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Ferrellgas Partners, L.P. (FGP)
Q4 2016 Results Earnings Conference Call
September 28, 2016, 10:00 AM ET
Alan Heitmann - EVP and Chief Financial Officer
James Ferrell - Interim President, CEO and Chairman
T.J. Schultz - RBC Capital Markets
Jeremy Tonet - J.P. Morgan
Brian Gamble - Simmons & Company
Mirek Zak - Citigroup
James Spicer - Wells Fargo
Tarek Hamid - J.P. Morgan
Benjamin Brownlow - Raymond James
Previous Statements by FGP
» Ferrellgas Partners' (FGP) CEO Steve Wambold on Q3 2016 Results - Earnings Call Transcript
» Ferrellgas Partners' (FGP) CEO Steve Wambold on Q2 2016 Results - Earnings Call Transcript
» Ferrellgas Partners' (FGP) CEO Steve Wambold On Q1 2016 Results - Earnings Call Transcript
Mr. Al Heitmann, Executive Vice President and Chief Financial Officer, you may begin your conference.
Thank you, Susanne and good morning everyone. I am joined this morning by Jim Ferrell, our Interim President, CEO and Chairman of the Board.
Before we get started, I would like to remind all of you that some of the statements made during our call today may be considered forward-looking and that various risk and uncertainties and other factors could cause actual performance to differ materially from anticipated performance. These factors are discussed in our Form 10-K and other documents filed from time to time with the SEC.
Now with that, I would like to turn the call over to Jim Ferrell for his opening remarks. Jim?
Thanks, Al. While we continue to be America's premier propane provider, we have attempted to diversify our business into midstream logistics. Like others in this industry, we have been seriously impacted by extremely challenging market conditions. We remain committed to diversification, but in a much more disciplined way.
The Board has decided to accept the resignation of CEO and Board member, Steve Wambold, effective immediately. I have been appointed as Interim President and CEO, a role that I will occupy for as long as necessary. No search for my replacement will be conducted in the foreseeable future.
I have spent most of my life building this company, having retired as CEO seven years ago, yet have remained on the Board as Chairman. While it was not my idea to return to head up this company, I am uniquely qualified to step in and look-forward to helping to right the ship. The good news is that we have seasoned and dedicated people throughout the company, many who have been with us for years who are not only supportive, but responding well to my leadership.
With that, I will turn the call back to Al, who will provide details on the partnership's financial performance for the fiscal year and additional color on our initiatives that are announced today.
Thanks, Jim. I will begin with a discussion on the recently announced Jamex settlement. During FY2016, 80% of the adjusted EBITDA from our Crude Oil Logistics segment was generated from our largest customer in Jamex Marketing, that customer supplier undertake our pay arrangements.
The agreement with our customer provided for a minimum volume commitment and payment obligation for logistics services associated with the delivery of 65,000 barrels per day. However, if the quantity of crude oil delivered fell below 35,000 barrels per day, the payment obligation from the customer would be suspended and Jamex would in turn become responsible for the payment.
This past February, Jamex ceased sourcing barrels for delivery to our customer, and since that time, we have been billing Jamex directly in accordance with the provisions of this agreement.
In July, we determined that Jamex would not resume sourcing barrels for our customer. Due to concerns about the collectability of amounts owed to us from Jamex for previously billed deficiency payments, we entered into a group of agreement which among other things, terminated the Jamex agreement and provided for a secured promissory note from Jamex and settlement of amounts owed.
While the agreement with our customer was not terminated as a result of the Jamex settlement, we do not anticipate any material contribution to revenue or EBITDA from Jamex or our customer in the future.
As a result of this decline in our future cash flows as well as sustained decline in crude oil prices and the resulting decrease in crude oil production in the regions in which we operate, we performed impairment testing during the fourth quarter of fiscal 2016, which resulted in $629 million impairment charge.
Due to the outstanding debt balance from Jamex as well as the decrease in propane demand caused by the record warm temperatures in fiscal 2016, our leverage ratio has increased to levels approaching the 5.5 times limit allowed under our secured credit facility and our accounts receivable securitization facility. Yesterday, we entered into amendments for both facilities, under which the maximum leverage ratio was increased to a range of 5.95 times to 6.05 times over the next six quarters.
We are focused on preserving capital and enhancing our financial position. This includes a possible reduction in our annual cash distribution. While the distribution amount for the first fiscal quarter of 2017 hasn't been determined yet, our Board believes that it is possible that the annual distribution rate may be reduced from $2.05 to approximately $1 per common unit.
We believe that any such reduction together with any other debt reducing actions taken would likely remain in effect until our leverage ratio reaches a level that we deem appropriate for our business.