders.
For the six months ended January 31, 2023 and 2022
During the six months ended January 31, 2023 and 2022, we recognized net
earnings attributable to Ferrellgas Partners, L.P. of $93.6 million and $99.8
million, respectively. This $6.2 million decrease was primarily driven by
increases of $42.0 million in "Operating expense-personnel, vehicle, plant and
other," $9.6 million in "General and administrative expense" and $3.5 million in
"Depreciation and amortization expense." Additionally, we recognized a $2.0
million loss compared to a $7.9 million gain on asset sales and disposals during
the six months ended January 31, 2023 and 2022, respectively. These unfavorable
variances were partially offset by a $59.1 million increase in "Gross margin."
Distributable cash flow attributable to equity investors increased to $153.5
million for the six months ended January 31, 2023 compared to $136.7 million for
the prior year period, primarily due to a $16.8 million increase in Adjusted
EBITDA and a $3.9 million decrease in net cash interest expense, which was
partially offset by a $2.6 million increase in maintenance capital expenditures.
For the six months ended January 31, 2023 and 2022, distributable cash flow
excess was $118.0 million and $50.6 million, respectively. This $67.4 million
increase was primarily due to a $50.0 million distribution paid to Class B
Unitholders in the prior year period and the $16.8 million increase in
distributable cash flow attributable to equity investors noted above.
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