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Financial Instruments and Risk Management

12 Months Ended

Sep. 28, 2019

Financial Instruments and Risk Management

12.	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, 2019 and September 29, 2018, respectively:

	As of September 28, 2019			As of September 29, 2018
Asset Derivatives	Location	Fair Value		Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current assets	$	4,082	Other current assets	$	14,875
	Other assets		167	Other assets		13
		$	4,249		$	14,888

Liability Derivatives	Location	Fair Value		Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current liabilities	$	3,360	Other current liabilities	$	6,122
	Other liabilities		—	Other liabilities		167
		$	3,360		$	6,289

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 2019						Fiscal 2018
	Assets			Liabilities			Assets			Liabilities
Beginning balance of over-the-counter options	$	1,546		$	361		$	4,108		$	737
Beginning balance realized during the period		(1,533	)		(361	)		(3,636	)		(737	)
Contracts purchased during the period		83			—			1,546			361
Change in the fair value of outstanding contracts		323			—			(472	)		—
Ending balance of over-the-counter options	$	419		$	—		$	1,546		$	361

As of September 28, 2019 and September 29, 2018, the Partnership’s outstanding commodity-related derivatives had a weighted average maturity of approximately three and four months, respectively.

The effect of the Partnership’s derivative instruments on the consolidated statements of operations for fiscal 2019, 2018 and 2017 are as follows:

				(Losses) Reclassified from
	Amount of (Losses)			Accumulated OCI into Income
	Recognized in OCI			(Effective Portion)
Derivatives in Cash Flow Hedging Relationships	(Effective Portion)			Location	Amount
Interest rate swaps:
Fiscal 2019	$	—		Interest expense	$	—

Fiscal 2018	$	—		Interest expense	$	—

Fiscal 2017	$	(10	)	Interest expense	$	(215	)

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

Fiscal 2019	Cost of products sold	$	(8,008	)

Fiscal 2018	Cost of products sold	$	310

Fiscal 2017	Cost of products sold	$	6,277

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 28, 2019
						Net amounts
						presented in the
	Gross amounts		Effects of netting			balance sheet
Asset Derivatives
Commodity-related derivatives	$	10,464	$	(6,215	)	$	4,249
	$	10,464	$	(6,215	)	$	4,249

Liability Derivatives
Commodity-related derivatives	$	9,575	$	(6,215	)	$	3,360
	$	9,575	$	(6,215	)	$	3,360

	As of September 29, 2018
						Net amounts
						presented in the
	Gross amounts		Effects of netting			balance sheet
Asset Derivatives
Commodity-related derivatives	$	23,181	$	(8,293	)	$	14,888
	$	23,181	$	(8,293	)	$	14,888

Liability Derivatives
Commodity-related derivatives	$	14,582	$	(8,293	)	$	6,289
	$	14,582	$	(8,293	)	$	6,289

The Partnership had $5,392 and $-0- posted cash collateral as of September 28, 2019 and September 29, 2018, 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 41 states. No single customer accounted for more than 10% of revenues during fiscal 2019, 2018 or 2017 and no concentration of receivables exists as of September 28, 2019 or September 29, 2018.

During fiscal 2019, Crestwood Equity Partners L.P., Targa Liquids Marketing and Trade LLC and Enterprise Products Partners L.P., provided approximately 22%, 15%, and 11% 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 2019. 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 2024 Senior Notes, 2025 Senior Notes, and 2027 Senior Notes was $540,094, $253,178 and $354,375, respectively, as of September 28, 2019.

- 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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