Segment Reporting Segment Reporting

9 Months Ended

Apr. 30, 2015

Segment Reporting Disclosure

Segment reporting

During May 2014, Ferrellgas entered into a membership interest purchase agreement to acquire all of the issued and outstanding membership interests of Sable, a fluid logistics provider in the Eagle Ford shale region of south Texas. With this acquisition Ferrellgas established a new operating and reportable segment referred to as “Midstream Operations”in addition to the existing reportable segment of propane and related equipment sales. The chief operating decision maker evaluates the operating segments using an Adjusted EBITDA performance measure which is based on net 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, loss on disposal of assets, other income (expense), net, change in fair value of contingent consideration and litigation accrual and related legal fees associated with a class action lawsuit. This performance measure is not a GAAP measure but the components are computed using amounts that are determined in accordance with GAAP. A reconciliation of this performance measure to net earnings attributable to Ferrellgas Partners L.P., which is its nearest comparable GAAP measure, is included in the tables below. In management's evaluation of performance, certain costs, such as compensation for 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 the summary of significant accounting policies in Note B.

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 can and does identify long-lived assets such as property, plant and equipment and identifiable intangible assets to reportable segments, Ferrellgas 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.

Salt water disposal wells 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. Flowback contains clays, chemicals, dissolved metal ions, total dissolved solids and crude oil. Production water is salt water from underground formations that are brought to the surface during the normal course of oil or gas production. Because this water has been in contact with hydrocarbon-bearing formations, it contains some of the chemical characteristics of the formations and crude oil. In the oil and gas fields we service, 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 that is dissolved in 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. Our revenue per barrel of salt water processed is derived from a blend of fees we charge our customers to dispose of salt water at our facilities and skimming oil sales.

Prior to the Sable acquisition in May 2014, Ferrellgas managed and evaluated its operations as a single reportable segment. As the current two reportable segment structure is the result of the Sable acquisition completed during May 2014, comparative historical segment information for fiscal 2014 does not exist.

Following is a summary of segment information for the three months ended April 30, 2015.

	Three months ended April 30, 2015
	Propane and related equipment sales		Midstream operations		Corporate and other			Total
Segment revenues	$	527,258	$	5,293	$	—		$	532,551
Direct costs (1)		422,837		4,871		8,570			436,278
Adjusted EBITDA	$	104,421	$	422	$	(8,570	)	$	96,273

 Following is a summary of segment information for the nine months ended April 30, 2015.

	Nine months ended April 30, 2015
	Propane and related equipment sales		Midstream operations		Corporate and other			Total
Segment revenues	$	1,621,517	$	20,362	$	—		$	1,641,879
Direct costs (1)		1,329,648		14,741		29,928			1,374,317
Adjusted EBITDA	$	291,869	$	5,621	$	(29,928	)	$	267,562

(1) Direct costs are comprised of "cost of products sold-propane and other gas liquids sales", "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", "litigation accrual and related legal fees associated with a class action lawsuit", and "unrealized (non-cash) gain on changes in fair value of derivatives not designated as hedging instruments".

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

	Three months ended April 30,			Nine months ended April 30,
	2015			2015
Net earnings attributable to Ferrellgas Partners, L.P.	$	35,812		$	88,395
Income tax expense		917			1,448
Interest expense		23,510			71,797
Depreciation and amortization expense		23,324			70,576
EBITDA		83,563			232,216
Non-cash employee stock ownership plan compensation charge		8,566			16,728
Non-cash stock-based compensation charge		3,271			19,701
Loss on disposal of assets		2,203			4,578
Other expense (income), net		(212	)		415
Change in fair value of contingent consideration		—			(6,300	)
Litigation accrual and related legal fees associated with a class action lawsuit		83			806
Unrealized (non-cash) gain on changes in fair value of derivatives not designated as hedging instruments		(1,609	)		(1,609	)
Net earnings attributable to noncontrolling interest		408			1,027
Adjusted EBITDA	$	96,273		$	267,562

Following are total assets by segment:

	April 30,		July 31,
	2015		2014
Assets
Propane and related equipment sales	$	1,356,809	$	1,400,603
Midstream operations		199,593		136,116
Corporate and unallocated		36,455		35,551
Total consolidated assets	$	1,592,857	$	1,572,270

Following are capital expenditures by segment:

	For the nine months ended April 30, 2015
	Propane and related equipment sales		Midstream operations		Corporate and other		Total
Maintenance	$	12,839	$	976	$	1,012	$	14,827
Growth		27,128		6,561		—		33,689
Total	$	39,967	$	7,537	$	1,012	$	48,516

Ferrellgas, L.P. [Member]

Segment Reporting Disclosure

Segment reporting

During May 2014, Ferrellgas, L.P. entered into a membership interest purchase agreement to acquire all of the issued and outstanding membership interests of Sable, a fluid logistics provider in the Eagle Ford shale region of south Texas. With this acquisition Ferrellgas, L.P. established a new operating and reportable segment referred to as “Midstream Operations”in addition to the existing reportable segment of propane and related equipment sales. The chief operating decision maker evaluates the operating segments using an Adjusted EBITDA performance measure which is based on net 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, loss on disposal of assets, other income (expense), net, change in fair value of contingent consideration and litigation accrual and related legal fees associated with a class action lawsuit. 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, certain costs, such as compensation for 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 the summary of significant accounting policies in Note B.

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.

Salt water disposal wells 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. Flowback contains clays, chemicals, dissolved metal ions, total dissolved solids and crude oil. Production water is salt water from underground formations that are brought to the surface during the normal course of oil or gas production. Because this water has been in contact with hydrocarbon-bearing formations, it contains some of the chemical characteristics of the formations and crude oil. In the oil and gas fields we service, 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 that is dissolved in 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. Our revenue per barrel of salt water processed is derived from a blend of fees we charge our customers to dispose of salt water at our facilities and skimming oil sales.

Prior to the Sable acquisition in May 2014, Ferrellgas managed and evaluated its operations as a single reportable segment. As the current two reportable segment structure is the result of the Sable acquisition completed during May 2014, comparative historical segment information for fiscal 2014 does not exist.

Following is a summary of segment information for the three months ended April 30, 2015.

	Three months ended April 30, 2015
	Propane and related equipment sales		Midstream operations		Corporate and other			Total
Segment revenues	$	527,258	$	5,293	$	—		$	532,551
Direct costs (1)		422,751		4,871		8,570			436,192
Adjusted EBITDA	$	104,507	$	422	$	(8,570	)	$	96,359

Following is a summary of segment information for the nine months ended April 30, 2015.

	Nine months ended April 30, 2015
	Propane and related equipment sales		Midstream operations		Corporate and other			Total
Segment revenues	$	1,621,517	$	20,362	$	—		$	1,641,879
Direct costs (1)		1,329,565		14,741		29,928			1,374,234
Adjusted EBITDA	$	291,952	$	5,621	$	(29,928	)	$	267,645

(1) Direct costs are comprised of "cost of products sold-propane and other gas liquids sales", "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", "litigation accrual and related legal fees associated with a class action lawsuit" and "unrealized (non-cash) gain on changes in fair value of derivatives not designated as hedging instruments".

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

	Three months ended April 30,			Nine months ended April 30,
	2015			2015
Net earnings	$	40,404		$	101,676
Income tax expense		853			1,379
Interest expense		19,476			59,695
Depreciation and amortization expense		23,324			70,576
EBITDA		84,057			233,326
Non-cash employee stock ownership plan compensation charge		8,566			16,728
Non-cash stock-based compensation charge		3,271			19,701
Loss on disposal of assets		2,203			4,578
Other expense (income), net		(212	)		415
Change in fair value of contingent consideration		—			(6,300	)
Litigation accrual and related legal fees associated with a class action lawsuit		83			806
Unrealized (non-cash) gain on changes in fair value of derivatives not designated as hedging instruments		(1,609	)		(1,609	)
Adjusted EBITDA	$	96,359		$	267,645

Following are total assets by segment:

	April 30,		July 31,
	2015		2014
Assets
Propane and related equipment sales	$	1,356,809	$	1,400,603
Midstream operations		199,593		136,116
Corporate and unallocated		34,258		33,114
Total consolidated assets	$	1,590,660	$	1,569,833

Following are capital expenditures by segment:

	For the nine months ended April 30, 2015
	Propane and related equipment sales		Midstream operations		Corporate and other		Total
Maintenance	$	12,839	$	976	$	1,012	$	14,827
Growth		27,128		6,561		—		33,689
Total	$	39,967	$	7,537	$	1,012	$	48,516