driven to deliver parkland income fund 2009 annual report preSiDeNt’S MeSSaGe chairMaN’S MeSSaGe five year SuMMary revieW of operatioNS BoarD of DirectorS 3 5 7 11 15 corporate iNforMatioN Back Cover corporate profile Parkland Income Fund had another successful year in 2009, demonstrating its ability to grow through strategic acquisitions while strengthening its operations and improving its ability to serve customers. Parkland continued to broaden its geographic base during the year through important acquisitions in British Columbia and Alberta, plus an early 2010 acquisition based in Eastern Canada. We continued to grow and upgrade our Retail network of Fas Gas Plus, Race Trac Fuels and Esso service stations and improved business processes and efficiencies through the development of a company-wide Enterprise Resource Planning system. Today, Parkland is Canada’s largest national independent retail and wholesale marketer of fuel and related products and services, with operations stretching from coast to coast and a strong focus outside major urban markets. We are an active industry consolidator and multi-branded retailer with 622 service stations in Western Canada and Ontario and multi-branded commercial fuels operations in Alberta, British Columbia and the Yukon and, starting February, 2010, across Eastern Canada. We provide products ranging from gasoline and diesel to propane, lubricants, oilfield fluids and agricultural inputs plus a wide range of convenience store items. Parkland units and convertible debentures trade on the Toronto Stock Exchange under the symbols PKI.UN and PKI.DB. forWarD-looKiNG iNforMatioN DiSclaiMer Certain information contained herein regarding Parkland Income Fund (“Parkland”) including statements that contain words such as “could”, “should”, “can”, “anticipate”, “estimate”, “propose”, “plan”, “expect”, “believe”, “will”, “may” and similar expressions and statements that are not related to historical facts constitute forward- looking information or statements under applicable securities laws. In particular, this Annual Report contains forward looking information pertaining to: an increase to the credit facility; information provided under the heading “Going Forward”; and management’s assessment of future plans and operations. The forward-looking information and statements contained in this Annual Report are based upon certain assumptions and factors such as historical trends, current conditions and expected future developments, which Parkland believes are reasonably accurate at the time of preparing this Annual Report. However, the forward-looking information and statements contained herein involve known and unknown factors and risks that could cause actual results to vary materially from those anticipated, including, without limitation, factors and risks associated with retail pricing and margins, availability and pricing of petroleum product supply, volatility of crude oil prices, marketing competition, environmental damage, credit granting, interest rate fluctuation and availability of capital and operating funds. Readers are cautioned that the foregoing list of factors is not exhaustive and that additional information on these and other factors that could affect Parkland’s operations or financial results are included in Parkland’s reports on file with Canadian securities regulatory authorities. In particular see Parkland’s MD&A and the Risk Factors and Industry Conditions section of Parkland’s Annual Information Form. Parkland’s reports may be accessed through the SEDAR website (www.sedar.com) or Parkland’s website (www.parkland.ca). Consequently, all of the forward-looking information and statements in this Annual Report are expressly qualified by this cautionary statement. There is no representation by Parkland and there can be no assurance that actual results achieved will be the same in whole or in part as those set out in the forward-looking information and statements. Readers are therefore cautioned not to place undue reliance on such forward-looking information and statements. The forward-looking statements contained in this document are made as of the date of issue. Parkland does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. parkland income fund 2009 annual report 1 driven to deliver for parkland income fund, it’s all in the delivery. Delivering for our customers. Delivering for our employees. Delivering for our unitholders. With cross-Canada reach, a sound strategic focus and a dedicated team of employees, Parkland continues to deliver a strong, strategic and successful approach to growing the business: StroNG parkland has captured a unique market niche as canada’s leading national independent fuel marketer. Parkland’s strengths include our diversified business portfolio, conservative financial management, experienced leadership team and excellent reputation in the marketplace. StrateGic parkland’s track record demonstrates our ability to execute successful acquisitions. We focus on our base of non-urban independent fuel and related products marketing with three key strategic focus areas in mind: [1] continued growth of our marketing business through expansion and acquisition; [2] lowest net fuel acquisition costs and [3] operational effectiveness. SucceSSful parkland continued in 2009 to build on previous successes. Despite a volatile economic climate, Parkland delivered strong financial performance and operating results, while maintaining monthly distributions and pursuing our growth strategy with three important acquisitions. 630 622 1,201 1,442 1,322 1,144 575 530 525 1,093 1,039 757 823 462 420 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 total Number of parkland Sites As at December 31, 2009 retail volumes As at December 31, 2009 (millions of litres) commercial and reseller volumes As at December 31, 2009 (millions of litres) 2 2009 annual report parkland income fund driven to deliver growth the year 2009 saw parkland deliver again on its promise to grow through carefully selected acquisitions, with the purchases of B.c.-based columbia fuels and eastern canada’s Bluewave energy (closed January 31, 2010), along with anmart fuels in Southern alberta. and that’s a testament to parkland’s single-minded focus on its core mission, says vice president of corporate Development Stu Macphail. “i think it demonstrates pure commitment to being the clear leader in our business,” he says. “our mission is to be the most trusted provider of fuels and related convenience products and services in non-urban markets.” central to that mission is a diversified approach to acquisitions. Diversifying by geography, product and type of market ensures that not only are the best opportunities seized, but that risk is managed as well. the challenge is not finding growth opportunities, Macphail contends. it’s finding the right ones. “opportunities come our way that may have great cash flow potential, but don’t deliver the strategic value we need to meet our vision and mission,” he says. “We’re very selective in how we approach acquisitions.” looking ahead to 2010, Macphail says parkland will continue to look for opportunities that support its long-term strategy. “We believe there are still significant opportunities in the canadian market, and we’re looking forward to playing an even bigger role in the industry - for the benefit of our customers, our employees, our vendors and our investors.” parkland income fund 2009 annual report 3 preSiDeNt’S MeSSaGe to our unitholders A driven team executing on a strong to our portfolio, extended our reach growth. We increased our borrowing game plan: these two key factors helped into Atlantic Canada, strengthened our capacity and continued to grow the carry Parkland to success in 2009 despite position in Ontario and Western Canada business. Our unit price more than a turbulent economic landscape. and further balanced our product mix. doubled over the year and we maintained The acquisition will drive company our monthly distributions to unitholders Thanks to our employees, Parkland growth in fuel volumes and cash flow, while posting EBITDA growth. achieved strong operating results, particularly outside major urban markets, continued to implement its growth and help position Parkland as a national In this environment, our strategic strategy and completely redesigned its independent marketer with coast-to- approach and performance focused on business processes. The year opened coast coverage. three areas: with a great deal of uncertainty, however by year end we began to see the first feint Our retail business had a stellar year. We Strategic growth in the marketing signs of recovery following the global worked hard to improve our market share, business: Parkland stayed on strategy economic downturn. Demand was mixed maintain strong margins and manage with three strategic acquisitions in British on the retail side of our operations, while costs while we continued to upgrade Columbia, Nova Scotia and Alberta. With sales volumes were down significantly in our network of 622 retail gas stations, the acquisition of Columbia Fuels, a our commercial business. replacing or rebuilding locations that did leading supplier of heating oil and bulk not meet our standards. The commercial fuels on Vancouver Island and Coastal B.C. Parkland saw this as an opportunity to business had a challenging year as a and Anmart Fuels in southern Alberta, strengthen our operations, solidify our result of external pressures and volumes Parkland demonstrated a continued team and continue to grow through were generally off. By streamlining ability to grow its marketing business strategic acquisitions. As a result, we operations and creating efficiencies, we profitably in challenging economic times. ended the year bigger and stronger have positioned the commercial business than ever, growing our position as for a rebound, which we expect to occur Parkland also announced the $214 Canada’s largest independent retail and later in 2010 or 2011. wholesale marketer of fuel and related million acquisition of Bluewave Energy, a move that expands our footprint products and services, with a strong On the Supply side of the business across Canada, adds a major branded position in non-urban areas and poised where we participate in refiners’ fuel relationship with Shell and is to have sales in all provinces except margins, we were very strong in the immediately accretive to earnings and Newfoundland. first half but tailed off in the second cash flow per unit. The purchase also half. While it’s impossible to predict The acquisitions of Columbia Fuels the future, refiners’ margins have and Anmart Fuels demonstrated our historically been cyclical, and over time continued ability to expand through we expect to see a rebound. carefully selected acquisitions; and the purchase of Bluewave Energy at the end We emerge from 2009 as a leaner, more of January, 2010 added one of Canada’s efficient company with a strong balance leading independent fuel distributors sheet and a solid foundation for further Michael W. chorltoN 4 2009 annual report parkland income fund (Left to Right) Bob Espey Vice President, Retail; Ken Grondin Vice President and CFO; Alan Crossley Vice President, Supply and Distribution; Mike Chorlton President and CEO; Stu MacPhail Vice President, Corporate Development; Bradley Willams Vice President, Commercial Business Group; Dean Mackey Vice President, Human Resources and Administration makes Parkland Canada’s largest national investment will improve our overall consistent with our strategy of driving independent fuel distributor and creates operational efficiency, capitalize on sustainable growth in fuel volumes a strong platform for growth through synergies and set the stage for future and cash flow, primarily in non-urban consolidation. Parkland continued to acquisitions. markets, while maintaining strength in invest in organic growth, particularly in our balance sheet. the retail network. Maintaining value in our petroleum supply contracts: We’re continuing to The coming year will also see Parkland operational excellence: Internally, work hard to maintain value created by focus on integrating Bluewave into our Parkland focused on reducing costs, our petroleum supply contracts. Our family and maintaining and improving creating efficiencies and strengthening growth will give us a stronger position with our operational excellence across the its leadership team. We have brought suppliers and greater sourcing options. organization. We are also developing in new talent at all levels of the detailed plans for trust conversion,and organization, and hired new Chief None of our successes would have expect to convert to a high-yield growth Financial Officer Ken Grondin and new been possible without the drive and company, the Parkland Fuel Corporation Vice President of Human Resources and dedication of the Parkland team and no later than January 2011. Administration Dean Mackey in addition I’d like to personally thank each of to bringing in top talent at the next them for helping Parkland not only All the while, we will remain driven to most senior level. thrive during a difficult economic deliver growth, investor returns, customer environment, but for setting the stage value, and to living the values that have We have also been rebuilding our for future growth and value. been so important to our success. business processes and developing an Enterprise Resource Planning (ERP) Looking forward, the pace of recovery is system, which we brought online in uncertain and we must remain prepared March of 2010. The system will provide for a host of different scenarios. We are a single platform for business processes, confident there are abundant growth systems, controls and operations, while opportunities for Parkland to pursue. We bringing best business practices to intend to be selective, and to find the best our core business activities. This key options for growth through acquisition, Michael W. Chorlton President and CEO March 12, 2010 year over year changes in eBitDa ($ millions) 100 80 60 40 20 0 14.5 (18.1) 81.2 1.9 (4.9) (0.8) 11.8 (14.8) 20.0 90.8 2008 Fuel Volume Operating and G&A Expenses Merchandise and Related Gross Profit Commercial Gross Profit Retail Fuel Margin Commercial Fuel Margin Supply Fuel Margin FIFO Inventory Adjustment 2009 parkland income fund 2009 annual report 5 chairMaN’S MeSSaGe your board of directors Parkland continued to build on its We have also utilized most of our In addition to prudent financial successes in 2009, executing a strategy safe harbour growth limits, and have management, we achieve this by meeting of sustainable growth in the face of approximately $62 million left under the and exceeding customer expectations, lingering economic challenges and normal growth guidelines for income giving our employees opportunities to solidifying its position as Canada’s trusts following the Bluewave Energy succeed, and keeping on track with our leading independent retail and wholesale acquisition. As a result, we expect to be in strategy for growth. fuels marketer. an excellent position for conversion, which will take place by January 2011. Looking ahead, the Board will continue to Your Board of Directors is proud of drive Parkland’s growth while remaining Parkland’s continued focus on strategic Your Board has also worked hard to mindful of the volatile economic climate. growth, and we enter 2010 poised to establish a strong foundation for success We will apply a measured strategic build the company even further. Despite through good corporate governance. We approach that balances acquisitions with a volatile economic climate, we expanded continue to meet new standards as they organic growth, and continue to leverage our marketing business significantly with emerge and apply stringent governance Parkland’s expertise in efficiently the acquisitions of Columbia Fuels and principles in order to protect our integrating new acquisitions and Anmart Fuels in 2009, and the purchase unitholders’ rights. For example: maximizing their value for unitholders. of Bluewave Energy in early 2010. As we near the end of the transition period individual director voting for our to thank the entire Parkland team for their before Canada’s specified investment upcoming annual meeting; support and dedication. I am proud of what • We are replacing slate voting with On behalf of the Board of Directors, I’d like flow-through (SIFT) tax changes, we are well positioned for our conversion from a trust to a corporation. We have used the time before the January 2011 deadline to aggressively grow our business and enable us to maintain post-conversion dividends at a high level. • We are also adopting a “say on pay” policy that will give unitholders a greater voice in executive compensation. Our vision at Parkland is to be the market leader in customer loyalty, employee engagement and investor confidence. we’ve all accomplished and look forward to more success in the coming year. Jim Pantelidis Chairman, Board of Directors 2009 performance Measures Fuel Volume (millions of litres) Merchandise Sales ($ million) Gross Margin ($ million) EBITDA ($ million) Total Distributions ($ million) 2009 2,742 48.7 249.1 90.8 62.3 2008 2,353 61.8 221.4 81.2 63.4 2008/2009 2007 % Change 1,963 64.5 232.5 115.0 90.5 17 (21) 13 12 (2) 6 2009 annual report parkland income fund driven to deliver customer service for chief operating officer Bob espey, there’s no secret to parkland’s ability to deliver customer value. it all boils down to working hard to understand their needs, and working even harder to meet them. in the retail segment, espey credits parkland’s success to a strategic approach that includes site upgrades, a strong loyalty program and “a relentless pursuit of execution at the site level to ensure parkland’s value proposition is consistent across all its facilities.” as part of that strategy, 80% of parkland’s retail outlets have been upgraded over 10 years, providing an environment that includes everything from clean washrooms to attentive staff. and with a loyalty program (“litre log”) that returned over $8 million to customers in 2009 alone, parkland has further positioned itself as an attractive alternative to the majors. on the dealer side of the business, parkland strives to offer the best back-office service across all its brands, and staff who work tirelessly to understand and meet their customers’ needs. the result has been impressive: net growth on the dealer side of the business and above average same-store sales growth in the retail outlets. “We’re gaining market share,” espey says, “so the strategy must be working.” parkland income fund 2009 annual report 7 five year SuMMary 2008 2007 2006 2005 405,488 379,806 181,423 140,998 88,558 2,353 31,709 1,963 5,829 1,501 Years ended December 31, ($000’s except volume and per Unit amounts) Total assets Total long-term liabilities Sales volume (millions of litres) 2009 474,335 137,753 2,742 Net sales and operating revenue 2,020,016 2,348,126 1,697,663 1,199,866 Cost of sales Gross profit Operating and direct costs Marketing, general and administrative EBITDA Amortization Refinery remediation Accretion Interest on long-term debt Interest and accretion on convertible debentures (Gain) loss on disposal of capital assets Earnings (loss) before income taxes Income tax expense (recovery) Net earnings Per Unit — basic — diluted Merchandise sales Total distributions Funds flow from operations Capital expenditures Maintenance capital Growth capital 1,770,891 2,126,745 1,465,155 1,061,824 249,125 106,903 51,382 90,840 37,878 420 184 5,119 633 (863) 47,469 (1,135) 48,604 221,381 232,508 138,042 91,960 48,212 81,209 30,359 394 113 4,831 — 344 45,168 827 44,341 77,668 39,785 115,055 21,627 2,677 61 1,676 — 275 88,739 8,002 80,737 47,342 20,044 70,656 8,453 — — 1,044 — 608 60,551 975 59,576 $ $ 0.97 0.97 $ $ 0.88 0.88 $ $ 1.66 1.64 $ $ 1.50 1.48 $ $ 48,693 62,284 88,563 38,628 6,644 31,984 61,780 63,416 79,081 31,132 9,211 21,921 64,538 90,518 114,013 29,475 13,465 16,010 59,624 56,171 69,191 11,148 6,296 4,852 13,907 1,177 875,539 779,092 96,447 40,338 14,885 41,224 8,077 — — 873 — 727 31,547 2,055 29,492 0.75 0.75 44,970 23,872 41,960 8,588 4,525 4,063 8 2009 annual report parkland income fund retail locatioNS coMMercial locatioNS FAS GAS PLUS Parkland is conducting an extensive upgrading program with a focus on Fas Gas Plus service stations, which provide improved services and a broader offering. We expect to continue the program over the coming years. FAS GAS As Parkland’s original brand, Fas Gas has developed a strong and unique position outside of major urban markets in western Canada. ESSO Parkland’s Retail Branded Distributorship agreement with Imperial Oil provides for fuel supply to the Esso independent dealer network in Alberta and Saskatchewan, plus parts of British Columbia and Ontario. SUNOCO The acquisition of Noco Energy Canada in 2008 expanded Parkland’s network to include the Sunoco brand in Ontario, which we expect to re-brand in 2010 following the 2009 Suncor/Petro-Canada merger. RACE TRAC Race Trac sites are generally dealer owned and operated local businesses in small markets across Parkland’s marketing area. SHORT STOP AND SHORT STOP EXPRESS CONVENIENCE FOOD STORES Parkland’s convenience store business compliments Fas Gas Plus sites with a strong offering of convenience products. BLUEWAVE ENERGY In December 2009, Parkland announced it would purchase for $214 million Dartmouth, Bluewave N.S.-based Energy Limited Partnership, a national petroleum distribution company and Shell’s largest branded distributor in Canada. Bluewave delivers a full slate of petroleum products including diesel fuel, gasoline, heating oil and lubricants and related products and services to a broad range of commercial, industrial and residential customers through a strong delivery network across Canada. The Bluewave acquisition closed on January 31, 2010. parkland income fund 2009 annual report 9 and frac oils. In July 2009, Parkland acquired Anmart Fuels (Taber) Ltd., with branches in Taber and Foremost, adding two new cardlocks and bulk delivery, and expanding Neufeld’s further presence in Alberta. PARKLAND REFINING LTD. Parkland owns a refinery near Bowden, Alberta. A number of alternatives are currently being pursued, including storage to generate cash flow from this site. GREAT NORTHERN OIL Parkland owns and operates a bulk that facility provides home heating fuels under the brand name Great Northern Oil. in Whitehorse, Yukon UNITED PETROLEUM PRODUCTS (UPP) UPP was acquired by Parkland in 2007 and markets fuel and lubricants to a network of commercial accounts and independent service station operators throughout British Columbia. PETROHAUL AND WIEBE TRANSPORT One of Parkland’s key competitive strengths is its fleet of trucks. Our in 2007 and 2008 acquisitions (Neufeld and Wiebe Transport) introduced additional long haul trucking operations and we have consolidated the fleets to improve service and efficiency. Petroleum COLUMBIA FUELS In June 2009, Parkland acquired the fuel distribution business of Columbia Fuels Ltd. Headquartered in Victoria B.C. Columbia specializes in home heating oil, bulk petroleum and bio fuels and operated bulk fuel terminals on Vancouver Island and the Sunshine Coast region of British Columbia. 14 locations NEUFELD PETROLEUM AND PROPANE in Grande Prairie, Alberta, Based Neufeld operates in northern Alberta, northeastern British Columbia and the Northwest Territories. Neufeld distributes fuel, propane and agricultural inputs such as fertilizers and farm chemicals, along with lubricants, oilfield industrial chemicals 10 2009 annual report parkland income fund driven to deliver investor returns parkland income fund relative performance analysis January 1, 2005 - December 31, 2009 Parkland S&P/TSX Parkland with Re-Investment of Dist. 400 300 200 100 0 367 206 127 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 a conservative balance sheet, careful planning and a prudent approach to growth: that’s the formula for parkland’s consistently solid investor returns. and the proof is in unitholders’ distributions. even in challenging economic times, parkland has consistently delivered strong monthly distributions to its unitholders. in fact, they have never been reduced. “We maintain a strong balance sheet, giving us the ability to weather swings in the economy and move quickly on opportunities for growth,” says chief financial officer Ken Grondin. “We’re strong and stable – and because of that we can protect and build value for unitholders.” the year 2009 was another success, with positive eBitDa growth despite a turbulent economy. “in 2010, parkland will continue to look for further growth opportunities while it builds an even more robust back-office,” Grondin says. “We’ll be implementing our enterprise resource planning system, which will streamline processes and should make us much more nimble in integrating companies we acquire.” parkland income fund 2009 annual report 11 revieW of operatioNS 2,000 to 2,500 square-foot Short Stop to independent Esso dealers. Since that convenience store or a smaller Short original agreement was signed, we have Stop Express store. The sites are either steadily increased our distributorship company-operated with salaried managers area to include Alberta, Saskatchewan and staff so that Parkland enjoys full retail and portions of British Columbia and fuel and merchandise profit or operated by Ontario. We currently serve 256 dealers a commission operator who supplies all on- in western and central Canada and earn site labour in exchange for a commission a wholesaler’s profit margin on the fuel based on fuel sales volume and pays a volume sold. We are positioned to build monthly rent calculated as a percentage of this segment by organic growth and merchandise sales. Currently Parkland is potentially through further acquisitions. moving away from the company-operated model towards commission operations SUNOCO as these entrepreneur run sites generate The 2008 acquisition of Noco Energy greater net profit with lower working also added the Sunoco retail brand to capital investment. FAS GAS our lineup. We added 18 independently owned and operated Sunoco branded locations in Ontario, however this brand Fas Gas was Parkland’s original brand will be phased out as a result of the used on all retail gasoline operations. Petro-Canada and Suncor merger. We As sites were upgraded, the brand was have a program in place to migrate changed to Fas Gas Plus. There are 46 these dealers to our other brands. We sites remaining in our network where anticipate minimal fuel volume loss. our retail Business Parkland’s fuel marketing strategy continues to build upon four key principles: Non-urban market focus – invest in those markets where we are best suited to compete and grow market share; Multi-branded networks – offer a branded value proposition tailored to the needs of different customers and geographic markets across Canada. Our in-house brands include: Fas Gas Plus, Fas Gas, Short Stop and Race Trac. We also operate retail branded distributorships under the Esso and Sunoco brands; Non-fuel revenue streams – lessen our reliance on fuel margins through a continued expansion of our Short Stop and Short Stop Express convenience stores with an added focus on the development of car washes and food service relationships; and upgrading is still to come or where property lease terms or market potential prevent further investment and these organizational capability – focus remain under the Fas Gas brand. on training, technology and values- based leadership across the company, RACE TRAC while maintaining a low cost operating The Race Trac brand is used for sites model. To this end, our new Enterprise owned by independent retailers who Resources Planning and Point of Sale enter into long-term (typically five-year) systems will streamline business fuel supply agreements with Parkland. processes, improve management We provide brand signage, a proprietary information and increase efficiencies fleetcard offering and a loyalty program across the organization. FAS GAS PLUS to the retailers. Our profit from these sites consists of a wholesale fuel margin. our commercial Business The commercial business began with sales of bulk fuels procured under our long-term supply contracts to resellers and commercial customers. This served to optimize the value of our supply agreements and was complementary to our Yukon heating oil supply business, Great Northern Oil. Today, Parkland’s commercial business provides customers across the country with products ranging from propane and bulk fuels to home heating products, lubricants, agricultural inputs and oilfield fluids. The Fas Gas Plus brand is the largest ESSO segment of our retail offering. Over the In 2005, Parkland entered into a Retail In 2007, Parkland decided to significantly past decade, we have built or upgraded Branded Distributorship Agreement with grow in the commercial area with the our sites to provide consistent in-store Imperial Oil, under which we have the acquisition of five complementary merchandise offering either with a non-exclusive right to supply branded fuel businesses serving commercial and 12 2009 annual report parkland income fund driven to deliver values how does parkland ensure that as it continues to grow, it retains the special culture that’s helped make it a success? Step one is to build a strong set of values into every level of the organization and into everything it does, according to president and chief executive officer Mike chorlton. “as we drive to achieve our key strategic objectives, we always do so within the context of our core values,” he says. “it’s important we never lose sight of our commitment to our stakeholders and to each other.” these core values - integrity, people, teamwork and Success – impact everything parkland does by helping to ensure every job is approached with honesty, respect and professionalism. they not only speak to parkland’s mission of being the most trusted source for fuel and related products in their markets, but also provide guidance on how to meet that goal on a daily basis. to that end, parkland’s values call on its employees to “say what we will do and do what we say”. they also call on parkland’s leaders to set challenging goals for all its employees, foster innovation and reward initiative. “values-based leadership is an expectation for all of our managers and executives, and we try to make it part of our day-to-day processes” chorlton says. “it unifies us as an organization and it makes us feel good to know that we’re doing the right things in the right way.” parkland income fund 2009 annual report 13 industrial customers in northern Alberta In 2009, we further expanded our and customer base, while decreasing and British Columbia. The catalyst was commercial business with the acquisitions the seasonality of Parkland’s cash the 2007 $124 million acquisition of of the fuel distribution business of flow. The commercial operations are Neufeld Petroleum and Propane based in Columbia Fuels Ltd., a Victoria B.C. fuel seasonally strong during the fall and Grande Prairie, Alberta. This acquisition distribution company specializing in home winter months, while the retail fuel included marketing branded (Petro- heating oil, bulk petroleum and biofuels business is strong during the spring and Canada) and unbranded bulk fuel and that also operates bulk fuel terminals summer driving season. propane, along with complementary on Vancouver Island and the Sunshine products such as lubricants, agricultural Coast region of British Columbia. Also, inputs and oilfield fluids. the purchase of Anmart Fuels in southern Alberta added two new cardlock locations All these products also carried substantial and expanded the company’s bulk service components with significant delivery network in Southern Alberta. profit potential. The Neufeld acquisition was followed by three tuck-in acquisitions As of December 31, 2009, Parkland for this business – Joy Propane (Dawson operated 20 distribution centers across Creek, British Columbia), Olivers Propane northern Alberta and northeastern (High Prairie, Alberta) and Roblyn Bulk British Columbia. The customer base Sales (Edson, Alberta). Parkland also for these products is varied, with the acquired the bulk fuel and lubricants largest group being in conventional oil business of United Petroleum Products production followed by agriculture, oil Inc. (UPP) of Burnaby, British Columbia and gas exploration, residential, forestry in 2007. UPP supplies bulk fuel and and heavy oil production. lubricants into areas of British Columbia not accessible to the Neufeld branches, Parkland supplies commercial customers further extending Parkland’s reach. through a chain of 35 cardlocks. Parkland also sells to independent resellers, who in In 2008, we continued to build and turn supply retail operators and commercial consolidate the commercial businesses customers. These arrangements allow us to gain synergies, extend product lines to fully utilize our supply capacity. and expand our footprint. We lowered our fuel acquisition costs, extended In December 2009, Parkland announced the UPP lubricant sales lines through the acquisition of Bluewave Energy Neufeld sites and added branches to which was closed on January 31, 2010. serve heavy oil producers. We also Bluewave effectively doubles the size of increased our sales and marketing the Parkland Commercial business and efforts in northern Alberta and British extends its reach to all regions of Canada, Columbia to better serve our commercial and diversifies its customer base with customer base. Finally, we acquired the a greater proportion of heating oil and bulk fuel and lubricants business of broader customer mix. Neufeld Petroleum and Propane (High Level) which extended our High Level, Our commercial business provides Alberta branch’s product line. important diversity in our product lines our Supply and Distribution Business A key success factor for Parkland is our ability to have secure sources of fuel supply at competitive prices. Parkland continues to enjoy strong relationships with four major refiners in western and central Canada. We maintain lifting rights at most western and central Canadian refineries and primary terminals which provide the flexibility we need to best serve our customers. Parkland enjoys long-term supply contracts that provide favorable product cost. Fuel is delivered to our service stations by a combination of our own truck fleet and third-party commercial carriers. Maintaining our own fleet provides improved control of quality, flexibility and timeliness of service. The acquisition of Wiebe Transport Inc. in 2008 provided additional long- haul trucking capacity to our fleet and extended our capability beyond bulk fuel, propane and fertilizer to include bulk dry products as well. The counter-seasonal demands of the fuel propane, fertilizer and bulk dry products businesses allow us to improve our overall fleet efficiency. Also, the Wiebe acquisition delivered valuable transportation infrastructure such as maintenance shops and terminals to reduce our overall distribution cost. 14 2009 annual report parkland income fund With the acquisition of Noco Energy Parkland has a Health, Safety and on health, education and youth. We are in Ontario, we acquired a profitable Environment (HSE) department and HSE strong supporters of the United Way and wholesale fuels distribution business that committees, which represent all areas of began a major five year commitment extends our refinery supply agreements the business. The Committees’ mandates to Red Deer College in 2007. We also to ensure lowest product cost. are to ensure consistent health and support communities we do business safety processes and documentation with through financial contributions throughout the organization and to make and through encouraging employees to recommendations regarding procedures actively participate in their communities. and training. An internal Health, Safety and Environment audit was successfully Our Fas Gas Plus Community Care completed on our businesses in 2009 Sponsorship Program is actively as part of a program to audit these involved in community sponsorship businesses every year. code of conduct Parkland has established Conflict of Interest Guidelines and a Code of Conduct. Every Parkland employee, including Directors, Officers and Senior Management must acknowledge understanding and compliance of the code. A copy of the code is available on our website at www.parkland.ca and the SEDAR website at www.sedar.com. In cases where employees feel they have serious or sensitive issues, including possible breaches in the code, Parkland has a Whistle Blower Policy that provides a means for employees to report issues confidentially and, if desired, anonymously. through funding, providing facilities and assistance for fundraising and encouraging our staff to volunteer in local projects. We have provided support for food banks, homeless shelters, women’s shelters, youth development, family support and programs for those with special needs. In 2008, Fas Gas Plus became a registered Alberta’s Promise Partner. This relationship assists us in enhancing our existing programs and connects us with non-profit organizations in need of assistance. For more information on the program, go to www.albertaspromise.org. privacy Statement Parkland has in place generally accepted This policy also outlines what actions will standards of technological security for be taken and the feedback that will be the purpose of protecting all information provided to the employee to ensure the provided by customers, suppliers and issue has been addressed. employees from misuse, loss or corruption. parkland refining ltd. From late 2006 through 2008, the Bowden site was used as a contract petrochemical processing site. The site is now used as a fuel terminal, as we continue to pursue development opportunities. health, Safety and environment Parkland takes seriously its obligation to protect the health and safety of its employees, customers, neighbours and suppliers; and is committed to maintaining responsible environmental controls. Handling transportation fuels, propane and other products involves environmental risk and Parkland has developed comprehensive risk mitigation programs as well as emergency response procedures. Employees involved in dangerous goods transportation receive extensive training. Prior to completing an acquisition, new facilities are evaluated by an independent environmental consultant, which typically involves soil testing and testing of any underground tanks and piping. Parkland has a program to replace underground steel tanks with double-walled fiberglass tanks or above ground tanks. All remaining steel tanks in our network are community involvement Parkland strives to make a positive cathodically protected. Each operating difference in the communities we serve. site has daily inventory balancing procedures and regular audit of test wells At the corporate level, we provide to detect underground leaks. financial support to projects that focus Only authorized personnel have access to personally identifiable information submitted to Parkland. Such employees are required to maintain the confidentiality of this sensitive data. The policy also applies to any and all agents, affiliates and related entities of Parkland that may receive such information from Parkland. parkland income fund 2009 annual report 15 (Left to Right) Alain Ferland, Jim Dinning, John Bechtold, Jim Pantelidis, Kris Matthews, Michael Chorlton, David Spencer, Ron Rogers, Robert Brawn BoarD of DirectorS John f. Bechtold Mr. Bechtold has is a Professional Engineer. Mr. Brawn (1992 to 1997). He is Chairman of the over 35 years experience in the has served on Parkland’s Board since boards of Bronco Energy Ltd. and North American Petroleum Industry November 13, 1996 and is a member Export Development Canada. He serves including management roles at Gulf Oil of the Compensation and Corporate as a director for Oncolytics Biotech Corporation, Gulf Canada and Petro- Governance Committee. Canada. During his career he held senior Inc., Russel Metals Inc. and Liquor Stores Income Fund. He is a director leadership positions in the upstream, Michael W. chorlton Mr. Chorlton’s career of the following private companies: mid-stream and downstream segments progressed from a major petroleum Elluminate Inc. and the Armstrong of the business including 15 years in company through agribusiness and Group. He is a member of the TD Energy crude oil and refined product supply high technology. Over a 16 year career Advisory Board. He is the Chairman and four years in the propane business at Imperial Oil and Exxon Chemical he of the Canada West Foundation and a as President of ICG. From 2003 through occupied leadership positions related director of the Norlien Foundation. Mr. 2007 Mr. Bechtold served as a member to marketing, logistics, customer Dinning has a Bachelor of Commerce of the Board of the British Columbia Oil service, planning, finance, business degree and a Masters degree in Public and Gas Commission. He is a director development and plant operations. In Administration, both from Queen’s of Parex Resources Inc. He holds BSC 1992 Mr. Chorlton became President University. He was awarded an honorary (Honours) Chemical Engineering and and CEO of Saskferco Products Inc. of doctorate from the University of MSC Petroleum Reservoir Engineering Regina, Saskatchewan, a $440 million Calgary. He is a graduate of the Institute degrees. Mr. Bechtold has served on green-field investment in an ammonia/ of Corporate Directors Education Parkland’s Board since August 10, 2006 urea complex. Prior to joining Parkland, Program. Mr. Dinning was appointed and is a member of the Compensation Mr. Chorlton served for six years as as a Trustee on August 19, 2004 and and Corporate Governance Committee a senior Vice President of Renessen was elected as a director of Parkland and is also a member of the Petroleum LLC, a biotechnology joint venture in Industries Ltd. on May 5, 2005 when Products Supply Advisory Committee. the Chicago area. He has a Bachelor Parkland reorganized to a corporate of Mechanical Engineering degree trustee model. Mr. Dinning serves on robert G. Brawn Mr. Brawn brings over from McGill University and a Master of Parkland’s Audit Committee. 50 years of business experience to Business Administration degree from Parkland’s Board of Directors, having the University of British Columbia. Mr. alain ferland Mr. Ferland has over 30 held various management roles with Chorlton became President and CEO of years of experience in the petroleum companies operating in the oil and Parkland on September 6, 2005 and has industry and has acted as a member gas industry. Mr. Brawn holds several served on the Board of Directors since of the senior management team in directorships that span a variety of May 5, 2006. industries, including banking, energy, oil, oil services, plastic, airport and biotechnology companies. Mr. Ferland construction and retail. He is currently Jim Dinning Mr. Dinning is Chair of has extensive experience in strategic a director of each of Penn West Energy Western Financial Group Inc., an planning, operations, logistics, sales, Trust, Grande Cache Coal Corporation Alberta-based western Canadian marketing, project management and and Black Diamond Group Limited. Mr. financial services company. Prior to mergers. During his career, Mr. Ferland Brawn also serves as a director of ATB 2005, Mr. Dinning served as Executive served on more than ten boards in Financial. Effective January 1, 2009, he Vice President of TransAlta Corporation. various capacities. He is a director of was appointed Chairman of the Alberta Before joining TransAlta, he held several Petrolia Inc. He is also President of Economic Development Authority and key positions during his 11 years as a EFFA Management Inc. Mr. Ferland a member of the Premier’s Council member of the legislative assembly of has been President of TORR Canada by the Premier of Alberta. Mr. Brawn Alberta, including Provincial Treasurer Inc., Aéroports de Montréal, IPL Inc., 16 2009 annual report parkland income fund Geneka Biotechnologies and prior to Jim pantelidis Mr. Pantelidis is in 2004 he was Senior Vice President that was President of Ultramar Ltd. and currently Chairman of the Board of and Chief Financial Officer of Shaw Vice President of Ultramar Diamond Parkland and has served as a director Communications. He received his Shamrock. He is a Professional Engineer. of Parkland since 1999. Mr. Pantelidis Bachelor of Commerce Degree from St. Mr. Ferland has served on Parkland’s is Chairman and Director of The Mary’s University with concentrations Board since June 22, 1999 and is Chair of Consumers Waterheater Income Fund on philosophy, economics and Parkland’s Compensation and Corporate since 2002. He also serves on the Board accounting and subsequently earned Governance Committee and also serves of each of RONA Inc., Industrial Alliance his Chartered Accountancy with Ernst as a member of Petroleum Products Insurance and Financial Services Inc. & Young. He has also attended post Supply Advisory Committee. and Equinox Minerals Limited. From graduate seminars at North Western 2002 to 2006 Mr. Pantelidis was on the and Harvard Universities. Mr. Rogers is Kris Matthews Ms. Matthews is board of FisherCast Global Corporation currently a member of the board of each Managing Partner of Matthews and served as Chairman and Chief of Corus Entertainment and Transforce Group LLP, a public accounting Executive Officer from 2004 to 2006. Inc. Mr. Rogers previously served on the firm specializing in entrepreneurial Prior to this, Mr. Pantelidis served boards of The Brick Furniture Company companies. She has over 25 years of as Chairman and Chief Executive and Pizza Pizza Royalty Fund. Mr. Rogers experience in public practice. She is Officer for the Bata International has served on Parkland’s Board since a past-Chair of CMA Alberta and the Organization. He also spent 30 years in September 15, 2006 and is Chairman of CMA Alberta Governance Committee; the petroleum industry and was at one the Audit Committee. she also represented Alberta as a time, President of both the upstream National Board Member. Her service and downstream divisions of Petro- David a. Spencer Mr. Spencer is a to the community has included board Canada. Mr. Pantelidis has a Bachelor Partner with Bennett Jones LLP in membership of a Business Revitalization of Science degree and a Master of Calgary. He specializes in corporate Zone and various social or charitable Business Administration degree, both finance, mergers and acquisitions and organizations; she is a past-Chair of from McGill University. Mr. Pantelidis corporate governance. Mr. Spencer the Famous Five Foundation. She has has served on Parkland’s Board since was appointed as a trustee as part of served or serves on the boards of September 7, 1999 and he is Chairman the June 2002 re-organization into a various public and private companies. of Parkland’s Board and a member of trust, and was elected as a director of She is also currently on the board of the Audit Committee. He also serves Parkland Industries Ltd. in 2005 when Defence Construction Canada. She as Chair of the Petroleum Products Parkland reorganized to a corporate has her designation of ICD.D from the Supply Advisory Committee. trustee model. He received a law Institute of Corporate Directors. Ms. degree from the University of Western Matthews was awarded her Fellowship ron rogers Mr. Rogers has over 35 Ontario. Mr. Spencer is a member of (FCMA) by the Society of Management years experience in various financial Parkland’s Compensation and Corporate Accountants of Canada for service to and operating positions with Ernst Governance Committee. her profession and community in 2002. & Young, Warrington Inc., the Crown She joined Parkland’s Board on May Management Board of Saskatchewan, 8, 2003 and is a member of the Audit Moore Corporation and Shaw Committee. Communications Inc. On retirement . a d a n a C n i d e t n i r P . n o t l w o n K & l l i H y b d e c u d o r p d n a d e n g i s e D 18 2009 annual report parkland income fund corporate iNforMatioN Head Office Legal Counsel Suite 236, Riverside Office Plaza Bennett Jones LLP 4919 - 59th Street Red Deer, Alberta T4N 6C9 Tel: (403) 357-6400 Fax: (403) 352-0042 Email: corpinfo@parkland.ca Website: www.parkland.ca Annual General Meeting Monday, May 3, 2010 4500, Bankers Hall East 855 - 2nd Avenue SW Calgary, Alberta T2P 4K7 Stock Exchange Listing Toronto Stock Exchange Trading Symbols: PKI.UN, PKI.DB Registrar and Transfer Agent 2:00 p.m. at the Red Deer Lodge Valiant Trust Company Hotel & Convention Centre 4311 - 49th Avenue Red Deer, Alberta Banker HSBC Bank Canada 108, 4909 - 49th Street Red Deer, Alberta T4N 1V1 Auditors PricewaterhouseCoopers LLP 3100, 111 - 5th Avenue SW Calgary, Alberta T2P 5L3 310, 606 - 4th Street SW Calgary, Alberta T2P 1T1 Directors John F. Bechtold Robert G. Brawn Michael W. Chorlton Jim Dinning Alain Ferland Kris Matthews Jim Pantelidis Ron Rogers David A. Spencer Officers Michael W. Chorlton President and CEO Kenneth J. Grondin Senior Vice President, CFO and Corporate Secretary Philip L.M. Szabo Corporate Controller Shaun M. Peesker Treasurer R.G. Dean Mackey Chief Privacy Officer Wholly Owned Subsidiaries 0851738 B.C. Ltd. 986408 Alberta Ltd. 986413 Alberta Ltd. Neufeld Petroleum and Propane Ltd. Parkland Holdings Limited Partnership Parkland Industries Limited Partnership Parkland Industries Ltd. Parkland Investment Trust Parkland Refining Ltd. parKlaND iNcoMe fuND Suite 236, Riverside Office Plaza 49 19 - 59th Street Red Deer, Alber ta T4N 6C9 www.parkland.ca driven to deliver parkland income fund 2009 summary report five year SuMMary MaNaGeMeNt’S DiScuSSioN aND aNalySiS MaNaGeMeNt’S reSpoNSibility for fiNaNcial StateMeNtS auDitorS’ report coNSoliDateD fiNaNcial StateMeNtS NoteS to coNSoliDateD fiNaNcial StateMeNtS SuppleMeNtary iNforMatioN corporate iNforMatioN 1 2 31 32 33 36 58 60 corporate profile Parkland Income Fund had another successful year in 2009, demonstrating its ability to grow through strategic acquisitions while strengthening its operations and improving its ability to serve customers. Parkland continued to broaden its geographic base during the year through important acquisitions in British Columbia and Alberta, plus an early 2010 acquisition based in Eastern Canada. We continued to grow and upgrade our Retail network of Fas Gas Plus, Race Trac Fuels and Esso service stations and improved business processes and efficiencies through the development of a company-wide Enterprise Resource Planning system. Today, Parkland is Canada’s largest national independent retail and wholesale marketer of fuel and related products and services, with operations stretching from coast to coast and a strong focus outside major urban markets. We are an active industry consolidator and multi-branded retailer with 622 service stations in Western Canada and Ontario and multi-branded commercial fuels operations in Alberta, British Columbia and the Yukon and, starting February, 2010, across Eastern Canada. We provide products ranging from gasoline and diesel to propane, lubricants, oilfield fluids and agricultural inputs plus a wide range of convenience store items. Parkland units and convertible debentures trade on the Toronto Stock Exchange under the symbols PKI.UN and PKI.DB. forWarD-looKiNG iNforMatioN DiSclaiMer Certain information contained herein regarding Parkland Income Fund (“Parkland”) including statements that contain words such as “could”, “should”, “can”, “anticipate”, “estimate”, “propose”, “plan”, “expect”, “believe”, “will”, “may” and similar expressions and statements that are not related to historical facts constitute forward- looking information or statements under applicable securities laws. In particular, this Annual Report contains forward looking information pertaining to: an increase to the credit facility; information provided under the heading “Going Forward”; and management’s assessment of future plans and operations. The forward-looking information and statements contained in this Annual Report are based upon certain assumptions and factors such as historical trends, current conditions and expected future developments, which Parkland believes are reasonably accurate at the time of preparing this Annual Report. However, the forward-looking information and statements contained herein involve known and unknown factors and risks that could cause actual results to vary materially from those anticipated, including, without limitation, factors and risks associated with retail pricing and margins, availability and pricing of petroleum product supply, volatility of crude oil prices, marketing competition, environmental damage, credit granting, interest rate fluctuation and availability of capital and operating funds. Readers are cautioned that the foregoing list of factors is not exhaustive and that additional information on these and other factors that could affect Parkland’s operations or financial results are included in Parkland’s reports on file with Canadian securities regulatory authorities. In particular see Parkland’s MD&A and the Risk Factors and Industry Conditions section of Parkland’s Annual Information Form. Parkland’s reports may be accessed through the SEDAR website (www.sedar.com) or Parkland’s website (www.parkland.ca). Consequently, all of the forward-looking information and statements in this Annual Report are expressly qualified by this cautionary statement. There is no representation by Parkland and there can be no assurance that actual results achieved will be the same in whole or in part as those set out in the forward-looking information and statements. Readers are therefore cautioned not to place undue reliance on such forward-looking information and statements. The forward-looking statements contained in this document are made as of the date of issue. Parkland does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. parkland income fund 2009 summary report 1 five year SuMMary Years ended December 31, ($000’s except volume and per Unit amounts) 2009 2008 2007 2006 2005 Total assets Total long-term liabilities Sales volume (millions of litres) 474,335 137,753 2,742 405,488 379,806 181,423 140,998 88,558 2,353 31,709 1,963 5,829 1,501 Net sales and operating revenue 2,020,016 2,348,126 1,697,663 1,199,866 Cost of sales Gross profit Operating and direct costs Marketing, general and administrative EBITDA Amortization Refinery remediation Accretion Interest on long-term debt Interest and accretion on convertible debentures (Gain) loss on disposal of capital assets Earnings (loss) before income taxes Income tax expense (recovery) Net earnings Per Unit — basic — diluted Merchandise sales Total distributions Funds flow from operations Capital expenditures Maintenance capital Growth capital 1,770,891 2,126,745 1,465,155 1,061,824 249,125 106,903 51,382 90,840 37,878 420 184 5,119 633 (863) 47,469 (1,135) 48,604 221,381 232,508 138,042 91,960 48,212 81,209 30,359 394 113 4,831 — 344 45,168 827 44,341 77,668 39,785 115,055 21,627 2,677 61 1,676 — 275 88,739 8,002 80,737 47,342 20,044 70,656 8,453 — — 1,044 — 608 60,551 975 59,576 $ $ 0.97 0.97 $ $ 0.88 0.88 $ $ 1.66 1.64 $ $ 1.50 1.48 $ $ 48,693 62,284 88,563 38,628 6,644 31,984 61,780 63,416 79,081 31,132 9,211 21,921 64,538 90,518 114,013 29,475 13,465 16,010 59,624 56,171 69,191 11,148 6,296 4,852 13,907 1,177 875,539 779,092 96,447 40,338 14,885 41,224 8,077 — — 873 — 727 31,547 2,055 29,492 0.75 0.75 44,970 23,872 41,960 8,588 4,525 4,063 2 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS For the three and twelve months ended December 31, 2009 The information in this document is current as of March 2, 2010 introduction This MD&A provides a comparison of Parkland Income Fund’s performance for its three and twelve month periods ended December 31, 2009 with the three and twelve month periods ended December 31, 2008 and it reviews Parkland’s financial position as at December 31, 2009. It also includes discussion of Parkland’s affairs up to March 2, 2010. This discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes. All amounts disclosed are in Canadian dollars. Prospective data, comments and analysis are also provided wherever appropriate to assist existing and new investors to see the business from a corporate management point of view. Such disclosure is subject to reasonable constraints of maintaining the confidentiality of certain information that, if published, would potentially have an adverse impact on the competitive position of Parkland. Additional information relating to Parkland can be found on its website at www.parkland.ca. The Fund’s continuous disclosure materials, including its annual and quarterly MD&A, annual and quarterly financial statements, its 2009 Annual Report, Annual Information Form, Management Information Circular and Proxy, Material Change Reports and the various press releases issued by the Fund are also available on its website or directly through the SEDAR system at www.sedar.com. forward-looking Statements Certain information included herein is forward-looking. Forward-looking statements include, without limitation, statements regarding the future financial position, business strategy, budgets, projected costs, capital expenditures, financial results, taxes and plans and objectives of or involving Parkland. Many of these statements can be identified by looking for words such as “believe”, “expects”, “expected”, “will”, “intends”, “projects”, “projected”, “anticipates”, “estimates”, “continues”, or similar words and include but are not limited to, statements regarding the accretive effects of acquisitions and the anticipated benefits of acquisitions. Parkland believes the expectations reflected in such forward- looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties some of which are described in Parkland’s annual report, annual information form and other continuous disclosure documents. Such forward-looking statements necessarily involve known and unknown risks and uncertainties and other factors, which may cause Parkland’s actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general economic, market and business conditions; industry capacity; competitive action by other companies; refining and marketing margins; the ability of suppliers to meet commitments; actions by governmental authorities including increases in taxes; changes in environmental and other regulations; and other factors, many of which are beyond the control of Parkland. Any forward-looking statements are made as of the date hereof and Parkland does not undertake any obligation, except as required under applicable law, to publicly update or revise such statements to reflect new information, subsequent or otherwise. Parkland wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Readers should also refer to the section Business Risks at the end of this MD&A and in the 2009 Annual Report for additional information on risk factors and other events that are not within Parkland’s control. Parkland’s future financial and operating results may fluctuate as a result of these and other risk factors. parkland income fund 2009 summary report 3 MaNaGeMeNt’S DiScuSSioN aND aNalySiS our business OUR VISION Parkland’s vision is to be the market leader in customer loyalty, employee engagement and investor confidence. OUR MISSION Parkland’s mission is to be the most trusted source of convenience for fuel and related products focused on outside of urban markets. OUR VAlUES Integrity: We will always do the right thing People: Respect the needs of customers, employees and others Teamwork: Achieve greater results by working together Success: Set and achieve challenging goals Parkland is a Red Deer, Alberta based marketer of transportation and commercial fuels and related products and services, and an operator of convenience stores primarily in western Canada. It transports fuel to its service station and commercial network through its own distribution division and it owns an industrial site in Bowden, Alberta, where it formerly operated a refinery. Parkland’s value proposition targets four main groups: Customers, Investors, Employees and Business Partners. CUSTOMERS Parkland strives to offer consistent, reliable, friendly service to its customers at competitive prices. INVESTORS Parkland strives to offer investors reliable and sustainable distributions and a superior return on capital. It will achieve this by continuing to develop its core competencies of operational excellence and efficient, streamlined supply chain management. EMPlOYEES Parkland is a values-based culture that is employee friendly. It is investing significantly in recruitment of top talent and professional development and its growth strategy creates opportunity and challenge. Employees are unitholders and share in the financial success of the business. BUSINESS PARTNERS Parkland strives to be a company that is easy to do business with. It is values driven and is financially sound and growing. retail Parkland operates service stations under three primary business models and various brands which focus on differing customer segments in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, the Northwest Territories and the Yukon. The sites are a mix of company owned and operated, commission operated and dealer sites. Our portfolio of brands, Fas Gas Plus, Fas Gas and Race Trac, allow us to target different customer segments generally in non-urban areas. Parkland is a Retail Branded Distributor for Imperial Oil limited with locations in Saskatchewan, Alberta, British Columbia and Ontario operating under the Esso brand, and is also a Retail Branded Distributor for the Sunoco brand in Ontario. Parkland expects to transition these Sunoco sites to other brands in the upcoming year as a result of the 2009 Suncor-Petro-Canada merger. 4 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS The Retail Business Unit serves the motoring public through 622 retail stations in its marketing network, with 12 in the Yukon Territory, 3 in the Northwest Territories, 99 in BC, 275 in Alberta, 130 in Saskatchewan, 23 in Manitoba and 80 in Ontario. This business is performing well in an uncertain market environment which featured increased same store retail sales and margins over 2008. Retail margins have remained strong as compared to recent history and our margins on sales to dealers, which are less volatile than retail margins, remain healthy. The three primary business models under which stations are operated include: Parkland operated or corporate stations, which are managed and staffed by Parkland; commission operated stations, which are managed by independent operators who provide staff in exchange for a commission on fuel volumes sold, is primarily responsible for any ancillary business at the site and pays rent to Parkland based on a percentage of non-fuel sales revenue; and independent dealer sites, which are owned or controlled by a third party who contracts with Parkland for fuel supply for the site. The following table sets out the number of service stations by brand in the Parkland network as of December 31, 2009. Parkland operated and commission operated locations Independent dealer operated Total Fas Gas Plus Fas Gas Race Trac Esso Sunoco Total 95 43 138 21 25 46 4 138 142 22 256 278 — 18 18 142 480 622 Fuel products sold through the network of service stations include gasoline and diesel fuel as well as propane at selected sites. Parkland’s strives to increase overall sales volumes and average volumes per site within its current marketing area. The actual number of stations may increase or decrease as new sites are added and under performing sites are closed or sold. The retail fuel business is highly competitive, with margins ultimately dependent on the spread between crude oil, wholesale fuel costs and retail fuel prices. Due to its focus on outside of urban markets, Parkland has limited exposure to the more competitive, larger urban markets where the retail fuel sales are dominated by major oil companies and by more recent entrants such as grocery store chains and large retailers. This non-urban focus means Parkland operates in markets where average sales volumes are lower but earnings are enhanced by typically more stable pricing and margins, lower overhead costs and less expensive real estate. Parkland will continue to target growth by leveraging its unique brands within its existing network and through the acquisition of new sites. FAS GAS PlUS In 2009, Parkland’s strategy has been to continue to maximize penetration of its Fas Gas Plus brand throughout its traditional non-urban markets by investing in the Fas Gas Plus station upgrade and conversion program. During 2009, Parkland expanded its new store design, introduced in lethbridge, Alberta in 2007, to another twelve locations and has plans to continue to retrofit existing locations as part of its growth capital plan and to incorporate the new site design into all new locations. The Fas Gas Plus brand brings consumers an urban offering to outside of urban markets through upgraded locations. SHORT STOP Parkland operates its convenience store business under the brand Short Stop Food Stores. As at December 31, 2009, there were 45 Short Stop and 28 Short Stop Express convenience stores at sites that have Fas Gas Plus fuel stations with an additional 21 convenience stores under the Fas Gas Plus brand. These convenience stores offer a variety of parkland income fund 2009 summary report 5 MaNaGeMeNt’S DiScuSSioN aND aNalySiS food, beverage, snack and convenience products as well as lottery terminals and automated teller machines. Many of the stores are open 24 hours per day and, in many of these locations, offer customers the only 24-hour service in the area. Store layouts meet urban standards for quality product offering, lighting, cleanliness, a proprietary coffee program and modern facilities. ESSO The Retail Branded Distributorship agreement provides Parkland with the opportunity to offer the Esso brand to independent operators or within its company operated network in Alberta, Saskatchewan, British Columbia, Ontario and the Northwest Territories. RACE TRAC In the independent dealer business, Parkland has focused on increasing its brand value to the operators. The Race Trac brand is positioned for locations where the Fas Gas Plus or Esso brands are not suited and is an important part of Parkland’s brand portfolio. SUNOCO In 2008, Parkland became the Retail Branded Distributor for the Sunoco brand in Ontario as part of its acquisition of NOCO Canada Energy assets. These sites will be re-branded in the year ahead as a result of the 2009 merger of Suncor and Petro-Canada. commercial Parkland operates a multi branded commercial, industrial business serving customers with bulk fuel, propane, heating oil, lubricants, agricultural inputs, oilfield fluids and other related products and services. In 2009 it was focused on Alberta, British Columbia and the Yukon, however with the acquisition of Bluewave Energy in January 2010, it has achieved national coverage. Parkland continued to build its commercial business by completing two more commercial acquisitions in 2009; Columbia Fuels in June 2009 and Anmart Fuels in July 2009. These acquisitions expand Parkland’s offering of branded and unbranded products and services in Alberta and British Columbia. Of greatest significance, Columbia Fuels provides home heating oil services in British Columbia (primarily on Vancouver Island) and bulk fuel and cardlock services to commercial customers. Emphasis in the commercial market (including home heating oil) is on strong customer service and reliable distribution. The acquired companies are well established in the markets in which they serve and Parkland is focused on the integration of these businesses to provide customers with a more comprehensive service and product offering. On December 31, 2009 Parkland had 29 commercial branch locations situated in Alberta and British Columbia. On January 31, 2010 Parkland completed the business purchase of Bluewave Energy (Bluewave) based in Dartmouth, Nova Scotia. Bluewave is a national petroleum distribution company and Shell’s largest branded distributor in Canada. Bluewave delivers a full slate of petroleum products including diesel fuel, gasoline, heating oil and lubricants to a broad range of commercial, industrial and residential customers across Canada. Parkland’s acquisition of Bluewave adds a fleet of 185 fuel delivery trucks and 48 new branch locations across Canada. Parkland markets under the following brands: NEUFElD PETROlEUM AND PROPANE (NPP) NPP markets bulk fuels, propane, lubricants, agricultural inputs and oilfield fluids in Alberta and Northern British Columbia. It is a branded Petro-Canada distributor in the Grande Prairie and High level Alberta area. 6 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS UNITED PETROlEUM (UPP) UPP markets bulk fuels and lubricants across British Columbia. It is a distributor of Conoco/Phillips lubricants and operates Esso branded cardlocks. COlUMBIA FUElS (CFI) CFI markets heating oil, bulk fuels and lubricants plus related products and services on Vancouver Island and the Sunshine Coast of British Columbia. GREAT NORTHERN OIl (GNO) GNO markets heating oil and bulk fuels in the Yukon Territory and facilitates supply to Parkland’s retail business in the Yukon. BlUEWAVE ENERGY (BlUEWAVE) Bluewave markets heating oil, bulk fuels and lubricants, featuring Shell products in Atlantic, Central and Western Canada. Parkland has a diverse commercial customer base operating across a broad cross-section of industries with no single client accounting for more than 5% of consolidated revenue. Because of its customer diversity, as well as the wide geographic scope of Parkland’s service offering and the range of segments in which it operates, a downturn in the activities of individual customers or customers in a particular industry is not expected to have a material adverse impact on the operations of Parkland. The oilfield exploration outlook is uncertain as drilling programs slowly recover after 2008 and 2009 cutbacks. Operational oilfield production remains more stable. Parkland is a supplier to a number of service providers to the forestry industry. These customers operate across northern Alberta and British Columbia. The forestry industry is a relatively small portion of the overall portfolio of the Commercial segment. Parkland also supplies fuels and lubricants to a select group of mines in northern Alberta, British Columbia and the Yukon Territory. Parkland has participated in this market segment for a number of years and regularly monitors and reviews the financial stability of its customers. CARDlOCK Parkland markets fuel through 42 cardlock facilities. These cardlock facilities are operated under various brands, including United Petroleum, Esso, Race Trac, Columbia, Petro-Canada and Neufeld and Bluewave starting in February 2010. Supply & Distribution Parkland’s Supply and Distribution division is responsible for managing the purchasing, resale and distribution of fuel for Parkland’s retail and commercial business. Fuel contracts and pricing are maintained with the major oil companies including minimum volume limits for certain agreements. Supply and Distribution staff schedule and coordinate the pick-up of fuel from the refineries by either Parkland carriers or by third party wholesale customers that pick-up the fuel directly from the refinery. Parkland maintains an internal trucking business to distribute fuel, propane, anhydrous ammonia and other products internally. The trucking business offers superior service to Parkland sites. Distribution of the fuel is scheduled to each Parkland retail and commercial location based on consumption and demand requirements. Supply and Distribution also manages the use of the Bowden refinery and fuel storage facility. parkland income fund 2009 summary report 7 MaNaGeMeNt’S DiScuSSioN aND aNalySiS Human resources Parkland had approximately 1,200 employees at December 31, 2009 increasing to 1,600 after the Bluewave acquisition, including 200 retail convenience store personnel throughout western Canada and 200 employees in its Red Deer, Alberta head office. Parkland’s employees are also owners of the Fund, investing in Parkland regularly through its unit purchase plan. A profit sharing plan further contributes to the entrepreneurial spirit of Parkland’s employees, fostering a sense of ownership and pride throughout the Company. Parkland continued its aggressive recruitment and professional development program in 2009 to attract and retain top talent in order to carry out its strategic objective of continued growth by acquisition. Key positions have been filled despite the competitive labor market in western Canada and Parkland will continue to focus on talent development and performance management in 2010. accretive acquisitions Corporate acquisitions are an effective means of consolidating assets, improving efficiencies in existing core areas or adding new core areas. Parkland intends to continue to be proactive, focused and disciplined in its approach to such acquisitions. Generally, Parkland seeks to make acquisitions that: • are accretive to cash from operating activities; • increase fuel sales volumes to increase market presence; • build non-fuel profits to enhance the long-term stability of the enterprise; • optimize supply contracts; and • diversify the customer base. Non-Gaap Measures Parkland’s financial results are prepared under Canadian Generally Accepted Accounting Principles (GAAP). However, in this document there are references to non-GAAP measures such as EBITDA and Distributable Cash Flow. EBITDA refers to Earnings Before Interest on long-Term Debt, Income Tax Expense, Amortization of Capital Assets, Refinery Remediation Accrual, Accretion Expense and loss on Disposal of Capital Assets. It can be calculated from the GAAP amounts included in Parkland’s financial statements. Parkland believes that EBITDA is a relevant measure to users of its financial information as it provides an indication of pre-tax earnings available to distribute to debt and equity holders. Parkland’s definition of EBITDA may not be consistent with other providers of financial information and therefore may not be comparable. Standardized distributable cash flow is a measure defined by the CICA. Parkland’s adjusted standardized distributable cash flow is referred to as distributable cash flow and contains certain adjustments to standardized distributable cash flow required to better reflect the cash flow available for distribution to Unitholders. 8 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS reconciliation of Distributable cash flow (in thousands of Canadian dollars except per Unit amounts) Three months ended December 31, 2009 Three months ended December 31, 2008 Cash flows from operating activities Less: Total capital expenditures and intangibles Standardized distributable cash flow (1) Add back (deduct): Growth capital expenditures and intangibles Proceeds on disposal of capital items Change in non-cash working capital Distributable cash flow Distributions Distribution payout ratio Cash flows from operating activities Less: Total capital expenditures and intangibles Standardized distributable cash flow (1) Add back (deduct): Growth capital expenditures and intangibles Proceeds on disposal of capital items Change in non-cash working capital Distributable cash flow Distributions Distribution payout ratio 3,976 (16,640) (12,664) 14,457 2,558 10,373 14,724 15,059 102% 38,180 (14,615) 23,565 11,131 78 (17,128) 17,646 15,882 90% Year ended December 31, 2009 Year ended December 31, 2008 112,392 (43,590) 68,802 31,984 4,962 (24,109) 81,639 62,284 76% 71,617 (31,935) 39,682 21,921 803 7,464 69,870 63,416 91% (1) Standardized distributable cash flow is a measure defined by the Canadian Institute of Chartered Accountants (CICA). See discussion below. Parkland’s distribution policy is based on distributable cash flow on an annualized basis, accordingly, the seasonality of Parkland’s individual quarterly results must be assessed in the context of annualized distributable cash flow. Adjustments recorded by Parkland as part of its calculation of distributable cash flow include, but are not limited to, the impact of the seasonality of Parkland’s businesses by adjusting for non-cash working capital items thereby eliminating the impact of the timing between the recognition and collection/payment of Parkland’s revenues and expenses, which can from quarter to quarter differ significantly. Parkland’s calculation also distinguishes between capital expenditures that are maintenance related and those that are growth related including intangible assets, in addition to allowing for the proceeds received from the sale of capital items. parkland income fund 2009 summary report 9 MaNaGeMeNt’S DiScuSSioN aND aNalySiS Maintenance Capital is the amount of capital funds required in a period for an enterprise to maintain its future cash flow from operating activities at a constant level of productive capacity. Parkland defines its productive capacity as volume of fuel and propane sold, volume of convenience store sales, volume of lubricants sales, agricultural inputs and delivery capacity. The adjustment for maintenance capital in the calculation of standardized distributable cash is capital expenditures during the period excluding the cost of any growth asset acquisitions or proceeds of any asset dispositions. Parkland believes that the current capital programs, based on the current view of its assets and opportunities and the outlook for fuel supply and demand and industry conditions, should be sufficient to maintain productive capacity in the medium term. Due to the risks inherent in the industry, particularly the reliance on external parties for supply of fuel and propane and general economic conditions and weather that affects customer demand, there can be no assurance that capital programs, whether limited to the excess of cash flow over distributions or not, will be sufficient to maintain or increase production levels or cash flow from operating activities. As Parkland strives to maintain sufficient credit facilities and appropriate levels of debt, the seasonality of the business is not currently expected to influence distribution policies. Parkland’s calculation of standardized distributable cash has no adjustment for long-term unfunded contractual obligations. Parkland believes the only significant long-term unfunded contractual obligation at this time is for asset retirement obligations and refinery remediation, both of which are expected to be deferred for an extended period of time. Although it is typical for Parkland’s cash flow to have seasonal fluctuations, it is management’s current intention to pay consistent regular monthly distributions throughout the year based on estimated annual cash flow. The Directors review distributions quarterly giving consideration to current performance, historical and future trends in the business and the expected sustainability of those trends, as well as capital betterment requirements to sustain performance. Distributable cash was less than cash distributions in the fourth quarter by 2% but exceeded cash distributions for the year ended December 31, 2009. The distribution payout ratio for 2009 was 76% compared to 91% in 2008. Accordingly, Parkland has maintained the monthly distribution rate of $0.105 per unit. Parkland believes the current level of distributions is sustainable and there are no plans under the current outlook to reduce or eliminate monthly distributions. 10 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS cash flows, Net earnings and ebitDa compared to Distributions (in thousands of Canadian dollars except per Unit amounts) Cash flows from operating activities Net earnings EBITDA (1) Distributions Excess (shortage) of cash flows from operating activities relative to distributions Excess (shortage) of cash flows from net earnings relative to distributions Excess (shortage) of cash flows from EBITDA relative to distributions Cash flows from operating activities Net earnings EBITDA (1) Distributions Excess (shortage) of cash flows from operating activities relative to distributions Excess (shortage) of cash flows from net earnings relative to distributions Excess (shortage) of cash flows from EBITDA relative to distributions (1) Please refer to the Non-GAAP Measures section in the MD&A for a definition of EBITDA Three months ended December 31, 2009 Three months ended December 31, 2008 3,976 4,478 13,698 15,059 (11,083) (10,581) (1,361) 38,180 10,053 25,072 15,882 22,298 (5,829) 9,190 Year ended December 31, 2009 Year ended December 31, 2008 112,392 48,604 90,840 62,284 50,108 (13,680) 28,556 71,617 44,341 81,209 63,416 8,201 (19,075) 17,793 Net earnings include significant non-cash charges including amortization and accretion expense. These non-cash charges do not impact Parkland’s ability to meet its cash distribution payments. Both cash flows from operating activities and EBITDA have been adequate to fund cash distributions on an annual basis. parkland income fund 2009 summary report 11 MaNaGeMeNt’S DiScuSSioN aND aNalySiS consolidated Highlights Three months ended (in millions of Canadian dollars except volume and per Unit amounts) December 31, 2009 Three months ended December 31, 2008 % Change Fuel volume (millions of litres) Net sales and operating revenues Gross profit Gross margin Operating and direct costs Marketing, general and administrative Income before income taxes Income tax (recovery) expense Net earnings EBITDA (1) Earnings per Unit - basic Earnings per Unit - diluted Distributable cash flow (2) Distributions Distribution payout ratio Fuel volume (millions of litres) Net sales and operating revenues Gross profit Gross margin Operating and direct costs Marketing, general and administrative Income before income taxes Income tax (recovery) expense Net earnings EBITDA (1) Earnings per Unit - basic Earnings per Unit - diluted Distributable cash flow (2) Distributions Distribution payout ratio 728 542.4 56.5 10.4% 28.9 13.9 2.1 (2.3) 4.5 13.7 0.09 0.09 14.7 15.1 102% $ $ 664 524.5 65.4 12.5% 26.9 13.4 13.8 3.8 10.1 25.1 0.20 0.20 17.6 15.9 90% $ $ 10 3 (14) 7 4 (85) (55) (45) (16) (5) Year ended December 31, 2009 Year ended December 31, 2008 % Change 2,742 2,020.0 249.1 12.3% 106.9 51.4 47.5 (1.1) 48.6 90.8 0.97 0.97 81.6 62.3 76% $ $ 2,353 2,348.1 221.4 9.4% 92.0 48.2 45.2 0.8 44.3 81.2 0.88 0.88 69.9 63.4 91% $ $ 17 (14) 13 16 7 5 10 12 17 (2) (1) Please refer to the Non-GAAP Measures section in the MD&A for a definition of EBITDA (2) Please see Distributable Cash Flow reconciliation table in the MD&A 12 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS three Months ended December 31, 2009 The financial highlights for the fourth quarter of 2009 are as follows: • Quarterly fuel sales volume of 728 million litres, up 10% from 664 million litres the prior year. • Q4 EBITDA of $13.7 million, down 45% from 2008, 2009 EBITDA of $90.8 million, up 12% or $9.6 million from 2008. • Distribution payout ratio 102% for the quarter and 76% for all of 2009. • Strong contribution from retail fuel sales. • Successful issuance of $97.75 million of convertible debentures at 6.5% coupon and 30% conversion premium. • Announcement of agreement to purchase Bluewave Energy (“Bluewave”) with January 31, 2010 closing. • Intention to convert from a Trust to a Corporation by January 2011 with plans to become a high-yield growth Company with an expected dividend between 75% and 110% of the current level of the Fund’s annual distribution ($1.26 per unit). On December 21, 2009 Parkland announced reaching an agreement to acquire 100% of the business of Bluewave for $214 million (subject to closing adjustments related to working capital). The Bluewave acquisition was completed on January 31, 2010 after receiving satisfactory approval from the Competition Bureau regarding the transaction. In 2009 Bluewave had fuel sales volume of 645 million litres and normalized EBITDA of over $34 million. FUEl VOlUMES Gasoline, diesel and propane volumes were strong with total sales of 728 million litres in the quarter ended December 31, 2009, an increase of 10% from 664 million litres for the same period in 2008. The increase resulted primarily from the acquisitions completed over the past year. Diesel demand remained weak through 2009. Refiners’ margins for gasoline and diesel have declined from the first quarter of 2009 levels and remain at the low end of seasonal norms. Net sales and operating revenue for the three month period ended December 31, 2009 was $542.4 million, up 3% from $524.5 million during the same period last year. Fuel marketing revenue increased 6% and commercial sales decreased 6% compared to the same three month period in 2008. The increase in fuel marketing revenues is primarily due to a 9% increase in fuel volumes and an approximate 3% decrease in price compared to the fourth quarter of 2008. The cost of fuel decreased 2% during the quarter compared to the same quarter in 2008, contributing to the 6% decrease in fuel gross profit. In addition to the retail margins for gasoline and diesel, Parkland participates in refiners’ margins for a significant portion of its supply volumes. In the fourth quarter, contribution from this participation declined approximately $18.9 from the comparable period in 2008 when refiners’ margins were unusually high for a fourth quarter. The contribution from this margin category has been highly variable over the past three years as it produced record results in 2007, and was unseasonably high in the fourth quarter of 2008 and the first quarter of 2009. Gross profit on Retail fuel sales to consumer declined in the current quarter $7.2 million from the prior year due to 2008 annualized rebate adjustments and slight declines in cent per litre gross margins versus 2008. As previously disclosed in the fourth quarter of 2008, the Fund received a non-recurring contract cancellation fee of $5.0 million, and there was no such fee in the fourth quarter of 2009. parkland income fund 2009 summary report 13 MaNaGeMeNt’S DiScuSSioN aND aNalySiS SAlES, COST OF SAlES AND GROSS PROFIT The following table details net sales, cost of sales and gross profit for Parkland’s four business segments: (in millions of Canadian dollars) Fuel Marketing Segment Net sales Cost of sales Gross profit Gross margin Convenience Store Merchandise Segment Net sales Cost of sales Gross profit Gross margin Commercial Segment Net sales Cost of sales Gross profit Gross margin Other Segment Net sales Cost of sales Gross profit Gross margin Gross Profit Sources Total gross profit Less: Convenience store gross profit Gross profit on commercial sales Other revenue included in gross profit Fuel gross profit Cents per litre Three months ended December 31, 2009 Three months ended December 31, 2008 % Change 505.1 465.8 39.3 7.8% 8.6 6.4 2.2 25.6% 22.1 13.7 8.4 38.0% 6.6 — 6.6 474.8 432.9 41.9 8.8% 15.0 11.2 3.8 25.3% 23.5 15.1 8.4 35.7% 11.3 — 11.3 100.0% 100.0% 56.5 2.2 8.3 6.6 39.4 65.4 3.8 8.4 11.3 41.9 $ 0.054 $ 0.063 6 8 (6) (43) (43) (42) (6) (9) — (42) — (42) (14) (42) (1) (42) (6) (14) 14 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS Convenience store merchandise sales decreased 43% during the three month period ended December 31 compared to 2008. The decrease can be attributed to the conversion of corporate operated sites to commission or dealer operated sites. In the case of a conversion to a commission operated site, this has the impact of decreasing sales and gross profit in the Convenience Store Merchandise segment but increasing variable rental income, which is included in the Fuel Marketing segment as a reduction to operating and direct costs. Total cost of sales for the quarter ended December 31, 2009 was $485.9 million, up 6% from $459.2 million a year earlier. Fuel volumes were up 9.6% in the quarter over the previous year while fuel costs on a cents per litre basis were down almost 2%. The Commercial segment experienced a 9% decrease in the cost of sales compared to the same period in 2008 resulting in gross margin increasing to 38.0% from 35.7% in the prior year. In previous quarters Parkland has made reference to FIFO inventory adjustment gains and losses. The FIFO inventory adjustment can be better described as the impact of price fluctuation on gasoline inventories held by Parkland. Parkland’s fuel inventory includes 30 million litres of gasoline that is held by a major supplier in storage in Edmonton plus inventory on hand at Parkland locations or in transit. With the marginal increase of crude oil costs in the fourth quarter and the corresponding increase in gasoline costs during the same period the revaluation of this inventory in the fourth quarter of 2009 resulted in an increase in fuel margins of $1.2 million. For the year ended December 31, 2009 Parkland recorded a cumulative FIFO gain of $7.9 million compared to a loss of $12.1 million in 2008. OPERATING ExPENSES Operating and direct costs were $28.9 million in the fourth quarter compared to $26.9 million for the same period in 2008. This increase is driven by the acquisitions of Columbia Fuels and Anmart Fuels and the corresponding overhead cost increases. Marketing, general and administrative expenses were $13.9 million in the fourth quarter compared to $13.4 million for the same period in 2008. INTEREST ON lONG-TERM DEBT Interest on long-term debt was $1.4 million in the fourth quarter and consistent with the same period in 2008. INTEREST AND ACCRETION ON CONVERTIBlE DEBENTURES Interest and accretion on convertible debentures during the fourth quarter was $0.6 million. In 2009, approximately one month of interest on $97.8 million convertible debentures was incurred in addition to a one month accretion of deferred financing expenses on the convertible debt. In 2008, there were no convertible debentures. INCOME TAx ExPENSE An income tax recovery of $2.3 million was incurred in the fourth quarter compared to a $3.8 million expense for the same period in 2008. EARNINGS Earnings before income taxes in the fourth quarter of 2009 was $2.1 million, down 85% from $13.8 million a year earlier. Net earnings in the fourth quarter of 2009 was $4.5 million, down 55% from $10.1 million for the same period in 2008. EBITDA for the fourth quarter of 2009 was $13.7 million, down 45% from $25.1 million in 2008. The decrease in EBITDA from 2008 is explained by the $8.9 million decrease in gross profit combined with an increase of $2.5 million in operating and direct costs and marketing, general and administrative expenses over 2008. parkland income fund 2009 summary report 15 MaNaGeMeNt’S DiScuSSioN aND aNalySiS CAPITAl ASSETS AND AMORTIzATION Amortization expense in the fourth quarter of 2009 was $9.8 million, up from $9.1 million a year earlier. During the fourth quarter of 2009, the Fund expended $14.1 million (2008 - $14.5 million) in net capital investments, of which maintenance capital net of proceeds on sale of property plant and equipment resulted in a net cash recovery of $0.3 million (2008 - $3.4 million net expenditure) and $14.5 million (2008 - $11.1 million) was classified as growth capital including intangible asset expenditures. For accounting purposes, amounts expended on both maintenance and growth capital are treated as purchases of capital assets. The classification of capital as growth or maintenance is subject to judgment, as many of the Fund’s capital projects have components of both. It is the Fund’s policy to classify all capital assets related to service station upgrades or the replacement and betterment of its trucking fleet as maintenance capital. The construction of a new building on an existing site or the additions of new trucks and trailers to increase the size of the fleet is considered growth capital. lONG-TERM DEBT AND CASH BAlANCES For the three month period ended December 31, 2009 interest on long-term debt was $1.4 million, consistent with the same quarter in 2008. Most of the Fund’s long-term debt bears interest at variable rates linked to prime, the $97.8 million convertible debentures bear interest at an annual rate of 6.5% payable semi-annually in arrears on November 30 and May 31 in each year commencing May 31, 2010. 16 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS SAlES, COST OF SAlES AND GROSS PROFIT The following table details net sales, cost of sales and gross profit for Parkland’s four business segments: (in millions of Canadian dollars) Fuel Marketing Segment Net sales Cost of sales Gross profit Gross margin Convenience Store Merchandise Segment Net sales Cost of sales Gross profit Gross margin Commercial Segment Net sales Cost of sales Gross profit Gross margin Other Segment Net sales Cost of sales Gross profit Gross margin Gross Profit Sources Total gross profit Less: Convenience store gross profit Gross profit on commercial sales Other revenue included in gross profit Fuel gross profit Cents per litre Year ended December 31, 2009 Year ended December 31, 2008 % Change 1,852.8 1,670.4 182.4 9.84% 48.7 36.0 12.7 2,174.0 2,022.4 151.6 6.97% 61.8 45.6 16.2 26.08% 26.21% 93.2 64.5 28.7 92.4 58.8 33.6 30.79% 36.36% 25.4 — 25.4 20.0 — 20.0 100.0% 100.0% 249.2 12.7 28.7 25.4 182.4 221.4 16.2 33.6 20.0 151.6 $ 0.066 $ 0.065 (15) (17) 20 (21) (21) (22) 1 10 (15) 27 — 27 13 (22) (15) 27 20 3 parkland income fund 2009 summary report 17 MaNaGeMeNt’S DiScuSSioN aND aNalySiS year ended December 31, 2009 FUEl VOlUMES Fuel volumes for the year increased 17% with total fuel volume of 2,742 million litres in 2009 compared to 2,353 million litres in 2008. Supply and Wholesale fuel volumes increased 10% to 817 million litres from 740 million litres last year. Retail fuel volumes for the year increased 20% or 241 million litres with most of the net increase in retail fuel volumes being attributed to adding 40 new Esso sites in the first quarter of 2009. Propane volumes remained consistent for the year at 135 million litres compared to 147 million litres in 2008. At the retail level, same-store fuel sales volumes increased approximately 1.9% over the prior year in our company operated and controlled sites but decreased approximately 0.1% in the independent dealer network. Overall Parkland same store sales were up 0.7% over 2008 compared to Western Canada industry average increase of 0.5% (as per Stats Canada 10 month data). Net sales and operating revenue for the year ended December 31, 2009 was $2,020 million, down 14% from $2,348 million during the same period last year. The primary reason was a 15% decrease in fuel marketing revenue caused by the reduction in the selling price of petroleum products. However, fuel volumes sold for the twelve month period increased 17% compared to 2008. Total cost of sales for the year ended December 31, 2009 was $1,771 million, down 17% from $2,127 million a year earlier, primarily because of the lower cost of petroleum products versus 2008. Total gross profit for the year was $249.1 million, up 13% from $221.4 million a year earlier. OPERATING ExPENSES Operating and direct costs incurred during 2009 were $106.9 million, up 16% from $92.0 million a year earlier. Marketing, general and administrative expenses were $51.4 million in 2009, up 7% from $48.2 million a year earlier. Contributing to the increase in expenses were the acquisitions of Columbia Fuels and Anmart Fuels during 2009. SOURCES AND USES OF CASH FROM OPERATIONS For the year ended 2009, operating activities generated $112.4 million of cash of which $62.3 million was used to fund unitholder distributions, $26.5 million was used for net growth and maintenance capital purchases net of proceeds from disposals. Total additions of intangibles for the year was $12.1 million, primarily related to the implementation of the new Enterprise Resource Planning (“ERP”) system. Investing activities related to acquisitions was $48.3 million for the year. Convertible debentures issued during the year, net of issue costs realized proceeds of $93.4 million, the proceeds of which were used to retire long-term debt. Parkland’s cash position at December 31, 2009 decreased by $1.9 million during the year compared to an increase of $13.2 million for 2008. INTEREST ON lONG-TERM DEBT Interest on long-term debt was $5.1 million in 2009 which was consistent with $4.8 million in 2008. INCOME TAx ExPENSE An income tax recovery of $1.1 million in 2009 was incurred compared to $.8 million expense in 2008. EARNINGS Earnings before income taxes for the year was $47.5 million, up 5% from $45.2 million a year earlier. Net earnings for 2009 was $48.6 million, up 10% from $44.3 million in 2008. EBITDA for 2009 was $90.8 million, up $9.6 million or 12% from $81.2 million in 2008. The increase in EBITDA from 2008 can be summarized as a $27.7 million increase in gross profit somewhat offset with an increase in operating and direct costs and marketing, general and administrative expenses of $18.1 million. 18 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS CAPITAl ASSETS AND AMORTIzATION Amortization expense was $37.9 million, up 25% from $30.4 million a year earlier. A full year of amortization for capital assets and intangible assets acquired in 2008 plus amortization of capital assets acquired in 2009 accounted for the increase. The Fund expended $38.6 million in net capital investments compared with $31.1 million the prior year. Current year expenditures of $6.6 million was classified as maintenance capital compared with $9.2 million in 2008 and $32.0 million was classified as growth capital, including intangible asset expenditures related to Parkland’s new ERP system, compared with $21.9 million in 2008. Summary of the eight Most recently completed consolidated Quarterly results (millions of Canadian dollars, except volume and per Unit amounts) For the three months ended 2009 Dec 31 Sep 30 Jun 30 Mar 31 2008 Dec 31 Sep 30 Jun 30 Mar 31 Fuel volume (millions of litres) 728 712 628 673 664 608 525 523 Net sales and operating revenue 542.4 543.1 479.5 455.1 524.5 734.1 606.6 482.9 Net earnings EBITDA Net earnings per Unit — Basic — Diluted 4.5 13.7 0.09 0.09 10.1 21.4 0.20 0.20 14.3 23.4 0.28 0.28 19.8 32.3 0.40 0.40 10.1 25.1 0.20 0.20 13.1 19.9 0.26 0.26 11 19 0.22 0.22 10.2 17.2 0.20 0.20 Parkland continues to generate increased fuel volume each quarter compared to the corresponding quarters in the prior year. The addition of the Commercial segment has reduced the volatility of quarterly earnings. financial condition, capital resources and liquidity Parkland has available an Extendible Facility, including bank indebtedness and letters of credit, up to a maximum amount of $400 million (increased from $265 million to $400 million on January 31, 2010) and bears interest, payable monthly, at the bank’s prime lending rate plus 2.5 to 3.25% per annum. The Extendible Facility is subject to renewal on June 7, 2010 at which time it can be extended at Parkland or lender’s option for 364 days. If the Extendible Facility is not extended, all amounts outstanding are repayable in eight consecutive quarterly installments, commencing on the last day of the quarter following the then maturity date, with the first seven of such installments being one-eighth of the outstanding balance and remainder at the end of the period. Security for the Extendible Facility is assignment of insurance and an unlimited guarantee from the secured entities. At December 31, 2009 Parkland had $25.9 million in long-term debt (excluding $1.1 million of the current portion and the convertible debentures). At December 31, 2009, $28.0 million of the revolving operating facility was utilized. At December 31, 2009 the debt component portion of the convertible debentures including accreted issue costs was $87.8 million, the equity portion was $5.7 million. Parkland believes that cash flow from operations will be adequate to fund maintenance capital, interest and targeted distributions. Growth capital expenditures in 2010 will be funded by the revolving extendible credit facility. Additional debt incurred will be serviced by anticipated increases in cash flow and will only be borrowed within Parkland’s debt covenant limits. parkland income fund 2009 summary report 19 MaNaGeMeNt’S DiScuSSioN aND aNalySiS Parkland manages its capital structure and makes adjustments according to market conditions to maintain flexibility while achieving the objectives stated above. To manage the capital structure, Parkland may adjust capital spending, adjust distributions paid to Unitholders, issue new Units, issue new debt or repay existing debt. Parkland takes into account the maximum equity growth limits when managing and monitoring its capital structure. Parkland’s remaining available growth capital at December 31, 2009 was approximately $78 million (December 31, 2008 - $179 million). If the maximum equity growth allowed is exceeded, the Fund may be subject to trust taxation prior to 2011. On December 31, 2009 Parkland was in compliance with all of the financial covenants under its syndicated credit facility. The ratios are tested on a trailing rolling four quarter basis. The financial covenants under the syndicated credit facility are as follows: 1. Ratio of current assets to current liabilities shall not be less than 1.10 to 1.00 on a consolidated basis; 2. Ratio of funded debt (which excludes the convertible debentures) to EBITDA shall not exceed 2.50 to 1.00; 3. Ratio of EBITDA less maintenance capital expenditures and taxes to the sum of interest, principal and distributions shall not be less than 1.00 to 1.00; and 4. Ratio of total debt to EBITDA shall not exceed 3.50 to 1.00. liquidity risk is the risk that Parkland will encounter difficulties in meeting its financial liability obligations. Parkland manages its liquidity risk through cash and debt management. In managing liquidity risk, Parkland has access to various credit products at competitive rates. Parkland believes it has sufficient funding through the use of these facilities to meet foreseeable borrowing requirements. Distributions The following table sets forth the record date, date of payment, per Trust Unit amount of distributions paid and total cash distributed for 2009: Payment Date Per Trust Unit Total Cash Distributed (thousands) Record Date January 30, 2009 February 27, 2009 March 31, 2009 April 30,2009 May 29, 2009 June 30, 2009 July 31, 2009 August 31, 2009 September 30, 2009 October 30, 2009 November 30, 2009 December 31, 2009 Total distributions declared to Unitholders in 2009 February 13, 2009 March 13, 2009 April 15, 2009 May 15, 2009 June 15, 2009 July 15, 2009 August 14, 2009 September 15, 2009 October 15, 2009 November 13, 2009 December 15, 2009 January 15, 2010 0.105 0.105 0.105 0.105 0.105 0.105 0.105 0.105 0.105 0.105 0.105 0.105 1.26 5,231 5,232 5,235 5,235 5,237 5,248 5,268 5,269 5,270 5,272 5,281 5,271 63,049 20 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS critical accounting estimates Estimates are used when accounting for items such as allowance for doubtful accounts, inventory provisions, calculation of fair value for the convertible debentures, intangibles and goodwill, impairment of property plant and equipment, asset retirement obligations, the refinery remediation accrual, amortization and income taxes. These estimates are subject to measurement uncertainty and the effect on the financial statements of future periods could be material. At December 31, 2004 Parkland recorded the net estimated liability that would be realized if the refinery assets were remediated, dismantled and sold for salvage values. Estimated remediation costs were supported by a third party report, while other costs were based on management estimates. During 2007 Parkland activated a portion of the refinery to toll produce fluids used in the oilfield and utilized tankage for fuel storage. Parkland is continuing to pursue other economically viable uses for the remaining processing units at the refinery and, therefore, any decision to dismantle, remediate and sell the refinery site has been deferred indefinitely. Parkland renewed its refinery operating license in 2007 and fully intends to maximize the revenue generating potential of this facility. The obligations relating to future environmental remediation, however, continue to exist. Assuming Parkland continues operations at the refinery, remediation for any potential environmental liabilities associated with a complete dismantling of the site would be delayed indefinitely. Parkland has estimated the cost of remediation on the basis that any future remediation would be part of a multi-year management plan. Remediation costs have been estimated from independent engineering studies conducted in January 2008 resulting in an additional $3.0 million accrual as at December 31, 2007. The studies recognize increases in remediation costs as well as increases in remediation standards since the original study conducted in 1999. The expected cost, to be incurred over an extended period after operations cease, are approximately $6.5 million net of salvage value of equipment. Actual costs and salvage values could differ significantly from these estimates when, and if, the refinery is remediated, dismantled and sold. Parkland has conducted its regular review of the book values of its property, plant and equipment, goodwill and intangible assets and tested for impairment of value. Parkland determined that there was no impairment to be recognized. financial instruments CREDIT AND MARKET RISK A substantial portion of Parkland’s accounts receivable balance is with customers in the oil and gas, mining and forestry industries and is subject to normal industry credit risks. In light of the current market conditions, Parkland’s credit department has been expanded and policies strengthened to control the credit granting process. Parkland performs ongoing credit evaluations of its customers and outstanding debts are regularly monitored. Parkland is exposed to market risk from changes in the Canadian prime interest rate which can impact its borrowing costs. The $97.8 million convertible debentures bear interest at a 5 year annual fixed rate of 6.5% payable semi- annually in arrears on November 30 and May 31 in each year commencing May 31, 2010, reducing Parkland’s exposure to variable rates. Parkland purchases certain products in US dollars and sells such products to its customers typically in Canadian dollars. As a result, fluctuations in the value of the Canadian dollar relative to the US dollar can result in foreign exchange gains and losses. RISK MANAGEMENT Parkland manages its exposure to credit risk through rigorous credit granting procedures, typically short payment terms and security interests where applicable. Parkland attempts to closely monitor financial conditions of its customers and the industries in which they operate. parkland income fund 2009 summary report 21 MaNaGeMeNt’S DiScuSSioN aND aNalySiS As at December 31, 2009 Parkland’s accounts receivable balance was $115 million, consistent with the prior year’s $113 million. At December 31, 2009 the provision for impairment of credit losses was $3.5 million. off balance Sheet arrangements The Fund has not engaged in any off balance sheet arrangements. outlook Two months into the first quarter of 2010, retail fuel sales volumes remain similar to the 2009 year and retail margins remain strong in spite of the winter season when demand for gasoline is typically weakest. Commercial fuel sales volumes remain soft in northern Alberta and British Columbia as upstream oil and gas customers have not fully resumed prior drilling programs. Warmer weather in British Columbia continues to cause softness in heating oil volume and profits. Current refiners’ margins have been running at the low end of seasonal norms compared to Q1 2009 when they were well above average for a first quarter. On January 31, 2010, Parkland closed the acquisition of Bluewave Energy, which had 2009 fuel sales volumes of 645 million litres. The Bluewave acquisition makes Parkland the largest independent fuel marketer in Canada with a coast- to-coast network of retail, commercial, cardlock, heating oil and propane distribution outlets. On October 31, 2006, the Canadian Minister of Finance announced the Specified Investment Flow Through Trust (SIFT) income and distribution tax, which will be effective January 1, 2011. Parkland intends to seek unitholder approval to convert back to a corporation by way of a trust unit for corporate share tax-deferred exchange no later than January 2011. After conversion, provided there are no material adverse changes in Parkland’s outlook for business conditions, Parkland plans to become a high-yield growth Company with an expected dividend between 75% and 110% of the current level of the Fund’s annual distribution ($1.26 per unit). At the May 3, 2010 Parkland Annual and Special Meeting, Parkland will request approval from unitholders to complete the conversion of Parkland Income Fund into a new public corporation (Parkland Fuel Corporation) effective no later than January 2011. Parkland will schedule a second Special Meeting of unitholders to re-approve the conversion plan if there is a material change in business conditions before conversion or if Parkland proposes conversion before 2011 because of acquisition opportunities or other factors. Non capital resources EMPlOYEES Parkland’s ability to deliver on its strategy is contingent on retaining and acquiring employees with the proper skill sets to drive the key initiatives forward. As such, there is a focus on recruiting and retaining key employees. To date, Parkland has been successful at filling critical positions as needed. Compensation plans for senior management have significant incentive arrangements, with overall compensation dependent on Parkland’s performance, business unit operating performance and results on individually identified key initiatives. Parkland has an active Human Resources department, with compensation plans and benefits reviewed on an ongoing basis to best meet the needs of Parkland and the various employee groups it includes. In lieu of a pension plan, Parkland provides a unit purchase plan with matching employer contributions. A profit sharing plan is also available to most employees with greater than one year service. Initiatives like these are intended to bring a sense of ownership to the employee groups as increases in profits and unit prices are beneficial to all. 22 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS SAFETY In addition to other risks, Parkland’s primary business involves the transportation and sale of fuel products and other dangerous goods such as anhydrous ammonia, which have an inherently high degree of risk. Parkland provides training to all staff as required to mitigate these risks and has operations and response procedures to cover risk situations. Safety bonuses are also provided to employees in higher risk roles as a means of motivating safe performance of duties. Parkland has a Health, Safety & Environment (“HSE”) department and HSE Committees. The HSE Committees represent all areas of Parkland’s business and ensures all identified risks are properly mitigated and that procedures and documentation are consistent across the entire organization. In 2008 and 2009, Parkland satisfactorily completed internal audits of its safety program and facilities, with the highest audit scores in the areas of greatest risk. TECHNOlOGY Parkland utilizes technology to assist with the administration and control of its operations. Technology initiatives are primarily implemented in-house with outside consultants used to assist in specific areas. Parkland’s technology initiatives include upgrading Point of Sale systems at convenience store and service station sites, upgrading cardlock hardware and software; expanding the use of its handheld inventory billing devices for bulk fuel sales and continued maintenance and security related to overall network administration and Emergency Response Plan processes. Parkland is currently undergoing extensive business process re-engineering and an upgrade of its ERP software. Parkland has engaged external consultants who have experience in the fuel marketing industry and with our ERP system to assist management with this project. Extensive testing in a controlled environment will be conducted before implementing any changes to Parkland’s accounting and reporting systems. Parkland will be “going live” with its ERP system in the first quarter of 2010 which will consolidate and streamline “procure-to-pay” and “order-to-cash” transaction streams with integration to various external applications. Throughout 2010 Parkland will be expanding and completing the ERP implementation including integration of all 2009 and prior acquisitions. Integration of Bluewave onto the Parkland ERP system is not expected until 2011. Based on the current long-range technology plans, Parkland plans to implement technology changes using qualified and experienced external consultants within a test environment to minimize any undue risk to Parkland’s business related to required or planned technology changes. business risks Risks Related to the Business and the Industry RETAIl PRICING AND MARGIN EROSION Retail pricing for motor fuels is very competitive, with major oil companies and new entrants such as grocery chains and large retailers active in the marketplace. From time to time, factors such as competitive pricing, seasonal over-supply and lack of responsiveness of retail pricing to changes in crude oil costs can lead to lower margins in Parkland’s business. This is normally limited to seasonal time frames or limited market areas but could occur more extensively. Furthermore, difficult fuel market conditions may also adversely affect Parkland’s major customers and create increased credit risk. These risks are partially mitigated by Parkland’s other sources of revenue, conservative credit policies, geographic diversification and by the wholesale business, which typically would only share in a portion of any market erosion. COMPETITION We compete with major integrated oil companies, other commercial fuel and propane marketers, convenience store chains, independent convenience stores, gas station operators, large and small food retailers, discount stores and mass merchants, many of which are well-established companies. In recent years, several non-traditional retail segments have parkland income fund 2009 summary report 23 MaNaGeMeNt’S DiScuSSioN aND aNalySiS entered the motor fuel retail business, including supermarkets, club stores and mass merchants. These non-traditional motor fuel retailers have obtained a significant share of the motor fuel market and this could grow. In some of our markets, our competitors have been in existence longer and have greater financial, marketing and other resources than we do. We may not be able to compete successfully against current and future competitors, and competitive pressures faced by us could materially and adversely affect our business, results of operations and financial condition. VOlATIlITY IN CRUDE OIl PRICES AND IN WHOlESAlE PETROlEUM PRICING AND SUPPlY Our motor fuel and propane revenues are a significant component of total revenues. Crude oil and domestic wholesale petroleum markets display significant volatility. We are susceptible to interruptions in the supply of motor fuel at our facilities. General political conditions and instability in oil producing regions, particularly in the Middle East, Africa and South America, could significantly and adversely affect crude oil supplies and wholesale production costs. local supply interruptions may also occur. Volatility in wholesale petroleum supply and costs could result in significant changes in the retail price of petroleum products and in lower fuel gross margin per litre. In addition, changes in the retail price of petroleum products could dampen consumer demand for motor fuel. These factors could materially influence our motor fuel volume, motor fuel gross profit and overall customer traffic, which, in turn, could have a material adverse effect on our operating results and financial condition. The development of the oilsands in northern Alberta, together with upgraders producing a distillate stream, has the potential to add significant supply volumes in the diesel market over time. Production at these facilities is subject to production interruptions which can periodically disrupt the availability of refined product in the region. Some of our supply contracts allow us to participate in refiners’ margins. These margins are volatile and not assured. CREDIT Parkland grants credit to customers ranging from small independent service station operators to larger reseller and commercial/industrial accounts. These accounts may default on their obligations. Parkland manages this exposure through rigorous credit granting procedures, typically short payment terms and security interests where applicable. We attempt to closely monitor financial conditions of our customers. SAFETY AND ENVIRONMENTAl The operation of service stations, refinery facilities and petroleum, propane and anhydrous ammonia transport trucks and commercial facilities carry an element of safety and environmental risk. To prevent environmental incidents from occurring, Parkland has extensive safety and environmental procedures and monitoring programs at all of its facilities. To mitigate the impact of a major accident, Parkland has emergency response programs in place and provides its employees with extensive training in operational responsibilities in the event of an environmental incident. The Fund is insured for all major environmental risk areas. DEPENDENCE ON KEY SUPPlIERS Parkland’s business depends to a large extent on a small number of fuel suppliers, a number of which are parties to long-term supply agreements with the Fund. An interruption or reduction in the supply of products and services by such suppliers could adversely affect Parkland’s revenue and distributions in the future. Further, if any of the long-term supply agreements are terminated or end in accordance with their terms, Parkland may experience disruptions in its ability to supply customers with product until a new source of supply can be secured, if at all. Such a disruption may have a material negative impact on Parkland’s revenues, distributions and its reputation. Additionally, Parkland cannot ensure that it will be able to renegotiate such agreements or negotiate new agreements on terms favorable to Parkland. Parkland attempts to mitigate this risk by maintaining a diverse supply portfolio to include substantial volumes from each of its major suppliers and growing to a level of annual sales volumes that will offer potential suppliers a compelling share of the fuel supply business in our regional market. Parkland has contracts in place with 6 major refiners with contract durations ranging from 2 to 10 years and 57% of Parkland’s fuel volumes correspond to contracts with 3 years or more remaining. 24 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS ECONOMIC CONDITIONS Demand for transportation fuels fluctuates to a certain extent with economic conditions. In a general economic slowdown there is less recreational and industrial travel and consequently less demand for fuel products, which may adversely affect Parkland’s revenue, profitability and ability to pay distributions. Parkland serves the farm trade. This sector is subject to weather variation and commodity price fluctuation. The oil and gas exploration sector is subject to changes in commodity prices and access to capital which impacts the drilling budgets of Parkland’s customers. This largely affects oilfield fluids, propane and bulk fuel sales directly as well as impacts communities in primary exploration regions in Alberta and northern British Columbia. The oil production sector is more stable but will ultimately decline with reduced exploration activity. Parkland provides propane and related product sales to this sector. Forestry has seen reduced activity over the past two years and continues to be weak. Mining is susceptible to variations in commodity prices. Parkland’s fuel customers include several mines producing different metals and their demand for fuel may decline. Part of Parkland’s profitability is derived from its share of refiners’ margins under a long-term supply contract. Refiners’ margins may deteriorate in the face of declining demand for petroleum products. WEATHER Parkland’s sales volume and profitability are subject to weather influences especially winter temperatures. Parkland’s heating oil and propane sales are greatest in the winter months but can decline if winter temperatures are warmer than normal. Parkland has propane and heating oil operations in Atlantic Canada, Ontario, British Columbia and the Yukon which all experience different weather patterns which can mitigate the impacts of regional winter temperature differences. In the spring and fall seasons, weather can negatively influence fertilizer sales in Parkland’s commercial business group. DEPENDENCE ON KEY PERSONNEl Parkland’s success will be substantially dependent on the continued services of senior management. The loss of the services of one or more members of senior management could adversely affect Parkland’s operating results. In addition, Parkland’s continued growth depends on the ability of Parkland and its subsidiaries to attract and retain skilled operating managers and employees and the ability of its key personnel to manage Parkland’s growth and consolidate and integrate its operations. There can be no assurance that Parkland will be successful in attracting and retaining such managers, employees and other personnel. AlTERNATE FUElS Industry continues to develop alternate non-liquid fuel technologies and continues to improve the efficiency of internal combustion engines. To date, no economically viable alternative to the transportation fuels Parkland markets is widely available. Should such an alternative become widely available, it may negatively affect the demand for Parkland’s products. As well, the federal government and certain provinces have developed or are developing legislation requiring the inclusion of ethanol in gasoline and use of biodiesel which may negatively affect the overall demand for fossil fuel products. ClIMATE CHANGE Parkland does not operate any industrial sites and is not a major emitter of greenhouse gases. The federal and provincial governments in Canada are formulating laws and regulations designed to limit greenhouse gas emissions which would be expected to result in a decline of consumption of petroleum products over time. parkland income fund 2009 summary report 25 MaNaGeMeNt’S DiScuSSioN aND aNalySiS TECHNOlOGY At the operational level, Parkland relies on electronic systems for recording of sales and accumulation of financial data. A major breakdown of computer systems would disrupt the flow of information and could cause a loss of records. This is mitigated by redundancies, emergency response plans and back-up procedures. The conversion and upgrade of electronic systems could result in lost or corrupt data which could impact the accuracy of financial reporting and management information. Parkland intends to implement its updated ERP system in the first quarter of 2010. The implementation includes the conversion and integration of existing legacy applications and the re-engineering of many processes and controls. Parallel systems will not be fully run at the time of implementation. While there has been robust testing of the new ERP system and extra resources are being deployed to manage the implementation, there is risk that components of the implementation and related applications will not perform as planned, data could be lost and business could be disrupted. INSURANCE Although we have a comprehensive insurance program in effect, there can be no assurance that potential liabilities will not exceed the applicable coverage limits under our insurance policies. Consistent with industry practice, not all risk factors are covered by insurance and no assurance can be given that insurance will be consistently available or will be consistently available on an economically feasible basis. The Fund maintains insurance coverage for most environmental risk areas, excluding underground tanks at service stations. Although not insured, these risks are managed through ongoing monitoring, inventory reconciliations and tank replacement programs. MANAGEMENT OPERATIONS OF INDUSTRIES lP The Board of Directors of Parkland Industries ltd. oversees the management and operation of Parkland’s operating entities. As a result, holders of Units of Parkland will have limited say in matters affecting the operation of the business and, if such holders are in disagreement with the decisions of the Board of Directors, they will have limited recourse. The control exercised by the Board of Directors may make it more difficult for others to attempt to gain control or influence the activities of the operating entities. INTEREST RATES Most of Parkland’s loans have floating rates and may be negatively impacted by increases in interest rates, the effect of such increases would be to reduce the amount of cash available for distributions. In addition, the market price of the Units at any given time may be affected by the level of interest rates prevailing at such time. The $97.8 million convertible debentures bear interest at a 5 year annual fixed rate of 6.5% payable semi-annually in arrears on November 30 and May 31 in each year commencing May 31, 2010, reducing Parkland’s exposure to variable rates. GOVERNMENT lEGISlATION Transportation fuel sales are taxed by the federal (GST and excise tax), provincial and, in some cases, municipal governments. Increases in taxes or changes in tax legislation are possible and could negatively affect profitability of the Fund. REFINERY OPERATING PERMIT The Bowden refinery has operated as a toll-based petrochemical processing site and fuel storage site. Parkland obtained a new permit in 2007 to allow for continued use or for alternative uses of the facility. The new permit expires in 2017. If operations at the refinery are not continued, Parkland may incur significant remediation costs. An estimate of the potential future remediation cost has been accrued and provided for in Parkland’s financial statements. 26 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS REGIONAl ECONOMIC CONDITIONS Parkland’s revenues may be negatively influenced by changes in regional or local economic variables and consumer confidence. External factors that affect economic variables and consumer confidence and over which Parkland exercises no influence include unemployment rates, levels of personal disposable income and regional or economic conditions. Changes in economic conditions could adversely affect consumer spending patterns, travel and tourism in certain of Parkland’s market areas. Some of our sites are located in markets which are more severely affected by weak economic conditions. With the acquisition of Bluewave Energy, with primary operations in Atlantic Canada, Parkland has added Atlantic Canada economic exposure risk and at the same time has diversified overall Canadian exposure that was previously heavily weighted to Western Canada variables. RISKS RElATED TO THE STRUCTURE OF THE FUND The following items refer to the structure of the Fund and the legal entities that are contained within this structure. The structure is described in greater detail in the Annual Information Form and the 2009 Information Circular. Parkland Income Fund (the “Fund”) owns Parkland Income Trust (the “Trust”) which in turn owns a portion of Parkland Holdings limited Partnership (“Holdings lP”). The remainder of Holdings lP is held by investors through the Class B and Class C limited Partnership Units referred to in Note 12 of the financial statements. Holdings lP owns Parkland Industries limited Partnership (“Industries lP”) which conducts most of the business of the Fund and owns Bluewave Energy ltd. Holdings lP also owns Parkland Industries ltd. (the “Administrator”) which is the general partner of Industries lP, Parkland Refining ltd. which holds the Bowden refinery assets, Joy Propane ltd, United Petroleum Products, 0851738 BC ltd. (Columbia Fuels) and Neufeld Petroleum and Propane ltd. CASH DISTRIBUTIONS ARE NOT GUARANTEED AND WIll FlUCTUATE WITH PERFORMANCE OF THE BUSINESS Although the Fund intends to distribute the interest and distributions income earned by the Fund, less expenses and amounts, if any, paid by the Fund in connection with the redemption of Units, there can be no assurance regarding the amounts of income to be generated by the Business and transferred indirectly to the Fund. The actual amount distributed in respect of the Units will depend upon numerous factors, including profitability, fluctuations in working capital, the sustainability of margins, capital expenditures and the actual cash amounts distributed to the Fund, directly and indirectly, by the Trust, Holdings lP and Industries lP. CAPITAl INVESTMENT The timing and amount of capital expenditures will directly affect the amount of cash available for distribution to Unitholders. Distributions may be substantially reduced at times when significant capital or other expenditures are made. NATURE OF UNITS Securities like the Units of Parkland are hybrids in that they share certain attributes common to both equity securities and debt instruments. The Units do not represent a direct investment in the Trusts, Holdings lP, Industries lP or the Administrator and should not be viewed by investors as Trust Units, Trust Notes, Holdings lP Units, Industries Participating lP Units or Parkland Shares. As holders of Units of Parkland, Unitholders will not have the statutory rights normally associated with ownership of shares of a corporation including, for example, the right to bring “oppression” or “derivative” actions. The Units represent a fractional interest in the Fund. The Fund’s primary assets will be Trust Notes and Trust Units. The price per Unit is a function of anticipated Distributable Cash and other market factors. The Units are not “deposits” within the meaning of the Canada Deposit Insurance Corporation Act (Canada) and are not insured under the provisions of the Act or any other legislation. Furthermore, the Fund is not a trust company and, accordingly, is not registered under any trust and loan company legislation as it does not carry on or intend to carry on the business of a trust company. parkland income fund 2009 summary report 27 MaNaGeMeNt’S DiScuSSioN aND aNalySiS DISTRIBUTION OF SECURITIES ON REDEMPTION OR TERMINATION OF THE FUND Upon redemption of units or termination of the Fund, the Trustee may distribute the Fund Notes, Trust Notes, Trust Units or Holdings lP Units directly to the Unitholders, subject to obtaining any required regulatory approvals. Fund Notes, Trust Notes, Trust Units or Holdings lP Units so distributed may not be qualified investments for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans and other registered plans, depending upon the circumstances at the time. THE FUND MAY ISSUE ADDITIONAl UNITS DIlUTING ExISTING UNITHOlDERS’ INTERESTS The Fund Declaration of Trust authorizes the Fund to issue an unlimited number of Units for the consideration and on those terms and conditions as are established by the Directors without the approval of any Unitholders. Additional Units will be issued by the Fund on the exchange of Rollover lP Units. RESTRICTIONS ON POTENTIAl GROWTH The payout by Industries lP of substantially all of its operating cash flow will make additional capital and operating expenditures dependent on increased cash flow or additional financing in the future. lack of those funds could limit the future growth of Industries lP and its cash flow. INVESTMENT ElIGIBIlITY AND FOREIGN PROPERTY There can be no assurance that the Units will continue to be qualified investments for registered retirement savings plans, deferred profit sharing plans, registered retirement income trusts, registered education savings plans or other registered plans or that the Units will not be foreign property under the Tax Act. The Tax Act imposes penalties for the acquisition or holding of non-qualified or ineligible investments and on excess holdings of foreign property. ENACTMENT OF THE TAx ON INCOME TRUSTS On June 12, 2007, the legislation (“Bill C-52”) implementing the new tax on publicly traded income trusts and limited partnerships (the “SIFT tax”), referred to as “Specified investment flow-through” (“SIFT”) entities received third reading in the House of Commons and on June 22, 2007, the Bill received Royal Assent. For SIFTs in existence on October 31, 2006 including Parkland, the SIFT tax will be effective in 2011 or earlier if certain rules related to “undue expansion” are not adhered to. Under the SIFT tax, distributions from certain types of income will not be deductible for income tax purposes by SIFTs in 2011 and thereafter and any resultant trust level taxable income will be taxed at an approximate of the corporate income tax rate. The SIFT rate was initially 31.5% however on October 30, 2007, the Government of Canada, in its Mini-Budget, proposed changing the rate to match corporate rates. Distributions from income subject to the SIFT tax will be considered taxable dividends to unitholders, generally eligible for the dividend tax credit. As a result, the SIFT tax will not adversely affect Canadian investors who hold Parkland units in a non-tax deferred account. Distributions representing a return of capital for income tax purposes will continue to be an adjustment to a unitholder’s adjusted cost base of trust units. Parkland’s intention is to seek unitholder approval to convert back to a corporation no later than January 2011. As a corporation, Parkland will pay applicable Federal and Provincial corporate income taxes. After conversion, provided there are no material adverse changes in Parkland’s outlook for business conditions, Parkland plans to become a high- yield growth Company with an expected dividend between 75% and 110% of the current level of the Fund’s annual distribution ($1.26 per unit). At the May 3, 2010 Parkland Annual and Special Meeting, Parkland will request approval from unitholders to complete the conversion of Parkland Income Fund into a new public corporation effective no later than January 2011. Parkland will schedule a second Special Meeting of unitholders to re-approve the conversion plan if there is a material change 28 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS in business conditions before conversion or if Parkland proposes conversion before 2011 because of acquisition opportunities or other factors. Parkland’s trust to corporation conversion plan and corresponding dividend policy is subject to existing Canadian tax laws and Parkland’s outlook for business conditions. Changes in Canadian Tax laws or adverse changes in Parkland’s business outlook could negatively impact the conversion plan and Parkland’s intended corporate dividend policy. Supplementary information Parkland seeks to provide relevant information to allow investors to evaluate its operations. The nature of this information is limited by competitive sensitivities, confidentiality terms in written agreements and Parkland’s policy not to provide guidance regarding future earnings. We have developed a template of supplementary information that is published with each quarterly financial report. For persons seeking information regarding fuel margins we refer to outside sources: websites of western Canadian refiners, Bloomberg’s Oil Buyers Guide, Nymex contracts for gasoline and crude oil as well as Government of Canada and Natural Resources Canada reports. Data from these sources will not be sufficient to calculate Parkland’s fuel margin given that it does not correlate directly with our market region and supply contracts, but should indicate margin trends. Distribution reinvestment plan Parkland has a Distribution Reinvestment Plan administered by Valiant Trust. Details are available from the Fund or from Valiant Trust. controls environment Management is responsible for the preparation and fair presentation of the consolidated financial statements. We have established disclosure controls and procedures, internal controls over financial reporting, and corporate-wide policies to provide that Parkland’s consolidated financial position, results of operations and cash flows are presented fairly. Our disclosure controls and procedures are designed to ensure timely disclosure and communication of all material information required by regulators. All internal control systems, no matter how well designed, have inherent limitations. Therefore, these systems provide reasonable, but not absolute assurance, that financial information is accurate and complete. Parkland, under the supervision and participation of management, including the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting pursuant to Multinational Instrument 52-109 “Certificate of Disclosure in Issuers’ Annual and Interim Filings” as of the end of the period covered by this report. Based on the evaluations, it was concluded that our disclosure controls and procedures and internal controls over financial reporting were effective as of December 31, 2009 to provide reasonable assurance that information required is recorded, processed, summarized and reported within the time periods specified by the applicable Canadian securities regulators. Furthermore, our disclosure controls and procedures and internal controls over financial reporting include controls and procedures designed to provide reasonable assurances that information required to be disclosed in reports filed or submitted under applicable Canadian securities regulations is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. parkland income fund 2009 summary report 29 MaNaGeMeNt’S DiScuSSioN aND aNalySiS Parkland is currently undergoing extensive business process re-engineering and an upgrade of its ERP software. The objectives of the project include the following: • • Introduce best business practices, consistency and uniformity to its core business operations, controls and accounting processes; Integrate all systems and processes of the business, including that of the acquired companies, into its ERP software; and • Complete the integration of the acquired companies by merging systems, processes, controls and operations. The initiatives outlined above are now expected to be substantially completed during 2010, with the exception of the recent acquisition of Bluewave Energy planned for 2011. Parkland has a Disclosure Committee, consisting of three senior management members, that approves all items for public disclosure and also considers whether all items required to be disclosed are disclosed. New accounting Standards adopted GOODWIll AND INTANGIBlE ASSETS The Canadian Institute of Chartered Accountants (“CICA”) issued Handbook section 3064 Goodwill and Intangible Assets which is effective for periods beginning on or after October 1, 2008. This section, which replaces Section 3062 Goodwill and Other Intangible Assets and Section 3450 Research and Development Costs, establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The provisions have been adopted retroactively and did not result in an adjustment to the financial statements. Goodwill and intangible assets have been recognized through business acquisitions as well as the software systems project costs which were capitalized to intangible assets. FINANCIAl INSTRUMENTS The CICA has issued sections 3855 and 3862 which apply to the recognition, measurement and disclosure of financial instruments. The sections establish revised standards for debt securities that are not quoted in an active market and provide further guidance on the accounting for impairment of loans and receivables. The sections discuss the classification of fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. These provisions have been incorporated within these statements where appropriate. recent accounting Standards BUSINESS COMBINATIONS, CONSOlIDATED FINANCIAl STATEMENTS, AND NON-CONTROllING INTERESTS In January 2009, the CICA issued three new accounting standards: Handbook Section 1582, Business Combinations, Section 1601, Consolidated Financial Statements and Section 1602, Non-controlling Interests. Section 1582 provides clarification as to what an acquirer must measure when it obtains control of a business, the basis of valuation and the date at which the valuation should be determined. Acquisition-related costs must be accounted for as expenses in the periods they are incurred, except for costs incurred to issue debt or share capital. This new standard will be applicable for acquisitions completed on or after January 1, 2011 although adoption in 2010 is permitted to facilitate the transition to International Financial Reporting Standards in 2011. Section 1601 establishes standards for preparing consolidated financial statements after the acquisition date; Section 1602 establishes standards for the accounting and presentation of non-controlling interests. These new standards must be adopted concurrently with Section 1582. 30 2009 summary report parkland income fund MaNaGeMeNt’S DiScuSSioN aND aNalySiS INTERNATIONAl FINANCIAl REPORTING STANDARDS (“IFRS”) Canadian public companies will be required to prepare their financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, for fiscal years beginning on or after January 1, 2011. Effective January 1, 2011, Parkland will adopt IFRS as the basis for preparing its consolidated financial statements. Parkland will report the financial results for the quarter ended March 31, 2011 prepared on an IFRS basis. Parkland will also provide comparative data on an IFRS basis, including an opening balance sheet as at January 1, 2010. The Fund is currently assessing this change, the impact of which cannot be determined at this time. Regular progress reports on the status of Parkland’s IFRS implementation project are provided to the Audit Committee of the Board of Directors. An international consulting firm has been engaged to provide technical accounting advice and project management guidance on the conversion to IFRS. contractual obligations The Fund has contracted obligations under various debt agreements as well as under operating and capital leases for land, building and equipment. Minimum lease and principal payments ($000’s) under the existing terms are as follows: Year ending, December 31 2010 2011 2012 2013 2014 Thereafter Mortgages, bank indebtedness, bank loans, notes payable and convertible debentures 92 12,068 11,733 — 97,750 — 121,643 Operating leases 4,634 4,480 3,925 3,704 2,711 12,180 31,634 Capital leases 1,134 733 609 390 92 799 3,757 The Fund also has purchase commitments under its fuel supply contracts that require the purchase of approximately 1.0 billion litres of product over the next year. units outstanding As at December 31, 2009, Parkland had 50.2 million units outstanding and 0.5 million unit options outstanding. All of the options outstanding are currently exercisable into units. parkland income fund 2009 summary report 31 MaNaGeMeNtS reSpoNSibility for fiNaNcial StateMeNtS Management’s responsibility for financial Statements The accompanying financial statements of Parkland Income Fund have been prepared by management in accordance with generally accepted accounting principles. Parkland’s accounting procedures and related systems of internal control are designed to provide reasonable assurance that its assets are safeguarded and its financial records are reliable. In recognizing that Parkland is responsible for both the integrity and objectivity of the financial statements, management is satisfied that these financial statements have been prepared accordingly and within reasonable limits of materiality. Further, management is satisfied that the financial information throughout the balance of this annual report is consistent with the information presented in the financial statements. PricewaterhouseCoopers llP have been appointed by the unitholders of Parkland to serve as the Fund’s external auditors. They have examined the financial statements of the Fund for the years ended December 31, 2009 and 2008. The Audit Committee has reviewed these statements with management and the auditors, and has reported to the Board of Directors. The Board has approved the information contained in the financial statements of Parkland which are contained in this report. Michael W. Chorlton President and CEO Red Deer, Alberta March 2, 2010 Kenneth J. Grondin Senior Vice President and CFO Red Deer, Alberta March 2, 2010 32 2009 summary report parkland income fund auDitorS’ report to the unitholders of parkland income fund We have audited the consolidated balance sheets of Parkland Income Fund (the “Fund”) as at December 31, 2009 and 2008 and the consolidated statements of earnings and comprehensive income and retained earnings and cash flows for each of the years in the two year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Fund as at December 31, 2009 and 2008 and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2009 in accordance with Canadian generally accepted accounting principles. Chartered Accountants Calgary, Alberta March 1, 2010 ($000’s) ASSeTS Current Assets Cash and cash equivalents Accounts receivable Income tax recoverable Inventories (Note 4) Prepaid expenses and other Property, plant and equipment (Note 5) Intangible assets (Note 6) Goodwill Other long-term assets Future income taxes (Note 20) LIABILITIeS Current Liabilities Bank indebtedness (Note 7) Accounts payable and accrued liabilities Distributions declared and payable Deferred revenue Long-term debt - current portion (Note 8) Long-term debt (Note 8) Convertible debentures (Note 9) Asset retirement obligations (Note 10) Refinery remediation accrual (Note 11) Future income taxes (Note 20) UnIThoLdeRS’ CAPITAL (Note 12) Class B Limited Partners’ Capital Class C Limited Partners’ Capital Unitholders’ Capital Convertible equity (Note 9) parkland income fund 2009 summary report 33 coNSoliDateD balaNce SHeet December 31 2009 December 31 2008 17,612 114,763 771 51,757 8,146 193,049 210,985 35,485 28,269 2,927 3,620 474,335 28,000 106,047 5,205 5,520 1,052 145,824 25,917 87,827 5,462 6,527 12,020 283,577 2,440 53,881 128,749 5,688 190,758 474,335 19,529 112,927 313 34,666 6,796 174,231 195,917 17,619 13,500 2,699 1,522 405,488 40,000 73,505 5,385 3,260 3,224 125,374 70,151 — 3,094 6,107 9,206 213,932 3,153 53,461 134,942 — 191,556 405,488 See accompanying notes to the consolidated financial statements. Commitments (Note 21). Contingencies (Note 26). James Pantelidis Chairman of the Board Michael W. Chorlton President and CEO 34 2009 summary report parkland income fund coNSoliDateD StateMeNtS of earNiNGS aND coMpreHeNSive iNcoMe aND retaiNeD earNiNGS For the years ended ($000’s except Unit and per Unit amounts) Net sales and operating revenue Cost of sales Gross profit Expenses Operating and direct costs Marketing, general and administrative Amortization Refinery remediation Accretion expense on asset retirement obligations Interest on long-term debt Interest and accretion on convertible debentures (Gain) loss on disposal of property, plant and equipment Earnings before income taxes Income tax expense (recovery) (Note 20) Current Future Net earnings Comprehensive income Retained earnings, beginning of year Allocation to Class B Limited Partners (Note 12) Allocation to Class C Limited Partner s (Note 12) Allocation to Unitholders (Note 12) Retained earnings, end of year Net earnings per Unit (Note 3) — basic — diluted Units outstanding (Note 12) See accompanying notes to the consolidated financial statements. December 31 2009 December 31 2008 2,020,016 1,770,891 249,125 2,348,126 2,126,745 221,381 106,903 51,382 37,878 420 184 5,119 633 (863) 201,656 47,469 (450) (685) (1,135) 48,604 48,604 — (2,730) (5,174) (40,700) — 91,960 48,212 30,359 394 113 4,831 — 344 176,213 45,168 (313) 1,140 827 44,341 44,341 — (6,298) (4,634) (33,409) — $ $ 0.97 0.97 50,194 $ $ 0.88 0.88 49,665 For the years ended ($000’s) Cash Provided By Operations Net earnings Add (deduct) non-cash items Amortization (Gain) loss on disposal of property, plant and equipment Unit incentive compensation (Note 12) Refinery remediation accrual Accretion expense on asset retirement obligation Accretion on convertible debenture Future taxes Funds flow from operations Cash expenditures on asset retirement obligation Net changes in non-cash working capital (Note 23) Cash from operating activities Financing Activities Long-term debt repayments Distributions to Class B Limited Partners (Note 12) Distributions to Class C Limited Partners (Note 12) Distributions to Unitholders (Note 12) Fund Units issued (Note 12) Convertible debenture equity (Note 9) Repurchase of Fund Units Issue of convertible debenture, net of issue costs (Note 9) Proceeds from long-term debt Net changes in non-cash working capital (Note 23) Cash (used for) from financing activities Investing Activities Acquisition of Imperial Oil Customer Volume (Note 14) Acquisition of Columbia Fuels (Note 15) Acquisition of Anmart Fuels fuel marketing business (Note 16) Acquisition of Eagle Marine (Note 17) Acquisition of NOCO Energy fuel marketing business (Note 18) Acquisition of Wiebe Transport (Note 19) Change in other assets Additions of property, plant and equipment Additions of intangibles Proceeds on sale of property, plant and equipment Cash used for investing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See accompanying notes to the consolidated financial statements. parkland income fund 2009 summary report 35 coNSoliDateD StateMeNt of caSH floWS December 31 2009 December 31 2008 48,604 44,341 37,878 (863) 2,950 420 184 75 (685) 88,563 (280) 24,109 112,392 41 (3,443) (6,689) (52,152) 2,309 5,688 — 87,752 (48,555) (12,090) (27,139) (7,200) (33,483) (4,812) (2,819) — — (228) (31,489) (12,101) 4,962 (87,170) (1,917) 19,529 17,612 30,359 344 2,390 394 113 — 1,140 79,081 — (7,464) 71,617 (5,827) (8,860) (6,627) (47,929) 1,736 — (4,520) — 60,847 960 (10,220) — — — — (8,808) (6,899) (1,325) (31,935) — 803 (48,164) 13,233 6,296 19,529 36 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS DeceMber 31, 2009 All amounts presented in tables are in thousands of Canadian dollars, except Unit, per Unit and text information unless otherwise indicated. 1. accounting policies BASIS OF PRESENTATION Parkland Income Fund (The Fund) is an unincorporated, open-ended limited purpose mutual fund trust established under the laws of the Province of Alberta on April 30, 2002. The Fund was created to acquire the fuel marketing, convenience store and related ancillary businesses formerly owned by Parkland Industries ltd. This acquisition was completed on June 28, 2002 through a Plan of Arrangement that resulted in the previous Parkland Industries ltd. shareholders indirectly exchanging their shares for Units in the Fund or Class B limited Partnership Units in Parkland Holdings limited Partnership (“lP Units”), a limited partnership controlled by the Fund. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada (GAAP). PRINCIPlES OF CONSOlIDATION The Consolidated Financial Statements include the accounts of Parkland Income Fund and its subsidiaries, partnerships and trusts (collectively “Parkland” or “the Fund”). All significant accounts and transactions between consolidated entities are eliminated. The lP units are, to the greatest extent possible, the economic equivalent to a unit in the Fund. The Class B lP units had a call feature which would have resulted in their conversion to trust units in June 2008 resulting in an income tax obligation to the holders. At a meeting of Class B lP unitholders on June 22, 2007 this call feature was deferred to June 30, 2011. In certain circumstances the Fund may compel the exchange of the lP Units. As such, the lP units, including both Class B and Class C units, are treated as being equivalent to Fund Units. USE OF ESTIMATES The preparation of the Consolidated Financial Statements necessarily involves the use of estimates and approximations. Should the underlying assumptions change, the actual amounts could differ from those estimated. Estimates are used when appropriate for accounting purposes. These estimates are subject to measurement uncertainty and the effect on the financial statements of future periods could be material. FINANCIAl INSTRUMENTS A financial asset is cash or a contractual right to receive cash or another financial asset, including equity, from another party. A financial liability is the contractual obligation to deliver cash or another financial asset to another party. A derivative is a financial instrument whose value changes in response to a specified variable, requires little or no net investment and is settled at a future date. An embedded derivative is a derivative that is a part of a non-derivative contract and not directly related to that contract. Under this standard, embedded derivatives must be accounted for as a separate financial instrument. A non-financial derivative is a contract that can be settled net in cash or another financial instrument. All financial instruments are initially recorded at fair value and are subsequently accounted for based on one of four classifications: held for trading, held-to-maturity, loans and receivables and other financial liabilities or available-for-sale. The classification of a financial instrument depends on its characteristics and the purpose for which it was acquired. Fair values are based upon quoted market prices available from active markets or are otherwise determined using a variety of valuation techniques and models. i) Held for trading Held for trading financial instruments are financial assets or financial liabilities that are purchased with the intention of selling or repurchasing in the near term. Any financial instrument can be designated as held for trading as long as its fair value can be reliably measured. A derivative is classified as held for trading, unless designated as and considered an effective hedge. Held for trading instruments are recorded at fair value with any subsequent gains or losses from changes in the fair value recorded directly into earnings. parkland income fund 2009 summary report 37 NoteS to coNSoliDateD fiNaNcial StateMeNtS All of the Fund’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and distributions declared and payable are designated as held for trading and are recorded at fair value. ii) Held-to-maturity Held-to-maturity investments are financial assets with fixed or determinable payments and a fixed maturity that the Fund has the intent and ability to hold to maturity. These financial assets are measured at amortized cost using the effective interest method. Any gains or losses arising from the sale of a held-to-maturity investment are recorded directly into earnings. The Fund has not designated any financial instruments as held-to-maturity. iii) loans and receivables and other financial liabilities loans and receivables and other financial liabilities are accounted for at amortized cost using the effective interest method of amortization. The convertible debentures are classified as debt on the balance sheet with a portion of the proceeds allocated to equity. The debt component has been measured at amortized cost net of debt issue costs. iv) Available-for-sale Available-for-sale assets are those assets that are not classified as held for trading, held-to-maturity or loans and receivables. Available-for-sale instruments are recorded at fair value. Any gains or losses arising from the change in fair value is recorded in OCI and upon the sale of the instrument or other-than-temporary impairment, the cumulative gain or loss is transferred into earnings. The Fund has not designated any financial instruments as available-for-sale. The Fund accounts for debt issue costs by capitalizing or deferring as a contra-liability and accreting such costs back to the debt over it’s life. All guarantees upon inception are recognized on the balance sheet at their fair value. No subsequent re-measurement is required to fair value each guarantee at each subsequent balance sheet date unless the guarantee is considered a derivative. INVENTORIES The Fund values its inventories at the lower of cost and market value. The Fund uses the first-in first-out (FIFO) method of determining the cost of inventory. FIxED ASSETS Fixed assets are recorded at cost. Where costs are incurred to extend the useful life of property, plant and equipment or to upgrade its capabilities, the amounts are capitalized to the related asset. Costs incurred to repair or maintain property, plant and equipment are expensed as incurred. The Fund assesses the value of its capital assets for impairment and adjusts to the lower of cost or market value as required. AMORTIzATION Amortization is provided for on a straight line basis over the estimated useful lives of assets at the following annual rates: Land improvements Buildings Equipment Assets under capital lease 4 percent 5 percent 10 - 20 percent 10 - 20 percent 38 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS INTANGIBlE ASSETS Customer relationships and tradenames acquired during acquisitions are recorded at estimated fair value and are amortized using the straight-line method over their estimated useful lives of 5 years. The value of non-compete agreements acquired is recorded at estimated fair value and is amortized using the straight-line method over the term of the agreement. Intangible assets are tested for impairment when conditions exist which may indicate that the estimated future net cash flows from the asset will be insufficient to cover its carrying value. Project costs related to a major system implementation have been capitalized as part of the cost of intangible assets and will be amortized using the straight-line method over the estimated useful life of 10 years. GOODWIll The Fund records goodwill relating to corporate acquisitions when the total purchase price exceeds the fair value for accounting purposes of the net identifiable assets and liabilities of the acquired company. The goodwill balance is assessed for impairment annually at year-end or as events occur that could result in an impairment. Impairment is recognized based on the fair value of the reporting entity compared to the book value of the reporting entity. If the fair value of the reporting entity is less than the book value, impairment is measured by allocating the fair value of the reporting entity to the identifiable assets and liabilities as if the reporting entity has been acquired in a business combination for a purchase price equal to its fair value. Any excess of the book value of goodwill over the implied value of goodwill is the impairment amount. Impairment is charged to earnings and is not tax affected, in the year in which it occurs. Goodwill is stated at cost less impairment and is not amortized. DEFERRED REVENUE Deferred revenue consists of deposits and prepayments by customers for the purchase of product not yet delivered and not recorded as revenue by the Fund. INCOME TAxES Income earned directly by the limited Partnership is not subject to income taxes as its income is taxed directly to the limited Partnership unitholders. Income earned in the Fund and distributed to the Fund unitholders is taxed directly to the Fund unitholders. Income taxes incurred by taxable entities controlled by the Fund are accounted for using the future method. Under this method, the Fund recognizes a future tax liability whenever recovery or settlement of the carrying amount of an asset or liability would result in future income tax outflow. Similarly, the Fund recognizes a future income tax asset whenever recovery or settlement of the carrying amount of an asset or liability would generate future income tax reductions. ASSET RETIREMENT OBlIGATIONS The estimated future costs to remove underground fuel storage tanks at locations where the Fund has a legal obligation to remove these tanks are recorded as Asset Retirement Obligations at the time the tanks are installed. A corresponding increase to the carrying value of the fuel storage tanks is also recorded at installation. The Fund recognizes accretion expense in connection with the discounted retirement obligations and amortization in connection with the increase in carrying value over the estimated remaining life of the respective underground fuel storage tanks. EARNINGS PER UNIT Basic earnings per unit are calculated on the weighted average number of units outstanding for the period. Diluted earnings per unit are calculated by application of the Treasury Stock Method to determine the dilutive effects of the convertible debentures. Under this method the diluted number of units are calculated based upon the weighted average number of units outstanding for the period plus the dilutive effect of the exercise of those employee options which were “in-the-money” during the period. Special distributions to unitholders in the form of additional units are recorded at the declaration date. Dilutive trust units are arrived at by taking the weighted average trust units and the trust units issuable on conversion of the convertible debentures, giving effect to the potential dilution that would occur had conversion occurred at the beginning of the period or on issuance of the convertible insturment, whichever is later. The computation of earnings per unit for prior years are retroactively restated to reflect the change in units as a result of special distributions in the form of new units issued. parkland income fund 2009 summary report 39 NoteS to coNSoliDateD fiNaNcial StateMeNtS REVENUE The Fund recognizes revenue on its sale of goods when title passes to the purchaser, physical delivery has occurred and collection is reasonably assured. Revenue related to all services provided is recognized when the service is provided, the price is fixed and collection is reasonably assured. GRANTS OF OPTIONS AND RESTRICTED UNITS The Fund accounts for its grants of options and restricted units in accordance with the fair value based method of accounting for stock-based compensation. CASH AND CASH EQUIVAlENTS Cash and cash equivalents include short-term investments, such as money market deposits or similar type instruments, with a maturity of three months or less when purchased. VENDOR REBATES Vendor rebates are received for high volume inventory purchases and are recorded initially as a reduction to inventory with a subsequent reduction in cost of sales when the product is sold. 2. changes in accounting policies CURRENT Goodwill and Intangible Assets The Canadian Institute of Chartered Accountants (“CICA”) issued Handbook section 3064 Goodwill and Intangible Assets which is effective for periods beginning on or after October 1, 2008. This section, which replaces Section 3062 Goodwill and Other Intangible Assets and Section 3450 Research and Development Costs, establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The provisions have been adopted retroactively and did not result in an adjustment to the financial statements. Goodwill and intangible assets have been recognized through business acquisitions as well as the software systems project costs which were capitalized to intangible assets. Financial Instruments The CICA has issued Handbook sections 3855 and 3862 which apply to the recognition, measurement and disclosure of financial instruments. The sections establish revised standards for debt securities that are not quoted in an active market and provide further guidance on the accounting for impairment of loans and receivables. The sections discuss the classification of fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. These provisions have been incorporated within these statements as set out in Note 22. FUTURE Business Combinations, Consolidated Financial Statements, and Non-controlling Interests In January 2009, the CICA issued three new accounting standards: Handbook Section 1582, Business Combinations, Section 1601, Consolidated Financial Statements and Section 1602, Non-controlling Interests. Section 1582 provides clarification as to what an acquirer must measure when it obtains control of a business, the basis of valuation and the date at which the valuation should be determined. Acquisition-related costs must be accounted for as expenses in the periods they are incurred, except for costs incurred to issue debt or share capital. This new standard will be applicable for acquisitions completed on or after January 1, 2011 although adoption in 2010 is permitted to facilitate the transition to IFRS in 2011. Section 1601 establishes standards for preparing consolidated financial statements after the acquisition date; Section 1602 establishes standards for the accounting and presentation of non-controlling interest. These new standards must be adopted concurrently with Section 1582. 40 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS Transition to International Financial Reporting Standards Canadian public companies will be required to prepare their financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, for fiscal years beginning on or after January 1, 2011. Effective January 1, 2011, Parkland will adopt IFRS as the basis for preparing the consolidated financial statements. Parkland will report the financial results for the quarter ended March 31, 2011 prepared on an IFRS basis. Parkland will also provide comparative data on an IFRS basis, including an opening balance sheet as at January 1, 2010. The Fund is currently assessing this change, the impact of which cannot be determined at this time. 3. earnings analysis and earnings per unit Net earnings Earnings per unit - basic - diluted Equivalent units outstanding, beginning of year Weighted average of Class C units issued Weighted average of Fund units issued Weighted average of Fund units repurchased Weighted average of equivalent units issued pursuant to restricted unit plan Weighted average of equivalent units issued pursuant to distribution reinvestment plan Weighted average of equivalent units issued pursuant to exercise of unit options Denominator utilized in basic earnings per unit Incremental equivalent units outstanding that were dilutive Denominator utilized in diluted earnings per unit 4. inventories Gas and diesel Agricultural inputs Convenience store merchandise Lubricants Propane Other 2009 48,604 $ $ 0.97 0.97 49,665 149 — — 133 79 60 50,086 143 50,229 2009 36,261 4,848 1,962 4,174 1,364 3,148 51,757 2008 44,341 $ $ 0.88 0.88 49,986 155 — (65) 85 53 52 50,266 33 50,299 2008 19,177 6,122 3,525 4,021 717 1,104 34,666 For the year ended December 31, 2009, the amount of inventory recognized as an expense amounted to $1.8 billion (2008 - $1.7 billion) 5. property, plant and equipment December 31, 2009 Land Land improvements Buildings Assets under capital lease Equipment December 31, 2008 Land Land improvements Buildings Assets under capital lease Equipment 6. intangible assets December 31, 2009 Customer relationships Tradenames Non-compete agreements Software systems project costs December 31, 2008 Customer relationships Tradenames Non-compete agreements parkland income fund 2009 summary report 41 NoteS to coNSoliDateD fiNaNcial StateMeNtS Cost 31,714 13,449 66,444 4,302 211,587 327,496 Cost 29,455 10,720 52,012 12,675 184,609 289,471 Cost 29,696 4,966 2,171 12,101 48,934 Cost 17,649 4,966 1,946 24,561 Accumulated Amortization — 3,548 16,953 666 95,344 116,511 Accumulated Amortization — 3,141 14,645 9,551 66,217 93,554 Accumulated Amortization 9,962 2,819 668 — 13,449 Accumulated Amortization 4,760 1,835 347 6,942 Net Book Value 31,714 9,901 49,491 3,636 116,243 210,985 Net Book Value 29,455 7,579 37,367 3,124 118,392 195,917 Net Book Value 19,734 2,147 1,503 12,101 35,485 Net Book Value 12,889 3,131 1,599 17,619 42 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS 7. bank indebtedness On June 8, 2009, the Fund entered into a credit agreement with a syndicate of banks which included a revolving operating facility for working capital requirements to a maximum of $70 million and subject to margin calculations. The operating facility bears interest at prime plus 2.75%. The effective rate of interest at December 31, 2009 was 5.00 % (2008 -3.90 %). The bank indebtedness is secured in conjunction with the Extendible Facility and is secured by a mortgage over the Fund’s real property, assignment of insurance and an unlimited guarantee from the entities providing security. Effective January 31, 2010, the Fund accepted the terms and conditions of a proposed financing arrangement with HSBC Bank of Canada and a Banking Syndicate of 7 other banks (Note 28). The proposed financing arrangement will provide for an increase in the fund’s credit facility from $265 million to $400 million. The proposed financing arrangement is comprised of $80 million for operating debt, $45 million for letters of credit and the remainder ($275 million) for term debt. The proposed financing will assist in the asset purchase acquisition of Bluewave Energy and growth capital of the Fund. 8. long-term Debt Bank loans Extendible facility Mortgage payable Capital lease obligations Less current portion 2009 94 23,504 295 3,076 26,969 1,052 25,917 Estimated repayments for the next five years are: 2010 2011 2012 2013 2014 Thereafter Interest expense included in minimum lease payments Obligations under capital leases Other Loans 1,134 733 609 390 92 799 3,757 (681) 3,076 92 12,068 11,733 — — — 23,893 — 23,893 2008 167 71,825 — 1,383 73,375 3,224 70,151 Total 1,226 12,801 12,342 390 92 799 27,650 (681) 26,969 BANK lOANS Bank loans are payable in monthly instalments of $5,992. The bank loan is non interest bearing and is secured by vehicles with a net book value of $100,402. (2008-$160,339) parkland income fund 2009 summary report 43 NoteS to coNSoliDateD fiNaNcial StateMeNtS ExTENDIBlE FACIlITY On June 8, 2009, the Fund entered into a credit agreement, which replaced the pre-existing agreements, with a syndicate of banks consisting of the following facilities: (i) a revolving operating facility for working capital requirements to a maximum of $70 million, subject to margin calculations. The operating facility bears interest at prime plus 2.75%. The effective rate of interest at year end was 5.00% (2008 - 3.90%). (ii) a capital loan with interest only payable. This is an extendible facility subject to renewal on June 7, 2010 at which time it can be extended at the fund or lender’s option for 364 days. The interest is payable monthly at the bank’s prime lending rate plus 2.75% per annum. The effective rate of interest at year end was 5.0% (2008 - 4.15%). If not renewed, the loan is due in June 2012. The obligations under the credit agreement are secured by a demand debenture for the property of the Fund, assignment of insurance and an unlimited guarantee from the entities providing security. Standby fees apply to the unused portion of the credit facilities at a rate of 0.65% to 0.75% depending on the ratio of funded debt to EBITDA. Under the terms of the credit agreement, the Fund must comply with certain restrictive covenants. As at December 31, 2009, the Fund was in compliance with these requirements. The fund has outstanding letters of credit totaling $28.5 million (December 31, 2008 -$31.6 million) which mature at various dates to October 29, 2010. The Fund’s credit facility provides for letters of credit to a maximum of $45.0 million. If the extendable facility is not extended, all amounts outstanding are repayable in eight consecutive quarterly installments, commencing on the last day of the quarter following the then maturity date, with the seven of such installments being one-eighth of the outstanding balance and remainder due at the end of the period. MORTGAGE PAYABlE The mortgage is payable in yearly instalments of $20,000 and due February 12, 2011. Interest on the mortgage is 8% per annum and the mortgage is secured by the land and buildings with a net book value of $1.8 million. CAPITAl lEASES Capital leases are payable in monthly instalments totaling $82,983 including interest varying from 0% to 10.37%. The leases are for land, buildings and equipment with a net book value of $3,635,844 and mature at various dates ending July 2022. 9. convertible Debentures On December 1, 2009 the Trust issued $97.75 million principal amount of 6.5 % convertible unsecured subordinated debentures, at a price of $1,000 per debenture. Interest on these debentures is paid semi-annually in arrears, on November 30 and May 31 in each year commencing May 31, 2010. The debentures are convertible at the option of the holder at any time into trust units at a conversion price of $14.60 per trust unit. The debentures mature on November 30, 2014 at which time they are due and payable. On or after November 30, 2012 and prior to November 30, 2013, the Debentures may be redeemed in whole or in part at the option of the Fund on not more than 60 days and not less than 30 days prior notice at a price equal to the principal amount thereof plus accrued and unpaid interest, provided that the “current market price” of the trust units of the Fund (the “Trust Units”) on the date immediately preceding the date on which the notice of redemption is given is not less than 125% of the Conversion Price. On or after November 30, 2013 and prior to the Maturity Date, the Debentures may be redeemed in whole or in part at a price equal to their principal amount plus accrued and unpaid interest. Upon the maturity of the Debentures, the Fund may pay the outstanding principal of the Debentures in cash or may at its option, on not greater than 60 days and not less than 40 days prior notice and subject to regulatory approval, elect to satisfy its obligations to repay all or a portion of the principal amount of the Debentures which have matured or been redeemed by issuing and delivering that number of Trust Units obtained 44 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS by dividing the aggregate principal amount of the Debentures which have matured or redeemed by 95% of the weighted average trading price of the Trust Units on the Toronto Stock Exchange (the “TSx”) for the 20 consecutive trading days ending five trading days preceding the date fixed for redemption or the Maturity Date, as the case may be. Any accrued and unpaid interest thereon will be paid in cash. The debentures are classified as debt on the balance sheet with a portion of the proceeds allocated to equity, representing the value of the conversion feature. The residual method was used to value the debt and equity and the interest rate used to value the debt component was 8%. As the debentures are converted to trust units, a portion of the debt and equity amounts will be transferred to Unitholders’ Capital. The debt component of the convertible debentures is carried net of issue costs of $4 million. The debt balance, net of issue costs, accretes over time to the principal amount owing on maturity. Using the effective interest rate method, the accretion of the debt discount and the interest paid to debenture holders are expensed each period as part of the item line “interest and accretion on convertible debentures” in the consolidated statements of earnings and comprehensive income and retained earnings. The following table reconciles the principal amount, debt component and equity component of the convertible debentures. Principal Ammount of Debentures Convertible Debenture Debt Convertible Debenture Equity December 1, 2009 issuance Issue costs Accretion Balance December 31, 2009 97,750 — 97,750 — 97,750 91,800 (4,048) 87,752 75 87,827 10. asset retirement obligations A reconciliation of the Fund’s estimated liability for the removal of its underground storage tanks is as follows: Asset retirement obligations, beginning of year Additions (disposals) during the year Change in estimates Accretion expense Asset retirement obligations, end of year 2009 3,094 2,184 — 184 5,462 5 ,950 ( 262) 5 ,688 — 5 ,688 2008 2,227 (104) 858 113 3,094 The Fund is liable for the environmental obligations related to the removal of its underground storage tanks at properties that it leases. The Asset Retirement Obligation (ARO) represents the present value estimate of the Fund’s cost to remove these tanks. The total undiscounted estimated future cash flows required to settle the Fund’s obligation increased to $7.1 million in fiscal 2009 (2008 -$4.0 million), which primarily reflects the Fund’s addition of new leased sites. Discounting these incremental cash flows resulted in a $1.7 million increase in the asset retirement obligation at December 31, 2009. The costs are expected to be incurred between 2010 and 2027. At December 31, 2009, the discount rate used to determine the present value of the future costs ranges from 3.43 % to 6.90% (2008 - 6.9%). parkland income fund 2009 summary report 45 NoteS to coNSoliDateD fiNaNcial StateMeNtS 11. refinery remediation accrual Refinery remediation accrual, beginning of year Accretion expense Refinery remediation accrual, end of year 2009 6,107 420 6,527 2008 5,713 394 6,107 In December 2004, the Fund eliminated the carrying value of its Bowden refinery and recorded a net liability of $3.4 million for future estimated costs of remediation of the site, net of salvage value, based on the uncertainty of creating an alternative to the refinery being dismantled, remediated and sold for salvage values. The Refinery Remediation Accrual represents the present value estimate of the Fund’s cost to remediate the site. The Fund has used the refinery for processing fluids used in the oilfields. The contract was terminated and the Fund is continuing to pursue other economically viable uses for the remaining processing units at the refinery. The Fund has used the tanks for storage in the past two years and has been upgrading the equipment for the railroad terminal and plans to use the tanks for storage and shipping product by rail. Therefore any decision to dismantle, remediate and sell the refinery site has been deferred indefinitely. The obligations relating to future environmental remediation, however, continue to exist. Assuming the Fund continues operations at the refinery, remediation for any potential environmental liabilities associated with a complete dismantling of the site would be delayed indefinitely. The Fund has estimated the discounted cost of remediation on the basis that operations continue and that remediation would be part of a multi year management plan. Remediation costs have been estimated from independent engineering studies conducted in December 2007. The total undiscounted estimated future cash flows, to be incurred over an extended period after operations cease, are approximately $13.8 million net of salvage value of equipment and will be accreted. The costs are expected to be incurred between 2018 and 2027. The discount rate used to determine the present value of the future costs is 6.9 % (2008 - 6.9 %). 12. unitholders’ capital An unlimited number of Fund Units and lP Units may be created and issued, pursuant to the Fund Declaration of Trust and the Amended and Restated limited Partnership Agreement, respectively, as outlined in the Plan of Arrangement. Fund Units represent an undivided interest in the Fund. lP Units represent a partnership interest in Parkland Holdings limited Partnership and are exchangeable on a one-for-one basis into Fund Units. Both Fund Unitholders and lP Unitholders are entitled to vote at meetings of the Fund and are entitled to distributions from time to time as determined by the Board of Directors. The Fund had no accumulated other comprehensive income at 2009 and 2008. 46 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS Class B Limited Partnership Units Balance, beginning of year Allocation of retained earnings Distribution to partners Exchanged for Fund Units Balance, end of year Class C Limited Partnership Units Balance, beginning of year Issued on capital acquisition, net of issue costs Allocation of retained earnings Distribution to partners Exchanged for Fund Units Balance, end of year Fund Units Balance, beginning of year Allocation of retained earnings Issued on vesting of restricted units Unit incentive compensation Issued for cash, net of issue costs Issued under distribution reinvestment plan Issued under unit option plan Distribution to unitholders Exchange of Limited Partnership Units Expired exchange units Units repurchased Balance, end of year Convertible equity Balance, end of year 2009 Number of Units (000’s) Amount Number of Units (000’s) 2,885 — — 3,153 2,730 (3,443) 8,534 — — (308) — (5,649) 2,577 2,440 2,885 2008 Amount 12,606 6,298 (8,860) (6,891) 3,153 5,238 53,461 5,165 54,121 208 — — 1,935 5,174 (6,689) (137) — 167 — — (94) 2,320 4,634 (6,627) (987) 5,309 53,881 5,238 53,461 41,542 134,942 36,287 141,978 — 40,700 136 — 4 144 146 — 2,950 35 1,332 942 — (52,152) — 89 — — 107 81 — 33,409 — 2 ,390 — 1,089 647 (47,929) 445 (109) — — — — 5,743 7,878 — — (765) (4,520) 42,308 128,749 41,542 134,942 — 5,688 — — 42,308 134,437 41,542 134,942 Total For Fund, Class B, Class C 50,194 190,758 49,665 191,556 UNIT OPTION PlAN The Fund has a Unit Option Plan under which the Fund may grant up to 3,600,000 Unit options to directors, officers, employees and consultants. The maximum number of options is reduced by the number of Units allocated to the Restricted Unit Plan. The Unit options have a 10 year term and, with limited exceptions, vest proportionally over the first three anniversary dates following the grant. The table below represents the status of the Fund’s Unit Option Plan as at December 31, 2009 and 2008 and the changes therein for the years then ended: parkland income fund 2009 summary report 47 NoteS to coNSoliDateD fiNaNcial StateMeNtS 2009 2008 Number of Units (000’s) Weighted Average Exercise Price Number of Units (000’s) Weighted Average Exercise Price 682 $ 6.58 (146) 536 536 6.45 6.62 6.62 $ $ 779 (97) 682 682 $ 6.60 6.68 6.58 6.58 $ $ Option units, beginning of year Exercised Option units, end of year Exercisable options, end of year Exercise prices for outstanding options at December 31, 2009 have the following ranges: 65,373 from $4.15 - $5.87, 123,496 from $6.32 - $6.68 and 347,015 from $6.73 - $7.27. These issue prices represent the market value at the time of issue. The corresponding remaining contractual life for these options range from three to six years. The Fund accounts for its grants of options using the fair value based method of accounting for stock based compensation. The total cost to be reported is $0.2 million (2008 - $0.2 million) and is included in the marketing, general and administrative expenses. RESTRICTED UNIT PlAN Effective January 1, 2006, the Fund adopted a Restricted Unit Plan to complement the Unit Option Plan. Under the Plan the Units granted in 2006 vest over a five year period and the Units granted in 2007, 2008 and 2009 vest over a three year period. The Units are subject to entity performance criteria. The table below represents the status of the Fund’s Restricted Unit Plan as at December 31, 2009 and the changes therein for the year then ended: Restricted units, beginning of year Granted Issued on vesting Cancelled 2009 Weighted Average Unit Price $ 12.70 6.40 12.81 13.33 Number of Units (000’s) 339 506 (136) (24) Restricted units, end of year 685 $ 8.28 2008 Weighted Average Unit Price $ 10.62 15.89 10.97 13.93 $ 12.70 Number of Units (000’s) 294 152 (88) (19) 339 The Fund accounts for its grants of restricted Units over the graded vesting schedule of each grant. Each grant of restricted Units is treated as if the grant were a series of awards rather than a single award. The fair value of the award is determined based on the different expected lives for the restricted Units that vest each year. The total cost to be reported for the restricted Units granted in 2009 is $2.9 million (2008 -$2.4 million). The compensation cost that has been included in marketing, general and administrative expenses for 2009 is $3.2 million (2008 - $2.2 million). 48 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS 13. capital Management The Fund’s capital structure is comprised of Unitholder’s capital plus long-term debt. The Fund’s objectives when managing its capital structure are to: 1) maintain financial flexibility so as to preserve the Fund’s access to capital markets and its ability to meet its financial obligations; and 2) finance internally generated growth as well as potential acquisitions. The Fund monitors its capital structure and financing requirements using non-GAAP financial metrics consisting of Net Debt to Capitalization and Net Debt to Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”). The metrics are used to monitor and guide the Fund’s overall debt position as a measure of the Fund’s overall financial strength and flexibility of capital structure. The Fund currently targets a Net Debt to Capitalization ratio of below 50% and is calculated as follows: Bank indebtedness Long-term debt and convertible debentures, including current portion Cash and cash equivalents Net Debt Unitholders’ Capital Capitalization Net Debt to Capitalization December 31, 2009 December 31, 2008 28,000 114,796 (17,612) 125,184 190,758 315,942 40% 40,000 73,375 (19,529) 93,846 191,556 285,402 33% The Fund’s Net Debt to Capitalization ratio increased to 40% from 33% at December 31, 2009 primarily due to the issuance of the convertible debentures in 2009 to fund acquisition and growth capabilities of the Fund. parkland income fund 2009 summary report 49 NoteS to coNSoliDateD fiNaNcial StateMeNtS The Fund currently targets a Net Debt to EBITDA of less than 3.5 times. This target may be periodically exceeded if strategic acquisitions are available. The Fund may also need to exceed this target as it continues its growth with consideration for the maximum equity limits referred to later in this note. At December 31, 2009, the Net Debt to EBITDA was 1.38 times (December 31, 2008 -1.16 times) calculated on a trailing twelve-month basis as follows: Net Debt Net earnings Add Interest on long-term debt Income tax expense Refinery remediation Accretion expense on ARO Interest and accretion on convertible debentures (Gain) loss on disposal of property, plant and equipment Amortization EBITDA Net Debt to EBITDA December 31, 2009 December 31, 2008 125,184 48,604 5,119 (1,135) 420 184 633 (863) 37,878 90,840 1.38 93,846 44,341 4,831 827 394 113 — 344 30,359 81,209 1.16 The Fund manages its capital structure and makes adjustments according to market conditions to maintain flexibility while achieving objectives stated above. To manage the capital structure, the Fund may adjust capital spending, adjust distributions paid to Unitholders, issue new Units, issue new debt or repay existing debt. The Fund takes into account the maximum equity growth limits as detailed below when managing and monitoring its capital structure. The Fund’s capital management objectives, evaluation measures, definitions and targets have remained unchanged over the period presented. The Fund is subject to certain financial covenants in its credit facility agreements and is in compliance with all financial covenants. As a result of the Canadian trust legislation passed in June 2007 and effective January 1, 2011, the Fund is subject to certain capital growth restrictions referred to as “normal growth” equity rules. These rules limit the amount of Unitholders’ capital that can be issued by the Fund up to December 31, 2010 based on the Fund’s market capitalization on October 31, 2006. The Fund’s allowed cumulative growth capital at December 31, 2009 was approximately $340 million (December 31, 2008 -$272 million). If the maximum equity growth allowed is exceeded, the Fund may be subject to trust taxation prior to 2011. The Fund’s remaining available growth capital at the end of 2009 was $78.3 million. 50 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS 14. acquisition of imperial oil customer volume On January 15, 2009 the Fund acquired the fuel supply and marketing business for 40 stations from Imperial Oil. The transaction was effective October 15, 2008 and was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Intangible assets Consideration: Cash paid to vendor (000’s) 7,200 7,200 7,200 7,200 15. acquisition of fuel Distribution business of columbia fuels ltd. On June 15, 2009 the Fund acquired the fuel distribution business of Columbia Fuels ltd., a company specializing in home heating oil, bulk petroleum and bio fuels based in Victoria, BC. The transaction was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Intangible asset - customer relationships Intangible asset - non compete agreement Goodwill Property, plant and equipment Future income tax liability Working capital Consideration: Cash paid to vendor Capital lease liabilities assumed Loan paid out Class C Limited Partnership Units Acquisition costs Non cash consideration: Capital lease liabilities assumed Class C Limited Partnership units issued (000’s) 4,100 200 14,181 12,265 (1,100) 7,613 37,259 21,721 1,841 10,347 1,935 1,415 37,259 (1,841) (1,935) 33,483 parkland income fund 2009 summary report 51 NoteS to coNSoliDateD fiNaNcial StateMeNtS The effective date of the transaction was June 1, 2009. The Fund issued 208,045 Class C limited Partnership units valued at $9.30 per unit. The units were valued using the 10 day weighted average market price based on the closing price 5 days before and 5 days after the announcement date of the acquisition. Goodwill and Intangible Assets have a tax basis of $4,813,667. In the third quarter the Fund adjusted the purchase price allocation for Columbia Fuels ltd in order to capture revisions to the acquired asset fair market values as well as the costs of acquisition. The estimated fair value of the assets acquired increased by $277,000 due to additional acquisition costs. Goodwill was reduced by $896,000, property plant and equipment increased by $859,000 and working capital increased by $314,000. In the fourth quarter, Goodwill and the future Income tax liability were increased by $500,000. 16. acquisition of fuel Marketing business of anmart fuels On July 8, 2009 the Fund acquired the fuel marketing business of Anmart Fuels. The transaction was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Intangible asset - customer relationships Intangible asset - non compete agreement Goodwill Property, plant and equipment Working capital Consideration: Cash paid to vendor Acquisition costs (000’s) 450 25 188 1,952 2,197 4,812 4,700 112 4,812 The effective date of the transaction was May 31, 2009. The above purchase price allocation was adjusted in December 2009 for revisions to the fair market value assessments including a reduction in goodwill of $4,000, an increase in property plant and equipment of $139,000 and a reduction in working capital of $135,000. 52 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS 17. acquisition of eagle Marine ltd. On December 1, 2009, the effective date, the Fund acquired the fuel marketing business of Eagle Marine ltd. The transaction was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Intangible asset - customer relationships Goodwill Property, plant and equipment Future income tax liability Working capital Consideration: Cash paid to vendor Acquisition costs (000’s) 297 400 2,100 (300) 322 2,819 2,792 27 2,819 18. acquisition of Noco energy fuel Marketing business On May 29, 2008 the Fund acquired the fuel supply and marketing business of NOCO Energy Canada Inc. The transaction was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Intangible assets Goodwill Working capital Consideration: Cash paid to vendor Acquisition costs (000’s) 6,800 1,906 102 8,808 8,500 308 8,808 The effective date of the transaction was May 29, 2008. Goodwill relates to the Fuel Marketing segment. The tax basis is equal to the accounting basis. parkland income fund 2009 summary report 53 NoteS to coNSoliDateD fiNaNcial StateMeNtS 19. acquisition of Wiebe transport On February 28, 2008, the Fund acquired all of the outstanding shares of 1374582 Alberta ltd. (“Wiebe Transport”). The transaction was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Capital assets Future income taxes Consideration: Cash paid to vendor Class C Limited Partnership Units Acquisition costs (000’s) 10,480 (1,261) 9,219 6,750 2,320 149 9,219 The effective date of the transaction was February 28, 2008 20. income taxes Income tax expense varies from the amounts that would be computed by applying the Canadian Federal and Provincial income tax rates to earnings before provision for income taxes as shown in the following table: 2009 % 2008 % Provision for income taxes at statutory rates 14,084 29.67 13,663 30.25 Add (deduct) the tax effect of : Income earned in limited partnership (18,479) (38.93) (15,600) (34.54) Effect of taxation of Trusts in 2011 (730) (1.53) Intangible assets recorded with carrying value in excess of tax 1,684 Rate differential and other items 2,306 (1,135) 3.53 4.86 (2.40) 356 — 2,408 827 0.79 — 5.33 1.83 54 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS The future income tax assets and liabilities are comprised of: Future income tax assets Effect of LIFO to FIFO inventory adjustment Capital assets tax values in excess of carrying values Refinery remediation Future income tax liabilities Intangible assets carrying value less than tax value Capital assets carrying value in excess of tax values Effect of taxation of Trusts in 2011 Effect of LIFO to FIFO inventory adjustment 21. commitments 2009 2008 — 1,988 1,632 3,620 1,686 1,370 7,078 1,886 12,020 (337) 332 1,527 1,522 — 1,598 7,608 — 9,206 The Fund has contracted obligations under various debt agreements as well as under operating leases for land, building and equipment. Minimum operating lease payments under the existing terms for each of the five succeeding years are as follows: 2010 2011 2012 2013 2014 Thereafter 4,634 4,480 3,925 3,704 2,711 12,180 The Fund has purchase commitments under its fuel supply contracts that require the purchase of approximately 1.0 billion litres of fuel products at variable costs over the next year. The Fund also has purchase commitments that require the purchase of $1.0 million of ammonia in the next year. parkland income fund 2009 summary report 55 NoteS to coNSoliDateD fiNaNcial StateMeNtS 22. financial instruments and risk Management FAIR VAlUES The fair value of cash and cash equivalents, accounts receivable, distributions payable, bank indebtedness and accounts payable and accrued liabilities are equal to their carrying values due to their short term maturities. The fair value of the extendible facility and operating line of credit equal their carrying values as their interest rates fluctuate with the prime lending rate. The carrying values and fair values of bank loans, capital lease obligations and mortgages and other long-term assets are as follows: Bank loans Capital lease obligations Mortgages and loans receivable Convertible debenture debt As at December 31, 2009 As at December 31, 2008 Carrying Value 389 3,076 2,927 Fair Value 390 3,880 2,977 87,827 92,218 Carrying Value 167 1,383 2,699 — Fair Value 169 1 ,827 2 ,571 — Fair value of bank loans, capital lease obligations and mortgages and loans receivable are estimated using discounted cash flow analysis based upon incremental borrowing rates for similar borrowing arrangements. The Fund has evaluated the financial instruments’ fair values in accordance with CICA Handbook sections 3855 and 3862. The Fund’s financial instruments that are carried at market were evaluated against the sections’ fair value hierarchy criteria. The Fund has concluded that all the financial instruments are level 3 as defined in Handbook section 3862, as the inputs to determine the market value are not based on observable market data. The Fund does not have a significant credit exposure to any individual customer. The Fund reviews each new customer’s credit history before extending credit and conducts regular reviews of its existing customers’ credit performance. Mortgages and loans receivable are receivable in monthly instalments of $79,764 (2008 -$75,334), bear interest at rates ranging between nil and 10.75 % (2008 - nil and 10.75 %) and are secured by specific assets of the mortgagee and are included in other long-term assets. CREDIT AND MARKET RISK A substantial portion of the Fund’s accounts receivable balance is with customers in the oil and gas, mining and forestry industries and is subject to normal industry credit risks. In light of the current market conditions, the Fund’s credit department has been expanded and policies strengthened to control the credit granting process. The Fund manages its exposure to credit risk through rigorous credit granting procedures, typically short payment terms and security interests where applicable. The Fund attempts to closely monitor financial conditions of its customers and the industries in which they operate. The Fund performs ongoing credit evaluations of its customers and outstanding debts are regularly monitored. At December 31, 2009, the provision for impairment of credit losses was $3.6 million (2008 $3.5 million). The Fund is exposed to market risk from changes in the Canadian prime interest rate which can impact its borrowing costs. A 1% change to interest rates would have caused an increase or decrease to earnings by $0.5 million as at December 31, 2009. 56 2009 summary report parkland income fund NoteS to coNSoliDateD fiNaNcial StateMeNtS The Fund purchases certain products in US dollars and sells such products to its customers typically in Canadian dollars. As a result, fluctuations in the value of the Canadian dollar relative to the US dollar can result in foreign exchange gains and losses. lIQUIDITY RISK liquidity risk is the risk that the Fund will encounter difficulties in meeting its short term financial obligations. The Fund’s liquidities are provided mainly by cash flows from operating activities and borrowings available under its revolving credit facilities. In managing liquidity risk, the Fund has access to various credit products at competitive rates. As at December 31, 2009, the Fund had available unused credit facilities in the amount of $166.9 million. The Fund believes it has sufficient funding through the use of its facility to meet foreseeable borrowing requirements. 23. Net changes in Non-cash Working capital Year ended Accounts receivable Inventories Prepaid expenses and other Income taxes recoverable Accounts payable and accrued liabilities Income taxes payable Deferred revenue Total for operating activities Operating line of credit Distributions declared and payable Total for financing activities Other cash flow information Cash taxes paid Cash interest paid 24. Segmented information December 31 2009 December 31 2008 11,213 (14,150) (1,116) (458) 26,770 — 1,850 24,109 (12,000) (90) (12,090) — 5,119 (10,567) 13,912 3,605 (313) (11,806) (1,716) (579) (7,464) 17,750 (16,790) 960 715 4,831 The Fund’s operations have been predominantly in fuel marketing and convenience store sales. With acquisitions in the past three years the Fund has expanded it’s sales in propane, fertilizer, lubricants, home heating oil, other agricultural inputs and industrial products and services. Fuel Marketing includes sales of gasoline, diesel, heating oil, propane fuel and variable rents derived from service station sites. Convenience Store Merchandise continues to include the operations of the Fund owned and operated convenience stores that are integrated into fuel marketing sites and bear common operating costs. Commercial includes sales of fertilizer, lubes, other agricultural inputs and industrial products and services. Due to the amount of common operating and property costs it is not practical to report these segments below their respective gross profits. The segregation of capital expenditures and total assets is not practical as the reportable segments represent product sales that are generated from common locations. parkland income fund 2009 summary report 57 NoteS to coNSoliDateD fiNaNcial StateMeNtS Fuel Marketing Convenience Store Merchandise Commercial Other Total 1,852,769 1,670,391 182,378 2,173,984 2,022,406 151,578 48,693 36,042 12,651 61,780 45,556 16,224 93,154 64,458 28,696 92,362 58,783 33,579 25,400 2,020,016 — 1,770,891 25,400 249,125 20,000 2,348,126 — 2,126,745 20,000 221,381 Year ended December 31, 2009 Net sales and operating revenue Cost of sales Gross profit Year ended December 31, 2008 Net sales and operating revenue Cost of sales Gross profit 25. related party transactions The Fund receives legal services from Bennett Jones llP where a director of the Fund is a partner. The fees paid during 2009 amounted to $1.1 million including $0.3 million in amounts payable at year end. (2008 - $0.5 million). These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The exchange amounts represent normal commercial terms. 26. contingencies The Fund is involved in various legal claims and legal notices arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Fund’s financial position, results of operations, or cash flows. Any amounts awarded as a result of these actions will be reflected when known. 27. comparative figures Certain comparative figures have been reclassified to comply with the presentation adopted in the current period. 28. Subsequent events ACQUISITION OF BlUEWAVE ENERGY lIMITED PARTNERSHIP Effective January 31, 2010, the Fund closed an asset purchase acquisition of Bluewave Energy limited Partnership (“Bluewave Energy”), a petroleum distribution company with branches throughout Canada, for consideration of approximately $231 million and is subject to post closing adjustments. The purchase was funded through the issuance of 1,240,000 Class C limited Partnership units valued at $15.6 million, the assumption of certain liabilities plus cash on closing. lONG-TERM DEBT Effective January 31, 2010, the Fund accepted the terms and conditions of a proposed financing arrangement with HSBC Bank of Canada and a Banking Syndicate of 7 other banks. The proposed financing arrangement will provide for an increase in the fund’s credit facility from $265 million to $400 million. The proposed financing arrangement is comprised of $80 million for operating debt, $45 million for letters of credit and the remainder ($275 million) for term debt. The proposed financing will assist in the asset purchase acquisition of Bluewave Energy and growth capital of the Fund. 58 2009 summary report parkland income fund SuppleMeNtary iNforMatioN Unaudited Volume (millions of litres) Retail gas and diesel Sales to Dealer (2) Sales to Consumer (3) Retail Sub-total Commercial Gasoline, Diesel and Heating Oil Propane Commercial Sub-total Supply and Wholesale Intersegment sales Total fuel volume Net sales and operating revenue (millions of Canadian dollars) Retail gas and diesel Sales to Dealer (2) Sales to Consumer (3) Retail Sub-total Commercial Gasoline, Diesel and Heating Oil Propane Commercial Sub-total Supply and Wholesale Fuel sales Convenience store merchandise sales Commercial sales Other revenue Total gross sales and operating revenue Intersegment sales Total net sales and operating revenue Three months ended December 31 2008 2009 Year ended December 31 2008 2009 223 137 360 144 41 185 230 (47) 728 168.0 109.3 277.3 114.4 20.6 135.0 127.6 539.9 8.6 22.1 6.6 577.2 (34.8) 542.4 197 142 339 102 45 147 214 (36) 664 897 545 1,442 505 135 640 817 (157) 2,742 668 533 1,201 404 147 551 740 (139) 2,353 141.1 117.8 640.3 415.3 626.8 529.6 258.9 1,055.6 1,156.4 83.8 20.9 104.7 148.1 511.7 14.9 23.5 11.3 561.4 (36.9) 524.5 368.0 63.0 431.0 476.7 398.9 79.7 478.6 676.5 1,963.3 2,311.5 48.7 93.2 25.4 61.8 92.4 20.0 2,130.6 2,485.7 (110.6) 2,020.0 (137.6) 2,348.1 parkland income fund 2009 summary report 59 SuppleMeNtary iNforMatioN Three months ended December 31 2008 2009 Year ended December 31 2008 2009 56.5 65.4 249.1 221.4 2.2 8.3 6.6 39.4 3.8 8.4 11.3 41.9 12.7 28.7 25.4 182.3 16.2 33.6 20.0 151.6 $ 0.0541 $ 0.0630 $ 0.0665 $ 0.0645 10.0 14.2 24.2 9.9 6.7 16.6 (2.6) 1.2 39.4 7.5 21.4 28.9 4.1 7.5 11.6 16.3 (14.9) 41.9 39.0 62.2 101.2 26.7 22.6 49.3 23.9 7.9 182.3 25.9 61.6 87.5 14.7 22.8 37.5 38.7 (12.1) 151.6 Gross profit Less: Convenience store merchandise gross profit Commercial sales gross profit Other revenue gross profit (1) Fuel gross profit Cents per litre Fuel gross profit (millions of Canadian dollars) Retail gas and diesel Sales to Dealer (2) Sales to Consumer (3) Retail Sub-total Commercial Gasoline, Diesel and Heating Oil Propane Commercial Sub-total Supply and Wholesale FIFO Inventory Adjustment Total fuel gross profit (1) (2) (3) Includes a YTD 2009 reclassification from fuel gross profit to other revenue of $3.5 million. Includes categories previously labeled retail branded distributorship and dealer operated buy/sell. Includes categories previously labeled company controlled and dealer operated commission. 60 2009 summary report parkland income fund corporate iNforMatioN HEAD OFFICE Suite 236, Riverside Office Plaza 4919 - 59th Street Red Deer, Alberta T4N 6C9 Tel: (403) 357-6400 Fax: (403) 352-0042 Email: corpinfo@parkland.ca Website: www.parkland.ca ANNUAl GENERAl MEETING Monday, May 3, 2010 2:00 p.m. at the Red Deer lodge Hotel & Convention Centre 4311 - 49th Avenue Red Deer, Alberta BANKER HSBC Bank Canada 108, 4909 - 49th Street Red Deer, Alberta T4N 1V1 AUDITORS PricewaterhouseCoopers llP 3100, 111 - 5th Avenue SW Calgary, Alberta T2P 5l3 lEGAl COUNSEl Bennett Jones llP 4500, Bankers Hall East 855 - 2nd Avenue SW Calgary, Alberta T2P 4K7 STOCK ExCHANGE lISTING Toronto Stock Exchange Trading Symbol: PKI.UN REGISTRAR AND TRANSFER AGENT Valiant Trust Company 310, 606 - 4th Street SW Calgary, Alberta T2P 1T1 DIRECTORS John F. Bechtold Robert G. Brawn Michael W. Chorlton Jim Dinning Alain Ferland Kris Matthews Jim Pantelidis Ron Rogers David A. Spencer OFFICERS Michael W. Chorlton President and CEO Kenneth J. Grondin Senior Vice President, CFO and Corporate Secretary Philip l.M. Szabo Corporate Controller Shaun M. Peesker Treasurer R.G. Dean Mackey Chief Privacy Officer WHOllY OWNED SUBSIDIARIES 0851738 B.C. ltd. 986408 Alberta ltd. 986413 Alberta ltd. Neufeld Petroleum and Propane ltd. Parkland Holdings limited Partnership Parkland Industries limited Partnership Parkland Industries ltd. Parkland Investment Trust Parkland Refining ltd. Designed and produced by Hill & Knowlton. Printed in Canada. parKlaND iNcoMe fuND Suite 236, Riverside Office Plaza 49 19 - 59th Street Red Deer, Alber ta T4N 6C9 www.parkland.ca