Financial Instruments and Risk Management

12 Months Ended

Sep. 29, 2012

Financial Instruments and Risk Management [Abstract]

Financial Instruments and Risk Management

11. 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 sheet as of September 29, 2012 and September 24, 2011, respectively:

	As of September 29, 2012			As of September 24, 2011
	Location	Fair Value		Location	Fair Value
Asset Derivatives
Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current assets	$	4,523	Other current assets	$	4,842
	Other assets		610	Other assets		612
		$	5,133		$	5,454
	Location	Fair Value		Location	Fair Value
Liability Derivatives
Derivatives designated as hedging instruments:
Interest rate swaps	Other current liabilities	$	2,430	Other current liabilities	$	2,662
	Other liabilities		3,047	Other liabilities		1,934
		$	5,477		$	4,596
Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current liabilities	$	8,720	Other current liabilities	$	2,407
	Other liabilities		22	Other liabilities		69
		$	8,742		$	2,476

On August 1, 2012 the Partnership executed swap agreements with a notional amount of 44,531 propane gallons to hedge exposures to fluctuations in propane prices attributable to the same number of propane gallons committed to be sold to customers at fixed prices. The fixed price sales arrangements were assumed in the Inergy Propane Acquisition.

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 2012						Fiscal 2011
	Assets			Liabilities			Assets			Liabilities
Beginning balance of over-the-counter options	$	1,780		$	118		$	1,509		$	30
Beginning balance realized during the period		(1,168	)		(49	)		(1,509	)		(30	)
Change in the fair value of beginning balance		1,059			120			—			—
Contracts purchased during the period		3,331			1,020			1,780			118
Ending balance of over-the-counter options	$	5,002		$	1,209		$	1,780		$	118

As of September 29, 2012 and September 24, 2011, the Partnership's outstanding commodity-related derivatives had a weighted average maturity of approximately 4 months.

The effect of the Partnership's derivative instruments on the consolidated statement of operations for fiscal 2012, 2011 and 2010 are as follows:

	Amount of Gains (Losses) Recognized in OCI (Effective Portion)			Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships:				Location	Amount
Fiscal 2012
Interest rate swap	$	(3,561	)	Interest expense	$	(2,680	)
Fiscal 2011
Interest rate swap	$	(1,177	)	Interest expense	$	(2,881	)
Fiscal 2010
Interest rate swap	$	(5,706	)	Interest expense	$	(3,597	)

Derivatives Not Designated as Hedging Instruments:	Location of Gains (Losses) Recognized in Income	Amount of Unrealized Gains (Losses) Recognized in Income
Fiscal 2012
Commodity-related derivatives	Cost of products sold	$	4,649
		$	4,649
Fiscal 2011
Commodity-related derivatives	Cost of products sold	$	1,431
		$	1,431
Fiscal 2010
Commodity-related derivatives	Cost of products sold	$	(5,400	)
		$	(5,400	)

Concentrations. The Partnership's principal customers are residential and commercial end users of propane and fuel oil and refined fuels served by approximately 750 locations in 41 states. No single customer accounted for more than 10% of revenues during fiscal 2012, 2011 or 2010 and no concentration of receivables exists as of September 29, 2012 or September 24, 2011.

During fiscal 2012, Targa Liquids Marketing and Trade, Enterprise Products Operating L.P., Phillips 66 and Inergy Services (a subsidiary of Inergy) accounted for 16%, 13%, 11% and 11%, respectively, of the Partnership's propane purchases. No other single supplier accounted for more than 10% of the Partnership's propane purchases in fiscal 2012. 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 2018 Senior Notes, 2020 Senior Notes and 2021 Senior Notes was $531,316, $272,500 and $542,460, respectively, as of September 29, 2012.