Note 12—Fair Value of Financial Instruments

Our cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other current assets and liabilities (excluding derivative instruments) are carried at amounts which reasonably approximate their fair values due to their short-term nature.

Commodity Derivatives

The following table summarizes the estimated fair values of our commodity derivative assets and liabilities reported in our condensed consolidated balance sheet at June 30, 2015:

	Derivative			Derivative
	Assets			Liabilities
	(in thousands)
Level 1 measurements	$	2,879		$	(9,070	)
Level 2 measurements	40,011			(29,585		)

	42,890			(38,655		)

Netting of counterparty contracts (1)	(2,791		)	2,791
Net cash collateral provided	—			8,543

Commodity derivatives in condensed consolidated balance sheet	$	40,099		$	(27,321	)

(1)

Relates to commodity derivative assets and liabilities that are expected to be net settled on an exchange or through a netting arrangement with the counterparty.

The following table summarizes the estimated fair values of our commodity derivative assets and liabilities reported in our condensed consolidated balance sheet at March 31, 2015:

	Derivative			Derivative
	Assets			Liabilities
	(in thousands)
Level 1 measurements	$	83,779		$	(3,969	)
Level 2 measurements	34,963			(28,764		)

	118,742			(32,733		)

Netting of counterparty contracts (1)	(1,804		)	1,804
Net cash collateral provided (held)	(56,660		)	2,979

Commodity derivatives in condensed consolidated balance sheet	$	60,278		$	(27,950	)

(1)

Relates to commodity derivative assets and liabilities that are expected to be net settled on an exchange or through a netting arrangement with the counterparty.

Our commodity derivative assets and liabilities are reported in the following accounts in our condensed consolidated balance sheets:

	June 30,			March 31,
	2015			2015
	(in thousands)
Prepaid expenses and other current assets	$	40,099		$	60,278
Accrued expenses and other payables	(27,321		)	(27,950		)

Net commodity derivative asset	$	12,778		$	32,328

The following table summarizes our open commodity derivative contract positions at June 30, 2015 and March 31, 2015. We do not account for these derivatives as hedges.

		Net Long (Short)		Fair Value
		Notional		of
		Units		Net Assets
Contracts	Settlement Period	(Barrels)		(Liabilities)
		(in thousands)
At June 30, 2015—
Cross-commodity (1)	July 2015–March 2016	99		$	(1,320	)
Crude oil fixed-price (2)	July 2015–December 2015	(1,209	)	102
Crude oil index-price (3)	July 2015–July 2015	198		624
Propane fixed-price (4)	July 2015–November 2017	485		(3,973		)
Refined products fixed-price (4)	July 2015–December 2015	(2,667	)	5,391
Other	July 2015–April 2016			3,411

				4,235
Net cash collateral provided				8,543

Net commodity derivatives in condensed consolidated balance sheet				$	12,778


At March 31, 2015—
Cross-commodity (1)	April 2015–March 2016	98		$	(105	)
Crude oil fixed-price (2)	April 2015–June 2015	(1,113	)	(171		)
Crude oil index-price (3)	April 2015–July 2015	751		1,835
Propane fixed-price (4)	April 2015–December 2016	193		(2,842		)
Refined products fixed-price (4)	April 2015–December 2015	(3,005	)	84,996
Other	April 2015–December 2015			2,296

				86,009
Net cash collateral held				(53,681		)

Net commodity derivatives in condensed consolidated balance sheet				$	32,328

(1)

Cross-commodity—We may purchase or sell a physical commodity where the underlying contract pricing mechanisms are tied to different commodity price indices. The contracts listed in this table as “Cross-commodity” represent derivatives we have entered into as an economic hedge against the risk of one commodity price moving relative to another commodity price.

(2)

Crude oil fixed-price—Our crude oil logistics segment routinely purchases crude oil inventory to enable us to fulfill future orders expected to be placed by our customers. The contracts listed in this table as “Crude oil fixed-price” represent derivatives we have entered into as an economic hedge against the risk that crude oil prices will decline while we are holding the inventory.

(3)

Crude oil index-price—Our crude oil logistics segment may purchase or sell crude oil where the underlying contract pricing mechanisms are tied to different crude oil indices. These indices may vary in the type or location of crude oil, or in the timing of delivery within a given month. The contracts listed in this table as “Crude oil index-price” represent derivatives we have entered into as an economic hedge against the risk of one crude oil index moving relative to another crude oil index.

(4)

Commodity fixed-price—We may have fixed price physical purchases, including inventory, offset by floating price physical sales or floating price physical purchases offset by fixed price physical sales. The contracts listed in this table as “fixed-price” represent derivatives we have entered into as an economic hedge against the risk of mismatches between fixed and floating price physical obligations.

We recorded the following net losses from our commodity derivatives to cost of sales (in thousands):

Three Months Ended June 30,
2015	$	(41,243	)
2014	(17,485		)

Credit Risk

We maintain credit policies with regard to our counterparties on derivative financial instruments that we believe minimize our overall credit risk, including an evaluation of potential counterparties’ financial condition (including credit ratings), collateral requirements under certain circumstances and the use of industry standard master netting agreements, which allow for offsetting counterparty receivable and payable balances for certain transactions, as deemed appropriate.

The principal counterparties associated with our operations at June 30, 2015 were retailers, resellers, energy marketers, producers, refiners, and dealers. This concentration of counterparties may impact our overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions.

Failure of a counterparty to perform on a contract could result in our inability to realize amounts that have been recorded in our condensed consolidated balance sheets and recognized in our net income.

Interest Rate Risk

Our Revolving Credit Facility is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At June 30, 2015, we had $1.6 billion of outstanding borrowings under our Revolving Credit Facility at a rate of 2.2%. A change in interest rates of 0.125% would result in an increase or decrease of our annual interest expense of $2.0 million, based on borrowings outstanding at June 30, 2015.

The TLP Credit Facility is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At June 30, 2015, TLP had $257.0 million of outstanding borrowings under the TLP Credit Facility at a rate of 2.93%. A change in interest rates of 0.125% would result in an increase or decrease in TLP’s annual interest expense of $0.3 million, based on borrowings outstanding at June 30, 2015.

Fair Value of Fixed-Rate Notes

The following table provides fair value estimates of our fixed-rate notes at June 30, 2015 (in thousands):

5.125% Notes due 2019	$	396,000
6.875% Notes due 2021	467,438
6.650% Notes due 2022	270,794

For the 2019 Notes and the 2021 Notes, the fair value estimates were developed based on publicly traded quotes. These fair value estimates would be classified as Level 1 in the fair value hierarchy.

For the 2022 Notes, the fair value estimate was developed using observed yields on publicly traded notes issued by other entities, adjusted for differences in the key terms of those notes and the key terms of our notes (examples include differences in the tenor of the debt, credit standing of the issuer, whether the notes are publicly traded, and whether the notes are secured or unsecured). This fair value estimate would be classified as Level 3 in the fair value hierarchy.