Quarterly Report for Quarter Ending 2026-01-31 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References and Defined Terms

In this Item 2 of this Quarterly Report on Form 10-Q, unless the context indicates otherwise:

Also, the following terms are defined in this Item 2 of this Quarterly Report on Form 10-Q:

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.

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:

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 2025 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 F "Equity (Deficit)" and Note E "Preferred units" to our condensed consolidated financial statements included elsewhere herein.

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 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 2025 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.

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 (loss) 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 2025, 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.

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 AccuWeather. 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 cash flow. 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 cash flow 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 2026 and 2027 sales commitments and, as of January 31, 2026, we have experienced net mark-to-market losses of approximately $6.6 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 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, 2026, we estimate 94% 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.

Recent Developments

On March 4, 2026, a cash distribution of $82.32 per Class B Unit, or approximately $107.0 million in the aggregate, was declared by the board of directors of the general partner. The distribution is payable on or about March 13, 2026, to Class B Unitholders of record as of the close of business on March 6, 2026. Upon payment of this distribution, Ferrellgas Partners will have met the "Class B Conversion Threshold" as defined in the Amended Ferrellgas Partners LPA. The board of directors of the general partner approved Ferrellgas Partners' intent to elect, by written notice to the holders of the Class B Units, to convert all 1.3 million outstanding Class B Units into Class A Units shortly after the payment of the distribution. Upon the making of such election, each Class B Unit will be converted into five Class A Units in accordance with the Amended Ferrellgas Partners LPA.

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Summary Discussion of Results of Operations:

Executive Overview

For the three months ended January 31, 2026 and 2025

During the three months ended January 31, 2026 and 2025, we recognized net earnings attributable to Ferrellgas Partners, L.P. of $102.2 million and $98.8 million, respectively. The $3.4 million increase was primarily due to an increase of $8.5 million in "Operating income," which was partially offset by a $5.3 million increase in "Interest expense." The $5.3 million increase was primarily due to an increase in interest expense on our senior unsecured notes related to the October 2025 refinancing, which was partially offset by decrease in amortization costs related to our credit facility.

Distributable cash flow attributable to equity investors increased to $126.2 million for the three months ended January 31, 2026 compared to $125.2 million for the prior year period, primarily due to an increase of $9.1 million in Adjusted EBITDA, which was partially offset by increases of $7.6 million in "Net cash interest expense" and $0.5 million in "Maintenance capital expenditures." The increase in "Net cash Interest expense" primarily relates to the changes in "Interest expense" explained above.

We had a distributable cash flow excess of $107.9 million and $106.5 million during the three months ended January 31, 2026 and 2025, respectively. This $1.4 million increase was primarily due to the $1.0 million increase in distributable cash flow attributable to equity investors noted above.

For the six months ended January 31, 2026 and 2025

During the six months ended January 31, 2026, we recognized net earnings attributable to Ferrellgas Partners, L.P. of $75.3 million compared to a net loss attributable to Ferrellgas Partners, L.P. of $47.8 million during the six months ended January 31, 2025. The $123.1 million increase was primarily due to a $125.0 million legal accrual recorded in the prior year.

Distributable cash flow attributable to equity investors was $125.6 million and $128.6 million for the six months ended January 31, 2026 and 2025, respectively. The $3.0 million decrease was primarily due to a $9.0 million increase in "Net cash interest expense," which was partially offset by a decrease of $3.6 million in "Maintenance capital expenditures" and an increase of $2.6 million in Adjusted EBITDA. The increase in "Net cash Interest expense" primarily relates to an increase of $5.9 million in "Interest expense" and a $3.0 million "Loss on extinguishment of debt" which were both related to the October 2025 refinancing transactions. The decrease in "Maintenance capital expenditures" primarily relates to failed sale-leaseback arrangements in the prior year period.

We had a distributable cash flow excess of $90.8 million and $93.6 million during the six months ended January 31, 2026 and 2025, respectively. This $2.8 million decrease was primarily due to the decrease in distributable cash flow attributable to equity investors noted above.

Consolidated Results of Operations

Non-GAAP Financial Measures

In this Quarterly Report we present the following Non-GAAP financial measures: Adjusted EBITDA, Distributable cash flow attributable to equity investors, Distributable cash flow attributable to Class A and B Unitholders, and Distributable cash flow excess.

Adjusted EBITDA. Adjusted EBITDA for Ferrellgas Partners is calculated as net earnings (loss) attributable to Ferrellgas Partners, L.P., plus the sum of the following: income tax expense, interest expense, depreciation and amortization expense, non-cash employee stock ownership plan compensation charge, loss on extinguishment of debt, loss on asset sales and disposals, other income, net, legal fees and settlements related to non-core businesses, legal fees and settlements related to core businesses, acquisition and related costs, compliance costs, business transformation costs, and net earnings (loss) attributable to noncontrolling interest. Management believes the presentation of this measure is relevant and useful because it allows investors to view the partnership's performance in a manner similar to the method management uses, adjusted for items management believes make it easier to compare its results with other companies that have different financing and capital structures. Adjusted EBITDA, as management defines it, may not be comparable to similarly titled measurements used by other companies. Items added into our calculation of Adjusted EBITDA that will not occur on a continuing basis may have associated cash payments. This method of calculating Adjusted EBITDA should be viewed in conjunction with measurements that are computed in accordance with GAAP.

Distributable Cash Flow Attributable to Equity Investors. Distributable cash flow attributable to equity investors is calculated as Adjusted EBITDA minus net cash interest expense, maintenance capital expenditures and cash paid for income taxes, plus proceeds from certain asset sales. Management considers distributable cash flow attributable to equity investors a meaningful measure of Ferrellgas' ability to declare and pay quarterly distributions to equity investors, including holders of the operating partnership's Preferred Units. Distributable cash flow attributable to equity investors, as management defines it, may not be comparable to similarly titled measurements used by other companies. Items added into our calculation of distributable cash flow attributable to equity investors that will not occur on a continuing basis may have associated cash payments. Distributable cash flow attributable to equity investors should be viewed in conjunction with measurements that are computed in accordance with GAAP.

Distributable Cash Flow Attributable to Class A and B Unitholders. Distributable cash flow attributable to Class A and B Unitholders is calculated as Distributable cash flow attributable to equity investors minus distributions accrued or paid to Preferred Unitholders and distributable cash flow attributable to general partner and noncontrolling interest. Management considers Distributable cash flow attributable to Class A and B Unitholders a meaningful measure of the partnership's ability to declare and pay quarterly distributions to Class A and B Unitholders. Distributable cash flow attributable to Class A and B Unitholders, as management defines it, may not be comparable to similarly titled measurements used by other companies. Items added into our calculation of distributable cash flow attributable to Class A and B Unitholders that will not occur on a continuing basis may have associated cash payments. Distributable cash flow attributable to Class A and B Unitholders should be viewed in conjunction with measurements that are computed in accordance with GAAP.

Distributable Cash Flow Excess. Distributable cash flow excess is calculated as Distributable cash flow attributable to Class A and B Unitholders minus Distributions paid to Class A and B Unitholders. Distributable cash flow excess, if any, is retained to establish reserves, to reduce debt, to fund capital expenditures and for other partnership purposes, and any shortage is funded from previously established reserves, cash on hand or borrowings under our Credit Facility. Management considers Distributable cash flow excess a meaningful measure of the partnership's ability to effectuate those purposes. Distributable cash flow excess, as management defines it, may not be comparable to similarly titled measurements used by other companies. Items added into our calculation of distributable cash flow excess that will not occur on a continuing basis may have associated cash payments. Distributable cash flow excess should be viewed in conjunction with measurements that are computed in accordance with GAAP.

The following table reconciles Adjusted EBITDA, Distributable cash flow attributable to equity investors, Distributable cash flow attributable to Class A and B Unitholders and Distributable cash flow excess to Net earnings (loss) attributable to Ferrellgas Partners, L.P., the most directly comparable GAAP measure, for the three and six months ended January 31, 2026 and 2025:

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Operating Results for the three months ended January 31, 2026 and 2025

The following table summarizes propane sales volumes and Adjusted EBITDA results for the periods indicated:

NM - Not meaningful

Winter conditions arrived later in the quarter after unseasonably warm weather in November and December of fiscal 2026, particularly across the western half of the country. Average temperatures (measured by heating degree days) were 16% warmer than normal (based on AccuWeather's ten-year average) and 27% warmer than the prior year quarter in the western half of the country. Our national footprint allowed us to reposition drivers and equipment from west to east to meet increased demand from Winter Storm Fern. The above average temperatures in the west were partially offset by the cold in the east. Propane sales volume during the three months ended January 31, 2026 decreased 11.5 million gallons, or 4%, compared to the prior year period.

Our wholesale sales price per gallon partially correlates to the change in the wholesale market price of propane. The wholesale market price at major supply points in Mt. Belvieu, Texas during the three months ended January 31, 2026 averaged 21.7% less than the prior year period, while at the Conway, Kansas major supply point prices averaged 24.1% less than the prior year period. The wholesale market price at Mt. Belvieu, Texas averaged $0.65 and $0.83 per gallon during the three months ended January 31, 2026 and 2025, respectively, while the wholesale market price at Conway, Kansas averaged $0.60 and $0.79 per gallon during the three months ended January 31, 2026 and 2025, respectively.

Revenues

Retail sales decreased $23.5 million, or 5%, compared to the prior year period, largely driven by the decrease in wholesale propane prices noted above. Retail gallons sold decreased 3.6 million gallons, or 2%, compared to the prior year period. The warmer weather in the west drove a 7.7 million decrease in gallons sold, which was partially offset by a 4.1 million increase in gallons sold in the rest of the country.

Wholesale sales decreased $5.9 million, or 4%, and gallons sold decreased 7.9 million, or 11%, compared to the prior year quarter. The change was partly driven by a decrease in tank exchange sales as there were no significant weather-related events during the second quarter of fiscal 2026 compared to fiscal 2025.

Other gas sales decreased $5.9 million compared to the prior year period primarily due to a decrease in sales volume.

Other revenues increased $6.9 million, or 21%, compared to the prior year period. The increase was primarily due to a change in the presentation of fleet transportation costs. In conjunction with the implementation of new CTRM software, the Company revised the presentation of certain transportation costs from a reduction of revenue to cost of product sold. This change does not impact gross profit, operating income or cash flows. We also have an increase of $0.7 million in appliance sales, partially offset by a $0.8 million decrease in miscellaneous revenue.

Gross margin - Propane and other gas liquids sales

Gross margin decreased $3.5 million due to a decrease of $10.7 million in wholesale gross margin partially offset by an increase of $7.1 million in retail gross margin. The overall decrease was driven by a $35.3 million decrease in revenue, partially offset by a $31.8 million decrease in cost of product sold.

The $10.7 million decrease in wholesale gross margin was primarily due to a decrease related to our tank exchange business as cost of product sold increased 9% and revenues decreased 2%. Additionally, our reseller business had a 7% decrease in revenues.

Preparation efforts in the prior quarter positioned us to meet winter demand from residential customers. The $7.1 million increase in retail gross margin was primarily driven by a 16% decrease in cost of product sold, which was partially offset by a 5% decrease in revenues.

Margin per gallon for the quarter increased by $0.03 or 3%, compared to the prior year period as we continue to benefit from operational efficiencies as we reduced unproductive deliveries and skipped stops.

Gross margin - other

Gross margin increased $6.5 million, or 22%, compared to the prior year period, primarily due to the increase in revenues noted above.

Operating income

We had operating income of $136.2 million and $127.6 million during the three months ended January 31, 2026 and 2025, respectively. The $8.6 million increase was primarily due to a $5.0 million decrease in "General and administrative expense" and the $3.0 million increase in gross margin noted above. Changes in personnel expense and reduced legal costs drove the decrease in "General and administrative expense."

"Operating expense - personnel, vehicle, plant and other" decreased $0.4 million. The change is comprised of a decrease of $6.4 million in personnel expense, which was partially offset by increases of $5.5 million in plant and other and $0.4 million in vehicle expense.

The $6.4 million decrease in personnel expense includes decreases of $4.7 million in workers' compensation accruals, $1.8 million in medical and pharmacy claim expense, and $1.2 million related to other adjustments. These decreases were partially offset by a $1.1 million increase related to payroll costs.

The $5.5 million increase in plant and other was primarily due to increases of $4.9 million in legal and insurance expense, $0.5 million related to bad debt adjustments, and $0.5 million for parts and fittings. These increases were partially offset by a $0.6 million decrease in software costs.

Vehicle expense increased $0.4 million primarily due to a $0.5 million increase in license and technology costs, which was partially offset by a $0.2 million decrease in fuel costs as our telematics technology enhances route efficiency and reduces idling time.

Adjusted EBITDA

Adjusted EBITDA increased $9.1 million primarily due to a decrease of $4.6 million in "General and administrative expense," a $3.0 million increase in gross margin, and a $1.6 million decrease in operating expense driven by equipment leases. The decrease in general and administrative expense was driven by personnel cost adjustments and lower legal costs. The decrease in operating lease expense arose as we refinanced several operating leases as finance leases during the second quarter of fiscal 2026.

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Operating Results for the six months ended January 31, 2026 and 2025

The following table summarizes propane sales volumes and Adjusted EBITDA results for the periods indicated:

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NM - Not meaningful

Propane sales volumes during the six months ended January 31, 2026 decreased 20.8 million gallons, or 5%, compared to the prior year period. Average temperatures (measured by heating degree days) were 14% warmer than normal (based on AccuWeather's ten-year average) and 20% warmer than the prior year quarter in the western half of the country. The above average temperatures in the west were partially offset by the cold in the east.

Our wholesale sales price per gallon partially correlates to the change in the wholesale market price of propane. The wholesale market price at major supply points in Mt. Belvieu, Texas during the six months ended January 31, 2026 averaged 11.8% less than the prior year period, while at the Conway, Kansas major supply point prices averaged 17.3% less than the prior year period. The wholesale market price at Mt. Belvieu, Texas averaged $0.67 and $0.76 per gallon during the six months ended January 31, 2026 and 2025, respectively, while the wholesale market price at Conway, Kansas averaged $0.62 and $0.75 per gallon during the six months ended January 31, 2026 and 2025, respectively.

Revenues

Retail sales decreased $22.8 million, or 3%, compared to the prior year period largely driven by the decrease in wholesale propane prices noted above. Retail gallons sold decreased 5.3 million gallons, or 2%, compared to the prior year period. The warmer weather in the west occurring in the second fiscal quarter of fiscal 2026 drove a 7.6 million decrease in gallons sold, which was partially offset by a 2.3 million increase in gallons sold in the rest of the country. Retail customers also decreased 2% compared to the prior year period contributing to the decrease in sales.

Wholesale sales decreased $10.1 million, or 4%, compared to the prior year period, largely driven by the decrease in wholesale propane prices noted above. Wholesale gallons sold decreased 15.5 million gallons, or 13%, compared to the prior year period. Results were also impacted by a decrease in tank exchange sales, partly attributable to the fiscal 2025 demand driven by Hurricane Helene and Hurricane Milton, which was partially offset by a 1% increase in tank exchange selling locations. So far, fiscal 2026 has not had any similar hurricane related events.

Other gas sales decreased $9.9 million compared to the prior year period primarily due to a decrease in sales volume.

Other revenues increased $5.5 million, or 9%, compared to the prior year period. The increase was primarily due to a change in the presentation of fleet transportation costs. In conjunction with the implementation of new CTRM software, the Company revised the presentation of certain transportation costs from a reduction of revenue to cost of product sold. This change does not impact gross profit, operating income or cash flows. We also had a decrease of $1.8 million in miscellaneous revenue.

Gross margin - Propane and other gas liquids sales

Gross margin decreased $3.0 million due to decreases of $2.0 million in wholesale gross margin and 1.0 million in retail gross margin. The overall decrease was driven by a $42.8 million decrease in revenue, partially offset by a $39.8 million decrease in cost of product sold.

The $2.0 million, or 2%, decrease in wholesale gross margin was primarily related to our tank exchange business.

Retail gross margin decreased $1.0 million, or 0%.

Margin per gallon for the quarter increased by $0.05, or 4%, compared to the prior year period due to the factors noted above.

Gross margin - other

Gross margin increased $5.9 million, or 11%, compared to the prior year period, primarily due to the increase in revenues noted above.

Operating income

We had operating income of $138.0 million and $4.7 million during the six months ended January 31, 2026 and 2025, respectively. The $133.3 million change was primarily due to the $125.0 million legal settlement related to fiscal 2025 in "General and administrative expense." The remaining increase of $8.3 million relates to an additional $6.0 million decrease in "General and administrative expense," the $2.9 million increase in gross margin described above, and a $2.9 million decrease in operating lease expense as we refinanced several operating leases as finance leases. These increases were partially offset by a $3.1 million increase in "Depreciation and amortization expense".

The $6.0 million decrease in in "General and administrative expense" primarily relates to a $3.4 million decrease in personnel costs, related to contract labor and other adjustments, and a $3.2 million decrease in legal costs. The increase in "Depreciation and amortization expense" relates to an increase in lease amortization expense compared to the prior year period.

After adjusting for $4.5 million in legal fees and settlements related to core businesses related to fiscal 2025, "Operating expense - personnel, vehicle, plant and other" increased $5.7 million. The increase is comprised of increases of $6.7 million in plant and other and $1.3 million in vehicle expense, which were partially offset by a decrease of $2.3 million in personnel expense.

The $6.7 million increase in plant and other was primarily due to increases of $4.9 million for legal and insurance costs, $1.0 million for bad debt, and $0.4 million for property maintenance.

Vehicle expense increased $1.3 million primarily due to increases of $0.9 million for repairs and maintenance and $0.4 million for telematics technology.

The $2.3 million decrease in personnel expense includes decreases of $4.2 million in benefits costs, including medical and pharmacy claim expense, $1.1 million in overtime costs, and $1.6 million related to other adjustments in fiscal 2025. These decreases were partially offset by an increase of $3.8 million in payroll costs and $0.8 million for adjustments to workers' compensation accruals.

Adjusted EBITDA

Adjusted EBITDA increased $2.6 million primarily due to a $2.9 million increase in gross margin and a $2.9 million decrease in operating lease expense. Therse increases were partially offset by an increase of $3.2 million in "Operating, general and administrative expense," after adjusting for a $133.0 million decrease in EBITDA adjustments, primarily related to the $125.0 million legal settlement noted above and $4.5 million in legal fees and settlements related to core businesses, both of which related to fiscal 2025.

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Liquidity and Capital Resources

General

Our primary sources of liquidity and capital resources are cash flows from operating activities, our Credit Facility and funds received from sales of debt and equity securities. The operating partnership, the general partner and certain of the operating partnership's subsidiaries as guarantors are parties to a credit agreement dated March 30, 2021, as amended on October 27, 2025 (the "Credit Agreement"), with JPMorgan Chase Bank, N.A. as administrative agent and collateral agent, and the lenders and issuing lenders party thereto from time to time, which provides for a four-year revolving credit facility (the "Credit Facility"), with a maturity date of October 27, 2028, in an aggregate principal amount of up to $350.0 million. An accordion feature allows for increases by up to $50.0 million in the aggregate subject to customary conditions. The Credit Agreement includes a sublimit not to exceed $300.0 million for the issuance of letters of credit. For additional discussion, see Note D "Debt" in the notes to our condensed consolidated financial statements.

As of January 31, 2026, our total liquidity was $260.0 million, which was comprised of $88.4 million in unrestricted cash and $171.6 million of availability under our Credit Facility. These sources of liquidity and short-term capital resources are intended to fund our working capital requirements, acquisitions and capital expenditures. As of January 31, 2026, letters of credit outstanding totaled $115.9 million. Our access to long-term capital resources, to the extent needed to refinance debt or for other purposes, may be affected by our ability to access the capital markets, covenants in our debt agreements and other financial obligations, unforeseen demands on cash, or other events beyond our control.

Our working capital requirements are subject to, among other things, the price of propane, delays in the collection of receivables, volatility in energy commodity prices, liquidity imposed by insurance providers, downgrades in our credit ratings, decreased trade credit, significant acquisitions, the weather, customer retention and purchasing patterns and other changes in the demand for propane. Relatively colder weather or higher propane prices during the winter heating season are factors that could significantly increase our working capital requirements.

In October 2025, the operating partnership's corporate rating was upgraded from B3 to B2 by Moody's Investors Service ("Moody's") and our senior unsecured notes were upgraded from a Caa1 to a B3 rating by Moody's. In October 2025, the operating partnership's senior unsecured notes rating was upgraded from a CCC to a B rating by S&P Global Ratings.

Our ability to satisfy our obligations is dependent upon our future performance, which will be subject to prevailing weather, economic, financial and business conditions and other factors, many of which are beyond our control. Due to the seasonality of the retail propane distribution business, a significant portion of our propane operations and related products cash flows from operations is generated during the winter heating season. Our net cash provided by operating activities primarily reflects earnings from our business activities adjusted for depreciation and amortization and changes in our working capital accounts. Historically, we generate significantly lower net cash from operating activities in our first and fourth fiscal quarters as compared to the second and third fiscal quarters due to the seasonality of our propane operations and related equipment sales operations.

During periods of high volatility, our risk management activities may expose us to the risk of counterparty margin calls in amounts greater than we have the capacity to fund. Likewise, our counterparties may not be able to fulfill their margin calls from us or may default on the settlement of positions with us.

We believe that the liquidity available from cash flows from operating activities, unrestricted cash and the Credit Facility will be sufficient to meet our capital expenditure, working capital and letter of credit requirements for the foreseeable future.

Distributable Cash Flow

Distributable cash flow attributable to equity investors is reconciled to net earnings attributable to Ferrellgas Partners, L.P., the most directly comparable GAAP measure, in this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations under the subheading "Non-GAAP Financial Measures" above. A comparison of distributable cash flow attributable to equity investors to cash distributions accrued or paid to equity investors for the twelve months ended January 31, 2026 to the twelve months ended October 31, 2025 is as follows (in thousands):

For the twelve months ended January 31, 2026, distributable cash flow attributable to equity investors increased $1.0 million compared to the twelve months ended October 31, 2025 primarily due to an increase of $9.1 million in Adjusted EBITDA, partially offset by an increase of $7.6 million in "Net cash interest expense" and a $0.5 million increase in "Maintenance capital expenditures". As of January 31, 2026, the accrued quarterly distribution to Preferred Unitholders was $18.2 million, net of tax. We paid $15.4 million of this distribution to holders, net of tax, on February 17, 2026. The remaining $2.8 million represents Additional Amounts payable to certain holders of Preferred Units, pursuant to the side letters outlined in the OpCo LPA Amendment.

We did not pay any cash distributions to our Class A Unitholders or the general partner during the six months ended January 31, 2026 and 2025, respectively. We have made aggregate cash distributions of approximately $250.0 million to our Class B Unitholders since inception of our Class B Units. Cash reserves, which we utilize to meet future anticipated expenditures, were $141.3 million and $139.9 million for the twelve months ended January 31, 2026 and October 31, 2025, respectively.

Operating Activities

Ferrellgas Partners

Net cash provided by operating activities was $32.2 million for the six months ended January 31, 2026, compared to net cash used in operating activities of $1.4 million for the six months ended January 31, 2025. The $33.6 million increase in cash provided by operating activities was primarily due to a $128.2 million increase in operating cash flow, and a $31.7 million increase in working capital requirements. These increases were offset by a $108.3 million decrease in requirements for other current liabilities, a $14.8 million increase in prepaid expenses, an $8.1 million outflow associated with other assets and liabilities, and a $4.9 million decrease in accrued interest.

The $128.2 million increase in operating cash flow was primarily due to a decrease of $131.1 million in "General and administrative expense", primarily related to a prior year settlement agreement. The $31.7 million increase in working capital requirements was primarily due to increases in requirements of $21.5 million for accounts receivable, and increases in requirements of $10.9 million for inventory.

The $108.3 million decrease in net cash requirements for other current liabilities was primarily driven by $75.0 million in litigation settlement payments.

The operating partnership

Net cash provided by operating activities was $32.2 million for the six months ended January 31, 2026, compared to net cash used in operating activities of $1.4 million for the six months ended January 31, 2025. The $33.6 million increase in cash provided by operating activities was primarily due to a $129.2 million increase in operating cash flow, and a $31.7 million increase in working capital requirements. These increases were offset by a $108.6 million decrease in requirements for other current liabilities, a $14.8 million increase in prepaid expenses, an $8.8 million outflow associated with other assets and liabilities, and a $4.9 million decrease in accrued interest.

The $129.2 million increase in operating cash flow was primarily due to a decrease of $131.0 million in "General and administrative expense", primarily related to a prior year settlement agreement. The $31.7 million increase in working capital requirements was primarily due to increases in requirements of $21.5 million for accounts receivable, and increases in requirements of $10.9 million for inventory.

The $108.6 million decrease in net cash requirements for other current liabilities was primarily driven by $75.0 million in litigation settlement payments.

Investing Activities

Ferrellgas Partners

Capital Requirements

Our business requires continual investments to upgrade or enhance existing operations and to ensure compliance with safety and environmental regulations. Capital expenditures for our business consist primarily of:

Net cash used in investing activities was $43.3 million and $44.3 million for the six months ended January 31, 2026 and 2025, respectively. The $1.0 million decrease in net cash used in investing activities was primarily due to a decrease of $3.7 million in "Business acquisitions, net of cash acquired". We had no acquisitions during the six months ended January 31, 2026 and one acquisition during the six months ended January 31, 2025. This decrease was partially offset by a $2.5 million increase in "Capital expenditures", primarily driven by assets related to failed sale-leaseback arrangements.

Due to the mature nature of our operations, we do not anticipate significant fluctuations in maintenance capital expenditures, with the exception of future decisions regarding lease versus buy financing options. However, future fluctuations in growth capital expenditures could occur due to the opportunistic nature of these projects.

The operating partnership

The investing activities discussed above also apply to the operating partnership.

Financing Activities

Ferrellgas Partners

Net cash provided by financing activities was $2.6 million for the six months ended January 31, 2026, compared to net cash used in financing activities of $39.1 million for the six months ended January 31, 2025. The $41.7 million increase in cash provided by financing activities was primarily due to an increase of $62.5 million in short term borrowing. The short term borrowing was drawn for cash management purposes following expenses related to refinancing and litigation settlements. The overall increase was partially offset by a $12.2 million increase in financing costs driven by the October 2025 refinancing transaction. The partnership issued $650.0 million aggregate principal amount of senior notes due 2031. The net proceeds received of $637.5 million, together with cash on hand, was used to redeem the $650.0 million senior notes due 2026, which is reflected in the proceeds from issuance of long-term debt and payments for settlement and early extinguishment of liabilities. The overall increase was also offset by $3.4 million higher cash payments for the principal portion of lease liabilities and a $5.2 million unfavorable change related to failed sale-leaseback arrangements.

Letters of credit outstanding at January 31, 2026 and July 31, 2025 totaled $178.4 million and $121.9 million, respectively. The letters of credit were used to secure insurance arrangements, product purchases and commodity hedges. As of January 31, 2026, we had available borrowing capacity under our Credit Facility of $171.6 million. Propane assets subject to lien under the Credit Facility were $454.2 million as of January 31, 2026.

The operating partnership

The financing activities discussed above also apply to the operating partnership.

Distributions

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Partnership distributions

The Sixth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the "Amended Ferrellgas Partners LPA") requires Ferrellgas Partners to make quarterly cash distributions of all of its "available cash". Available cash is defined in the Amended Ferrellgas Partners LPA as, generally, the sum of Ferrellgas Partners' cash receipts less consolidated cash disbursements and net changes in reserves established by our general partner for future requirements. In general, the amount of Ferrellgas Partners' available cash depends primarily on whether and the extent to which Ferrellgas Partners receives cash distributions from the operating partnership, as such distributions generally would be Ferrellgas Partners' only significant cash receipts.

The Fifth Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. (the "Amended OpCo LPA"), which amended and restated in its entirety the Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas L.P., and a First Amendment to the Amended OpCo LPA (the "OpCo LPA Amendment"), sets forth the preferences, rights, privileges and other terms of the Preferred Units.

Pursuant to the Amended Ferrellgas Partners LPA, while any Class B Units remain outstanding, any distributions by Ferrellgas Partners to its partners must be made such that the ratio of (i) the amount of distributions made to holders of Class B Units to (ii) the amount of distributions made to holders of Class A Units and the general partner is not less than 6:1. The Amended Ferrellgas Partners LPA permits Ferrellgas Partners, in the general partner's discretion, to make distributions to the Class B Unitholders in a greater proportion than the minimum 6:1 ratio, including paying 100% of any such distribution to Class B Unitholders. The Class B Units will not be convertible into Class A Units until Class B Unitholders receive distributions in the aggregate amount of $357.0 million, which was the $357.0 million aggregate principal amount of Ferrellgas Partners' unsecured senior notes due June 15, 2020 (the "Ferrellgas Partners Notes"), and the rate at which Class B Units will convert into Class A Units increases annually. Additionally, the price at which Ferrellgas Partners may redeem the Class B Units during the first five years after March 30, 2021 is based on the Class B Unitholders' receipt of a specified internal rate of return in respect of their Class B Units. This specified internal rate of return in respect of the Class B Units is 15.85%, but that amount increases under certain circumstances, including if the operating partnership paid distributions on the Preferred Units in-kind rather than in cash for a certain number of quarters. Accordingly, distributing cash to the Class B Unitholders in a greater proportion than the minimum 6:1 ratio could result in the Class B Units becoming convertible into Class A Units more quickly or at a lower conversion rate or reduce the redemption price for the Class B Units. For additional discussion of the terms of the Class B Units, see Note F "Equity (Deficit)" in the notes to our condensed consolidated financial statements.

For these reasons, although the general partner has not made any decisions or adopted any policy with respect to the allocation of future distributions by Ferrellgas Partners to its partners, the general partner may determine that it is advisable to pay more than the minimum amount of any distribution, up to 100% of the amount of such distribution, to Class B Unitholders. On April 9, 2024, Ferrellgas Partners made a cash distribution in the aggregate amount of approximately $99.9 million to its Class B Unitholders. We have made aggregate cash distributions of approximately $250.0 million to our Class B Unitholders since inception of our Class B Units. See "Risk Factors -Risks Inherent in an Investment in our Class A or Class B Units or our Debt Securities and Other Risks Related to Our Capital Structure and Financing Arrangements-If Ferrellgas Partners is permitted to make and makes distributions to its partners, while any Class B Units remain outstanding, Class B Unitholders collectively will receive at least approximately 85.7% of the aggregate amount of each such distribution and may receive up to 100% of any such distribution. Accordingly, while any Class B Units remain outstanding, Class A Unitholders may not receive any distributions and, in any case, will not receive collectively more than approximately 14.1% of any distribution" in our Annual Report on Form 10-K for fiscal 2025.

Ferrellgas Partners did not pay any distributions to Class A Unitholders, Class B Unitholders or the general partner during the six months ended January 31, 2026 and 2025. On March 4, 2026, the board of directors of the general partner declared a cash distribution on the Class B Units of $82.32 per Class B Unit, or $107.0 million in the aggregate and approved Ferrellgas Partners' intent to convert the Class B Units to Class A Units. See Note O "Subsequent events" in the notes to our condensed consolidated financial statements.

The ability of Ferrellgas Partners to make cash distributions to its Class A Unitholders and Class B Unitholders is dependent on the receipt by Ferrellgas Partners of cash distributions from the operating partnership. For so long as any Preferred Units remain outstanding, the amount of cash that otherwise would be available for distribution by the operating partnership to Ferrellgas Partners will be reduced by the amount of cash distributions and other payments made by the operating partnership in respect of the Preferred Units, including payments to redeem Preferred Units. Further, the indentures governing the 2026 Notes and the 2029 Notes (together with the 2026 Notes, the "OpCo Notes"), the Credit Agreement and the OpCo LPA Amendment governing the Preferred Units contain covenants that limit the ability of the operating partnership to make distributions to Ferrellgas Partners and therefore effectively limit the ability of Ferrellgas Partners to make distributions to its Class A Unitholders and Class B Unitholders. See Note D "Debt" and Note E "Preferred units" for a discussion of these limitations. In our Annual Report on Form 10-K for fiscal 2025, see also "Risk Factors-Risks Inherent in an Investment in our Class A or Class B Units or our Debt Securities and Other Risks Related to Our Capital Structure and Financing Arrangements-Restrictive covenants in the Indentures, the Credit Agreement and the agreements governing our other future indebtedness and other financial obligations may reduce our operating flexibility and ability to make cash distributions to holders of Class A Units and Class B Units. The Indentures, the Credit Agreement and the OpCo LPA Amendment contain important exceptions to these covenants."

Preferred unit distributions

Pursuant to the OpCo LPA Amendment, the operating partnership is required to pay to the holders of each Preferred Unit a cumulative, quarterly distribution (the "Quarterly Distribution") at the Distribution Rate (as defined below) on the unit purchase price of such Preferred Unit, which is $1,000 per unit.

"Distribution Rate" means, for the first five years after March 30, 2021, a rate per annum equal to 8.956%, with certain increases in the Distribution Rate on each of the 5^th, 6^th and 7^th anniversaries of March 30, 2021, subject to a maximum rate of 11.125% and certain other adjustments and exceptions.

The Quarterly Distribution may be paid in cash or, at the election of the operating partnership, "in kind" through the issuance of additional Preferred Units ("PIK Units") at the quarterly Distribution Rate plus an applicable premium that escalates each year from 75 bps to 300 bps so long as the Preferred Units remain outstanding. In the event the operating partnership fails to make any Quarterly Distribution in cash, such Quarterly Distribution will automatically be paid in PIK Units.

The Distribution Rate on the Preferred Units will increase upon violation of certain protective provisions for the benefit of Preferred Unitholders notwithstanding the cap mentioned above.

As of January 31, 2026, the Quarterly Distribution accrued was $18.2 million, net of tax. During the six months ended January 31, 2026, two quarterly payments of $15.4 million, net of tax, relating to Quarterly Distributions was paid in cash to holders of Preferred Units. The remaining Quarterly Distribution accrual of $2.8 million represents Additional Amounts payable to certain holders of Preferred Units pursuant to the side letters outlined in the OpCo LPA Amendment.

As of January 31, 2025, the Quarterly Distribution accrued was $18.6 million, net of tax. During the six months ended January 31, 2025, two quarterly payments of $15.4 million relating to Quarterly Distributions was paid in cash to holders of Preferred Units. The remaining Quarterly Distribution accrual of $3.2 million represents Additional Amounts payable to certain holders of Preferred Units pursuant to the side letters.

Preferred unit tax distributions

For any quarter in which the operating partnership makes a Quarterly Distribution in PIK Units in lieu of cash, it shall make a subsequent cash tax distribution for such quarter in an amount equal to the (i) the lesser of (x) 25% and (y) the highest combined federal, state and local tax rate applicable for corporations organized in New York, multiplied by (ii) the excess (if any) of (A) one-fourth (1/4th) of the estimated taxable income to be allocated to the holders of Preferred Units for the year in which the Quarterly Tax Payment Date (which refers to certain specified dates that next follow a Quarterly Distribution date on which PIK Units were issued) occurs, over (B) any cash paid on the Quarterly Distribution date immediately preceding the Quarterly Tax Payment Date on which a quarterly tax amount would otherwise be paid (such amount, the "Tax Distribution"). Tax Distributions are treated as advances against, and reduce, future cash distributions for any reason, including payments in redemption of Preferred Units or PIK Units, or payments to the holders in their capacity as such pursuant to any side letter or other agreement.

Cash distributions paid

Ferrellgas Partners did not pay any cash distributions to its Class A Unitholders, Class B Unitholders, or the general partner during the six months ended January 31, 2026 and 2025, respectively.

The operating partnership

The financing activities discussed above also apply to the operating partnership.

Disclosures about Effects of Transactions with Related Parties

We have no employees and are managed and controlled by our general partner. Pursuant to our partnership agreements, our general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on our behalf, and all other necessary or appropriate expenses allocable to us or otherwise reasonably incurred by our general partner in connection with operating our business. These reimbursable costs, which totaled $179.8 million for the six months ended January 31, 2026, include operating expenses such as compensation and benefits paid to employees of our general partner who perform services on our behalf as well as related general and administrative expenses.

During the six months ended January 31, 2026 and 2025, the operating partnership paid distributions to Ferrellgas Partners as described above.

Material Cash Requirements

As of January 31, 2026, there have been no material changes to our material cash requirements from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Material Cash Requirements" in our Annual Report on Form 10-K for fiscal 2025, except for the October 2025 refinancing transaction disclosed in our Quarterly Report on Form 10-Q for the quarter ended October 31, 2025. For additional information regarding our debt obligations, see Note D "Debt" to our condensed consolidated financial statements.

The operating partnership

The contractual obligations discussed above also apply to the operating partnership.