Edgar Filing: FERRELLGAS PARTNERS L P

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended January 31, 2012
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

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

Ferrellgas Partners, L.P.

Ferrellgas Partners Finance Corp.

Ferrellgas, L.P.

Ferrellgas Finance Corp.

(Exact name of registrants as specified in their charters)

Delaware		43-1698480
Delaware		43-1742520
Delaware		43-1698481
Delaware		14-1866671
(States or other jurisdictions of incorporation or organization)		(I.R.S. Employer Identification Nos.)

7500 College Boulevard, Suite 1000, Overland Park, Kansas		66210
(Address of principal executive office)		(Zip Code)

Registrants’ telephone number, including area code:

(913) 661-1500

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

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

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Ferrellgas Partners, L.P.:
Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(do not check if a smaller reporting company)

Ferrellgas Partners Finance Corp, Ferrellgas, L.P. and Ferrellgas Finance Corp.:
Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(do not check if a smaller reporting company)

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

Ferrellgas Partners, L.P. and Ferrellgas, L.P. Yes o No þ

Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. Yes þ No o

At February 29, 2012, the registrants had common units or shares of common stock outstanding as follows:

Ferrellgas Partners, L.P.	78,957,969	Common Units
Ferrellgas Partners Finance Corp.	1,000	Common Stock
Ferrellgas, L.P.	n/a	n/a
Ferrellgas Finance Corp.	1,000	Common Stock

Documents Incorporated by Reference: None

EACH OF FERRELLGAS PARTNERS FINANCE CORP. AND FERRELLGAS FINANCE CORP. MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1)(A) and (B) OF FORM 10-Q AND ARE THEREFORE, WITH RESPECT TO EACH SUCH REGISTRANT, FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.

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FERRELLGAS PARTNERS, L.P.

FERRELLGAS PARTNERS FINANCE CORP.

FERRELLGAS, L.P.

FERRELLGAS FINANCE CORP.

For the quarterly period ended January 31, 2012

FORM 10-Q QUARTERLY REPORT

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		Page
	PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (unaudited)

	Ferrellgas Partners, L.P. and Subsidiaries

	Condensed Consolidated Balance Sheets — January 31, 2012 and July 31, 2011	1

	Condensed Consolidated Statements of Earnings — Three and six months ended January 31, 2012 and 2011	2

	Condensed Consolidated Statements of Partners’ Capital — Six months ended January 31, 2012 and 2011	3

	Condensed Consolidated Statements of Cash Flows — Six months ended January 31, 2012 and 2011	4

	Notes to Condensed Consolidated Financial Statements	5

	Ferrellgas Partners Finance Corp.

	Condensed Balance Sheets — January 31, 2012 and July 31, 2011	15

	Condensed Statements of Earnings — Three and six months ended January 31, 2012 and 2011	15

	Condensed Statements of Cash Flows — Six months ended January 31, 2012 and 2011	16

	Notes to Condensed Financial Statements	16

	Ferrellgas, L.P. and Subsidiaries

	Condensed Consolidated Balance Sheets — January 31, 2012 and July 31, 2011	17

	Condensed Consolidated Statements of Earnings — Three and six months ended January 31, 2012 and 2011	18

	Condensed Consolidated Statement of Partners’ Capital — Six months ended January 31, 2012	19

	Condensed Consolidated Statements of Cash Flows — Six months ended January 31, 2012 and 2011	20

	Notes to Condensed Consolidated Financial Statements	21

	Ferrellgas Finance Corp.

	Condensed Balance Sheets — January 31, 2012 and July 31, 2011	30

	Condensed Statements of Earnings — Three and six months ended January 31, 2012 and 2011	30

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	Condensed Statements of Cash Flows — Six months ended January 31, 2012 and 2011	31

	Notes to Condensed Financial Statements	31

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	49

ITEM 4.	CONTROLS AND PROCEDURES	51

	PART II — OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	51

ITEM 1A.	RISK FACTORS	52

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	52

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	52

ITEM 4.	MINE SAFETY DISCLOSURES	52

ITEM 5.	OTHER INFORMATION	52

ITEM 6.	EXHIBITS	53

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited)

FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

(unaudited)

	January 31,			July 31,
	2012			2011
ASSETS

Current assets:
Cash and cash equivalents	$	15,725		$	7,437
Accounts and notes receivable, net (including $293,163 and $112,509 of accounts receivable pledged as collateral at 2012 and 2011, respectively)	292,890			159,532
Inventories	170,479			136,139
Prepaid expenses and other current assets	26,389			23,885
Total current assets	505,483			326,993

Property, plant and equipment (net of accumulated depreciation of $589,705 and $573,665 at 2012 and 2011, respectively)	641,013			642,205
Goodwill	248,944			248,944
Intangible assets (net of accumulated amortization of $314,127 and $303,360 at 2012 and 2011, respectively)	199,836			204,136
Other assets, net	40,397			38,308
Total assets	$	1,635,673		$	1,460,586

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	132,425		$	67,541
Short-term borrowings	56,037			64,927
Collateralized note payable	205,000			61,000
Other current liabilities	116,053			104,813
Total current liabilities	509,515			298,281

Long-term debt	1,032,993			1,050,920
Other liabilities	23,792			23,068
Contingencies and commitments (Note I)	—			—

Partners’ capital:
Common unitholders (78,950,469 and 75,966,353 units outstanding at January 31, 2012 and July 31, 2011, respectively)	127,508			139,614
General partner unitholder (797,479 and 767,337 units outstanding at January 31, 2012 and July 31, 2011, respectively)	(58,784		)	(58,660		)
Accumulated other comprehensive income (loss)	(1,889		)	4,633
Total Ferrellgas Partners, L.P. partners’ capital	66,835			85,587
Noncontrolling interest	2,538			2,730
Total partners’ capital	69,373			88,317
Total liabilities and partners’ capital	$	1,635,673		$	1,460,586

See notes to condensed consolidated financial statements.

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FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per unit data)

(unaudited)

	For the three months ended January 31,						For the six months ended January 31,
	2012			2011			2012			2011

Revenues:
Propane and other gas liquids sales	$	779,567		$	774,179		$	1,293,786		$	1,142,802
Other	49,705			66,813			73,912			98,382
Total revenues	829,272			840,992			1,367,698			1,241,184

Costs and expenses:
Cost of product sold - propane and other gas liquids sales	600,600			559,416			1,003,722			815,902
Cost of product sold - other	24,468			38,500			31,094			51,358
Operating expense (includes $0.7 million and $3.1 million for the three months ended January 31, 2012 and 2011, respectively, and $1.8 million and $3.3 million for the six months ended January 31, 2012 and 2011, respectively, for non-cash stock and unit-based compensation)	104,414			110,688			204,992			206,084
Depreciation and amortization expense	21,042			19,990			41,716			40,365
General and administrative expense (includes $0.9 million and $7.9 million for the three months ended January 31, 2012 and 2011, respectively, and $2.6 million and $8.8 million for the six months ended January 31, 2012 and 2011, respectively, for non-cash stock and unit-based compensation)	11,236			18,947			22,350			30,211
Equipment lease expense	3,528			3,543			7,057			7,192
Employee stock ownership plan compensation charge	1,937			2,932			4,516			5,376
Loss on disposal of assets and other	523			603			832			371

Operating income	61,524			86,373			51,419			84,325

Interest expense	(24,046		)	(26,395		)	(47,433		)	(53,272		)
Loss on extinguishment of debt	0			(36,449		)	0			(36,449		)
Other income, net	80			88			47			266

Earnings (loss) before income taxes	37,558			23,617			4,033			(5,130		)

Income tax expense	771			1,198			141			716

Net earnings (loss)	36,787			22,419			3,892			(5,846		)

Net earnings attributable to noncontrolling interest	413			290			122			68

Net earnings (loss) attributable to Ferrellgas Partners, L.P.	36,374			22,129			3,770			(5,914		)

Less: General partner’s interest in net earnings (loss)	364			221			38			(59		)
Common unitholders’ interest in net earnings (loss)	$	36,010		$	21,908		$	3,732		$	(5,855	)

Basic and diluted net earnings (loss) per common unitholders’ interest	$	0.47		$	0.31		$	0.05		$	(0.08	)

Cash distributions declared per common unit	$	0.50		$	0.50		$	1.00		$	1.00

See notes to condensed consolidated financial statements.

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FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands)

(unaudited)

									Accumulated other								Total
	Number of units								comprehensive income (loss)								Ferrellgas
		General				General						Currency					Partners, L.P.			Non-			Total
	Common	partner	Common			partner			Risk			translation		Pension			partners’			controlling			partners’
	unitholders	unitholder	unitholders			unitholder			management			adjustments		liability			capital			interest			capital

July 31, 2010	69,521.8	702.2	$	141,281		$	(58,644	)	$	(166	)	$	24	$	(273	)	$	82,222		$	3,680		$	85,902

Contributions in connection with ESOP and stock-based compensation charges	0	0	17,108			173			0			0		0			17,281			176			17,457

Distributions	0	0	(70,187		)	(709		)	0			0		0			(70,896		)	(847		)	(71,743		)

Common units issued in connection with acquisition	63.5	0.6	1,625			16			0			0		0			1,641			17			1,658

Common unit options issued	27.4	0.3	317			3			0			0		0			320			3			323

Common units issued in offering, net of issuance costs	1,215.1	12.3	29,950			303			0			0		0			30,253			306			30,559

Comprehensive income:
Net earnings (loss)	0	0	(5,855		)	(59		)	0			0		0			(5,914		)	68			(5,846		)
Cumulative effect of change in accounting principle	0	0	1,230			12			0			0		0			1,242			13			1,255
Other comprehensive income:
Net earnings on risk management derivatives	0	0	0			0			11,660			0		0						120
Reclassification of derivatives to earnings	0	0	0			0			(3,207		)	0		0						(33		)
Foreign currency translation adjustment	0	0	0			0			0			2		0
Other comprehensive income																	8,455						8,542
Comprehensive income																	3,783			168			3,951

January 31, 2011	70,827.8	715.4	$	115,469		$	(58,905	)	$	8,287		$	26	$	(273	)	$	64,604		$	3,503		$	68,107

July 31, 2011	75,966.4	767.3	$	139,614		$	(58,660	)	$	5,098		$	26	$	(491	)	$	85,587		$	2,730		$	88,317

Contributions in connection with non-cash ESOP and stock and unit-based compensation charges	0	0	8,818			89			0			0		0			8,907			91			8,998

Distributions	0	0	(75,970		)	(768		)	0			0		0			(76,738		)	(863		)	(77,601		)

Common units issued in connection with acquisition	68.2	0.7	1,300			13			0			0		0			1,313			13			1,326

Common unit options issued	20.5	0.2	239			2			0			0		0			241			1			242

Common units issued in offering, net of issuance costs	2,895.4	29.3	49,775			502			0			0		0			50,277			510			50,787

Comprehensive income (loss):
Net earnings	0	0	3,732			38			0			0		0			3,770			122			3,892
Other comprehensive income (loss):
Net loss on risk management derivatives	0	0	0			0			(3,836		)	0		0						(39		)
Reclassification of derivatives to earnings	0	0	0			0			(2,686		)	0		0						(27		)
Foreign currency translation adjustment	0	0	0			0			0			0		0						0
Other comprehensive income (loss)																	(6,522		)				(6,588		)
Comprehensive loss																	(2,752		)	56			(2,696		)

January 31, 2012	78,950.5	797.5	$	127,508		$	(58,784	)	$	(1,424	)	$	26	$	(491	)	$	66,835		$	2,538		$	69,373

See notes to condensed consolidated financial statements.

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FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the six months ended
	January 31,
	2012			2011

Cash flows from operating activities:
Net earnings (loss)	$	3,892		$	(5,846	)
Reconciliation of net earnings (loss) to net cash used in operating activities:
Depreciation and amortization expense	41,716			40,365
Non-cash employee stock ownership plan compensation charge	4,516			5,376
Non-cash unit and stock-based compensation charge	4,482			12,081
Loss on disposal of assets	832			371
Loss on extinguishment of debt	0			25,403
Provision for doubtful accounts	3,461			3,346
Deferred tax expense	292			49
Other	1,155			4,318
Changes in operating assets and liabilities, net of effects from business acquisitions:
Accounts and notes receivable, net	(136,899		)	(192,766		)
Inventories	(34,340		)	11,498
Prepaid expenses and other current assets	(9,022		)	(10,844		)
Accounts payable	64,712			94,117
Accrued interest expense	2			(1,417		)
Other current liabilities	10,882			6,814
Other liabilities	295			337
Net cash used in operating activities	(44,024		)	(6,798		)

Cash flows from investing activities:
Business acquisitions, net of cash acquired	(10,327		)	(4,880		)
Capital expenditures	(24,453		)	(17,318		)
Proceeds from sale of assets	2,374			3,200
Net cash used in investing activities	(32,406		)	(18,998		)

Cash flows from financing activities:
Distributions	(76,738		)	(70,896		)
Proceeds from increase in long-term debt	31,490			536,621
Payments on long-term debt	(52,220		)	(531,506		)
Net reductions in short-term borrowings	(8,890		)	(12,721		)
Net additions to collateralized short-term borrowings	144,000			98,000
Cash paid for financing costs	(3,315		)	(9,651		)
Noncontrolling interest activity	(352		)	(847		)
Proceeds from exercise of common unit options	239			317
Proceeds from equity offering, net of issuance costs	50,000			29,950
Cash contribution from general partner in connection with common unit issuances	504			615
Net cash provided by financing activities	84,718			39,882

Effect of exchange rate changes on cash	0			2

Increase in cash and cash equivalents	8,288			14,088
Cash and cash equivalents - beginning of period	7,437			11,401
Cash and cash equivalents - end of period	$	15,725		$	25,489

See notes to condensed consolidated financial statements.

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FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2012

(Dollars in thousands, except per unit data, unless otherwise designated)

(unaudited)

A. Partnership organization and formation

Ferrellgas Partners, L.P. (“Ferrellgas Partners”) is a publicly traded limited partnership, owning an approximate 99% limited partner interest in Ferrellgas, L.P. (the “operating partnership”). Ferrellgas Partners and the operating partnership are collectively referred to as “Ferrellgas.” Ferrellgas, Inc. (the “general partner”), a wholly-owned subsidiary of Ferrell Companies, Inc. (“Ferrell Companies”), has retained a 1% general partner interest in Ferrellgas Partners and also holds an approximate 1% general partner interest in the operating partnership, representing an effective 2% general partner interest in Ferrellgas on a combined basis. As general partner, it performs all management functions required by Ferrellgas. As of January 31, 2012, Ferrell Companies beneficially owned 21.7 million of Ferrellgas Partners’ outstanding common units.

The condensed consolidated financial statements of Ferrellgas reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal, recurring nature. 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, each as set forth in Ferrellgas’ Annual Report on Form 10-K for fiscal 2011.

B. Summary of significant accounting policies

(1) Nature of operations: Ferrellgas Partners is a holding entity that conducts no operations and has two subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners owns a 100% equity interest in Ferrellgas Partners Finance Corp., whose only business activity is to act as the co-issuer and co-obligor of any debt issued by Ferrellgas Partners. The operating partnership is the only operating subsidiary of Ferrellgas Partners. Ferrellgas is a single reportable operating segment.

The operating partnership is engaged primarily in the distribution of propane and related equipment and supplies in the United States. The propane distribution market is seasonal because propane is used primarily for heating in residential and commercial buildings. Therefore, the results of operations for the six months ended January 31, 2012 and 2011 are not necessarily indicative of the results to be expected for a full fiscal year. The operating partnership serves approximately one million residential, industrial/commercial, portable tank exchange, agricultural, wholesale and other customers in all 50 states, the District of Columbia, and Puerto Rico.

(2) 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 assets, residual values of tanks, capitalization of customer tank installation costs, amortization methods of intangible assets, valuation methods used to value sales returns and allowances, allowance for doubtful accounts, fair value of

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reporting units, fair values of derivative contracts and stock and unit-based compensation calculations.

(3) Supplemental cash flow information: For purposes of the condensed consolidated statements of cash flows, Ferrellgas 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,
	2012		2011
CASH PAID FOR:
Interest	$	44,799	$	50,065
Income taxes	$	90	$	0
NON-CASH INVESTING ACTIVITIES:
Issuance of common units in connection with acquisitions	$	1,300	$	1,625
Issuance of liabilities in connection with acquisitions	$	2,321	$	1,664
Property, plant and equipment additions	$	979	$	374

(4) New accounting standards:

FASB Accounting Standard Update No. 2010-28

In December 2010, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standard Update No. 2010-28 (ASU 2011-05), which modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Ferrellgas’ adoption of this guidance in fiscal 2012 did not have a significant impact on its financial position, results of operations or cash flows.

FASB Accounting Standard Update No. 2011-05

In June 2011, the FASB issued ASU 2011-05, which revises the presentation of comprehensive income in the financial statements. The new guidance requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Ferrellgas does not expect the adoption of this guidance in fiscal 2013 to have a significant impact on its financial position, results of operations or cash flows.

FASB Accounting Standard Update No. 2011-08

In September 2011, the FASB issued ASU 2011-08, which amends the existing guidance on goodwill impairment testing. Under the new guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. If an entity determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Ferrellgas does not expect the adoption of this guidance in fiscal 2013 to have a significant impact on its financial position, results of operations or cash flows.

(5) Goodwill: Ferrellgas records goodwill as the excess of the cost of acquisitions over the fair value of the related net assets at the date of acquisition. Based on the guidance in ASC280 — “Segment Reporting” and ASC 350 — “Intangibles — Goodwill and other,” Ferrellgas has determined that it has three reporting units for goodwill impairment testing purposes. Two 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 and liabilities,

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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 the goodwill is determined by allocating the fair value of all of its assets (recognized and unrecognized) and liabilities to it carrying amount. Ferrellgas has completed the impairment test for each of its reporting units and believes that estimated fair values exceed the carrying values of our reporting units as of January 31, 2012.

C. Supplemental financial statement information

Inventories consist of the following:

	January 31,		July 31,
	2012		2011
Propane gas and related products	$	149,032	$	113,826
Appliances, parts and supplies	21,447		22,313
Inventories	$	170,479	$	136,139

In addition to inventories on hand, Ferrellgas enters into contracts primarily to buy propane for supply procurement purposes. Most of these contracts have terms of less than one year and call for payment based on market prices at the date of delivery. All supply procurement fixed price contracts have terms of fewer than 24 months. As of January 31, 2012, Ferrellgas had committed, for supply procurement purposes, to take delivery of approximately 50.2 million gallons of propane at fixed prices.

Other current liabilities consist of the following:

	January 31,		July 31,
	2012		2011
Accrued interest	$	19,781	$	19,779
Accrued litigation and insurance	17,443		16,565
Customer deposits and advances	23,706		19,784
Other	55,123		48,685
Other current liabilities	$	116,053	$	104,813

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,
	2012		2011		2012		2011
Operating expense	$	47,937	$	47,614	$	91,725	$	89,898
Depreciation and amortization expense	1,700		1,489		3,284		2,970
Equipment lease expense	3,053		3,089		6,144		6,450
	$	52,690	$	52,192	$	101,153	$	99,318

D. Accounts and notes receivable, net

Accounts and notes receivable, net consist of the following:

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	January 31,			July 31,
	2012			2011
Accounts receivable pledged as collateral	$	293,163		$	112,509
Accounts receivable	3,826			51,104
Other	246			229
Less: Allowance for doubtful accounts	(4,345		)	(4,310		)
Accounts and notes receivable, net	$	292,890		$	159,532

During January 2012, the operating partnership executed a new accounts receivable securitization facility with Wells Fargo Bank, N.A., Fifth Third Bank and SunTrust Bank. This new accounts receivable securitization facility has up to $225.0 million of capacity, matures on January 19, 2017 and replaces the operating partnership’s previous 364-day facility which was to expire on April 4, 2013. As part of this new facility, the operating partnership, through Ferrellgas Receivables, securitizes a portion of its trade accounts receivable through a commercial paper conduit for proceeds of up to $225 million during the months of January, February, March and December, $175 million during the months of April and May and $145 million for all other months, depending on the availability of undivided interests in our accounts receivable from certain customers. Borrowings on the new accounts receivable securitization facility bear interest at rates ranging from 1.45% to 1.20% lower than the previous facility. At January 31, 2012, $293.2 million of trade accounts receivable were pledged as collateral against $205.0 million of collateralized notes payable due to the commercial paper conduit. These accounts receivable pledged as collateral are bankruptcy remote from the operating partnership. The operating partnership does not provide any guarantee or similar support to the collectibility of these accounts receivable pledged as collateral.

The operating partnership structured Ferrellgas Receivables in order to facilitate securitization transactions while complying with Ferrellgas’ various debt covenants. If the covenants were compromised, funding from the facility could be restricted or suspended, or its costs could increase. As of January 31, 2012, the operating partnership had received cash proceeds of $205.0 million from trade accounts receivables securitized, with no remaining capacity to receive additional proceeds. As of July 31, 2011, the operating partnership had received cash proceeds of $61.0 million from trade accounts receivables securitized, with the ability to receive proceeds of an additional $3.0 million. Borrowings under the accounts receivable securitization facility had a weighted average interest rate of 2.8% and 3.6% as of January 31, 2012 and July 31, 2011, respectively.

E. Debt

Short-term borrowings

Ferrellgas 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, 2012 and July 31, 2011, $56.0 million and $64.9 million, respectively, were classified as short-term borrowings. For further discussion see the secured credit facility section below.

Secured credit facility

During September 2011, Ferrellgas executed an amendment to its secured credit facility. This amendment changed the maturity of the secured credit facility to five years, extending the maturity date to September 2016. There was no change to the size of the facility which remains at $400.0 million with a letter of credit sublimit of $200.0 million. Borrowings on the amended secured credit facility bear interest at rates ranging from 1.25% to 1.50% lower than the previous secured credit facility.

As of January 31, 2012, Ferrellgas had total borrowings outstanding under its secured credit facility of $102.1 million, of which $46.1 million was classified as long-term debt. As of July 31, 2011, Ferrellgas had total borrowings outstanding under its secured credit facility of $129.5 million, of which $64.6 million was classified as long-term debt.

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Borrowings outstanding at January 31, 2012 and July 31, 2011 under the secured credit facility had a weighted average interest rate of 4.2% and 6.5%, respectively.

The obligations under this credit facility are secured by substantially all assets of the operating partnership, the general partner and certain subsidiaries of the operating partnership but specifically excluding (a) assets that are subject to the operating partnership’s accounts receivable securitization facility, (b) the general partner’s equity interest in Ferrellgas Partners and (c) equity interest in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiaries of the operating partnership.

Letters of credit outstanding at January 31, 2012 totaled $64.4 million and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. Letters of credit outstanding at July 31, 2011 totaled $47.5 million and were used primarily to secure insurance arrangements and to a lesser extent, product purchases. At January 31, 2012, Ferrellgas had available letter of credit remaining capacity of $135.6 million. At July 31, 2011, Ferrellgas had available letter of credit remaining capacity of $152.5 million.

The carrying amount of short-term financial instruments approximates fair value because of the short maturity of the instruments. The estimated fair value of Ferrellgas’ long-term debt instruments was $1,007.2 million and $1,134.2 million as of January 31, 2012 and July 31, 2011, respectively. The fair values are estimated based on quoted market prices.

F. Partners’ capital

Common unit issuances

During January 2012, Ferrellgas Partners, in a non-brokered registered direct offering, issued to Ferrell Companies 1.4 million common units. Net proceeds of approximately $25.0 million were used to reduce outstanding indebtedness under the operating partnership’s secured credit facility.

During January 2012, Ferrellgas Partners entered into an agreement with an institutional investor relating to a non-brokered registered direct offering of 1.5 million common units. Net proceeds of approximately $25.0 million were used to reduce outstanding indebtedness under the operating partnership’s secured credit facility.

During the six months ended January 31, 2012, Ferrellgas issued 0.1 million common units valued at $1.3 million in connection with an acquisition.

Partnership distributions paid

Ferrellgas Partners has paid the following distributions:

	For the three months ended January 31,				For the six months ended January 31,
	2012		2011		2012		2011
Public common unitholders	$	25,644	$	23,073	$	51,284	$	45,506
Ferrell Companies (1)	10,040		10,040		20,080		20,080
FCI Trading Corp. (2)	98		98		196		196
Ferrell Propane, Inc. (3)	26		25		52		51
James E. Ferrell (4)	2,179		2,177		4,358		4,354
General partner	384		358		768		709
	$	38,371	$	35,771	$	76,738	$	70,896

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(1) Ferrell Companies is the owner of the general partner and a 27% direct owner of Ferrellgas Partner’s common units and thus a related party.

(2) FCI Trading Corp. (“FCI Trading”) is an affiliate of the general partner and thus a related party.

(3) Ferrell Propane, Inc. (“Ferrell Propane”) is controlled by the general partner and thus a related party.

(4) James E. Ferrell is the Executive Chairman and Chairman of the Board of Directors of the general partner and thus a related party.

On February 23, 2012, Ferrellgas Partners declared a cash distribution of $0.50 per common unit for the three months ended January 31, 2012, which is expected to be paid on March 16, 2012.

Included in this cash distribution are the following amounts expected to be paid to related parties:

Ferrell Companies	$	10,735
FCI Trading	98
Ferrell Propane	26
James E. Ferrell	2,179
General partner	399

See additional discussions about transactions with related parties in Note H — Transactions with related parties.

Other comprehensive income (“OCI”)

See Note G — Derivatives — for details regarding changes in fair value on risk management financial derivatives recorded within OCI for the six months ended January 31, 2012 and 2011.

General partner’s commitment to maintain its capital account

Ferrellgas’ partnership agreements allows the general partner to have an option to maintain its effective 2% general partner interest concurrent with the issuance of other additional equity.

During the six months ended January 31, 2012, the general partner made cash contributions of $1.0 million and non-cash contributions of $0.2 million to Ferrellgas to maintain its effective 2% general partner interest.

G. Derivatives

Commodity Price Risk Management

Ferrellgas’ risk management activities primarily attempt to mitigate price risks related to the purchase, storage, transport and sale of propane generally in the contract and spot markets from major domestic energy companies on a short-term basis. Ferrellgas attempts to mitigate these price risks through the use of financial derivative instruments and forward propane purchase and sales contracts.

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

Ferrellgas’ risk management activities include the use of financial derivative instruments including, but not limited to, price swaps, options, futures and basis swaps to seek protection from adverse price movements and to minimize potential losses. Ferrellgas enters into these financial derivative instruments directly with third parties in the over-the-counter market and with brokers who are clearing

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members with the New York Mercantile Exchange. Ferrellgas also enters into forward propane purchase and sales contracts with counterparties. These forward contracts qualify for the normal purchase normal sales exception within GAAP guidance and are therefore not recorded on Ferrellgas’ financial statements until settled.

Cash Flow Hedging Activity

Ferrellgas uses financial derivative instruments for risk management purposes to hedge a portion of its exposure to market fluctuations in propane prices. These financial derivative instruments are designated as cash flow hedging instruments, thus the effective portions of changes in the fair value of the financial derivatives are recorded in OCI prior to settlement and are subsequently recognized in the condensed consolidated statements of earnings in “Cost of product sold — propane and other gas liquids sales” when the forward or forecasted propane sales transaction impacts earnings. The effectiveness of cash flow hedges is evaluated at inception and on an on-going basis. Changes in the fair value of cash flow hedges due to hedge ineffectiveness, if any, are recognized in “Cost of product sold — propane and other gas liquids sales.” During the six months ended January 31, 2012 and 2011, Ferrellgas did not recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of the financial derivative contract gain or loss from the assessment of hedge effectiveness related to these cash flow hedges.

The fair value of the financial derivative instruments below are included within “Prepaid expenses and other current assets” and “Other current liabilities” on the condensed consolidated balance sheets:

	January 31, 2012		July 31, 2011
Derivatives — Price risk management assets	$	1,077	$	7,637
Derivatives — Price risk management liabilities	$	2,504	$	2,476

Ferrellgas had the following cash flow hedge activity included in OCI in the condensed consolidated statements of partners’ capital:

	For the six months
	ended January 31,
	2012			2011
Fair value gain (loss) adjustment classified as OCI with offset in Price risk management assets and Price risk management liabilities	$	(3,875	)	$	11,780

Reclassification of net gains originally recorded within OCI to Cost of product sold — propane and other gas liquids	$	2,713		$	3,240

Ferrellgas expects to reclassify net losses of approximately $1.4 million to earnings during the next 12 months. These net losses are expected to be offset by margins on propane sales commitments Ferrellgas has with its customers that qualify for the normal purchase normal sales exception.

During the six months ended January 31, 2012 and 2011, Ferrellgas had no reclassifications to earnings resulting from 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, 2012, Ferrellgas had financial derivative contracts covering 0.8 million barrels of propane that were entered into as cash flow hedges of forward and forecasted purchases of propane.

During the six months ended January 31, 2012 and 2011, four counterparties represented 78% and 83%, respectively, of net settled cash flow hedging positions reported in “Cost of product sold — propane and other gas liquids sales.” During the six months ended January 31, 2012 and 2011,

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Ferrellgas neither held nor entered into financial derivative contracts that contained credit risk related contingency features.

In accordance with GAAP, Ferrellgas determines the fair value of its assets and liabilities subject to fair value measurement by using the highest possible “Level” as defined within the GAAP hierarchy. The three levels defined by the GAAP hierarchy are as follows:

· Level 1 — Quoted prices available in active markets for identical assets or liabilities.

· Level 2 — Pricing inputs not quoted in active markets but either directly or indirectly observable.

· Level 3 — Significant inputs to pricing that have little or no transparency with inputs requiring significant management judgment or estimation.

Ferrellgas considers over-the-counter derivative instruments entered into directly with third parties as Level 2 valuation since the values of these derivatives are quoted by third party brokers and are on an exchange for similar transactions. The market prices used to value Ferrellgas’ derivatives are based upon industry price publications and independent broker quotes utilizing both current market transactions and indicators.

The following tables provide the amounts and their corresponding level of hierarchy for our assets and liabilities that are measured at fair value. All financial derivatives assets and liabilities were non-trading positions.

	As of January 31, 2012
Fair value of derivatives	Level 1	Level 2		Level 3	Total
Price risk management assets	—	$	1,077	—	$	1,077

Price risk management liabilities	—	$	2,504	—	$	2,504

	As of July 31, 2011
Fair value of derivatives	Level 1	Level 2		Level 3	Total
Price risk management assets	—	$	7,637	—	$	7,637

Price risk management liabilities	—	$	2,476	—	$	2,476

H. Transactions with related parties

General partner

Ferrellgas has no employees and is managed and controlled by its general partner. Pursuant to Ferrellgas’ partnership agreements, the general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Ferrellgas and all other necessary or appropriate expenses allocable to Ferrellgas or otherwise reasonably incurred by its general partner in connection with operating Ferrellgas’ business. These costs primarily include compensation and benefits paid to employees of the general partner who perform services on Ferrellgas’ behalf and are reported in the condensed consolidated statements of earnings as follows:

	For the three months ended January 31,				For the six months ended January 31,
	2012		2011		2012		2011
Operating expense	$	53,964	$	58,504	$	103,311	$	108,515
General and administrative expense	$	6,689	$	5,709	$	12,706	$	12,172

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

I. Contingencies and commitments

Litigation

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

Ferrellgas has been named as a defendant in lawsuits filed in multiple federal and state courts that seek to certify nationwide or statewide classes related to its Blue Rhino branded propane tank exchange activities. The plaintiffs in each case generally allege that Ferrellgas failed to inform consumers of the amount of propane contained in propane tanks they purchased and that Ferrellgas violated anti-trust laws by allegedly conspiring with a competitor. The federal cases have been coordinated for multidistrict treatment in the United States District Court for the Western District of Missouri. A settlement agreement has received preliminary approval by the Court. Ferrellgas believes these claims will not have a material impact on the consolidated financial condition, results of operations and cash flows of Ferrellgas beyond the $9.2 million litigation accrual outstanding for these claims.

Ferrellgas has also been named as a defendant in a class action lawsuit filed in the United States District Court in Kansas. The complaint alleges that Ferrellgas violates consumer protection laws in the manner Ferrellgas sets prices and fees for its customers. Based on Ferrellgas’ business practices, Ferrellgas believes that the claims are without merit and intends to defend the claims vigorously. The court has stayed discovery on this matter pending Ferrellgas’ motion to compel arbitration, and the case has not been certified for class treatment. Ferrellgas does not believe loss is probable or reasonably estimable at this time related to this class action lawsuit.

Operating lease commitments

Ferrellgas leases certain property, plant and equipment under non-cancelable and cancelable operating leases. Amounts shown in the table below represent minimum lease payment obligations under Ferrellgas’ third-party operating leases with terms in excess of one year for the periods indicated. These arrangements include the leasing of transportation equipment, property, computer equipment and propane tanks. Ferrellgas accounts for these arrangements as operating leases.

The following table summarizes Ferrellgas’ contractual operating lease commitments as of January 31, 2012:

	Future minimum rental amounts by fiscal year
	2012		2013		2014		2015		2016		Thereafter

Operating lease obligations	$	12,271	$	19,909	$	15,328	$	12,356	$	10,347	$	15,144

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J. Net earnings (loss) per common unitholders’ interest

Below is a calculation of the basic and diluted net earnings (loss) available per common unitholders’ interest in the condensed consolidated statements of earnings for the periods indicated. In accordance with guidance issued by the FASB regarding participating securities and the two-class method, Ferrellgas calculates net earnings (loss) per common unitholders’ interest for each period presented according to distributions declared and participation rights in undistributed earnings, as if all of the earnings or loss for the period had been distributed. In periods with undistributed earnings above certain levels, the calculation according to the two-class method results in an increased allocation of undistributed earnings to the general partner and a dilution of the earnings to the limited partners. Due to the seasonality of the propane business, the dilution effect of the guidance on the two-class method typically impacts only the three months ending January 31. There was neither a dilutive effect resulting from this guidance on basic and diluted net earnings (loss) per common unitholders’ interest for the three months ended January 31, 2012 and 2011, nor for the six months ended January 31, 2012 and 2011.

In periods with net losses, the allocation of the net losses to the limited partners and the general partner will be determined based on the same allocation basis specified in the Ferrellgas Partners’ partnership agreement that would apply to periods in which there were no undistributed earnings. Additionally, in periods with net losses, there are no dilutive securities.

	For the three months ended January 31,				For the six months ended January 31,
	2012		2011		2012		2011

Common unitholders’ interest in net earnings (loss)	$	36,010	$	21,908	$	3,732	$	(5,855	)

Weighted average common units outstanding (in thousands)	76,401.6		70,668.8		76,184.0		70,114.2

Dilutive securities	62.2		131.3		65.1		0.0

Weighted average common units outstanding plus dilutive securities	76,463.8		70,800.1		76,249.1		70,114.2

Basic and diluted net earnings (loss) per common unitholders’ interest	$	0.47	$	0.31	$	0.05	$	(0.08	)

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FERRELLGAS PARTNERS FINANCE CORP.

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

CONDENSED BALANCE SHEETS

(in dollars)

(unaudited)

	January 31,			July 31,
	2012			2011
ASSETS

Cash	$	969		$	969
Total assets	$	969		$	969

Contingencies and commitments (Note B)	—			—

STOCKHOLDER’S EQUITY

Common stock, $1.00 par value; 2,000 shares authorized; 1,000 shares issued and outstanding	$	1,000		$	1,000

Additional paid in capital	9,095			8,920

Accumulated deficit	(9,126		)	(8,951		)
Total stockholder’s equity	$	969		$	969

CONDENSED STATEMENTS OF EARNINGS

(in dollars)

(unaudited)

	For the three months ended January 31,						For the six months ended January 31,
	2012			2011			2012			2011

General and administrative expense	$	125		$	125		$	175		$	215

Net loss	$	(125	)	$	(125	)	$	(175	)	$	(215	)

See notes to condensed financial statements.

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FERRELLGAS PARTNERS FINANCE CORP.

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

CONDENSED STATEMENTS OF CASH FLOWS

(in dollars)

(unaudited)

	For the six months ended January 31,
	2012			2011

Cash flows from operating activities:
Net loss	$	(175	)	$	(215	)
Cash used in operating activities	(175		)	(215		)

Cash flows from financing activities:
Capital contribution	175			215
Cash provided by financing activities	175			215

Change in cash	0			0
Cash — beginning of period	969			969
Cash — end of period	$	969		$	969

See notes to condensed financial statements.

NOTES TO CONDENSED FINANCIAL STATEMENTS

January 31, 2012

(unaudited)

A. Formation

Ferrellgas Partners Finance Corp. (the “Finance Corp.”), a Delaware corporation, was formed on March 28, 1996 and is a wholly-owned subsidiary of Ferrellgas Partners, L.P. (the “Partnership”).

The condensed financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the interim periods presented. All adjustments to the condensed financial statements were of a normal, recurring nature.

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

B. Contingencies and commitments

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

The senior unsecured notes contain various restrictive covenants applicable to the Partnership and its subsidiaries, the most restrictive relating to additional indebtedness. As of January 31, 2012, the Partnership is in compliance with all requirements, tests, limitations and covenants related to this debt agreement.

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FERRELLGAS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	January 31,			July 31,
	2012			2011
ASSETS

Current assets:
Cash and cash equivalents	$	14,933		$	7,342
Accounts and notes receivable, net (including $293,163 and $112,509 of accounts receivable pledged as collateral at January 31, 2012 and July 31, 2011, respectively)	292,890			159,532
Inventories	170,479			136,139
Prepaid expenses and other current assets	26,357			23,867
Total current assets	504,659			326,880

Property, plant and equipment (net of accumulated depreciation of $589,705 and $573,665 at January 31, 2012 and July 31, 2011, respectively)	641,013			642,205
Goodwill	248,944			248,944
Intangible assets (net of accumulated amortization of $314,127 and $303,360 at January 31, 2012 and July 31, 2011, respectively)	199,836			204,136
Other assets, net	36,946			34,651
Total assets	$	1,631,398		$	1,456,816

LIABILITIES AND PARTNERS’ CAPITAL

Current liabilities:
Accounts payable	$	132,425		$	67,541
Short-term borrowings	56,037			64,927
Collateralized note payable	205,000			61,000
Other current liabilities	113,600			102,674
Total current liabilities	507,062			296,142

Long-term debt	850,993			868,920
Other liabilities	23,792			23,068
Contingencies and commitments (Note I)	—			—

Partners’ capital
Limited partner	248,903			261,323
General partner	2,542			2,669
Accumulated other comprehensive income (loss)	(1,894		)	4,694
Total partners’ capital	249,551			268,686
Total liabilities and partners’ capital	$	1,631,398		$	1,456,816

See notes to condensed consolidated financial statements.

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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,
	2012		2011		2012		2011

Revenues:
Propane and other gas liquids sales	$	779,567	$	774,179	$	1,293,786	$	1,142,802
Other	49,705		66,813		73,912		98,382
Total revenues	829,272		840,992		1,367,698		1,241,184

Costs and expenses:
Cost of product sold - propane and other gas liquids sales	600,600		559,416		1,003,722		815,902
Cost of product sold - other