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Financial Instruments and Risk Management | 9 Months Ended
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Jun. 25, 2011
Financial Instruments and Risk Management [Abstract] |
Financial Instruments and Risk Management |
3. | Financial Instruments and Risk Management
Cash and Cash Equivalents. The Partnership considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount approximates fair value because of the short maturity of these instruments. Derivative Instruments and Hedging Activities. Commodity Price Risk. Given the retail nature of its operations, the Partnership maintains a certain level of priced physical inventory to ensure its field operations have adequate supply commensurate with the time of year. The Partnership's strategy is to keep its physical inventory priced relatively close to market for its field operations. The Partnership enters into a combination of exchange-traded futures and option contracts and, in certain instances, over-the-counter option contracts (collectively, “derivative instruments”) to hedge price risk associated with propane and fuel oil physical inventories, as well as anticipated future purchases of propane or fuel oil to be used in its operations and to ensure adequate supply during periods of high demand. Under this risk management strategy, realized gains or losses on derivative instruments will typically offset losses or gains on the physical inventory once the product is sold. All of the Partnership's derivative instruments are reported on the condensed consolidated balance sheet at their fair values. In addition, in the course of normal operations, the Partnership routinely enters into contracts such as forward priced physical contracts for the purchase or sale of propane and fuel oil that qualify for and are designated as normal purchase or normal sale contracts. Such contracts are exempted from the fair value accounting requirements and are accounted for at the time product is purchased or sold under the related contract. The Partnership does not use derivative instruments for speculative trading purposes. Market risks associated with futures, options and forward contracts are monitored daily for compliance with the Partnership's Hedging and Risk Management Policy which includes volume limits for open positions. Priced on-hand inventory is also reviewed and managed daily as to exposures to changing market prices. On the date that futures, options and forward contracts are entered into, other than those designated as normal purchases or normal sales, the Partnership makes a determination as to whether the derivative instrument qualifies for designation as a hedge. Changes in the fair value of derivative instruments are recorded each period in current period earnings or other comprehensive income (“OCI”), depending on whether the derivative instrument is designated as a hedge and, if so, the type of hedge. For derivative instruments designated as cash flow hedges, the Partnership formally assesses, both at the hedge contract's inception and on an ongoing basis, whether the hedge contract is highly effective in offsetting changes in cash flows of hedged items. Changes in the fair value of derivative instruments designated as cash flow hedges are reported in OCI to the extent effective and reclassified into cost of products sold during the same period in which the hedged item affects earnings. The mark-to-market gains or losses on ineffective portions of cash flow hedges are recognized in cost of products sold immediately. Changes in the fair value of derivative instruments that are not designated as cash flow hedges, and that do not meet the normal purchase and normal sale exemption, are recorded within cost of products sold as they occur. Cash flows associated with derivative instruments are reported as operating activities within the condensed consolidated statement of cash flows. Interest Rate Risk. A portion of the Partnership's borrowings bear interest at prevailing interest rates based upon, at the Operating Partnership's option, LIBOR plus an applicable margin or the base rate, defined as the higher of the Federal Funds Rate plus ½ of 1% or the agent bank's prime rate, or LIBOR plus 1%, plus the applicable margin. The applicable margin is dependent on the level of the Partnership's total leverage (the ratio of total debt to income before deducting interest expense, income taxes, depreciation and amortization (“EBITDA”)). Therefore, the Partnership is subject to interest rate risk on the variable component of the interest rate. The Partnership manages part of its variable interest rate risk by entering into interest rate swap agreements. The interest rate swaps have been designated as, and are accounted for as, cash flow hedges. The fair value of the interest rate swaps are determined using an income approach, whereby future settlements under the swaps are converted into a single present value, with fair value being based on the value of current market expectations about those future amounts. Changes in the fair value are recognized in OCI until the hedged item is recognized in earnings. However, due to changes in the underlying interest rate environment, the corresponding value in OCI is subject to change prior to its impact on earnings. The Partnership measures the fair value of its exchange-traded options and futures contracts using Level 1 inputs, the fair value of its interest rate swaps using Level 2 inputs and the fair value of its over-the-counter 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 gross fair value of the Partnership's derivative instruments and their location in the condensed consolidated balance sheet as of June 25, 2011 and September 25, 2010, respectively:
| As of June 25, 2011 |  | As of September 25, 2010 |
Asset Derivatives | Location |  | Fair Value |  | Location |  | Fair Value |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity options | Other current assets |  | $ | 4,081 |  | Other current assets |  | $ | 2,601 |
| Other assets |  |  | 1,243 |  | Other assets |  |  | - |
Commodity futures | Other current assets |  |  | 155 |  | Other current assets |  |  | 22 |
|  |  | $ | 5,479 |  |  |  | $ | 2,623 |
Liability Derivatives | Location |  | Fair Value |  | Location |  | Fair Value |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |
Interest rate swaps | Other current liabilities |  | $ | 2,709 |  | Other current liabilities |  | $ | 2,740 |
| Other liabilities |  |  | 2,296 |  | Other liabilities |  |  | 3,561 |
|  |  | $ | 5,005 |  |  |  | $ | 6,301 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Commodity options | Other current liabilities |  | $ | 181 |  | Other current liabilities |  | $ | 641 |
| Other liabilities |  |  | 1,489 |  | Other liabilities |  |  | - |
Commodity futures | Other current liabilities |  |  | 17 |  | Other current liabilities |  |  | 1,838 |
|  |  | $ | 1,687 |  |  |  | $ | 2,479 |
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) |
|  | Nine Months Ended June 25, 2011 |  |  | Nine Months Ended June 26, 2010 |
|  | Assets |  |  | Liabilities |  |  | Assets |  |  | Liabilities |
Beginning balance of over-the-counter options |  | $ | 1,509 |  |  | $ | 29 |  |  | $ | 1,675 |  |  | $ | 844 |
Beginning balance realized during the period |  |  | (1,509 | ) |  |  | (29 | ) |  |  | (1,237 | ) |  |  | (844 | )
Contracts purchased during the period |  |  | 2,778 |  |  |  | 226 |  |  |  | 1,111 |  |  |  | 94 |
Change in the fair value of beginning balance |  |  | - |  |  |  | - |  |  |  | (427 | ) |  |  | - |
Ending balance of over-the-counter options |  | $ | 2,778 |  |  | $ | 226 |  |  | $ | 1,122 |  |  | $ | 94 |
As of June 25, 2011 and September 25, 2010, the Partnership's outstanding commodity-related derivatives had a weighted average maturity of approximately 6 months and 3 months, respectively. The effect of the Partnership's derivative instruments on the condensed consolidated statement of operations for the three and nine months ended June 25, 2011 and June 26, 2010 are as follows:
| Three months ended June 25, 2011 |  | Three months ended June 26, 2010 |
Derivatives in |  |  | Gains (Losses) Reclassified |  |  |  | Gains (Losses) Reclassified |
Cash Flow | Gains (Losses) |  | from Accumulated OCI into |  | Gains (Losses) |  | from Accumulated OCI into |
Hedging | Recognized in OCI |  | Income (Effective Portion) |  | Recognized in OCI |  | Income (Effective Portion) |
Relationships | (Effective Portion) |  | Location |  |  | Amount |  | (Effective Portion) |  | Location |  |  | Amount |
Interest rate swap |  | $ | (1,077 | ) |  | Interest expense |  |  | $ | (719 | ) |  | $ | (1,892 | ) |  | Interest expense |  |  | $ | (715 | )
|  | $ | (1,077 | ) |  |  |  |  | $ | (719 | ) |  | $ | (1,892 | ) |  |  |  |  | $ | (715 | )
Derivatives Not Designated as Hedging Instruments |  | Location of Gains (Losses) Recognized in Income |  |  | Amount of Unrealized Gains (Losses) Recognized in Income |  |  |  |  |  |  | Location of Gains (Losses) Recognized in Income |  |  | Amount of Unrealized Gains (Losses) Recognized in Income |  |  |  |  |
Options |  | Cost of products sold |  |  | $ | (516 | ) |  |  |  |  |  | Cost of products sold |  |  | $ | 212 |  |  |  |  |
Futures |  | Cost of products sold |  |  |  | 203 |  |  |  |  |  |  | Cost of products sold |  |  |  | 69 |  |  |  |  |
|  |  |  |  |  | $ | (313 | ) |  |  |  |  |  |  |  |  |  | $ | 281 |  |  |  |  |
|  | Nine months ended June 25, 2011 |  |  | Nine months ended June 26, 2010 |
|  |  |  | Gains (Losses) Reclassified |  |  |  |  | Gains (Losses) Reclassified |
Derivatives in Cash |  | Gains (Losses) |  | from Accumulated OCI into |  |  | Gains (Losses) |  | from Accumulated OCI into |
Flow Hedging |  | Recognized in OCI |  | Income (Effective Portion) |  |  | Recognized in OCI |  | Income (Effective Portion) |
Relationships |  | (Effective Portion) |  | Location |  |  | Amount |  |  | (Effective Portion) |  | Location |  |  | Amount |
Interest rate swap |  | $ | (851 | ) |  | Interest expense |  |  | $ | (2,147 | ) |  | $ | (3,775 | ) |  | Interest expense |  |  | $ | (2,790 | )
|  | $ | (851 | ) |  |  |  |  | $ | (2,147 | ) |  | $ | (3,775 | ) |  |  |  |  | $ | (2,790 | )
Derivatives Not Designated as Hedging Instruments |  | Location of Gains (Losses) Recognized in Income |  |  | Amount of Unrealized Gains (Losses) Recognized in Income |  |  |  |  |  |  | Location of Gains (Losses) Recognized in Income |  |  | Amount of Unrealized Gains (Losses) Recognized in Income |  |  |  |  |
Options |  | Cost of products sold |  |  | $ | 283 |  |  |  |  |  |  | Cost of products sold |  |  | $ | (1,068 | ) |  |  |  |
Futures |  | Cost of products sold |  |  |  | 1,954 |  |  |  |  |  |  | Cost of products sold |  |  |  | (3,791 | ) |  |  |  |
|  |  |  |  |  | $ | 2,237 |  |  |  |  |  |  |  |  |  |  | $ | (4,859 | ) |  |  |  |
Bank Debt and Senior Notes. The fair value of the Revolving Credit Facility (defined below) approximates the carrying value since the interest rates are periodically adjusted to reflect market conditions. Based upon quoted market prices, the fair value of the Partnership's 2020 senior notes was $261,250 and $269,375 as of June 25, 2011 and September 25, 2010, respectively.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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