Financial Instruments and Risk Management

12 Months Ended

Sep. 27, 2014

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 27, 2014 and September 28, 2013, respectively:

	As of September 27, 2014				As of September 28, 2013
Asset Derivatives	Location		Fair Value		Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity-related derivatives		Other current assets	$	3,924	Other current assets	$	2,546
		Other assets		62	Other assets		716
			$	3,986		$	3,262
Liability Derivatives	Location		Fair Value		Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps		Other current liabilities	$	1,257	Other current liabilities	$	1,307
		Other liabilities		283	Other liabilities		1,121
			$	1,540		$	2,428
Derivatives not designated as hedging instruments:
Commodity-related derivatives		Other current liabilities	$	1,527	Other current liabilities	$	430
		Other liabilities		53	Other liabilities		—
			$	1,580		$	430

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 2014					Fiscal 2013
	Assets			Liabilities		Assets			Liabilities
Beginning balance of over-the-counter options	$	1,847		$	—	$	5,002		$	1,209
Beginning balance realized during the period		(1,166	)		—		(4,400	)		(1,182	)
Contracts purchased during the period		1,145			—		1,825			—
Change in the fair value of outstanding contracts		(314	)		—		(580	)		(27	)
Ending balance of over-the-counter options	$	1,512		$	—	$	1,847		$	—

As of September 27, 2014 and September 28, 2013, the Partnership’s outstanding commodity-related derivatives had a weighted average maturity of approximately four and five months, respectively.

The effect of the Partnership’s derivative instruments on the consolidated statements of operations for fiscal 2014, 2013 and 2012 are as follows:

	Amount of (Losses) Gains Recognized in OCI (Effective Portion)			Gains (Losses) Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships:				Location		Amount
Interest rate swaps:
Fiscal 2014	$	(518	)		Interest expense	$	(1,406	)
Fiscal 2013	$	584			Interest expense	$	(2,465	)
Fiscal 2012	$	(3,561	)		Interest expense	$	(2,680	)

Derivatives Not Designated as Hedging Instruments:	Location of Gains (Losses) Recognized in Income		Amount of Unrealized Gains (Losses) Recognized in Income
Commodity-related derivatives:
Fiscal 2014		Cost of products sold	$	306
Fiscal 2013		Cost of products sold	$	(4,318	)
Fiscal 2012		Cost of products sold	$	4,649

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 27, 2014
	Gross amounts		Effects of netting			Net amounts presented in the balance sheet
Asset Derivatives
Commodity-related derivatives	$	9,533	$	(5,547	)	$	3,986
Interest rate swap		2,139		(2,139	)		—
	$	11,672	$	(7,686	)	$	3,986
Liability Derivatives
Commodity-related derivatives	$	7,127	$	(5,547	)	$	1,580
Interest rate swap		3,679		(2,139	)		1,540
	$	10,806	$	(7,686	)	$	3,120

	As of September 28, 2013
	Gross amounts		Effects of netting			Net amounts presented in the balance sheet
Asset Derivatives
Commodity-related derivatives	$	3,634	$	(372	)	$	3,262
Interest rate swap		2,804		(2,804	)		—
	$	6,438	$	(3,176	)	$	3,262
Liability Derivatives
Commodity-related derivatives	$	802	$	(372	)	$	430
Interest rate swap		5,232		(2,804	)		2,428
	$	6,034	$	(3,176	)	$	2,858

The Partnership had no posted cash collateral as of September 27, 2014 and September 28, 2013 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 710 locations in 41 states. No single customer accounted for more than 10% of revenues during fiscal 2014, 2013 or 2012 and no concentration of receivables exists as of September 27, 2014 or September 28, 2013.

During fiscal 2014, Crestwood Midstream Partners L.P., Targa Liquids Marketing and Trade and Enterprise Products Partners L.P. provided approximately 19%, 13% and 13% of our total propane purchases, respectively. No other single supplier accounted for more than 10% of the Partnership’s propane purchases in fiscal 2014. 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 2020 Senior Notes, 2021 Senior Notes and 2024 Senior Notes was $263,250, $363,489 and $508,594, respectively, as of September 27, 2014.