Financial Instruments and Risk Management

12 Months Ended

Sep. 28, 2013

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 sheets as of September 28, 2013 and September 29, 2012, respectively:

	As of September 28, 2013			As of September 29, 2012
Asset Derivatives	Location	Fair Value		Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current assets	$	2,546	Other current assets	$	4,523
	Other assets		716	Other assets		610
		$	3,262		$	5,133
Liability Derivatives	Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest rate swaps	Other current liabilities	$	1,307	Other current liabilities	$	2,430
	Other liabilities		1,121	Other liabilities		3,047
		$	2,428		$	5,477
Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current liabilities	$	430	Other current liabilities	$	8,720
	Other liabilities		-	Other liabilities		22
		$	430		$	8,742

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 2013						Fiscal 2012
	Assets			Liabilities			Assets			Liabilities
Beginning balance of over-the-counter options	$	5,002		$	1,209		$	1,780		$	118
Beginning balance realized during the period		(4,400	)		(1,182	)		(1,168	)		(49	)
Change in the fair value of beginning balance		(580	)		(27	)		1,059			120
Contracts purchased during the period		1,825			-			3,331			1,020
Ending balance of over-the-counter options	$	1,847		$	-		$	5,002		$	1,209

As of September 28, 2013 and September 29, 2012, the Partnership’s outstanding commodity-related derivatives had a weighted average maturity of approximately 5 months.

The effect of the Partnership’s derivative instruments on the consolidated statements of operations for fiscal 2013, 2012 and 2011 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 2013
Interest rate swap	$	584	Interest expense	$    (2,465)
Fiscal 2012
Interest rate swap	$	(3,561)	Interest expense	$    (2,680)
Fiscal 2011
Interest rate swap	$	(1,177)	Interest expense	$     (2,881)

Derivatives Not Designated as Hedging Instruments:	Location of Gains (Losses) Recognized in Income	Amount of Unrealized Gains (Losses) Recognized in Income
Fiscal 2013
Commodity-related derivatives	Cost of products sold	$	(4,318	)
Fiscal 2012
Commodity-related derivatives	Cost of products sold	$	4,649
Fiscal 2011
Commodity-related derivatives	Cost of products sold	$	1,431

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 2013, 2012 or 2011 and no concentration of receivables exists as of September 28, 2013 or September 29, 2012.

During fiscal 2013, Inergy Services (a subsidiary of Inergy) and Targa Liquids Marketing and Trade (“Targa”) provided approximately 34% and 12% of our total propane purchases, respectively.  No other single supplier accounted for more than 10% of the Partnership’s propane purchases in fiscal 2013.  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 $533,799, $268,125 and $372,143, respectively, as of September 28, 2013.