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Financial Instruments and Risk Management | 9 Months Ended
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Jun. 24, 2023
Fair Value Disclosures [Abstract] |
Financial Instruments and Risk Management | 5. Financial Instruments and Risk Management Cash, Cash Equivalents and Restricted Cash. The Partnership considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Restricted cash was included within other current assets (or other assets, as applicable) and is a function of the Green Bonds; refer also to Note 10 (“Long-Term Borrowings”). The balance classified as short-term included accounts for which the cash will be used in under one-year which are related to operating and maintenance activities for the RNG facility in Arizona. The balance classified as long-term represented cash held in a debt service fund for future debt repayments on the Green Bonds for the RNG facility in Arizona for which the first debt redemption payment is due on October 1, 2028. Refer to Note 6, “Selected Balance Sheet Information” for a reconciliation of cash, cash equivalents, and restricted cash. The carrying amount approximates fair value because of the short-term 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 help 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 options and swap contracts (collectively, “derivative instruments”) to hedge price risk associated with propane and fuel oil physical inventories, as well as future purchases of propane or fuel oil used in its operations, and to help ensure adequate supply during periods of high demand. In addition, the Partnership sells propane and fuel oil to customers at fixed prices, and enters into derivative instruments to hedge a portion of its exposure to fluctuations in commodity prices as a result of selling the fixed price contracts. 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 or delivered as it pertains to fixed price contracts. 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 derivative instruments 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 derivative instruments 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 earnings 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 earnings 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 earnings 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, Secured Overnight Financing Rate (“SOFR”) 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 SOFR 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 EBITDA, as adjusted pursuant to the Credit Agreement). Therefore, the Partnership is subject to interest rate risk on the variable component of the interest rate. From time to time, the Partnership manages part of its variable interest rate risk by entering into interest rate swap agreements. The Partnership did not enter into any interest rate swap agreements during the first nine months of fiscal 2023 or in fiscal 2022. Valuation of Derivative Instruments. The Partnership measures the fair value of its exchange-traded options and futures contracts using quoted market prices found on the New York Mercantile Exchange (the “NYMEX”) (Level 1 inputs); the fair value of its swap contracts using quoted forward prices and the fair value of its interest rate swaps using model-derived valuations driven by observable projected movements of the 3-month SOFR (Level 2 inputs); and the fair value of its over-the-counter options contracts using Level 3 inputs. The inputs utilized in the model are based on publicly available information as well as broker quotes. The significant unobservable inputs used in the fair value measurements of the Partnership’s over-the-counter options contracts are interest rate and market volatility. The following summarizes the fair value of the Partnership’s derivative instruments and their location in the condensed consolidated balance sheets as of June 24, 2023 and September 24, 2022, respectively:
|  | As of June 24, 2023 |  |  | As of September 24, 2022 |
Asset Derivatives |  | Location |  | Fair Value |  |  | Location |  | Fair Value |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Commodity-related derivatives |  | Other current assets |  | $ | 1,345 |  |  | Other current assets |  | $ | 18,263 |
|  | Other assets |  |  | 346 |  |  | Other assets |  |  | 16,430 |
|  |  |  | $ | 1,691 |  |  |  |  | $ | 34,693 |
Liability Derivatives |  | Location |  | Fair Value |  |  | Location |  | Fair Value |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Commodity-related derivatives |  | Other current liabilities |  | $ | 8,338 |  |  | Other current liabilities |  | $ | 16,957 |
|  | Other liabilities |  |  | — |  |  | Other liabilities |  |  | 1,895 |
|  |  |  | $ | 8,338 |  |  |  |  | $ | 18,852 |
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 |  |  | Nine Months Ended |
|  | June 24, 2023 |  |  | June 25, 2022 |
|  | Assets |  |  | Liabilities |  |  | Assets |  |  | Liabilities |
Beginning balance of over-the-counter options |  | $ | 222 |  |  | $ | 3,408 |  |  | $ | 4,626 |  |  | $ | 451 |
Beginning balance realized during the period |  |  | (132 | ) |  |  | (1,611 | ) |  |  | (4,626 | ) |  |  | (78 | )
Contracts purchased during the period |  |  | — |  |  |  | — |  |  |  | 654 |  |  |  | 2,378 |
Change in the fair value of outstanding contracts |  |  | (90 | ) |  |  | 863 |  |  |  | — |  |  |  | (280 | )
Ending balance of over-the-counter options |  | $ | — |  |  | $ | 2,660 |  |  | $ | 654 |  |  | $ | 2,471 |
As of June 24, 2023 and September 24, 2022, the Partnership’s outstanding commodity-related derivatives had a weighted average maturity of approximately four and seven months, respec tively. The effect of the Partnership’s derivative instruments on the condensed consolidated statements of operations for the three and nine months ended June 24, 2023 and June 25, 2022 are as follows:
|  | Three Months Ended June 24, 2023 |  |  | Three Months Ended June 25, 2022 |
Derivatives Not Designated as Hedging Instruments |  | Unrealized Gains (Losses) Recognized in Income |  |  | Unrealized Gains (Losses) Recognized in Income |
|  | Location |  | Amount |  |  | Location |  | Amount |
Commodity-related derivatives |  | Cost of products sold |  | $ | (2,960 | ) |  | Cost of products sold |  | $ | (921 | )
|  | Nine Months Ended June 24, 2023 |  |  | Nine Months Ended June 25, 2022 |
Derivatives Not Designated as Hedging Instruments |  | Unrealized Gains (Losses) Recognized in Income |  |  | Unrealized Gains (Losses) Recognized in Income |
|  | Location |  | Amount |  |  | Location |  | Amount |
Commodity-related derivatives |  | Cost of products sold |  | $ | (21,167 | ) |  | Cost of products sold |  | $ | (1,442 | )
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 condensed consolidated balance sheets subject to enforceable master netting arrangements or similar agreements:
|  | As of June 24, 2023 |  |  | As of September 24, 2022 |
|  |  |  |  |  |  |  | Net amounts |  |  |  |  |  |  |  |  | Net amounts |
|  |  |  |  |  |  |  | presented in the |  |  |  |  |  |  |  |  | presented in the |
|  | Gross amounts |  |  | Effects of netting |  |  | balance sheet |  |  | Gross amounts |  |  | Effects of netting |  |  | balance sheet |
Asset Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity-related derivatives |  | $ | 12,965 |  |  | $ | (11,274 | ) |  | $ | 1,691 |  |  | $ | 117,260 |  |  | $ | (82,567 | ) |  | $ | 34,693 |
Liability Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity-related derivatives |  | $ | 19,612 |  |  | $ | (11,274 | ) |  | $ | 8,338 |  |  | $ | 101,419 |  |  | $ | (82,567 | ) |  | $ | 18,852 |
The Partnership had $11,585 and $-0- posted cash collateral as of June 24, 2023 and September 24, 2022, respectively, with its brokers for outstanding commodity-related derivatives. Bank Debt, Green Bonds and Senior Notes. The fair value of the borrowings under the Revolving Credit Facility approximates the carrying value since the interest rates are adjusted quarterly to reflect market conditions. The fair values of the Senior Notes are based upon quoted market prices (a Level 1 input) and the fair value of the Green Bonds is based upon a valuation model (a Level 3 input). Senior Notes, Revolving Credit Facility and Green Bonds are defined below in Note 10 (“Long-Term Borrowings”) and the fair values of the Senior Notes and Green Bonds are as follows:
|  | As of |
|  | June 24, |  |  | September 24, |
|  | 2023 |  |  | 2022 |
5.875% Senior Notes due March 1, 2027 |  | $ | 338,625 |  |  | $ | 336,375 |
5.00% Senior Notes due June 1, 2031 |  |  | 555,094 |  |  |  | 547,625 |
5.50% Green Bonds due October 1, 2028 through October 1, 2033 |  |  | 65,966 |  |  |  | — |
|  | $ | 959,685 |  |  | $ | 884,000 |

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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/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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