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Derivatives and Hedging-Disclosures and Fair Value Measurements | 12 Months Ended
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Sep. 30, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging-Disclosures and Fair Value Measurements | 6) Derivatives and Hedging—Disclosures and Fair Value Measurements The Company uses derivative instruments such as futures, options and swap agreements in order to mitigate exposure to market risk associated with the purchase of home heating oil for price-protected customers, physical inventory on hand, inventory in transit, priced purchase commitments and internal fuel usage. FASB ASC 815-10-05 Derivatives and Hedging, established accounting and reporting standards requiring that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities, along with qualitative disclosures regarding the derivative activity. The Company has elected not to designate its commodity derivative instruments as hedging derivatives, but rather as economic hedges whose change in fair value is recognized in its statement of operations in the line item (Increase) decrease in the fair value of derivative instruments. Depending on the risk being economically hedged, realized gains and losses are recorded in cost of product, cost of installations and services, or delivery and branch expenses. As of September 30, 2018, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Company held the following derivative instruments that settle in future months to match anticipated sales: 11.7 million gallons of swap contracts with a notional value of $24.6 million and a fair value of $2.9 million, 3.2 million gallons of call options with a notional value of $8.2 million and a fair value of $0.2 million, 5.6 million gallons of put options with a notional value of $8.5 million and a fair value of $2 thousand, and 85.4 million net gallons of synthetic call options with an average notional value of $182.9 million and a fair value of $14.0 million. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Company, as of September 30, 2018, had 1.2 million gallons of purchased swap contracts with a notional value of $2.6 million and a fair value of $0.2 million, 53.1 million gallons of purchased future contracts that settle daily with a notional value of $114.3 million and a fair value of $9.7 million, and 68.9 million gallons of sold future contracts that settle daily with a notional value of $148.8 million and a fair value of $(12.6) million. To hedge its internal fuel usage and other related activities for fiscal 2019, the Company, as of September 30, 2018, had 6.5 million gallons of swap contracts with a notional value of $13.7 million and a fair value of $1.0 million that settle in future months and 0.5 million net gallons of synthetic call options with a notional value of $1.0 million and a fair value of $0.1 million. As of September 30, 2017, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Company held the following derivative instruments that settle in future months to match anticipated sales: 15.6 million gallons of swap contracts with a notional value of $25.5 million and a fair value of $2.3 million, 6.1 million gallons of call options with a notional value of $13.6 million and a fair value of $0.1 million, 8.1 million gallons of put options with a notional value of $8.8 million and a fair value of $2 thousand, and 79.0 million net gallons of synthetic call options with an average notional value of $134.3 million and a fair value of $4.1 million. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Company, as of September 30, 2017, had 1.3 million gallons of purchased swap contracts with a notional value of $2.2 million and a fair value of $0.2 million, and 16.8 million gallons of sold swap contracts with a notional value of $28.5 million and a fair value of $(1.9) million that settle in future months, 5.2 million gallons of purchased future contracts that settle daily with a notional value of $8.5 million, and 11.3 million gallons of sold future contracts that settle daily with a notional value of $18.0 million. To hedge its internal fuel usage and other related activities for fiscal 2018, the Company, as of September 30, 2017, had 6.3 million gallons of swap contracts with a notional value of $9.9 million and a fair value of $1.1 million that settle in future months. In August 2018, the Company entered into interest rate swap agreements in order to mitigate exposure to market risk associated with variable rate interest on $50.0 million, or 50%, of our long term debt. The Company has designated its interest rate swap agreements as cash flow hedging derivatives. To the extent these derivative instruments are effective and the standard’s documentation requirements have been met, changes in fair value are recognized in other comprehensive income until the underlying hedged item is recognized in earnings. As of September 30, 2018, the fair value of the swap contracts was $39 thousand. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of the swap contracts. The Company’s derivative instruments are with the following counterparties: Bank of America, N.A., Bank of Montreal, Cargill, Inc., Citibank, N.A., JPMorgan Chase Bank, N.A., Key Bank, N.A., Regions Financial Corporation, Toronto-Dominion Bank and Wells Fargo Bank, N.A. The Company assesses counterparty credit risk and considers it to be low. We maintain master netting arrangements that allow for the non-conditional offsetting of amounts receivable and payable with counterparties to help manage our risks and record derivative positions on a net basis. The Company generally does not receive cash collateral from its counterparties and does not restrict the use of cash collateral it maintains at counterparties. At September 30, 2018, the aggregate cash posted as collateral in the normal course of business at counterparties was $1.2 million. Positions with counterparties who are also parties to our Credit Agreement are collateralized under that facility. As of September 30, 2018, no hedge positions and payable amounts were secured under the credit facility. FASB ASC 820-10 Fair Value Measurements and Disclosures, established a three-tier fair value hierarchy, which classified the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s Level 1 derivative assets and liabilities represent the fair value of commodity contracts used in its hedging activities that are identical and traded in active markets. The Company’s Level 2 derivative assets and liabilities represent the fair value of commodity and interest rate contracts used in its hedging activities that are valued using either directly or indirectly observable inputs, whose nature, risk and class are similar. No significant transfers of assets or liabilities have been made into and out of the Level 1 or Level 2 tiers. All derivative instruments were non-trading positions and were either a Level 1 or Level 2 instrument. The Company had no Level 3 derivative instruments. The fair market value of our Level 1 and Level 2 derivative assets and liabilities are calculated by our counter-parties and are independently validated by the Company. The Company’s calculations are, for Level 1 derivative assets and liabilities, based on the published New York Mercantile Exchange (“NYMEX”) market prices for the commodity contracts open at the end of the period. For Level 2 derivative assets and liabilities the calculations performed by the Company are based on a combination of the NYMEX published market prices and other inputs, including such factors as present value, volatility and duration. The Company had no assets or liabilities that are measured at fair value on a nonrecurring basis subsequent to their initial recognition. The Company’s financial assets and liabilities measured at fair value on a recurring basis are listed on the following table.
(In thousands) |  |  |  |  |  |  |  | Fair Value Measurements at Reporting Date Using: |
Derivatives Not Designated as Hedging Instruments |  |  |  |  |  |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |
Under FASB ASC 815-10 |  | Balance Sheet Location |  | Total |  |  | Level 1 |  |  | Level 2 |
|  | Asset Derivatives at September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Fair asset value of derivative instruments |  | $ | 17,710 |  |  | $ | — |  |  | $ | 17,710 |
Commodity contracts |  | Long-term derivative assets included in the deferred charges and other assets, net balance |  |  | 906 |  |  |  | — |  |  |  | 906 |
Commodity contract assets at September 30, 2018 |  |  |  | $ | 18,616 |  |  | $ | — |  |  | $ | 18,616 |
|  | Liability Derivatives at September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Fair liability and fair asset value of derivative instruments |  | $ | - |  |  | $ | — |  |  | $ | — |
Commodity contracts |  | Cash collateral |  |  | - |  |  |  | — |  |  |  | — |
Commodity contracts |  | Long-term derivative liabilities included in the deferred charges and other assets, net balance |  |  | (103 | ) |  |  | — |  |  |  | (103 | )
Commodity contract liabilities at September 30, 2018 |  |  |  | $ | (103 | ) |  | $ | — |  |  | $ | (103 | )
|  | Asset Derivatives at September 30, 2017 |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Fair asset and fair liability value of derivative instruments |  | $ | 7,729 |  |  | $ | — |  |  | $ | 7,729 |
Commodity contracts |  | Long-term derivative assets included in the deferred charges and other assets, net balance |  |  | 996 |  |  |  | — |  |  |  | 996 |
Commodity contract assets at September 30, 2017 |  |  |  | $ | 8,725 |  |  | $ | — |  |  | $ | 8,725 |
|  | Liability Derivatives at September 30, 2017 |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Fair liability and fair asset value of derivative instruments |  | $ | (2,086 | ) |  | $ | — |  |  | $ | (2,086 | )
Commodity contracts |  | Cash collateral |  |  | — |  |  |  | — |  |  |  | — |
Commodity contracts |  | Long-term derivative liabilities included in the deferred charges and other assets, net and other long-term liabilities balances |  |  | (731 | ) |  |  | — |  |  |  | (731 | )
Commodity contract liabilities at September 30, 2017 |  |  |  | $ | (2,817 | ) |  | $ | — |  |  | $ | (2,817 | )
The Company’s derivative assets (liabilities) offset by counterparty and subject to an enforceable master netting arrangement are listed on the following table.
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  | Gross Amounts Not Offset in the Statement of Financial Position |
Offsetting of Financial Assets (Liabilities) and Derivative Assets (Liabilities) |  | Gross Assets Recognized |  |  | Gross Liabilities Offset in the Statement of Financial Position |  |  | Net Assets (Liabilities) Presented in the Statement of Financial Position |  |  | Financial Instruments |  |  | Cash Collateral Received |  |  | Net Amount |
Fair asset value of derivative instruments |  | $ | 17,710 |  |  | $ | — |  |  | $ | 17,710 |  |  | $ | — |  |  | $ | — |  |  | $ | 17,710 |
Long-term derivative assets included in other long-term assets, net |  |  | 906 |  |  |  | (103 | ) |  |  | 803 |  |  |  | — |  |  |  | — |  |  |  | 803 |
Fair liability value of derivative instruments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Long-term derivative liabilities included in other long-term liabilities, net |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total at September 30, 2018 |  | $ | 18,616 |  |  | $ | (103 | ) |  | $ | 18,513 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,513 |
Fair asset value of derivative instruments |  | $ | 6,023 |  |  | $ | (91 | ) |  | $ | 5,932 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,932 |
Long-term derivative assets included in other long-term assets, net |  |  | 996 |  |  |  | (730 | ) |  |  | 266 |  |  |  | — |  |  |  | — |  |  |  | 266 |
Fair liability value of derivative instruments |  |  | 1,706 |  |  |  | (1,995 | ) |  |  | (289 | ) |  |  | — |  |  |  | — |  |  |  | (289 | )
Long-term derivative liabilities included in other long-term liabilities, net |  |  | — |  |  |  | (1 | ) |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | (1 | )
Total at September 30, 2017 |  | $ | 8,725 |  |  | $ | (2,817 | ) |  | $ | 5,908 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,908 |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
The Effect of Derivative Instruments on the Statement of Operations |
|  |  |  | Amount of (Gain) or Loss Recognized |
|  |  |  | Years Ended September 30, |
Derivatives Not Designated as Hedging Instruments Under FASB ASC 815-10 |  | Location of (Gain) or Loss Recognized in Income on Derivative |  | 2018 |  |  | 2017 |  |  | 2016 |
Commodity contracts |  | Cost of product (a) |  | $ | 10,379 |  |  | $ | 6,386 |  |  | $ | 16,977 |
Commodity contracts |  | Cost of installations and service (a) |  | $ | (726 | ) |  | $ | (526 | ) |  | $ | 949 |
Commodity contracts |  | Delivery and branch expenses (a) |  | $ | (1,403 | ) |  | $ | (422 | ) |  | $ | 2,405 |
Commodity contracts |  | (Increase) / decrease in the fair value of derivative instruments (b) |  | $ | (11,408 | ) |  | $ | (2,193 | ) |  | $ | (18,217 | )
(a) | Represents realized closed positions and includes the cost of options as they expire.
(b) | Represents the change in value of unrealized open positions and expired options.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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