FGP » Topics » ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

These excerpts taken from the FGP 10-K filed Sep 29, 2008.
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
We did not enter into any risk management trading activities during fiscal 2008. Our remaining market risk sensitive instruments and positions have been determined to be “other than trading.”
 
Commodity Price Risk
 
Our risk management activities primarily attempt to mitigate risks related to the purchase, storage, transport and sale of propane and are presented in our discussion of margins and are accounted for at cost. We generally purchase propane in the contract and spot markets from major domestic energy companies on a short-term basis. Our costs to purchase and distribute propane fluctuate with the movement of market prices. We enter into propane sales commitments with a portion of our retail customers that provide for a contracted price agreement for a specified period of time. These commitments can expose us to product price risk if not immediately hedged with an offsetting propane purchase commitment. We employ risk management activities that attempt to mitigate risks related to the purchase, storage, transport and sale of propane.
 
Our risk management activities include the use of forward contracts, futures, swaps and options to seek protection from adverse price movements and to minimize potential losses. Our hedging strategy involves taking positions in the forward or financial markets that are equal and opposite to our positions in the physical product markets in order to minimize the risk of financial loss from an adverse price change. Our hedging strategy is successful when our gains or losses in the physical product markets are offset by our losses or gains in the forward or financial markets.
 
Market risks associated with energy commodities are monitored daily by senior management for compliance with our commodity risk management policy. This policy includes an aggregate dollar loss limit and limits on the term of various contracts. We also utilize volume limits for various energy commodities and review our positions daily where we remain exposed to market risk, so as to manage exposures to changing market prices.
 
We have prepared a sensitivity analysis to estimate the exposure to market risk of our energy commodity positions. Forward contracts, futures, swaps and options outstanding as of July 31, 2008 and 2007, that were used in our risk management activities were analyzed assuming a hypothetical 10% adverse change in prices for the delivery month for all energy commodities. The potential loss in future earnings from these positions due to a 10% adverse movement in market prices of the underlying energy commodities was estimated at $1.3 million and $0.8 million as of July 31, 2008 and 2007, respectively. The preceding hypothetical analysis is limited because changes in prices may or may not equal 10%, thus actual results may differ.
 
Our sensitivity analysis includes designated hedging and the anticipated transactions associated with these hedging transactions. These hedging transactions are anticipated to be 100% effective; therefore, there is no effect on our sensitivity analysis from these hedging transactions. To the extent option contracts are used as hedging instruments for anticipated transactions we have included the offsetting effect of the anticipated transactions, only to the extent the option contracts are in the money, or would become in the money as a result of the 10% hypothetical movement in prices. All other anticipated transactions for risk management activities have been excluded from our sensitivity analysis.
 
Interest Rate Risk
 
At July 31, 2008 and 2007, we had $361.0 million and $177.8 million, respectively, in variable rate credit facilities borrowings. Thus, assuming a one percent increase in our variable interest rate, our interest rate risk related to the borrowings on our variable rate credit facilities would result in a loss in future earnings of $3.6 million for fiscal 2009. The preceding hypothetical analysis is limited because changes in interest rates may or may not equal one percent, thus actual results may differ.
 
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
Our consolidated financial statements and the Independent Registered Public Accounting Firm’s Reports thereon and the Supplementary Financial Information listed on the accompanying Index to Financial


54


 

Statements and Financial Statement Schedules are hereby incorporated by reference. See Note O — Quarterly data (unaudited) — to our consolidated financial statements for Selected Quarterly Financial Data.
 
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
None.
 
ITEM 7A.  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



 



We did not enter into any risk management trading activities
during fiscal 2008. Our remaining market risk sensitive
instruments and positions have been determined to be “other
than trading.”


 




Commodity
Price Risk



 



Our risk management activities primarily attempt to mitigate
risks related to the purchase, storage, transport and sale of
propane and are presented in our discussion of margins and are
accounted for at cost. We generally purchase propane in the
contract and spot markets from major domestic energy companies
on a short-term basis. Our costs to purchase and distribute
propane fluctuate with the movement of market prices. We enter
into propane sales commitments with a portion of our retail
customers that provide for a contracted price agreement for a
specified period of time. These commitments can expose us to
product price risk if not immediately hedged with an offsetting
propane purchase commitment. We employ risk management
activities that attempt to mitigate risks related to the
purchase, storage, transport and sale of propane.


 



Our risk management activities include the use of forward
contracts, futures, swaps and options to seek protection from
adverse price movements and to minimize potential losses. Our
hedging strategy involves taking positions in the forward or
financial markets that are equal and opposite to our positions
in the physical product markets in order to minimize the risk of
financial loss from an adverse price change. Our hedging
strategy is successful when our gains or losses in the physical
product markets are offset by our losses or gains in the forward
or financial markets.


 



Market risks associated with energy commodities are monitored
daily by senior management for compliance with our commodity
risk management policy. This policy includes an aggregate dollar
loss limit and limits on the term of various contracts. We also
utilize volume limits for various energy commodities and review
our positions daily where we remain exposed to market risk, so
as to manage exposures to changing market prices.


 



We have prepared a sensitivity analysis to estimate the exposure
to market risk of our energy commodity positions. Forward
contracts, futures, swaps and options outstanding as of
July 31, 2008 and 2007, that were used in our risk
management activities were analyzed assuming a hypothetical 10%
adverse change in prices for the delivery month for all energy
commodities. The potential loss in future earnings from these
positions due to a 10% adverse movement in market prices of the
underlying energy commodities was estimated at $1.3 million
and $0.8 million as of July 31, 2008 and 2007,
respectively. The preceding hypothetical analysis is limited
because changes in prices may or may not equal 10%, thus actual
results may differ.


 



Our sensitivity analysis includes designated hedging and the
anticipated transactions associated with these hedging
transactions. These hedging transactions are anticipated to be
100% effective; therefore, there is no effect on our sensitivity
analysis from these hedging transactions. To the extent option
contracts are used as hedging instruments for anticipated
transactions we have included the offsetting effect of the
anticipated transactions, only to the extent the option
contracts are in the money, or would become in the money as a
result of the 10% hypothetical movement in prices. All other
anticipated transactions for risk management activities have
been excluded from our sensitivity analysis.


 




Interest
Rate Risk



 



At July 31, 2008 and 2007, we had $361.0 million and
$177.8 million, respectively, in variable rate credit
facilities borrowings. Thus, assuming a one percent increase in
our variable interest rate, our interest rate risk related to
the borrowings on our variable rate credit facilities would
result in a loss in future earnings of $3.6 million for
fiscal 2009. The preceding hypothetical analysis is limited
because changes in interest rates may or may not equal one
percent, thus actual results may differ.


 















ITEM 8.  

FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.



 



Our consolidated financial statements and the Independent
Registered Public Accounting Firm’s Reports thereon and the
Supplementary Financial Information listed on the accompanying
Index to Financial





54





 






Statements and Financial Statement Schedules are hereby
incorporated by reference. See Note O — Quarterly
data (unaudited) — to our consolidated financial
statements for Selected Quarterly Financial Data.


 















ITEM 9.  

CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.



 



None.


 




EXCERPTS ON THIS PAGE:

10-K (2 sections)
Sep 29, 2008
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