Leases

6 Months Ended

Jan. 31, 2020

Leases

C. Leases

Ferrellgas determines if an arrangement is a lease or contains a lease at inception. Ferrellgas leases certain transportation and computer equipment and real estate, predominantly through operating leases. Ferrellgas has an immaterial amount of leases in which it is the lessor. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the lease commencement date. Ferrellgas determines the lease term by assuming the exercise of renewal options that are reasonably certain. The lease term is used to determine whether a lease is finance or operating and is used to calculate rent expense. Additionally, the depreciable life of leased assets and leasehold improvements is limited by the expected lease term. Operating lease balances are classified as operating lease right-of-use (“ROU”) assets, and current and long-term operating lease liabilities on Ferrellgas’ condensed consolidated balance sheet. Ferrellgas has an immaterial amount of finance leases that are included in “Other assets, net”, “Other current liabilities”, and “Other liabilities” on its condensed consolidated balance sheet.

ROU assets represent Ferrellgas’ right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of Ferrellgas’ leases do not provide an implicit discount rate, Ferrellgas uses its incremental borrowing rate adjusted for the lease term to represent the rate it would have to pay to borrow on a collateralized basis based on the information available at the commencement date in determining the present value of lease payments. Ferrellgas’ lease terms may include options to extend or terminate the lease and it will adjust the life of the lease when it is reasonably certain that it will exercise these options.

Ferrellgas has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Ferrellgas has variable lease components, including lease payments with payment escalation based on the Consumer Price Index, and other variable items, such as common area maintenance and taxes.

Key assumptions include the discount rate, the impact of purchase options and renewal options on Ferrellgas’ lease term, as well as the assessment of residual value guarantees.

Ferrellgas’ transportation equipment leases generally have purchase options. However, in most circumstances Ferrellgas is not certain if it will exercise the purchase option at lease inception. As circumstances dictate, it may instead return the existing equipment to the lessor and sign a new lease. Ferrellgas’ transportation equipment leases often contain residual value guarantees, but they are not reflected in Ferrellgas’ lease liabilities as its lease rates are such that residual value guarantees are not expected to be owed at the end of its leases.

Ferrellgas’ real estate leases will often have an option to extend the lease, but it is typically not reasonably certain of exercising options to extend. As customer demand changes over time, Ferrellgas typically maintains the ability to move to more advantageous locations, relocate to other leased and owned locations, or discontinue service from particular locations.

The following table provides the operating and financing ROU assets and lease liabilities as of January 31, 2020:

Leases	Classification		January 31, 2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	120,423
Financing lease assets	Other assets, net		15,003
Total leased assets		$	135,426
Liabilities
Current
Operating	Current operating lease liabilities	$	33,263
Financing	Other current liabilities		2,624
Noncurrent
Operating	Operating lease liabilities		84,546
Financing	Other liabilities		13,049
Total leased liabilities		$	133,482

The following table provides the lease expenses for the three and six months ended January 31, 2020:

		For the three months ended January 31,		For the six months ended January 31,
Leases expense	Classification	2020		2020
Operating lease expense	Operating expenses - personnel, vehicle, plant and other	$	1,664	$	3,405
	Operating expense - equipment lease expense		8,156		15,763
	Cost of sales - propane and other gas liquids sales		324		713
	General and administrative expense		697		963
Total operating lease expense		$	10,841	$	20,844
Short-term expense	Operating expenses - personnel, vehicle, plant and other	$	2,012	$	3,966
	General and administrative expense		141		251
Total short-term expense		$	2,153	$	4,217
Variable lease expense	Operating expenses - personnel, vehicle, plant and other	$	671	$	1,346
	Operating expense - equipment lease expense		153		886
Total variable lease expense		$	824	$	2,232
Finance lease expense:
Amortization of leased assets	Depreciation and amortization expense	$	435	$	475
Interest on lease liabilities	Interest expense		318		360
Total finance lease expense		$	753	$	835
Total lease expense		$	14,571	$	28,128

Minimum annual payments under existing operating and finance lease liabilities as of January 31, 2020 are as follows:

Maturities of lease liabilities		Operating leases		Finance leases		Total
2020	$	23,306	$	2,194	$	25,500
2021		36,625		3,806		40,431
2022		27,184		2,760		29,944
2023		21,067		2,713		23,780
2024		18,142		2,633		20,775
Thereafter		33,705		6,073		39,778
Total lease payments	$	160,029	$	20,179	$	180,208
Less: Imputed interest		42,220		4,506		46,726
Present value of lease liabilities	$	117,809	$	15,673	$	133,482

The following table represents the weighted-average remaining lease term and discount rate as of January 31, 2020:

	As of January 31, 2020
Lease type	Weighted-average remaining lease term (years)	Weighted-average discount rate
Operating leases	5.6	8.2%
Finance leases	6.5	7.7%

Cash flow information is presented below:

	For the three months ended January 31,		For the six months ended January 31,
	2020		2020
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows	$	10,598	$	21,647
Cash paid for amounts included in the measurement of lease liabilities for financing leases:
Operating cash flows	$	318	$	360
Financing cash flows	$	266	$	294

Ferrellgas, L.P. [Member]

Leases

C. Leases

Ferrellgas, L.P. determines if an arrangement is a lease or contains a lease at inception. Ferrellgas, L.P. leases certain transportation and computer equipment and real estate, predominantly through operating leases. Ferrellgas, L.P. has an immaterial amount of leases in which it is the lessor. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the lease commencement date. Ferrellgas, L.P. determines the lease term by assuming the exercise of renewal options that are reasonably certain. The lease term is used to determine whether a lease is finance or operating and is used to calculate rent expense. Additionally, the depreciable life of leased assets and leasehold improvements is limited by the expected lease term. Operating lease balances are classified as operating lease right-of-use (“ROU”) assets, and current and long-term operating lease liabilities on Ferrellgas, L.P.’s condensed consolidated balance sheet. Ferrellgas, L.P. has an immaterial amount of finance leases that are included in “Other assets, net”, “Other current liabilities”, and “Other liabilities” on its condensed consolidated balance sheet.

ROU assets represent Ferrellgas, L.P. right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of Ferrellgas, L.P.’s leases do not provide an implicit discount rate, Ferrellgas, L.P. uses its incremental borrowing rate adjusted for the lease term to represent the rate it would have to pay to borrow on a collateralized basis based on the information available at the commencement date in determining the present value of lease payments. Ferrellgas, L.P.’s lease terms may include options to extend or terminate the lease and it will adjust the life of the lease when it is reasonably certain that it will exercise these options.

Ferrellgas, L.P. has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Ferrellgas, L.P. has variable lease components, including lease payments with payment escalation based on the Consumer Price Index, and other variable items, such as common area maintenance and taxes.

Key assumptions include the discount rate, the impact of purchase options and renewal options on Ferrellgas, L.P.’s lease term, as well as the assessment of residual value guarantees.

Ferrellgas, L.P.’s transportation equipment leases generally have purchase options. However, in most circumstances Ferrellgas, L.P. is not certain if it will exercise the purchase option. As circumstances dictate, it may instead return the existing equipment to the lessor and sign a new lease. Ferrellgas, L.P.’s transportation equipment leases often contain residual value guarantees, but they are not reflected in Ferrellgas, L.P.’s lease liabilities as its lease rates are such that residual value guarantees are not expected to be owed at the end of its leases.

Ferrellgas, L.P.’s real estate leases will often have an option to extend the lease, but it is typically not reasonably certain of exercising options to extend. As customer demand changes over time, Ferrellgas, L.P. typically maintains the ability to move to more advantageous locations, relocate to other leased and owned locations, or discontinue service from particular locations.

The following table provides the operating and financing ROU assets and lease liabilities as of January 31, 2020:

Leases	Classification		January 31, 2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	120,423
Financing lease assets	Other assets, net		15,003
Total leased assets		$	135,426
Liabilities
Current
Operating	Current operating lease liabilities	$	33,263
Financing	Other current liabilities		2,624
Noncurrent
Operating	Operating lease liabilities		84,546
Financing	Other liabilities		13,049
Total leased liabilities		$	133,482

The following table provides the lease expenses for the three and six months ended January 31, 2020:

		For the three months ended January 31,		For the six months ended January 31,
Leases expense	Classification	2020		2020
Operating lease expense	Operating expenses - personnel, vehicle, plant and other	$	1,664	$	3,405
	Operating expense - equipment lease expense		8,156		15,763
	Cost of sales - propane and other gas liquids sales		324		713
	General and administrative expense		697		963
Total operating lease expense		$	10,841	$	20,844
Short-term expense	Operating expenses - personnel, vehicle, plant and other	$	2,012	$	3,966
	General and administrative expense		141		251
Total short-term expense		$	2,153	$	4,217
Variable lease expense	Operating expenses - personnel, vehicle, plant and other	$	671	$	1,346
	Operating expense - equipment lease expense		153		886
Total variable lease expense		$	824	$	2,232
Finance lease expense:
Amortization of leased assets	Depreciation and amortization expense	$	435	$	475
Interest on lease liabilities	Interest expense		318		360
Total finance lease expense		$	753	$	835
Total lease expense		$	14,571	$	28,128

Minimum annual payments under existing operating and finance lease liabilities as of January 31, 2020 are as follows:

Maturities of lease liabilities		Operating leases		Finance leases		Total
2020	$	23,306	$	2,194	$	25,500
2021		36,625		3,806		40,431
2022		27,184		2,760		29,944
2023		21,067		2,713		23,780
2024		18,142		2,633		20,775
Thereafter		33,705		6,073		39,778
Total lease payments	$	160,029	$	20,179	$	180,208
Less: Imputed interest		42,220		4,506		46,726
Present value of lease liabilities	$	117,809	$	15,673	$	133,482

The following table represents the weighted-average remaining lease term and discount rate as of January 31, 2020:

	As of January 31, 2020
Lease type	Weighted-average remaining lease term (years)	Weighted-average discount rate
Operating leases	5.6	8.2%
Finance leases	6.5	7.7%

Cash flow information is presented below:

	For the three months ended January 31,		For the six months ended January 31,
	2020		2020
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows	$	10,598	$	21,647
Cash paid for amounts included in the measurement of lease liabilities for financing leases:
Operating cash flows	$	318	$	360
Financing cash flows	$	266	$	294