Financial Instruments and Risk Management

12 Months Ended

Sep. 24, 2022

Financial Instruments and Risk Management

13. Financial Instruments and Risk Management

Cash and Cash Equivalents. The fair value of cash and cash equivalents is not materially different from their carrying amount because of the short-term maturity of these instruments.

Derivative Instruments and Hedging Activities. The Partnership measures the fair value of its exchange-traded commodity-related options and futures contracts using Level 1 inputs, the fair value of its commodity-related swap contracts and interest rate swaps using Level 2 inputs and the fair value of its over-the-counter commodity-related options contracts using Level 3 inputs. The Partnership’s over-the-counter options contracts are valued based on an internal option model. The inputs utilized in the model are based on publicly available information, as well as broker quotes.

The following summarizes the fair value of the Partnership’s derivative instruments and their location in the consolidated balance sheets as of September 24, 2022 and September 25, 2021, respectively:


	As of September 24, 2022			As of September 25, 2021
Asset Derivatives	Location	Fair Value		Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current assets	$	18,263	Other current assets	$	53,019
	Other assets		16,430	Other assets		1,813
		$	34,693		$	54,832

Liability Derivatives	Location	Fair Value		Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current liabilities	$	16,957	Other current liabilities	$	8,715
	Other liabilities		1,895	Other liabilities		1,632
		$	18,852		$	10,347

The following summarizes the reconciliation of the beginning and ending balances of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs:


	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Fiscal 2022						Fiscal 2021
	Assets			Liabilities			Assets		Liabilities
Beginning balance of over-the-counter options	$	4,626		$	451		$	—	$	—
Beginning balance realized during the period		(4,626	)		(219	)		—		—
Contracts purchased during the period		222			3,295			4,626		451
Change in the fair value of outstanding contracts		—			(119	)		—		—
Ending balance of over-the-counter options	$	222		$	3,408		$	4,626	$	451

As of September 24, 2022 and September 25, 2021, the Partnership’s outstanding commodity-related derivatives had a weighted average maturity of approximately seven and four months, respectively.

The effect of the Partnership’s derivative instruments on the consolidated statements of operations for fiscal 2022, 2021 and 2020 are as follows:


	Unrealized Gains (Losses) Recognized in Income
Derivatives Not Designated as Hedging Instruments	Location	Amount
Commodity-related derivatives:

Fiscal 2022	Cost of products sold	$	(27,929	)

Fiscal 2021	Cost of products sold	$	43,121

Fiscal 2020	Cost of products sold	$	(382	)

The following table presents the fair value of the Partnership’s recognized derivative assets and liabilities on a gross basis and amounts offset on the consolidated balance sheets subject to enforceable master netting arrangements or similar agreements:


	As of September 24, 2022
						Net amounts
						presented in the
	Gross amounts		Effects of netting			balance sheet
Asset Derivatives
Commodity-related derivatives	$	117,260	$	(82,567	)	$	34,693
	$	117,260	$	(82,567	)	$	34,693

Liability Derivatives
Commodity-related derivatives	$	101,419	$	(82,567	)	$	18,852
	$	101,419	$	(82,567	)	$	18,852


	As of September 25, 2021
						Net amounts
						presented in the
	Gross amounts		Effects of netting			balance sheet
Asset Derivatives
Commodity-related derivatives	$	76,508	$	(21,676	)	$	54,832
	$	76,508	$	(21,676	)	$	54,832

Liability Derivatives
Commodity-related derivatives	$	32,023	$	(21,676	)	$	10,347
	$	32,023	$	(21,676	)	$	10,347

The Partnership had $-0- posted cash collateral as of September 24, 2022 and September 25, 2021, respectively, with its brokers for outstanding commodity-related derivatives.

Concentrations. The Partnership’s principal customers are residential and commercial end users of propane and fuel oil and refined fuels served by approximately 700 locations in 42 states. No single customer accounted for more than 10% of revenues during fiscal 2022, 2021 or 2020 and no concentration of receivables exists as of September 24, 2022 or September 25, 2021.

During fiscal 2022, Crestwood Equity Partners L.P. and Targa Liquids Marketing, provided approximately 31% and 16% of the Partnership’s total propane purchases, respectively. No other single supplier accounted for more than 10% of the Partnership’s propane purchases in fiscal 2022. The Partnership believes that, if supplies from any of these suppliers were interrupted, it would be able to secure adequate propane supplies from other sources without a material disruption of its operations.

Credit Risk. Exchange-traded futures and options contracts are traded on and guaranteed by the NYMEX and as a result, have minimal credit risk. Futures contracts traded with brokers of the NYMEX require daily cash settlements in margin accounts. The Partnership is subject to credit risk with over-the-counter swaps and options contracts entered into with various third parties to the extent the counterparties do not perform. The Partnership evaluates the financial condition of each counterparty with which it conducts business and establishes credit limits to reduce exposure to credit risk based on non-performance. The Partnership does not require collateral to support the contracts.

Bank Debt and Senior Notes. The fair value of the Revolving Credit Facility approximates the carrying value since the interest rates are adjusted quarterly to reflect market conditions. Based upon quoted market prices, the fair value of the Partnership’s 2027 Senior Notes and 2031 Senior Notes was $336,375 and $547,625, respectively, as of September 24, 2022.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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