p
a
r
k
l
a
n
d
f
u
e
l
c
o
r
p
o
r
a
t
i
o
n
2
0
1
1
A
N
N
u
A
l
R
e
P
O
R
T
OuR PlAN iN mOTiON
2011 ANNuAl R ePORT
our plan in Motion
GROW
Grow our fuel
marketing business
to 7 billion litres.
SuPPlY
Achieve industry
leading supply costs.
OPeRATe
Deliver superior
customer service safely
and cost effectively.
growing for toMorrow
parkland fuel corporation annual report 2011
1
coMpany profile
largest independent
fuel Marketer
parkland Fuel Corporation is Canada’s largest independent fuel distributor and
marketer. Focused on the downstream component of the fuel industry, parkland
is the only company of its kind that has evolved over more than 50 years into
a company totally focused on the marketing, distribution and delivery of fuel
and lubricants.
parkland operates three distribution channels: retail, commercial, and wholesale.
through its nationwide fuel distribution network, parkland fulfills an unmet need
by connecting refiners with end users. It is through these strong relationships that
parkland drives value for its investors.
Currently, 4.2 billion litres, or 5.2% of Canada’s fuel passes through parkland’s
hands. as an industry consolidator, parkland is aiming to grow its fuel marketing
business by acquiring retail and commercial businesses, with a goal of increasing
its market share to 10%, or 7 billion litres. In addition to growing earnings by
increasing fuel volumes, parkland’s strategy includes growing earnings by operating
efficiently and effectively managing its fuel supply.
2
parkland fuel corporation annual report 2011
largest independent
fuel Marketer
clear growth
strategy
parkland is a growth company in an industry that has experienced
a trend of consolidation. the Corporation is well positioned to assist
other independent fuel marketers looking for a partner to help with
their succession plans, and major refiners looking for a partner to help
steward and grow their downstream marketing channels. During
and after the acquisition process, parkland works with these partners
to serve their customers, care for their employees, and grow their
business. this is how parkland intends to deliver value to its partners
and investors.
parkland fuel corporation annual report 2011
3
our plan in Motion
fiNANCiAl HiGHliGHTS
fuel voluMes (millions of litres)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
WHOLESALE
COMMERCIAL
RETAIL
Fuel volumes have increased through a combination of
acquisitions (predominantly commercial fuel acquisitions)
and organic growth. While organic growth has historically
provided volume increases in the range of 2% to 3%
annually, in 2011 this area of growth accounted for a
6.4% increase in volume.
2007
2008
2009
2010
2011
revenue (millions of dollars)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2006 2007 2008 2009
2010
2011
parkland’s revenue is driven by fuel volumes, the cost
of refined product and, by extension, the price of crude
oil. In the absence of large changes in fuel volumes,
revenue tends to fluctuate directly with the price of crude.
Volumes, gross profit margins, and costs on a cents per
litre basis drive parkland’s earnings, whereas changes
in revenue impact working capital and return on capital
employed (“roCe”).
eBitda (millions of dollars)
200
150
100
50
0
2006 2007 2008 2009
2010
2011
parkland achieved record earnings before interest, tax,
depreciation and amortization (“eBItDa”) in 2011 due to
strong retail and Commercial Fuels results and improved
refiners’ margins compared to the prior year. By contrast,
strong eBItDa in 2007 was driven predominantly by
refiners’ margins that were extremely elevated due to
refiner disruptions in the Southern United States following
Hurricane Katrina.
earnings (millions of dollars)
100
75
50
25
0
2006 2007 2008 2009
2010
2011
4
parkland fuel corporation annual report 2011
net earnings increased in 2011, despite the corporation
becoming fully taxable, primarily due to $50.2 million in
increased eBItDa that was partially offset by $33.2 million
in increased income tax expense.
CONSOliDATeD HiGHliGHTS
(in millions of Canadian dollars,
except volume and per Share/Unit amounts)
income Statement Summary:
Sales and operating revenues
Gross profit
operating costs
Marketing, general and administrative
Depreciation and amortization expense
Customer finance income
Finance costs
Gain on disposal of property,
plant and equipment
unrealized risk management loss
earnings before income taxes
Income tax expense (recovery)
net earnings
Net earnings per share/unit
(Note 6 in financial statements)
- Basic
- Diluted (3)
Non-GAAP financial measures:
eBItDa(1)
Distributable cash flow (1)(2)
Distributable cash flow per share (1)(2)
Dividends/distributions
Dividend/distribution to distributable
cash flow payout ratio
Key metrics:
Fuel volume (millions of litres)
return on capital employed
net unit operating cost (1)
employees
fuel Key metrics - Cents per litre:
Average Retail fuel gross profit
Average Commercial fuel gross profit
operating costs
Marketing, general and administrative
Depreciation and amortization expense
liquidity and bank ratios:
net Debt: eBItDa(1)
Senior Debt: EBITDA(1)
Interest coverage (1)
three months ended december 31,
year ended december 31,
2011
2010
% Change
2011
2010
% Change
1,014.3
824.6
103.1
44.5
22.4
16.7
19.5
(0.7)
10.5
(1.1)
0.9
9.8
2.4
7.4
0.12
0.12
36.0
26.5
0.41
16.3
95.3
41.0
20.0
16.8
17.5
(0.6)
8.8
(0.5)
–
9.8
(1.9)
11.7
0.22
0.21
34.9
26.4
0.50
15.2
23
8
9
12
(1)
11
17
19
120
–
N/A
(37)
(45)
(43)
3
0
(17)
7
3,980.5
408.4
172.7
86.9
68.4
80.5
(2.8)
36.7
(15.9)
0.9
61.6
17.7
43.9
0.74
0.73
150.8
126.5
1.97
60.5
2,891.2
316.2
138.8
78.2
62.9
36.2
(1.5)
27.4
(3.1)
–
13.5
(13.4)
26.8
0.52
0.44
100.6
67.0
1.26
59.8
61%
57%
48%
89%
1,096.0
981.0
12
4,161.0
3,500.0
3.52
1,267
5.04
8.61
4.06
2.04
1.52
3.21
1,561
4.92
8.51
4.18
2.04
1.71
10
(19)
2
1
(3)
0
(11)
13.0%
3.82
1,267
5.08
8.51
4.15
2.09
1.64
2.26
1.32
3.34
7.6%
3.41
1,561
5.27
8.38
3.97
2.23
1.80
4.37
2.96
1.22
38
29
24
11
9
122
87
34
413
356
N/A
64
43
65
50
89
56
1
19
12
(19)
(4)
2
5
(7)
(9)
(1) Please refer to the Non-GAAP Measures section in the MD&A for definitions.
(2) please see Distributable Cash Flow reconciliation table in the MD&a.
(3) Diluted earnings (loss) per share/unit can be impacted by an anti-dilutive impact of conversion of the debentures.
Quarterly diluted earnings (loss) per share/unit may therefore not accumulate to the same per share/unit value as the year-to-date calculation.
parkland fuel corporation annual report 2011
5
our plan in Motion
WHeRe PARKlAND mAKeS mONeY
RefiNeRS’
mARGiNS
TeRmiNAlS AND
STORAGe
TRANSPORTATiON
WHOleSAle
mARGiNS
refining
Crude oil enters the refinery
where it is processed into
refined petroleum products
that include gasoline, diesel
and lubricants; the foundation
of Parkland’s business.
Refined products are either
sold from the refinery or
transported to a primary
distribution terminal for sale.
distriBution
terMinals
transport and
distriBution
wholesale
custoMers
Distribution terminals receive
and store petroleum products,
holding these products in
inventory until they begin their
journey to the end customer.
Parkland has two secondary
terminals in Grande Prairie,
AB and fort Nelson, BC.
A larger terminal is being
developed at Bowden, AB.
Refined petroleum products
are transported from refineries
and distribution terminals
to commercial and industrial
customers, retail service
stations and households using
both large long-haul tanker
trucks as well as smaller local
delivery trucks.
Wholesale customers purchase
fuel in large quantities for
end use or for resale in the
commercial or retail channels.
Parkland’s wholesale accounts
generally arrange their own
freight and pickup directly from
primary distribution terminals.
6
parkland fuel corporation annual report 2011
WHeRe PARKlAND mAKeS mONeY
COmmeRCiAl
mARGiNS
ReTAil
mARGiNS
mARKeTiNG
CHANNel
fuel vOlume
TTm
1,785
milliONS liTReS
COmmeRCiAl
fuelS
1,687
milliONS liTReS
ReTAil
fuelS
689
milliON liTReS
(iNCluDiNG iNTeRSeGmeNT SAleS)
WHOleSAle,
SuPPlY AND
DiSTRiBuTiON
coMMercial
custoMers
individual
consuMers
Commercial customers
purchase fuel in bulk from
Parkland to support their
industrial activities. This
includes oil & gas, mining,
forestry and agricultural
operations. Cardlocks, which
are a commercial version of a
retail gas station but provide
fuel to commercial truckers,
also fall into this category.
individual consumers purchase
fuel to provide for their
everyday needs. This includes
Canadian motorists who fill
their vehicles up at service
stations and home owners
who purchase heating oil or
propane from Parkland to heat
their homes.
Parkland
Third-Party
Customer
Not Parkland
4,161
milliON liTReS
TOTAl vOlume
parkland fuel corporation annual report 2011
7
our plan in Motion
GROW
parkland aims to grow to 7 billion litres
through accretive acquisitions and
organic growth. this year we delivered
19% fuel volume growth.
0.4B
liTReS ADDeD iN 2011
through the acquisition of other
independent fuel marketers
8
parkland fuel corporation annual report 2011
growing By partnering with and
purchasing independents
liTReS ADDeD iN 2011
through the acquisition of other
independent fuel marketers
When independent fuel marketers look for a partner to help with their succession plans,
as experienced acquirers we are able to simplify the process, minimize business disruption,
and preserve the relationship with both employees and customers. on December 30, 2010,
parkland acquired Island petroleum and it is a great example of a process in which we
worked with the vendor over time to develop a win/win solution for both parties.
parkland fuel corporation annual report 2011
parkland fuel corporation annual report 2011
9
9
our plan in Motion
GROW
our ability to grow organically is evidenced by
the 6.4% organic growth rate we accomplished
for fuel volumes in 2011, more than double the
industry average.
35%
GROWTH iN BulK luBRiCANT
vOlumeS iN 2011
the 31,000 square foot packaged lubricant warehouse
(pictured here) and the 20,000 square foot bulk lubricants
warehouse in Calgary, aB are important links in parkland’s
lubricant distribution supply chain. parkland also operates
similar distribution centres in Langley, BC and Dartmouth, NS.
10
parkland fuel corporation annual report 2011
growing By partnering
with refiners
GROWTH iN BulK luBRiCANT
vOlumeS iN 2011
At Parkland, we want to deliver value to Canadian refiners by partnering with them to grow
the downstream marketing channels for their refined products. The Shell Lubricants Distributor
Agreement that we signed in September of 2010 is another great example of Parkland’s commitment
to growing branded sales for refiners. In one year we were able to grow their bulk lubricant volumes
by 35 percent. In addition to investing in and growing these businesses, we simplify billing and
collections for our refiner partners by consolidating their customer base which can save them money.
parkland fuel corporation annual report 2011
parkland fuel corporation annual report 2011
11
11
our plan in Motion
SuPPlY
parkland achieves superior supply security by
maintaining contracts with eight refiners who control
multiple refineries across Canada.
4.2B
liTReS (TOTAl fuel SOlD iN 2011)
the Bowden terminal, currently under development, will have
a capacity of 200,000 barrels when it is completed in 2012.
the facility will enable parkland to purchase fuel from diverse
sources and mitigate the impact of regional refinery outages
on parkland’s customers.
12
parkland fuel corporation annual report 2011
Building supply security
liTReS (TOTAl fuel SOlD iN 2011)
Our supply team is generating additional profits by:
• Negotiating supply contracts appropriate to the scope and breadth of Parkland’s operations
across Canada;
• Superior operational management to maximize the value of our contracts; and
• Using our terminal assets to increase supply security and optionality.
Leveraging these sources of sustainable profit, the supply team is on track to replace a significant
portion of the historic contribution made by refiners’ margins by 2014.
parkland fuel corporation annual report 2011
13
our plan in Motion
BuilDiNG SuPPlY,
BuilDiNG PROfiTABiliTY
total voluMe sold (millions of litres)
4500
3750
3000
2250
1500
750
0
2007
2008
2009
2010
2011
total gross profit (millions of dollars)
120
100
80
60
40
20
0
14
parkland fuel corporation annual report 2011
Fuel volumes for the year ended December 31, 2011 increased
19% to 4.2 billion litres from 3.5 billion litres in 2010 due to the
addition of approximately 0.4 billion litres in acquired volumes
and 6.4% organic fuel volume growth.
Total year gross profit in Parkland’s Wholesale, Supply and
Distribution division increased $54.2 million to $71.0 million for
the year ended December 31, 2011, compared with $16.8 million
in 2010. Refiners’ margins in 2011 were strong for the majority of
the year compared to 2010, when they were at the low end of the
5 year range. Refiners’ margins in 2007 were extremely elevated
due to refiner disruptions in the Southern United States following
Hurricane Katrina.
2007*
2008*
2009*
2010
2011
* Gross profits disclosed for 2007-2009 have not been adjusted for IFRS
SuPPlY CONTRACTS ACROSS CANADA WiTH
8 oil refiners
CANADIAN REFINING ORBITS (000’S BBl/D of refining capacity)
67
450
130
472
395
300
82
115
BC
AB
SK
MB
ON
QC
NB
PE
NS
NL
YT
NT
NU
Source: CAPP 2011, approximate refining capacity of dedicated fuel refineries
a dependable and balanced
distribution channel for refiners
4.2B
liTReS DiSTRiBuTeD iN 2011
$71M
GROSS PROfiT
parkland fuel corporation annual report 2011
15
our plan in Motion
OPeRATe
the third pillar of parkland’s strategy is to operate
with excellence. this means superior customer
service delivered safely and cost effectively.
$10M
iN SAviNGS TARGeTeD
through Give me Five! initiative
Gordie, who has been with Island petroleum for 29 years,
is a great example of the spirit of customer service. one year,
a day after a blizzard and on a holiday, one of Gordie’s
customers ran out of heating oil and called him in a panic.
the snow had made the roads impassable, so Gordie asked
a friend with a snow plow to clear a path. Gordie made the
emergency heating oil delivery, and prevented the customers’
house from freezing that day.
16
parkland fuel corporation annual report 2011
striving for operational excellence
iN SAviNGS TARGeTeD
through Give me Five! initiative
Parkland has a responsibility to constantly improve. There are efficiencies that can be
generated without harming the customer relationship simply by adopting better practices,
avoiding wasteful practices, and taking advantage of current technologies. It is our
responsibility to take advantage of every opportunity to generate more value for investors
while continuing to improve how we serve our customers everyday.
parkland fuel corporation annual report 2011
parkland fuel corporation annual report 2011
2011 annual report parkland fuel corporation
17
17
17
our plan in Motion
COmmeRCiAl fuelS
fuel voluMes (millions of litres)
2000
1600
1200
800
400
0
2007
2008
2009
2010
2011
gross profit (millions of dollars)
160
120
80
40
0
2007*
2008*
2009*
2010
2011
18
parkland fuel corporation annual report 2011
Commercial Fuel volumes increased to 1.8 billion litres compared
with 1.5 billion litres in 2010 due to the addition of Bluewave’s
January volumes in 2011, stronger heating oil sales through the
first quarter of 2011 due to a cold winter, the addition of fuel sales
from Island petroleum throughout the year, partially offset by
weaker heating oil sales in the fourth quarter of 2011 due to warm
temperatures in eastern and Central Canada.
Commercial fuel gross profit increased 24% in 2011 to
$152 million compared with $122 million in 2010 due to higher
volumes and a 2% increase in fuel gross profit on a cents per litre
(cpl) basis to 8.5 cpl in 2011 compared with 8.4 cpl in 2010.
* Gross profits disclosed for 2007-2009 have not been adjusted for IFRS.
In 2007 modest profits from commercial were reported in both retail
and wholesale, supply and distribution.
ACROSS CANADA
126 locations
COMMERCIAL BRANChES AND CARDLOCkS
40
36
1
14
1
14
17
1
2
BC
AB
SK
MB
ON
QC
NB
PE
NS
NL
YT
NT
NU
parkland Commercial Fuels is a
nationwide operation serving
commercial, industrial and residential
customers. this division delivers
bulk fuel, propane, heating oil,
lubricants, and other products
through an extensive nationwide
delivery network.
1,785M
liTReS
$151.9M
GROSS PROfiT
parkland fuel corporation annual report 2011
19
our plan in Motion
ReTAil fuelS
total voluMe sold (millions of litres)
1800
1350
900
450
0
2007
2008
2009
2010
2011
total gross profit (millions of dollars)
retail Fuel volumes increased 15% to 1.7 billion litres compared
with 1.5 billion litres in 2010. the increase was the result of
additional fuel volumes attributable to the acquisitions of Cango
and general network growth through the acquisition of new sites
and continued expansion of the dealer business.
120
100
80
60
40
20
0
2007*
2008*
2009*
2010
2011
* Gross profits disclosed for 2007-2009 have not been adjusted for IFRS
Retail fuel gross profit increased 11% in 2011 to $86 million
compared with $77 million in 2010 due to higher volumes,
partially offset by a 4% decrease in fuel gross profit on a cents
per litre (cpl) basis to 5.1 cpl in 2011 compared with 5.3 cpl in 2010.
20
parkland fuel corporation annual report 2011
ReTAil fuelS
ACROSS CANADA
747 locations
RETAIL LOCATIONS
100
276
125
23
202
1
2
6
3
6
3
BC
AB
SK
MB
ON
QC
NB
PE
NS
NL
YT
NT
NU
parkland retail Fuels supports
a network of more than 700 retail
service stations that serve
Canadian motorists from coast
to coast.
1,687M
liTReS
$85.7M
GROSS PROfiT
parkland fuel corporation annual report 2011
21
corporate responsiBility
health, safety and environMent
as a fuel company, safety and environmental protection must be among our
top priorities, and we are committed to protecting employees, customers and
the environment through safe work practices.
As part of this commitment, Parkland has an established health, Safety &
Environment (hSE) program designed to manage and mitigate risks. Parkland
provides training to its staff to mitigate these risks and has response
procedures to deal with emergency situations. We also provide safety
bonuses for employees in higher risk roles to encourage and reward the safe
performance of their duties.
We CARe ABOuT OuR COmmuNiTY
$100,000
OveR 3 YeARS
In 2011, parkland continued to work with the alberta Cancer Foundation with
another annual contribution of $33,000 to support their mobile mammography
clinic. through Fas Gas plus, we have partnered with the alberta Cancer
Foundation as the Official Fuel Provider of the Digital Mammography Screening
program. this is the second year of a three-year agreement to provide gasoline
and diesel fuel to power the delivery of this essential service to 105 rural
communities throughout alberta.
$10,000
iN 2011
parkland is a proud sponsor of the development and operating costs of the
new Central alberta ronald McDonald House, which opened in February 2012.
approximately 11,000 children from rural communities stay at the red Deer
Hospital each year. the House will provide a ‘home away from home’ for them and
their families. Fas Gas plus will be donating fuel to families who must travel long
distances to stay at the house while their children receive medical care.
22
parkland fuel corporation annual report 2011
we care aBout our coMMunity
parkland’s corporate responsibility focus is supporting the communities where
we operate by increasing access to essential services. In 2011, parkland made
donations of more than $390,000 to local causes.
$500,000
OveR 5 YeARS
$45,000
iN 2011
parkland also made donations to the red Deer College (rDC) Building
Communities through learning campaign and has an ongoing rDC
parkland Fuel Corporation endowment in support of three scholarships.
parkland matched the funds raised by employees to make a donation of
more than $45,000 to the united Way in 2011. united Way’s mission is to
improve lives and build communities by engaging individuals and mobilizing
collective action, and is primarily focused on poverty, homelessness and
families or individuals in need.
parkland fuel corporation annual report 2011
23
chairMan’s letter
THe OPPORTuNiTY fOR
GROWTH CONTiNueS
last year I spoke to you about the path forward and
the opportunities that lay ahead for parkland. at the time,
we had just come out of 2010, which was a challenging year
for the Corporation. Fast forward a full year, and 2011 was
one of parkland’s best years on record with 19% growth
in fuel volumes, 50% growth in eBItDa, and 64% growth
in net earnings compared with 2010.
the shareholder value that parkland generated in 2011 is
reflected in the 10% increase in its share price during 2011
and total shareholder return of 16% compared with an
11% decrease in the S&P TSX composite index for the year.
the opportunity for parkland to grow in a meaningful way
through acquisition and organic growth continues.
the opportunity to win new business has never been
greater. parkland’s ability to serve a nationwide customer
base has never been better. and the Corporation’s ability
to unearth economies of scale and greater efficiency has
never been deeper.
the right teaM
During 2011 Parkland managed through significant leadership
changes that, in retrospect, were just the first steps in the
Corporation’s journey towards even greater success. Bob
Espey, appointed to Chief Executive Officer on May 1, 2011,
has worked tirelessly to focus parkland on its core business,
deliver a framework for customer service, and increase
engagement with parkland’s cross-Canada team. Mike lambert,
appointed to Senior Vice President and Chief Financial Officer,
has already demonstrated the benefit of his 29 years of
experience in senior finance positions through his capacity to
drill down to the critical drivers of cost within parkland.
We see great strength in parkland’s leadership team, a
group that brings a healthy combination of industry and
professional experience. this is the right team for parkland,
and they are capable of delivering the kind of results that
will inspire loyalty, engagement and confidence in Parkland’s
customers, investors, and employees.
the saMe recipe for success
Parkland’s management team has developed a five year plan
based on our three strategic pillars: Grow, Supply, and Operate:
1. grow - Grow the fuel marketing business organically through
superior site level execution and accretive acquisitions;
2. supply – aggressively manage parkland’s supply portfolio
to achieve sustainable and predictable profitability; and
3. operate – Deliver superior customer service safely
and cost effectively.
grow
We believe parkland can continue the growth trajectory it has
been on through organic growth and acquisitions. the goal is
to increase fuel sales to seven billion litres per year to capture
approximately ten percent of the Canadian fuel market.
organic growth will be achieved through customer service
and the enhanced efforts of our sales teams. at the same time,
parkland will pursue an aggressive but disciplined acquisition
strategy that ensures it captures all the available opportunities
in the marketplace without overpaying.
supply
parkland is targeting stable and sustainable supply earnings
that will continue beyond 2014 through better management
of its supply portfolio. this means negotiating supply contracts
that are appropriate to parkland’s size, maximizing the value
of these contracts through better management, and using our
terminal assets to increase our supply security and optionality.
operate
parkland’s operational priorities are to deliver great customer
service, operate safely, constantly improve, and to maximize
efficiency. These priorities will be accomplished by adopting
better practices, avoiding wasteful practices, taking advantage
of current technologies and simplifying processes.
24
parkland fuel corporation annual report 2011
coMMitMent to a healthy dividend
During 2011, some of Canada’s former income trusts ran
into trouble and were forced to cut their dividend. as a
result, many of parkland’s investors expressed concern
about parkland’s intentions to maintain its dividend.
parkland’s Board of Directors has a strong commitment
to ensuring investors participate in parkland’s success by
distributing a portion of the Corporation’s distributable cash
flow, while ensuring the Corporation still has the ability to
execute on its growth plans.
The $1.02 annual dividend per share ($0.085/month)
continues to strike the right balance by providing our investors
with a healthy yield while ensuring parkland has the capital
to grow. While the Corporation continues to execute on an
aggressive growth strategy, investors should not expect the
dividend to increase in the short term. However, at the same
time, the rigor and diligence with which parkland has stress
tested the dividend should provide investors with confidence
in the stability and sustainability of the dividend.
pre-funding growth
parkland uses its premium Dividend™ and Dividend
reinvestment plan (“DrIp”) to prefund its growth initiatives.
these programs allow parkland’s Canadian shareholders
to participate in raising equity capital in a manner that is
beneficial to them financially, but also costs Parkland less
than if it were to raise equity in a large offering. this is a
win-win for everyone.
the premium Dividend™ provides eligible Canadian
shareholders with a 2% cash premium in addition to their
regular cash dividend. participants in this option receive
$0.0867 per share monthly rather than just $0.085.
the DrIp allows shareholders to repurchase shares with their
dividend at a 5% discount to the volume weighted average
price every month.
the feedback from the investment community on these
programs has been very positive.
corporate governance
parkland’s Board of Directors is focused on ensuring
that sound corporate governance practices guide the
Board’s actions. In 2011, we focused on further aligning
the Corporation’s incentive plans with shareholder
interests through:
1. Compensation risk mitigation to ensure that
parkland’s incentive program does not encourage
excessive risk taking;
2. linking parkland’s long-term incentive plans to total
shareholder return relative to a peer group of 33 high
yield companies to ensure that our executives only
win when our shareholders win; and
3. linking the annual incentive plan to return on
Capital employed (“roCe”) to ensure that capital
is managed efficiently and allocated to opportunities
that provide high roCe.
More information about these plans can be found
in the Management Information Circular. We always
welcome input about the corporation’s governance
practices from parkland’s stakeholders.
conclusion
We believe that whether you’re an employee, a customer,
or an investor, there has never been a better time to be
a part of the parkland journey. on behalf of the Board of
Directors, I invite you to continue to be part of parkland
and share in our success as we put our plan in motion
in 2012.
Sincerely,
Jim pantelidis
parkland fuel corporation annual report 2011
25
president’s letter
DeAR
SHAReHOlDeRS,
In 2011, your company delivered record eBItDa of $151 million,
a 56% increase in earnings to $42 million, and a 35% increase
in earnings per share. It was a great year, and I believe that the
Company is well positioned to continue this success in 2012
and beyond.
As you know, I assumed the post of Chief Executive Officer
on May 1st, 2011. In meetings with shareholders prior to and
following this transition, I have frequently been asked the
same questions:
• how will the strategy of the new management team
differ from the previous team?
• how will growth be financed?
• Do opportunities for growth still exist?
• What will happen when your supply contract with Suncor
expires in 2014?
• Why should I invest in Parkland?
I will take this opportunity to address these questions,
and lay out our strategy for 2012.
one strategy
During 2011 there were significant changes to the senior
leadership team at parkland, most notably the appointment
of myself and Mike lambert to the positions of Ceo and CFo
respectively. leadership changes, no matter how well executed
and communicated, can be a source of concern for employees
and investors.
While Mike and I have different backgrounds than our
predecessors parkland’s strategy remains to:
1. grow – Grow the fuel marketing business through accretive
acquisitions and organic growth;
2. supply – exercise parkland’s supply management
capabilities to achieve a material supply advantage over
other independent fuel marketers; and
3. operate – Deliver outstanding customer service while
achieving low transaction costs, an excellent safety record,
and strong business integration capabilities.
our mandate is to deliver value to our shareholders through
effective execution of this strategy. Here is how we
did this in 2011, and how we will continue to do it in 2012.
grow
The first pillar in Parkland’s strategy is to profitably grow the
Company’s fuel volumes through accretive acquisitions and
organic growth. our goal is to grow our annual fuel sales to
7 billion litres, or approximately 10% of the Canadian fuel
marketplace. this year we delivered 19% growth by selling
4.2 billion litres of fuel, representing approximately 5.2% of
Canada’s fuel marketplace. the Canadian fuel marketplace
is in the process of consolidating, and as Canada’s largest
independent fuel marketer, we are uniquely positioned to
participate in this process.
organic growth
organic growth is the net effect of sales activities, customer
service, customer retention, network growth capital and
economic activity in our markets. our ability to grow
organically is evidenced by the 6.4% organic growth rate that
we accomplished for fuel volumes in 2011, more than double
the industry average. While some of this is attributed to higher
economic activity, we know our sales teams are making key
wins in the field, and our customer service initiative is leading
to higher customer referrals and retention.
this is the result of the hard work and diligence of parkland
employees, and I want to thank them for their ongoing efforts.
In 2012, we will continue to invest in our sales force to ensure
they have the right training supported by the right tools in
order to win in the field.
approach to acquisitions
We are constantly looking at fuel marketing assets across
Canada whether they are owned by independent companies
or major refiners. In order to make these acquisitions accretive
to our shareholders, we endeavour to pay competitive
multiples. the multiple we will pay depends on our assessment
of the existing business; our belief in the ability to grow the
business, the long-term sustainability of the business, and our
assessment of existing risk factors. as a disciplined acquirer
our mandate is to ensure that our acquisitions are accretive
to our shareholders which means that, sometimes, we have to
walk away from potential deals.
one of the advantages we have when it comes to making
acquisitions is our access to capital. on June 2, 2011, we closed
an $86.3 million bought deal equity financing at $12.10 per
share that was oversubscribed thanks to investors like you.
26
parkland fuel corporation annual report 2011
We used the proceeds to fund our acquisition of Cango and
prepare for future opportunities.
We will finance future acquisitions with a mix of debt, equity,
and the proceeds of our premium Dividend™ and dividend
reinvestment plan. our long-term target for debt is to be below
three times net Debt to eBItDa.
the acquisition pipeline
the pipeline of acquisition opportunities is still incredibly
active, and we have a highly capable and proven corporate
development team evaluating and executing on these
opportunities. We’re ready for more growth. the opportunities
are out there, and we are pursuing them.
cango
When we acquired Cango in June it supplied more than
400 million litres of petroleum products to a network of
155 retail sites including 126 dealers. of these, 80 were esso
branded through Cango’s retail Branded Distributer
agreement with Imperial Oil. Since our acquisition, we have
worked to optimize this network in the same way we do with
our traditional retail network.
While we accepted some risk with this transaction by acquiring
the shares of Cango, that risk was factored into the price, and
there are also land assets associated with the network that
we expect to monetize. Cango is an example of an exclusive
process in which we worked with the vendor over time to
develop a win/win solution for both parties.
When independent fuel marketers look for a partner to help
with their succession plans, as experienced acquirers we are
able to simplify the process, minimize business disruption,
and preserve the relationship with both employees and
customers. Vendors have an opportunity to participate in
parkland’s growth when they take back parkland equity, and
their employees have the opportunity to grow with a dynamic
nationwide company.
Building the refiners’ understanding in our
value proposition
At Parkland, we want to deliver value to Canadian refiners
by partnering with them to grow their downstream marketing
channels for refined products. We simplify their billing and
collections through a consolidated customer base, grow their
business, and save them money. We have the track record to
demonstrate that we can deliver on this commitment.
We’re a transparent and credit worthy company that can
take care of the hassle of dealing with many small customers.
I believe that there is value in that. I think that there is an
opportunity to continue to build great partnerships with
Canada’s major refiners, and we will continue to work closely
with them to realize that opportunity.
supply
Parkland’s supply team is led by Jane Savage, a chemical
engineer by trade, who comes to parkland with 22 years of
experience in refining, supply and trading. She is leading the
effort to negotiate new supply contracts and institute better
supply management practices
We have set an aggressive target to replace a significant
portion of the historic contribution of the supply contract
with Suncor. We are on track to do this by 2014 through
three sources of sustained profit which we call supply levers.
these include:
1. negotiating supply contracts appropriate to the scope
and breadth of parkland’s operations across Canada;
2. superior operational management to maximize the value
of our contracts; and
3. using our terminal assets to increase supply security
and optionality.
Jane and her team have been aggressively working on the
first two “levers,” and were successful in 2011 in generating
significant sustainable value.
By the fourth quarter of 2012, we will be able to use the third
lever when the Bowden terminal conversion is scheduled to
be complete and the terminal opens for business. Bowden
will enhance parkland’s storage and supply capability for
Western Canada, and will also be available for third parties to
lease tankage for the storage of petroleum products. parkland
will also look for other terminal opportunities in other supply
orbits across Canada.
As for replacing the fuel volumes, we are confident that
we will be able find suppliers for the fuel, and we are already
in negotiations.
parkland fuel corporation annual report 2011
27
president’s letter
operate
When we talk about “operating” what we are really saying
is “superior customer service delivered safely and cost
effectively.” this is the third pillar in parkland’s strategy.
health, safety and the environment
parkland’s primary business of selling and transporting
fuel products and other dangerous goods has an inherent
degree of risk. as a fuel company, safety and environmental
protection must be among our top priorities, and we are
committed to protecting employees, customers and the
environment through safe work practices.
as part of this commitment, parkland has an established
health, Safety & Environment (hSE) program designed to
manage and mitigate risks. parkland provides training to its
staff to mitigate these risks and has response procedures to
deal with emergency situations. We also provide safety
bonuses for employees in higher risk roles to encourage and
reward the safe performance of their duties.
Safety must be our priority in all of our operations and
activities, and it will be a significant focus for Parkland in 2012
as we continue ensuring safety is part of our corporate culture.
integration capability
While growing is one of our strategic pillars, we create value
after an acquisition by integrating and operating effectively.
our Corporate Development team manages the integration
process and utilizes an acquisition and integration road map
to ensure that no value source is missed.
In general, there are three things that we do that generate
value for our investors after an acquisition:
1. we transfer the acquired company onto our supply
contracts;
2. we make operational changes which improve efficiency
and margins; and
3. we integrate the new company onto parkland’s back
office platform.
there is always room to improve, and while we are practiced
acquirers, we learn from each acquisition how to better
integrate companies, their employees, and their customers
in a manner that enhances value for our shareholders.
Balance sheet
Parkland’s balance sheet improved significantly in 2011 with
the ratio of net Debt to eBItDa dropping to 2.26 compared
with 4.37 at the end of 2010. this is the net result of our
positive cash flow being used to pay down debt.
We have made significant headway in reducing the working
capital requirements of our business through tighter terms
and better management. as a result of our initiatives to collect
payables more effectively, we have reduced our day sales
outstanding by 11% to 23.8 days in the fourth quarter of 2011,
compared with 26.6 days in the fourth quarter of 2010.
We also have greater flexibility and efficiency in our balance
sheet with the new $450 million revolving credit facility that
we signed on June 30, 2011. this facility, which can be
28
parkland fuel corporation annual report 2011
extended, has terms that are more flexible than our previous
facility, and is expected to save parkland $6 million in interest
expenses annually.
2012 strategic cost initiative
Mike lambert recently kicked off parkland’s strategic cost
initiative which utilizes cost champions throughout the
organization to identify opportunities for savings. this project,
called “give me five!” in reference to our 5% cost reduction
target in specific areas, is a process that trains our own staff
on techniques to improve efficiencies and simplify the business.
The results of cost reductions are reflected in our net unit
operating costs, operating expenses, and marketing, general,
and administrative expenses on a cents per litre basis.
capital Management
Starting with the fourth quarter of 2011, you will see another
new measure adopted by parkland to promote better
management. return on capital employed (“roCe”) will
become a part of our management’s measurement program
to ensure decisions that promote higher returns are supported
by the appropriate incentives.
The average ROCE increased to 13% for the five quarters
ending December 31, 2011 compared with 7.6% for the five
quarters ending December 31, 2010. roCe represents the
effectiveness of our organization at creating value with the
capital it manages, and in 2011 we delivered a better return
than we did in 2010.
In 2012, we will prioritize capital for opportunities that provide
high roCe and divest or shut down low roCe operations.
focus on core Business
In august, we strengthened the focus on our core business
of fuel marketing by divesting our long-haul transportation
division to Seaboard Liquid Carriers Ltd. (“Seaboard”) for
$23.5 million. The divestiture of the trucking fleet resulted
in savings, and we are very happy with the service we are
receiving from Seaboard.
2011’s Misses and disappointMents
In any given year, there will always be misses and
disappointments. I have always believed that it is best
to acknowledge these frankly, and deal with them directly.
In many instances, they also represent opportunities for
the upcoming year. Here are the things that went wrong
in 2011, or that we could have done a better job at:
the Malahat fuel spill
In april 2011, one of our Columbia Fuel trucks was involved
in an incident on the Malahat highway of Vancouver Island.
While no one was seriously injured in the incident,
approximately 41,700 litres of gasoline and 560 litres of
diesel fuel were spilled. Some of this fuel entered the
Goldstream river.
parkland’s emergency response plan was activated
immediately following the incident and we promptly brought
in a team of environmental assessment and remediation
experts to begin the clean-up and remediation process.
parkland continues to work closely with provincial and federal
authorities, local First nations, biologists and others that were
affected with the goal of remediating the accident site. We are
pleased to see continuing good progress resulting from these
remediation efforts, and that the fall salmon run appeared to
be unaffected.
Bowden terminal
the Bowden terminal isn’t as far along as we thought
it would be by now, and we’ve missed some opportunities
as a result. the primary reason for the delay is that it took
us some time to get the right contract in place with our
engineering, procurement, construction and management
firm. While this was an important part of our due diligence,
it meant that we missed the summer construction season
in 2011. as a result, we were unable to utilize the terminal
in 2011, which would have been extremely beneficial during
the diesel supply disruption that occurred in the fourth
quarter across Western Canada. We are back on track,
and expect to have the terminal functioning by the fourth
quarter of 2012.
advanced functionality of parkland’s erp system
Following the challenges associated with parkland’s enterprise
resource planning system (“erp”) in 2010, we stabilized our
back office in 2011 and began to use the information from the
erp to:
1. create a clearer picture of our spending;
2. consolidate our buying power to achieve lower costs; and
3. re-engineer business processes for greater efficiency.
however, we have not reaped the full benefit of the system,
and haven’t made as much progress as we had hoped for
in 2011 towards optimizing the system, and realizing the
advanced performance management functions that erp
systems can provide.
In 2012, we will work towards realizing greater benefits from
the system, and enhancing our performance. We have the
tools in place to become a more efficient organization, now
we need to use them to a greater extent.
commercial integration of western assets
In 2011, we had planned to have all of our commercial assets in
the West fully integrated and operating as a cohesive business
division. For a variety of reasons, we did not complete the
integration. our primary goal was, and still is, to standardize
and simplify our processes, and until we fully integrate all of the
Western assets in our Commercial Fuel Group, we will be less
efficient than we could be. I expect our team to concentrate on
this in 2012, and get this over the goal line.
one parkland teaM
parkland’s success will be driven by the talented group of
leaders that we assembled at the senior level and throughout
the organization in 2011. this is a dedicated group of capable
professionals that come from a mix of industry and other
professional backgrounds that have the unique capabilities to
make parkland even better. the exciting opportunities we have
as an organization would not be possible without this group
of talented leaders and the dedication of our employees.
What people often forget is that today’s parkland is a new
company. Sure, we have been around for more than 50 years,
but we have more than doubled in size since 2007 through the
acquisition of a number of commercial fuel companies. these
acquisitions have been transformative, taking a regional retail
fuel marketer from alberta, and turning it into a nationwide
marketer and distributer of fuel and lubricants with retail,
commercial, and wholesale offerings.
With this transformation has come change. and while change
can be frightening to some and challenging to others, change
is an essential element to our everyday lives that leads to new
growth and opportunities (both personally and professionally).
In today’s world, change cannot be avoided. as employees and
leaders, we need to embrace change so that parkland becomes
a stronger organization that can take advantage of the growth
opportunities that we have before us.
Since becoming CEO, one of my jobs has been to bring focus
to building one parkland team: a team of employees and
leaders coast-to-coast working together to take our family of
businesses and turn them into the nationwide fuel marketing
powerhouse that I know parkland can be. While this will always
be a work in progress as parkland makes new acquisitions,
we have made great progress within our existing family.
our employees are our strength. the majority of our
employees are shareholders of parkland through our employee
share purchase program. In fact, they represent one of the
largest blocks of owners in the Company. they, like you, are
shareholders and are working every day to create value.
Having employees that are owners is, in my mind, key to being
a results driven organization.
I want to thank parkland’s employees for a great year in 2011,
and encourage them to embrace even greater success in 2012.
the opportunities before us are exciting, and my commitment
to every parkland employee is that if you seize that opportunity,
take ownership, work as a team, and show respect to customers
and colleagues, you will have the opportunity to grow with an
exciting and dynamic community focused on winning.
looking ahead
together, we have the opportunity to further consolidate
the Canadian downstream marketplace in a manner that
benefits every stakeholder. In the process, we will continue
to create value for our shareholders by operating in a safe
and effective manner; build our business by delivering industry
leading customer service; and provide inspirational leadership
that is fair, respectful, and transparent to our employees.
I am excited by the opportunities ahead of us and I am looking
forward to demonstrating the results of our plan in motion
in 2012.
Sincerely,
Bob espey
parkland fuel corporation annual report 2011
29
TABle Of
CONTeNTS
31 Management’s Discussion and analysis
77 Management’s Responsibility for Financial Statements
78
Independent auditor’s report
79 Consolidated Financial Statements
83 Notes to the Consolidated Financial Statements
120 Supplementary Information
30
parkland fuel corporation annual report 2011
ManaGeMent’S diScuSSion and analYSiS
Management’s Discussion and analysis
Management’s Discussion and analysis (“MD&a”)
provides a comparison of parkland Fuel Corporation’s (the
“Corporation”) and parkland Income Fund’s (the “Fund”)
and together their (“parkland”) performance for the three
and twelve month period ended December 31, 2011 with the
three and twelve month period ended December 31, 2010.
This MD&A reflects Parkland’s adoption of International
Financial reporting Standards (“IFrS”) as of January 1,
2011. Comparative periods in 2010 have been restated
in accordance with IFrS, including the January 1, 2010
transition date balance sheet (“transition Date”), however,
periods prior to January 1, 2010 have not been restated and
are reported in accordance with Canadian Gaap before the
adoption of IFrS (“previous Gaap”). Financial statements
commencing March 31, 2011 onward will be prepared in
accordance with IFrS. note 5 of the audited consolidated
financial statements year ended December 31, 2011 contains
a detailed reconciliation of Parkland’s financial statements
prepared under previous Gaap to those under IFrS for
the year ended December 31, 2010 as well as the balance
sheets as of these dates and the opening transition date
of January 1, 2010. this discussion should be read in
conjunction with the audited financial statements and
accompanying notes for the year ended December 31, 2011
and the Corporation’s annual Information Form dated
March 6, 2012. this MD&a includes discussion of parkland’s
affairs up to March 6, 2012. all amounts disclosed are in
Canadian dollars, unless otherwise noted. Certain amounts
in prior years have been reclassified to conform to the
current year’s presentation.
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 at
www.parkland.ca. the Corporation’s continuous disclosure
materials, including its annual and quarterly MD&a, audited
annual and unaudited interim financial statements, its 2011
annual report, annual Information Form, Management
Information Circular and proxy, Material Change reports
and the various news releases issued by the Corporation
are also available on its website or directly through the
SeDar system at www.sedar.com.
Md&a table of contentS
executive Summary ................................................................. 32
Consolidated Highlights .......................................................... 33
Who We are ................................................................................ 34
parkland’s Strategy .................................................................. 35
Core Capabilities ....................................................................... 36
Key performance Drivers ....................................................... 37
economic Developments and outlook ................................. 37
Consolidated Financial review .............................................. 39
reconciliation of Distributable Cash Flow .......................... 45
Dividends .................................................................................... 45
return on Capital employed (“roCe”) ................................ 47
Capability to Deliver results .................................................. 47
Segmented results .................................................................. 55
Fuel Marketing operations ..................................................... 57
review of the eight Most recent Quarters ........................ 64
non-Gaap Measures ................................................................ 65
Critical accounting estimates ............................................... 66
Impairment of assets .............................................................. 68
Financial Instruments .............................................................. 68
Business risks ........................................................................... 69
Supplementary Information ................................................... 73
Controls environment .............................................................. 73
Changes in accounting policies .............................................74
adoption of IFrS ........................................................................74
recently announced accounting pronouncements ......... 75
related party transactions .................................................... 75
Contractual obligations ...........................................................76
Shares outstanding ..................................................................76
parkland fuel corporation annual report 2011
31
ManaGeMent’S diScuSSion and analYSiS
caution regarding 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, effectiveness of internal controls,
sources of funding of growth capital expenditures,
anticipated dividends and the amount thereof, if any, to
be declared by parkland Fuel Corporation, expectations
regarding the use or improvement of parkland’s new erp
system (as defined herein), 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
2011 annual Information Form 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.
32
parkland fuel corporation annual report 2011
executive Summary
parkland delivered strong earnings and fuel volume
growth in 2011. organic growth of 6.4% during 2011
exceeded industry norms, and indicates that sales
teams are winning new business. the ongoing focus
to drive improved margins, reduce costs, and pursue a
comprehensive and highly disciplined growth strategy is
expected to drive increased earnings and keep parkland
well positioned to sustain its dividend.
During the fourth quarter, parkland’s operating divisions
effectively managed through a series of unexpected and
acute disruptions in diesel supply in western Canada,
unseasonably warm weather in eastern and central
Canada, and softening refiners’ margins. Despite this
adversity, the parkland team achieved modest organic
volume growth during the quarter.
2011 operational HiGHliGHtS:
Grow
• Island petroleum, Cango, Save on Foods and Bluewave
contribute approximately 0.4 billion litres in 2011;
• Fuel marketing divisions deliver 6.4% organic growth
in fuel volumes for 2011; and
• Balance sheet primed for growth with $86.3 million
equity financing in June 2011 and 70% participation in
premium Dividend™ and Dividend reinvestment plan.
Supply
• Refiners’ margins were strong in 2011; and
• Supply management initiative is on plan and generating
profits independent of Suncor contract.
operate
• $450 million revolving credit facility, expected to save
$6 million in interest expenses annually, was signed June
30, 2011;
• 11% reduction in Days Sales outstanding in fourth
quarter 2011, compared to the same period in 2010; and
• Focus on core business leads to sale of long-haul
trucking division for $23.5 million on august 13, 2011.
Consolidated Highlights
(in millions of Canadian dollars,
except volume and per Share/unit amounts)
Income Statement Summary:
Sales and operating revenues
Gross profit
operating costs
Marketing, general and administrative
Depreciation and amortization expense
Customer finance income
Finance costs
Gain on disposal of property, plant and
equipment
unrealized risk management loss
earnings before income taxes
Income tax expense (recovery)
net earnings
net earnings per share/unit (note 6 in
financial statements)
– Basic
– Diluted(3)
Non-GAAP Financial Measures:
eBItDa(1)
Distributable cash flow(1)(2)
Distributable cash flow per share (1)(2)
Dividends/distributions
Dividend/distribution to distributable
cash flow payout ratio
Key Metrics:
three months ended december 31,
Year ended december 31,
2011
2010 % Change
2011
2010 % Change
1,014.3
824.6
23
3,980.5
2,891.2
103.1
44.5
22.4
16.7
19.5
(0.7)
10.5
(1.1)
0.9
9.8
2.4
7.4
0.12
0.12
36.0
26.5
0.41
16.3
95.3
41.0
20.0
16.8
17.5
(0.6)
8.8
(0.5)
–
9.8
(1.9)
11.7
0.22
0.21
34.9
26.4
0.50
15.2
8
9
12
(1)
11
17
19
120
–
n/a
(37)
(45)
(43)
3
0
(17)
7
408.4
172.7
86.9
68.4
80.5
(2.8)
36.7
(15.9)
0.9
61.6
17.7
43.9
0.74
0.73
150.8
126.5
1.97
60.5
316.2
138.8
78.2
62.9
36.2
(1.5)
27.4
(3.1)
–
13.5
(13.4)
26.8
0.52
0.44
100.6
67.0
1.26
59.8
61%
57%
48%
89%
Fuel volume (millions of litres)
1,096.0
981.0
12
4,161.0
3,500.0
return on capital employed (roCe)
net unit operating cost (nuoC)(1)
employees
Fuel Key Metrics – Cents per litre:
Average Retail fuel gross profit
Average Commercial fuel gross profit
operating costs
Marketing, general and administrative
Depreciation and amortization expense
Liquidity and bank ratios:
net Debt: eBItDa(1)
Senior Debt: eBItDa(1)
Interest coverage(1)
3.52
1,267
5.04
8.61
4.06
2.04
1.52
3.21
1,561
4.92
8.51
4.18
2.04
1.71
10
(19)
2
1
(3)
0
(11)
13.0%
3.82
1,267
5.08
8.51
4.15
2.09
1.64
2.26
1.32
3.34
7.6%
3.41
1,561
5.27
8.38
3.97
2.23
1.80
4.37
2.96
1.22
(1) Please refer to the Non-GAAP Measures section in the MD&A for definitions.
(2) please see Distributable Cash Flow reconciliation table in the MD&a.
(3) Diluted earnings (loss) per share/unit can be impacted by an anti-dilutive impact of conversion of the debentures.
Quarterly diluted earnings (loss) per share/unit may therefore not accumulate to the same per share/unit value as the year-to-date calculation.
parkland fuel corporation annual report 2011
33
38
29
24
11
9
122
87
34
413
356
n/a
64
43
65
50
89
56
1
19
12
(19)
(4)
2
5
(7)
(9)
ManaGeMent’S diScuSSion and analYSiS
Who We are
parkland Fuel Corporation is Canada’s largest
independent marketer and distributor of fuel and
lubricants, managing a nationwide network of sales
channels for retail, commercial, wholesale and home
heating fuel customers.
parkland endeavours to be Canada’s most effective and
efficient marketer and distributor of refined petroleum
products by:
• Fuelling Canadian communities through local operators
that make it their priority to build lasting relationships
with their customers; and
• Delivering measurably superior customer service by
being responsive, accurate and accountable to customers
every day.
Parkland delivers value to Canadian refiners by assisting
them in managing their downstream marketing channels,
simplifying their billing and collections through a
consolidated customer base, growing their business,
saving them money while protecting and promoting
their brands.
Parkland is the bridge that connects Canadian refiners
to Canadian communities, with a local focus that
grows business.
retail fuel
parkland retail Fuels supports a network of more than
700 retail service stations that serve Canadian motorists
from coast to coast.
parkland is a retail Branded Distributor for Imperial
oil limited with locations in British Columbia, alberta,
Saskatchewan, and ontario operating under the esso
brand. parkland also maintains two proprietary brands:
Fas Gas plus and race trac.
coMMercial fuel
parkland Commercial Fuels is a nationwide operation
serving commercial, industrial and residential customers.
this division delivers bulk fuel, propane, heating oil,
lubricants, agricultural inputs, oilfield fluids and other
related products and services to commercial, industrial
and residential customers through an extensive
nationwide delivery network.
parkland Commercial Fuels’ family of successful brands
includes: Bluewave energy, Columbia Fuels, Great
northern oil, neufeld petroleum & propane, united
petroleum products, Island petroleum and race trac
cardlock locations.
WHoleSale, SupplY and diStribution
parkland Wholesale, Supply and Distribution is responsible
for managing parkland’s fuel supply and inventory, which
includes the purchase of fuel from refiners, distributing
fuel via third party long-haul carriers and railways, and
serving wholesale and reseller customers.
Fuel supply contracts are maintained with eight oil refiners
and in some cases include minimum volume requirements
for certain agreements. this portfolio of contracts allows
parkland to obtain fuel supplies at highly competitive prices
and enhances the security of the Corporation’s fuel supply.
This Supply team is focused on enhancing profits through
management of its supply portfolio. this area includes
negotiating supply contracts appropriate to the scale of
parkland’s operations, superior operational management
to maximize the value of these contracts, and leveraging
parkland’s terminal assets to increase supply security
and optionality.
The Wholesale team is focused on building a flexible
wholesale portfolio to achieve the right mix between
volume, margin, and payment terms.
Parkland is in the process of converting its refinery
storage into a terminal with a 200,000 barrel storage
capacity in Bowden, alberta. the rail siding and rail car
unloading station have now been installed. Construction
continues on retrofitting the facility with a new loading
station for long-haul and short-haul fuel transport trucks,
piping and pumping capacity. the terminal is expected to
be active in the fourth quarter of 2012 and will enhance
parkland’s supply options.
parkland’S 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; and
• Success – Set and achieve challenging goals.
34
parkland fuel corporation annual report 2011
inVeStinG in parkland
clear growth strategy
parkland is a growth company in an industry that has
experienced a trend of consolidation. the Corporation is
well positioned to assist other independent fuel marketers
looking for a partner to help with their succession plans,
and major refiners looking for a partner to help steward
and grow their downstream marketing channels. During
and after the acquisition process, parkland works with
these partners to serve their customers, care for their
employees, and grow their business. this is how parkland
intends to deliver value to its partners and investors.
dividend yield
Since becoming an income trust in 2002, parkland’s
board of directors have held a strong conviction about
the importance of distributing Parkland’s profits to
its shareholder base. When the trust converted to a
corporation at the end of 2010, parkland continued with
this strategy through an annual dividend of $1.02 per
share that is paid monthly.
focus
as the largest Canadian independent fuel marketer,
Parkland has evolved over more than fifty years to
become a company focused on downstream fuel
marketing. the parkland team continually strives to learn,
improve and evolve in the pursuit of being a premier
downstream fuel marketer in Canada.
History of success
as at the period ended December 31,
2011 (%, except as noted)
1 year
3 years
5 years
total shareholder return
16%
142%
57%
parkland’s Strategy
parkland’s ongoing strategy is to:
1)
Grow – Grow the fuel marketing business through
accretive acquisitions and organic growth driven by
superior customer service.
2) Supply – exercise parkland’s supply management
capabilities to achieve a material supply advantage
over other independent fuel marketers.
3)
operate – achieve low transaction costs, an excellent
safety record and maintain strong business integration
capabilities.
GroW
consolidating canada’s fragmented fuel
distribution Market
Canada’s market for diesel, gasoline, and heating oil
consumes roughly 78 billion litres of fuel annually through
a highly fragmented mix of sales channels that include
both large and small independent fuel marketers, as well
as the major refiners.
Parkland and its investors have an opportunity to profitably
consolidate this market as owners of independents look
to monetize their businesses, and refiners look to exit the
downstream segment.
parkland’s fuel volumes have grown at a compound
annual growth rate (“CaGr”) of 20% over the past four
years as the Corporation continues to execute on its plan
to consolidate downstream petroleum sales volumes
through accretive acquisitions. parkland aims to continue
this growth trajectory over the next five years.
there are four primary sources of growth for parkland:
Compound annual total
shareholder return
Compound annual growth in
fuel volumes
Dividend yield at
December 31, 2011
price to earnings multiple at
December 31, 2011
16%
34%
9%
1)
19%
20%
20%
8.0%
17.15
acquisition of large independent fuel marketers
Large independent fuel marketers are defined as
those that have annual fuel volume sales between 200
and 1,500 million litres. there are approximately 18
independent fuel marketers remaining in Canada of this
size. parkland’s 2010 acquisition of Bluewave energy
and 2011 acquisition of Cango fall into this category.
2) acquisition of small independent fuel marketers
Small independent fuel marketers have annual
fuel volume sales of less than 200 million litres.
parkland’s 2010 acquisition of Island petroleum falls
into this category.
parkland fuel corporation annual report 2011
35
ManaGeMent’S diScuSSion and analYSiS
3) AcquisitionofassetsfrommajorCanadianrefiners
Major Canadian petroleum refiners include Imperial
oil, Shell, and Suncor. In some cases, these major
refiners are actively divesting parts of their
downstream marketing channels. parkland’s recent
acquisition of Shell Canada’s after-market lubricant
business and distribution rights for select markets
falls into this category.
4) organic growth
this includes retail gas station upgrades, acquiring
new retail dealers, and building new retail and
commercial outlets. organic growth is typically
between 2% and 3% annually. However, in 2011, it
accounted for a 6.4% increase in fuel volumes.
as the largest independent fuel marketer in Canada,
parkland strives to be the partner of choice when
independents or majors look to divest their fuel marketing
business.
parkland intends to continue to be proactive, focused and
disciplined in its approach to such acquisitions.
parkland seeks to make acquisitions that are immediately
accretive to cash flow from operating activities, increase
fuel sales volumes in strategic markets, build non-fuel
profits to enhance the long-term stability of the enterprise,
optimize the Corporation’s supply contracts, and diversify
the customer base.
SupplY
Maintaining a Material Supply advantage
parkland is the only independent fuel marketer in
Canada with a dedicated supply team working to optimize
parkland’s supply management. they are tasked with:
1)
2)
Negotiating supply contracts that reflect Parkland’s
total sales portfolio and ability to sell an equal mix of
diesel and gasoline;
Maintaining a portfolio of contracts and other supply
options to ensure parkland’s customers have a secure
and reliable source of supply even when supply
disruptions occur;
3)
achieving the lowest overall buy price across all of
parkland’s markets on a daily and hourly basis; and
4) Building new supply options that enhance supply
security and provide throughput options for Canadian
refiners such as the Bowden terminal that is under
development.
36
parkland fuel corporation annual report 2011
operate
Superior customer Service delivered cost effectively
Years ago when fuel marketers looked at operational
efficiency they moved service delivery to call centres,
reduced the number of local operators, and generally
reduced customer service to the point of customer
attrition. parkland recognizes that this model of
“operational excellence” doesn’t work. Desperate for
service, customers eventually left to find a provider who
could meet their needs.
parkland has a responsibility to constantly improve, and
management believes that there are efficiencies that can
be generated without harming the customer relationship
simply by adopting better practices, avoiding wasteful
practices, and taking advantage of current technologies.
By taking advantage of this opportunity, parkland believes
it will be able to generate more value for investors,
employees, and customers. In 2012, parkland launched
the strategic cost initiative to identify and capture
these opportunities.
parkland’s ability to integrate newly acquired companies
is also a part of how the Corporation achieves new
efficiencies. The acquisition process allows Parkland
to identify value and then realize it. parkland achieves
efficiencies by leveraging its supply portfolio, executing
on customer revenue growth opportunities, and reducing
the back office burden.
operating effectively in the fuel marketing industry also
means operating in a safe, prudent, and responsible
manner. In 2011 and into 2012, parkland has invested in
new leaders and employees to make major strides in this
area, renewing the drive to instill a focus on safety in the
culture across parkland.
By operating effectively through robust integration
and reducing waste, parkland plans to increase its
transactional efficiency.
Core Capabilities
parkland is Canada’s largest independent fuel marketer.
While the Corporation’s reach is national, the service is
local. Parkland has evolved over more than fifty years to
become a corporation completely focused on downstream
fuel marketing. through constant learning, improvement
and evolution parkland is striving to become the best
downstream fuel marketing business in Canada. parkland is
unique in this.
parkland’s core capabilities include:
operatinG coStS on a centS per litre baSiS
• national reach and scope that allows it to see
opportunities between markets that other
independents can’t see;
• a diverse portfolio of regional markets and products that
protect it against the risk of competitive, operational and
environmental disruptions in any one market;
parkland controls two types of costs: Marketing, general
and administrative (“MGa”) and operating costs (“opex”).
Monitoring these costs on a cents per litre basis provides
investors with information about the progress parkland is
making on achieving transactional efficiency.
puttinG it all toGetHer
• the scale to have a dedicated supply team. this is
unique in the field of independent fuel marketers, and
allows Parkland to secure economic benefit from its
supply portfolio;
parkland currently markets more than four billion litres of
fuel across Canada. At this scale, achieving an efficiency
or margin improvement of one-tenth of one cent would
deliver $4.0 million in increased eBItDa.
• Supply security through a portfolio of contracts with
eight refiners across Canada; and
• Distribution channels that provide a balanced sales
portfolio of gasoline and diesel which provide a
competitive supply advantage;
Parkland is the bridge that connects Canadian refiners
to Canadian communities, with a local focus that grows
business.
Key performance Drivers
VoluMeS
Volumes, not revenues, are the “top line” number to
watch in parkland’s results. Costs and margins are driven
on a per litre basis. revenues, assuming volumes are
static, are driven by the price of crude and by extension
the wholesale price for fuel charged by the refiners.
It is possible for fuel volumes to grow, and profits to
increase, even as revenues diminish.
profit MarGinS on a centS per litre baSiS
Margins in the fuel marketing divisions are provided on a
cents per litre or “cpl” basis. Margins contract and expand
based on competitive conditions, seasonality, demand,
and supply availability. Margins on a per litre basis
determine the profitability of Parkland’s business.
SupplY coStS
Supply costs show up in the Wholesale, Supply and
Distribution Division. achieving lower costs in supply
results in increased profit in this division as Parkland
charges the marketing divisions a transfer price over and
above the fuel purchase price of the Wholesale, Supply
and Distribution Division.
economic Developments and outlook
the market for gasoline, diesel and light fuel oil in Canada
is roughly 78 billion litres annually and is demonstrably
stable even during tough economic times.
Total Canadian Fuel Sales
(in billions of litres)
s
e
r
t
i
l
f
o
s
n
o
i
l
l
i
B
100
80
60
40
20
0
2005 2006 2007 2008 2009 2010 2011
canadian fuel Market
the market for diesel, gasoline, and light fuel was 77 billion litres for the
trailing twelve months ending September 30, 2011.
Source: Statistics Canada CanSIM: v22455, v23190, v23428
the Canadian fuel marketing industry is relatively agnostic
to the world economy, and is driven primarily by population,
weather and Canada’s resource extraction industries.
WeatHer
Cold weather drives the sale of heating oil. While the West
coast of Canada is currently having a normal to cooler
than normal winter, the East coast is significantly warmer
than normal. environment Canada expects warm weather
to continue for much of eastern Canada for the next
three months.
parkland fuel corporation annual report 2011
37
ManaGeMent’S diScuSSion and analYSiS
Victoria International Airport
Average Daily Heating Degree Days
Halifax International Airport
Average Daily Heating Degree Days
16
14
12
10
8
6
4
2
0
2010
2011
2012
5 yr max
5 yr min
25
20
15
10
5
0
2010
2011
2012
5 yr max
5 yr min
J F M A M J J A S O N D
J F M A M J J A S O N D
Victoria, bc — Heating degree days
Heating degree days (“HDD”) are a measure of energy demand. Higher
values indicate cooler temperatures. temperatures on the West Coast
have been normal to cooler than normal, as reflected in this graph of
average heating degree days for the Victoria airport.
Halifax, nS — Heating degree days
temperatures on the east Coast have been higher than normal, with HDD
dipping to the lowest point in five years for three consecutive months
during the fourth quarter of 2011. By contrast, in 2010, HDD was at a five-
year maximum in the months of october and november.
HeatingDegreeDays—Definition
Heating degree days (HDD) correlate to the demand for energy needed to heat homes or businesses. The heating requirements for a given structure at a specific
location are considered to be directly proportional to the number of HDD at that location. Heating degree-days for a given day are the number of Celsius degrees that
the mean temperature is below 18°C. If the temperature is equal to or greater than 18°C, then the number will be zero. For example, a day with a mean temperature of
15.5°C has 2.5 heating degree-days; a day with a mean temperature of 20.5°C has zero degree-days. Heating degree-days are used primarily to estimate the heating
requirements of buildings.
Heating degree day data for Victoria and Halifax is shown in the graphs above. Heating Degree Day data is available for all Canadian markets at:
www.climate.weatheroffice.gc.ca/climateData/canada_e.html
Monthly and seasonal forecasts are available through Environment Canada at: www.weatheroffice.gc.ca/saisons/index_e.html
reSource i nduStrY
Canada’s resource sector drives commercial sales and,
indirectly, also drives retail sales. Drilling activity is used
as a proxy for the health of Canada’s resource sector.
In western Canada, oilfield activity remained strong despite
warmer conditions and low natural gas prices. For the three
months ended December 31, 2011, the Canadian association
of oilwell Drilling Contractors (CaoDC) reported an average
rig utilization rate of 61% compared with 50% for the same
period in 2010. activity in 2012 remains robust despite
lower natural gas prices. In January and February 2012,
the CaoDC reported an average rig utilization rate of 74%
compared with 70% for the same period in 2011.
a review of oil and gas well completion data demonstrates
that Canadian drilling activity is now dominated by oil wells,
which make up more than 62% of completions compared
with gas wells at 28%. this makes the oil well drilling industry
less vulnerable to swings in natural gas prices. Management
believes that oilfield activity will remain robust as long as oil
prices remain strong.
Canadian Rig Utilization
100%
80%
60%
40%
20%
0%
2011
2012
5 yr max
5 yr min
J F M A M J J A S O N D
canadian rig utilization
average monthly rig utilization is shown above and is used as a proxy
for the health of Canada’s resource industry. rig counts are publically
available through the CaoDC: www.caodc.ca/statistics/rigcounts.html
refinerS’ MarGinS
parkland currently purchases approximately one billion
litres of fuel from Suncor annually under an agreement
that is priced using a formula that allows parkland to
share in a portion of refiners’ margins. Due to the volatile
nature of refiners’ margins, and their impact on Parkland,
it is useful to monitor this data.
Refiners’ margins can be calculated using information from
the Kent Marketing Group: www.kentmarketingservices.com
38
parkland fuel corporation annual report 2011
Gasoline Refiners’ Margins
(in cents per litre)
Diesel Refiners’ Margins
(in cents per litre)
35
30
25
20
15
10
5
0
40
30
20
10
0
2011
2012
5 yr max
5 yr min
2011
2012
5 yr max
5 yr min
J F M A M J J A S O N D
J F M A M J J A S O N D
GasolineRefiners’Margins
Edmonton gasoline refiners’ margins are approximated by subtracting
the wholesale prices charged by refiners in Edmonton from the cost of
crude on a cents per litre basis.
DieselRefiners’Margins
Edmonton diesel refiners’ margins are approximated by subtracting the
wholesale prices charged by refiners in Edmonton from the cost of crude
on a cents per litre basis.
Consolidated Financial review
fuel VoluMeS
reVenue
Q4 2011 vs. Q4 2010
Fuel volumes increased 115 million litres or 12% to
1,096 million litres in the fourth quarter of 2011 from
981 million litres in the prior year. this increase was the
result of the acquisitions of Cango, Island petroleum,
seven gas bars from Save on Foods, and organic growth in
Commercial Fuels, partially offset by warmer temperatures
across the country which decreased the demand for fuel.
total Year 2011 vs. 2010
Fuel volumes for the year ended December 31, 2011 increased
19% to 4.2 billion litres from 3.5 billion litres in the prior year
primarily from the addition of approximately 0.4 billion litres
in acquired volumes and 6.4% organic fuel volume growth.
Q4 2011 vs. Q4 2010
Sales and operating revenue for the three month period
ended December 31, 2011 increased by 23% to $1.0 billion
compared with $0.8 billion during the fourth quarter
of 2010. this is due to the 12% increase in fuel volumes
previously discussed, as well as a result of the increase
in the cost of crude oil and refined product. Revenue per
litre increased 8 cents, or 10% per litre from the fourth
quarter of 2010 to the fourth quarter of 2011. there is
a strong correlation between revenue and the price of
crude. Revenue fluctuates with changing commodity
prices. Changes in volume have a more direct impact on
profitability, whereas changes in revenue impact working
capital and return on Capital employed (“roCe”).
Fuel Volumes
(in millions of litres)
4,000
3,000
2,000
1,000
0
total Year 2011 vs. 2010
Sales and operating revenue for the year ended December 31,
2011 increased by 38% to $4.0 billion compared with
$2.9 billion for the year ended December 31, 2010. this is
due to the 19% increase in fuel volumes in 2011 versus 2010,
in addition to the increase in fuel prices. revenue per litre
increased 13 cents, or 16%, per litre from 2010 to 2011.
Wholesale
Commercial
Retail
2007
2007
2008
2008
2009
2009
2010
2010
2011
2011
fuel Volumes
Fuel volumes have increased through a combination of acquisitions
(predominantly commercial fuel acquisitions) and organic growth. While
organic growth has historically provided volume increases in the range
of 2% to 3% annually, in 2011 this area of growth accounted for a 6.4%
increase in volume.
parkland fuel corporation annual report 2011
39
Total Gross Profit
(in millions of dollars)
400
300
200
100
0
Other revenue
Commercial non-fuel
Commercial fuel
Retail fuel
Wholesale & Supply
2007
2008
2009
2010
2011
TheChangingProfitSourcesofParkland
The growth in Commercial fuel and Commercial non-fuel profits have
decreased Parkland’s reliance on refinery margins, which are included in
the Wholesale and Supply division along with profits from wholesale and
supply management.
total Year 2011 vs. 2010
Gross profit for the year ended December 31, 2011 increased
by 29% to $408.5 million compared with $316.2 million for
the year ended December 31, 2010. parkland’s fuel volumes
increased 19% in the twelve months ended December 31,
2011 compared to 2010. on a product segment basis:
• Fuel gross profit increased 41% or $89.2 million to
$307.8 million for the year ending December 31, 2011
compared with $218.6 million for the year ending
December 31, 2010. this increase is attributable to fuel
volumes increasing by 19% compared with 2010, as well as
strong refiners’ margins for the first ten months of 2011.
• Commercial non-fuel gross profit increased by
46% or $23.4 million to $74.6 million for the year
ending 2011 compared with $51.3 million in 2010. the
increase in commercial non-fuel gross profit is due
to the quarterly factors described above related to
the lubricants business.
• Other revenue gross profit decreased 44% or
$20.2 million to $26.0 million for the year ending 2011
compared with $46.3 million for the year ending 2010,
as explained above in the quarter.
ManaGeMent’S diScuSSion and analYSiS
Revenue/Litre vs. Crude Price
e
r
t
i
l
/
s
r
a
l
l
o
D
e
u
n
e
v
e
R
1.20
1.00
0.80
0.60
0.40
0.20
0
l
b
b
/
D
S
U
I
T
W
120
100
80
60
40
20
0
2006 2007 2008 2009
2010
2011
Revenue/litre
Crude price
correlation between crude oil prices and revenue
Parkland’s revenue is driven by fuel volumes, the cost of refined product
and, by extension, the price of crude oil. In the absence of large changes
in fuel volumes, revenue tends to fluctuate directly with the price of
crude. Volumes, gross profit margins, and costs on a cents per litre basis
drive parkland’s earnings, whereas changes in revenue impact working
capital and roCe.
GroSS profit
Q4 2011 vs. Q4 2010
Gross profit for the three months ended December 31, 2011
increased 8% or $7.8 million to $103.1 million compared
with $95.3 million for the same period in 2010. parkland’s
fuel volumes increased 12% in the fourth quarter of 2011
compared with the same period in 2010. on a product
segment basis:
• Fuel gross profit increased 14% or $9.0 million to
$74.8 million in the fourth quarter of 2011 compared with
$65.8 million in the fourth quarter of 2010. the increase
is due to higher volumes through acquisition and organic
growth, as well as strong refiners’ margins throughout
the quarter compared to the fourth quarter of 2010.
• Commercial non-fuel gross profit increased by 26% or
$4.9 million to $23.6 million in the fourth quarter of
2011 compared with $18.7 million in the fourth quarter
of 2010. the increase in commercial non-fuel gross
profit is principally due to increased lubricant sales,
assisted by the September 30, 2010 acquisition of the
Shell lubricant business and subsequent expansion of
this high margin business.
• Other revenue gross profit decreased 56% or
$6.1 million to $4.8 million in the fourth quarter of 2011
compared with $10.8 million in the fourth quarter of
2010 due to the sale of the long-haul trucking assets
on august 13, 2011 and rationalization of stations within
parkland’s retail network, decreasing convenience and
other non-fuel gross profits.
40
parkland fuel corporation annual report 2011
Average Retail Fuel Gross Profit CPL
Average Commercial Fuel Gross Profit CPL
8.00
6.00
4.00
2.00
0
10.00
8.00
6.00
4.00
2.00
0
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
RetailFuelGrossProfitCPL
Retail average fuel gross profit on a cents per litre basis has decreased
in recent years. this is partly the result of competitive pressures, but it
is also attributable to significant growth in higher-volume, lower-margin
dealer business.
CommercialFuelGrossProfitCPL
Commercial fuel gross profit on a cents per litre basis has increased in
recent years as a result of a change in mix towards higher margin products.
MarketinG, General and adMiniStratiVe
expenSeS
Q4 2011 vs. Q4 2010
Marketing, general and administrative expenses (“MGa”)
increased 12% or $2.4 million to $22.4 million (2.0 cpl) in
the fourth quarter of 2011 compared with $20.0 million
(2.0 cpl) in the fourth quarter of 2010 as a result of
$2.8 million in higher expenses for variable employee
incentive compensation due to the strong performance of
parkland shares in the equity market.
total Year 2011 vs. 2010
Marketing, general and administrative expenses increased
11% or $8.6 million to $86.9 million (2.1 cpl) in the year
ended December 31, 2011, compared with $78.2 million
(2.2 cpl) for the year ended December 31, 2010. While
part of this increase was activity related, $3.3 million was
expensed in the second quarter of 2011 as the result of
one-time expenses relating to management changes and
Cango acquisition costs. Strong total shareholder return
in 2011 led to variable employee incentive compensation
expenses increasing $3.0 million year over year.
operatinG and direct expenSeS
Q4 2011 vs. Q4 2010
operating and direct costs increased by 9% to
$44.5 million (4.1 cpl) for the three months ended
December 31, 2011, compared with $41.0 million (4.2 cpl)
for the three months ended December 31, 2010. operating
and direct costs were comparable on a cpl basis in the
fourth quarter of 2011 compared to the prior year.
total Year 2011 vs. 2010
operating and direct costs increased by 24% to
$172.7 million (4.1 cpl) in the year ended December 31, 2011,
compared with $138.8 million (4.0 cpl) in 2010. Increased
commercial volumes due to organic growth and recent
commercial acquisitions, increased fuel prices and delivery
charges, a $5.0 million charge in the third quarter of 2011
that included aging receivables and other provisions,
resulted in an increase of 0.1 cpl for the year ended
December 31, 2011 compared with December 31, 2010.
Operating CPL
4.20
4.10
4.00
3.90
3.80
3.70
3.60
2007
2008
2009
2010
2011
operating expenses on cpl basis
operating expenses have increased on a cents per litre basis due partly to a
change in business mix, with an increase in the portion of commercial fuel
and non-fuel sales. other factors that led to an increase in 2011 included
increased fuel prices and delivery charges and a $5.0 million charge in the
third quarter of 2011 that included aging receivables and other provisions.
parkland fuel corporation annual report 2011
41
ManaGeMent’S diScuSSion and analYSiS
Marketing, General & Administrative CPL
2.40
2.20
2.00
1.80
1.60
2007
2008
2009
2010
2011
Marketing General and administrative expenses on a cpl basis
MGa expenses on a cents per litre basis peaked in 2010 as a result of
acquiring the overhead expenses of Bluewave and Columbia Fuels, expenses
related to converting from a trust to a corporation, and costs related to erp
system implementation. In 2011, MGa costs increased at a slower rate than
growth in fuel volumes as a result of effective integration and cost initiatives.
earninGS before intereSt, tax, depreciation
and aMortization (“ebitda”)
Q4 2011 vs. Q4 2010
eBItDa for the fourth quarter of 2011 increased by 3% to
$36.0 million compared with $34.9 million in the fourth
quarter of 2010. the $1.1 million increase in eBItDa is the
result of increased volumes in retail and Commercial Fuels
as well as strong refiners’ margins for the fourth quarter of
2011 in comparison to the fourth quarter of 2010.
total Year 2011 vs. 2010
eBItDa for total year 2011 was $150.8 million, an increase
of 50% compared with $100.6 million for the year ended
2010, due to strong retail and Commercial Fuels results
and improved refiners’ margins compared to the prior year.
EBITDA
(in millions of dollars)
200
150
100
50
0
2006 2007 2008 2009
2010
2011
ebitda
parkland achieved record eBItDa in 2011 due to strong retail and
Commercial Fuels results and improved refiners’ margins compared to the
prior year. By contrast, strong eBItDa in 2007 was driven predominantly
by refiners’ margins that were extremely elevated due to refiner
disruptions in the Southern united States following Hurricane Katrina.
42
parkland fuel corporation annual report 2011
depreciation and aMortization
Q4 2011 vs. Q4 2010
Depreciation and amortization expenses in the fourth
quarter of 2011 decreased 0.4% or $0.1 million to
$16.7 million compared with $16.8 million in the fourth
quarter of 2010. effective July 1, 2011, the amortization
period for customer relationships included in intangible
assets has changed. previous to the start of the third
quarter of 2011, parkland amortized all customer
relationships included in intangible assets acquired
through acquisition over a five year period. With this
change in estimate, effective July 1, 2011 onwards,
customer relationships are prospectively amortized over a
five to 13-year period. The impact commencing July 1, 2011
is to decrease amortization expense by approximately
$3.5 million a quarter or $14.1 million a year.
total Year 2011 vs. 2010
Depreciation and amortization expenses for the year
ended December 31, 2011 increased 9% or $5.5 million
to $68.4 million compared with $62.9 million for the
year ended December 31, 2010. this is due to increasing
amortization of intangible assets arising from the
acquisitions of Island petroleum and Cango, a $4.1 million
increase in amortization of deferred finance charges
arising from parkland’s credit facility, partially offset by a
$7.0 million decrease in amortization due to the change in
estimate on customer relationships described above.
Amortization and Depreciation
(in millions of dollars)
80
60
40
20
0
Deferred
Finance Charges
Intangibles
Fixed Assets
2007
2008
2009
2010
2011
amortization and depreciation
the chart above shows the breakdown of parkland’s amortization and
depreciation by source. the amortization and depreciation expenses
attributable to intangible assets have increased substantially since 2009
due in large part to acquisitions that parkland has made.
finance coStS
Q4 2011 vs. Q4 2010
Finance costs were $10.5 million in the fourth quarter
compared with $8.8 million for the same period in 2010,
an increase of 20%. Finance costs relate to interest on
long-term debt, interest and accretion on convertible
debentures, and accretion on refinery remediation and
asset retirement obligations.
Interest on long-term debt for the fourth quarter of
2011 decreased by $4.0 million to $2.3 million versus
$6.3 million in the fourth quarter of 2010 due to more
favourable lending terms established on parkland’s new
revolving extendible credit facility executed on June 30,
2011. Interest and accretion on convertible debentures
for the fourth quarter of 2011 was $2.9 million versus
$3.1 million in the fourth quarter of 2010.
long-term debt including the current portion has
decreased to $231.0 million as at December 31, 2011, down
$90.0 million from $321.0 million as at December 31, 2010
primarily due to the $82.6 million net proceeds received
from the June 2, 2011 equity raise.
accretion on the asset retirement obligation increased
$3.3 million to $2.6 million in the fourth quarter of 2011
from $(0.7) million in the fourth quarter of 2010, due to a
1.3% decrease in the discount rate used to determine the
present value of future costs. Accretion on the refinery
remediation accrual increased $2.7 million in the fourth
quarter of 2011 from $0.0 in the fourth quarter of 2010,
due to a 2.6% decrease in the discount rate.
total Year 2011 vs. 2010
Total year finance costs were $36.7 million in 2011
compared with $27.4 million in 2010. this increase is
attributable to increased accretion on refinery remediation,
asset retirement obligation, and interest and accretion on
convertible debentures, partially offset by a decrease in
interest on long-term debt discussed above. additionally,
for the year ending December 31, 2010 there was a
one-time adjustment for the revaluation of embedded
derivative, which decreased finance costs by $5.3 million.
Interest Costs
(in millions of dollars)
40
30
20
10
0
Convertible
debenture
Other debt
2007
2008
2009
2010
2011
interest costs
Interest costs increased in 2010 as the result of additional borrowings that
included parkland’s December 2009 series 1 convertible debenture (pKI.
DB) and parkland’s revolving credit facility that were used to fund the
January 31, 2010 acquisition of Bluewave and additional working capital
requirements in 2010. Interest costs decreased in 2011 as parkland made
significant progress in paying down its revolving credit facility in 2011,
establishing a new revolving extendible credit facility with better interest
terms, partially offset by parkland’s December 2010 series 2 convertible
debenture (pKI.DB.a). long term includes Bankers’ acceptance fees,
operating line interest, capital lease interest, and mortgage interest.
incoMe tax
Q4 2011 vs. Q4 2010
an income tax expense of $2.4 million was incurred in the
fourth quarter compared with a recovery of $1.9 million
for the same period in 2010.
the increase in income tax expense resulted from the impact
of the conversion from an income trust to a corporation.
this was partially the result of the Corporation’s inability
to continue to reduce taxable income by distributions to
unitholders and the impact of changes in the effective rate
after the conversion from the trust to the Corporation.
total Year 2011 vs. 2010
a total year income tax expense of $17.7 million was
incurred at the end of 2011 compared with a recovery of
$13.4 million in 2010 for the same reasons described in
the review of income tax for the fourth quarter.
Income Tax
(in millions of dollars)
40
20
–
(20)
Deferred tax
Current tax
2007
2008
2009
2010
2011
income tax
on December 31, 2010, parkland Income trust converted to parkland Fuel
Corporation, becoming fully taxable for fiscal year 2011.
parkland fuel corporation annual report 2011
43
ManaGeMent’S diScuSSion and analYSiS
earninGS
Q4 2011 vs. Q4 2010
parkland had net earnings in the fourth quarter of 2011 of
$7.4 million, compared with net earnings of $11.7 million in
the fourth quarter of 2010. the decrease in net earnings
in the fourth quarter of 2011 compared to the prior year
was principally the result of $4.3 million in higher income
tax expenses.
total Year 2011 vs. 2010
net earnings for the year ended December 31, 2011
were $43.9 million, an increase of $17.1 million from
$26.8 million in 2010. the increase in net earnings was
primarily from $50.2 million in increased eBItDa partially
offset by $31.1 million in increased income tax expense.
diStributable caSH floW
Earnings
(in millions of dollars)
100
75
50
25
0
2006 2007 2008 2009
2010
2011
earnings
net earnings increased in 2011, despite the corporation becoming fully
taxable, primarily due to $50.2 million in increased eBItDa that was
partially offset by $33.2 million in increased income tax expense.
Distributable Cash Flow
(in millions of dollars)
Total Dividends and Distributions
(in millions of dollars)
140
120
100
80
60
40
20
0
140
120
100
80
60
40
20
0
2006 2007 2008 2009
2010
2011
2006 2007 2008 2009
2010
2011
Q4 2011 vs. Q4 2010
Distributable cash flow exceeded dividends in the fourth
quarter by $10.2 million compared with $11.2 million in the
fourth quarter of 2010. the dividend/distribution payout
ratio for the fourth quarter of 2011 was 61% compared
with 58% in the fourth quarter of 2010. Distributable cash
flow increased to $26.5 million in the fourth quarter of
2010 compared with $26.4 million in the fourth quarter of
2011. Movements in non-cash working capital are excluded
from distributable cash flow.
total Year 2011 vs. 2010
Distributable cash flow for the twelve months ended
December 31, 2011 exceeded dividends by $66.0 million
compared with $7.2 million for the twelve months ended
December 31, 2010. the dividend/distribution payout ratio
for the year of 2011 was 48% compared with 89% for the
year of 2010. the reduction in the payout ratio in the year
of 2011 compared with the year of 2010 was the result of
$59.5 million in increased distributable cash flow as a
result of $25.9 million in higher proceeds on disposition
of capital items, including the $25.2 million proceeds on
sale of the long-haul trucking assets, and increased net
earnings excluding depreciation and amortization costs.
44
parkland fuel corporation annual report 2011
reconciliation of Distributable Cash Flow
(in thousands of Canadian dollars,
except per Share/unit amounts)
Cash flow 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
Dividends/distributions
Dividend/distribution payout ratio
three months ended december 31,
Year ended december 31,
2011
4,939
(17,712)
(12,773)
13,391
2,693
23,162
26,473
16,272
61%
2010
(48,402)
(13,571)
(61,973)
10,470
2,393
75,474
26,364
15,176
58%
2011
89,609
(45,769)
43,840
32,697
32,316
17,679
126,532
60,516
48%
2010
(4,070)
(40,872)
(44,942)
29,207
6,367
76,387
67,019
59,819
89%
(1) Standardized distributable cash flow is a measure defined by the Canadian Institute of Chartered Accountants (CICA). See discussion below.
Dividends
the following table sets forth the record date, payment date, amount per share, and total dividends paid during the year:
record Date
January 21, 2011
February 28, 2011
March 24, 2011
april 25, 2011
May 20, 2011
June 22, 2011
July 31, 2011
august 31, 2011
September 30, 2011
october 31, 2011
november 30, 2011
December 31, 2011
payment Date
February 15, 2011
March 15, 2011
april 15, 2011
May 14, 2011
June 15, 2011
July 15, 2011
august 15, 2011
September 15, 2011
october 15, 2011
november 15, 2011
December 15, 2011
January 13, 2012
total dividends declared to Shareholders in 2011
2011 diVidend plan
parkland intends to continue to pay dividends on a monthly
basis of $0.085 per share, equivalent to $1.02 per share
annually. Parkland’s business has grown significantly over
the past several years and a similar growth trajectory is
anticipated as the fuel industry continues to consolidate.
this dividend level has been set to allow parkland to
amount per Share
total Dividends
($000’s)
0.085
0.085
0.085
0.085
0.085
0.085
0.085
0.085
0.085
0.085
0.085
0.085
1.020
4,553
4,579
4,603
4,627
4,659
5,289
5,314
5,342
5,372
5,410
5,441
5,469
60,658
continue to execute growth plans through a combination
of internally generated funds, external debt and equity
capital. at the discretion of parkland’s Board of Directors,
parkland will determine the amount of any future
dividends payable. From time to time this amount may vary
depending on a number of factors.
parkland fuel corporation annual report 2011
45
ManaGeMent’S diScuSSion and analYSiS
preMiuM diVidend™ and diScount diVidend
reinVeStMent plan
regular cash dividend. participants electing this option
will receive a monthly payment of $0.0867 per share.
In January 2011, parkland launched the premium Dividend
and discount Dividend reinvestment plan (“DrIp”)
as a means to incrementally raise equity capital for
growth and other corporate purposes at a very low cost.
In addition to the option of receiving a monthly cash
dividend of $0.085 per share, the premium Dividend™ and
enhanced Dividend reinvestment plan provide Canadian
shareholders with the following options:
• the premium Dividend™ – this provides eligible
shareholders with a 2% cash premium on top of their
• Dividend reinvestment – this allows shareholders to
purchase additional shares with their dividend at a
5% discount to the volume weighted average price as
defined by the plan.
those shareholders who do not elect to participate in the
premium Dividend™ and enhanced Dividend reinvestment
plan will still receive their regular monthly dividend of
$0.085 per share.
parkland’s DrIp is administered by Valiant trust. Details
are available from parkland or from Valiant trust.
diVidendS / d iStributionS analYSiS
Acomparisonofdividendswithcashflowfromoperatingactivities,netearningsandEBITDA
Net earnings include significant non-cash charges including depreciation and amortization and accretion. These non-
cash charges do not impact Parkland’s distributable cash flow.
(in thousands of Canadian dollars,
except per Share/unit amounts)
Cash flow from operating activities
net earnings
eBItDa(1)
Dividends / Distributions
(Shortage) excess of cash flow from operating
activities relative to dividends/distributions
(Shortage) excess of cash flow from net earnings
three months ended december 31,
Year ended december 31,
2011
4,939
7,383
35,953
16,272
2010
(48,402)
11,674
34,852
15,176
2011
89,609
43,915
150,832
60,516
2010
(4,070)
26,828
100,620
59,819
(11,333)
(63,578)
29,093
(63,889)
relative to dividends/distributions
(8,889)
(3,502)
(16,601)
(32,991)
Excess (shortage) of cash flow from EBITDA relative
to dividends/distributions
19,681
19,676
90,316
40,801
(1) Please refer to the Non-GAAP Measures section in the MD&A for a definition of EBITDA.
Q4 2011 vs. Q4 2010
Cash flow from operating activities in the three months
ended December 31, 2011 was $11.3 million lower than
dividends, primarily the result of $23.2 million in cash flow
used in increased working capital during the quarter.
total Year 2011 vs. 2010
In the year ended December 31, 2011 versus 2010, eBItDa
was $50.2 million higher due to elevated refiners’ margins
in 2011 compared to lower than average margins in 2010, as
well as a strong first half of 2011 Commercial Fuels Division
performance in the winter and spring seasons. Cash flow
from operating activities was $89.6 million during the year
of 2011 compared to a shortage of $4.6 million in 2010
primarily due to $50.2 million in higher eBItDa in 2011 and
$58.7 million in less cash flow used by increasing working
capital during 2011 versus 2010.
46
parkland fuel corporation annual report 2011
return on Capital employed (“roCe”)
Capability to Deliver results
December 31,
2011
December 31,
2010
liQuiditY
cash balances and cash flow activity
(in thousands of Canadian dollars)
Four quarter average(1)
Bank indebtedness
long-term debt (including
current portion)
Convertible debentures
Shareholders' capital
less:
5,000
5,600
278,321
134,464
241,158
258,861
97,439
172,654
658,943
534,554
Cash and cash equivalents
(24,888)
(40,503)
restricted cash
Capital employed
(600)
–
633,455
494,051
net earnings (trailing twelve
months, "ttM")
add
Finance costs
Gain on disposal of property,
plant and equipment
Income tax expense
ttM eBIt
return on Capital employed
43,915
26,828
36,712
27,367
(15,938)
17,699
82,388
13.0%
(3,119)
(13,373)
37,703
7.6%
(1)
the four quarter average is calculated using the balance at the beginning
of the trailing four quarter period, and using the closing balances at the
conclusion of each of the four quarters thereafter.
average capital employed has increased $139.4 million
from $494.1 million in 2010 to $633.5 million in 2011. the
increase is the result of acquisitions, organic growth, and
increased working capital requirements related to the
increased price of petroleum products.
return on capital employed (“roCe”), as measured by
earnings before interest and taxes (“eBIt”) divided by
average capital employed, increased from 7.6% in 2010
to 13.0% in 2011. eBIt increased $44.7 million between
2010 and 2011 as a result of a $50.2 million increase in
eBItDa partially offset by an increase in depreciation and
amortization of $5.5 million.
Q4 2011 vs. Q4 2010
parkland’s cash position decreased by $4.7 million in
the fourth quarter of 2011 compared to a decrease of
$39.4 million in the fourth quarter of 2010. For the
three month period ended December 31, 2011, operating
activities generated $4.9 million of cash versus a use of
$47.9 million in cash flow in the fourth quarter of 2010.
net changes in non-cash working capital decreased
from $23.2 million cash used for the fourth quarter 2011,
compared to cash used of $74.9 million in the fourth
quarter of 2010. the increase in cash used in 2010 was
related to the Bluewave energy and Island petroleum
acquisitions. In the fourth quarter of 2011, the addition of
Cango as well as higher fuel prices have led to an increase
in accounts receivable compared to 2010.
Financing activities in the fourth quarter of 2011
generated $6.7 million in cash flow which includes
$11.8 million in proceeds from long-term debt net of long-
term debt repayments. Financing activities generated
$22.1 million in cash flow in the fourth quarter of 2010,
primarily attributable to the issuance of the Series 2
convertible debenture.
Investing activities in the fourth quarter of 2011 used
$16.4 million in cash flow, compared to $13.7 million in
cash flow in the fourth quarter of 2010 due to increased
property, plant and equipment additions.
total Year 2011 vs. 2010
parkland’s cash position increased by $9.4 million in the
year ended December 31, 2011 compared to an increase
of $0.9 million in 2010. For the year of 2011, operating
activities generated $89.6 million of cash versus a use
of $4.1 million in cash flow in 2010, primarily due to an
increase in non-cash working capital of $17.7 million in
2011 compared to an increase of $76.4 million in 2010.
Financing activities in 2011 used $37.6 million of cash flow,
which included a total use of cash flow of $98.3 million
from long-term debt repayments less proceeds from long-
term debt. The June 2, 2011 bought deal equity financing
arrangement resulted in net proceeds of $84.1 million
for the new share issue. Financing activities generated
$246.1 million in cash flow during the year of 2010.
parkland fuel corporation annual report 2011
47
ManaGeMent’S diScuSSion and analYSiS
Investing activities in 2011 used $42.6 million in cash flow,
which included $14.8 million in net cash expenditures
related to the Cango Inc. acquisition and $12.2 million
used in the Island petroleum acquisition. Investing
activities used $241.1 million in cash flow during the year
of 2010, which included $204.4 million of cash used to
purchase Bluewave.
tanGible and intanGible aSSetS
a review of property, plant and equipment and
intangible assets
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
Corporation’s capital projects have components of both.
It is the Corporation’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.
Q4 2011 vs. Q4 2010
During the fourth quarter of 2011, the Corporation’s total
additions of property, plant and equipment and intangibles,
consisting of maintenance capital and growth capital,
were $17.7 million compared with $13.6 million for the
same period in 2010. Maintenance capital in the quarter
ended December 31, 2011 was $5.9 million compared with
maintenance capital of $3.1 million in the fourth quarter
of 2010. Growth capital in the fourth quarter of 2011 was
$11.8 million, compared with $10.5 million in growth capital
for the same period in 2010.
total Year 2011 vs. 2010
During 2011, the Corporation’s total additions of
property, plant and equipment and intangibles,
consisting of maintenance capital and growth capital,
were $45.8 million compared with $40.9 million in 2010.
Maintenance capital during the year ended December 31,
2011 was $14.4 million compared with maintenance capital
of $11.7 million in 2010. Growth capital during 2011 was
$31.4 million, compared with $29.2 million in growth
capital last year.
capital reSourceS
a new revolving extendible credit facility (the “extendible
Facility”) agreement was executed on June 30, 2011
for a period of three years. the facility is extendible
each year for a rolling three-year period at the option
of parkland. the extendible Facility is for a maximum
amount of $450 million with interest only payable at the
bank’s prime lending rate plus 1% to 2.5% per annum. the
extendible Facility includes a revolving operating loan to
a maximum of $450 million less the value of letters of
credit issued. the letter of credit facility is to a maximum
of $60 million. the new extendible Facility also includes
a $100 million accordion feature that could potentially
increase the total lending capacity to $550 million.
Security on the extendible Facility is the assignment of
insurance and a floating charge demand debenture for
$650 million, thus creating a first floating charge over all
of the undertaking, property and assets of parkland.
parkland successfully closed a bought deal equity
financing on June 2, 2011. Including the over-allotment
option that was fully exercised by the syndicate of
underwriters, the offering raised $86.3 million in gross
proceeds. the syndicate purchased 7,130,000 common
shares (representing 13% of Parkland’s float prior to this
issue) for resale to the public on a bought deal basis at a
price of $12.10 per share. the equity proceeds were used
to pay for the Cango acquisition with the balance used to
reduce parkland’s credit facility.
at December 31, 2011, parkland had $228.2 million in
long-term debt (excluding $2.8 million of the current
portion of long-term debt, the $92.2 million remaining
amount of series 1 convertible unsecured subordinated
debentures outstanding and the $43.4 million remaining
amount of series 2 convertible unsecured subordinated
debentures outstanding), compared with $240.6 million
at December 31, 2010 (excluding $80.4 million of the
current portion of long-term, $90.4 million remaining
amount of series 1 convertible unsecured subordinated
debentures outstanding and the $43.0 million remaining
amount of series 2 convertible unsecured subordinated
debentures outstanding). at December 31, 2011, parkland
had $24.9 million of cash on hand at various banks
compared with a cash balance of $18.5 million on hand at
December 31, 2010.
48
parkland fuel corporation annual report 2011
Based on the balance of parkland’s seasonal business,
management believes that cash flow from operations will
be adequate to fund maintenance capital, interest, income
taxes and targeted dividends. Growth capital expenditures
in 2012 will be funded by cash flow from operations,
proceeds from the premium Dividend™ and Dividend
reinvestment plan, and by the extendible Facility. any
additional debt incurred will be serviced by anticipated
increases in cash flow and will only be borrowed within
parkland’s debt covenant limits.
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 dividends paid to shareholders, issue
new shares, issue new debt or repay existing debt.
at December 31, 2011, parkland was in compliance with
all debt covenants. Debt covenant ratios are tested
on a trailing four quarter EBITDA basis. The financial
covenants under the extendible Facility are as follows:
1.
2.
ratio of current assets to current liabilities shall not
be less than 1.10 to 1.00 on a consolidated basis;
ratio of funded debt (which excludes the convertible
debentures but includes issued letters of credit)
to eBItDa shall not exceed 3.00 to 1.00 during the
second and third quarters and shall not exceed 3.50 to
1.00 during the first and fourth quarters of Parkland’s
fiscal year; and
3.
ratio of eBItDa less maintenance capital expenditures
and taxes to the sum of interest, principal and dividends
after DrIp proceeds shall not be less than 1.15 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.
parkland fuel corporation annual report 2011
49
ManaGeMent’S diScuSSion and analYSiS
leaderSHip and ManaGeMent
parkland’s Senior leadership team
team Member
Start Date
Bio
robert b. espey
president and Chief
Executive Officer
november
2008
Michael r. lambert
Senior Vice president and
Chief Financial Officer
September
2011
andrew S. cruickshank
Vice president Finance
June 2010
robert J. fink
General Counsel and
Corporate Secretary
July 2010
dean Mackey
Senior Vice president,
Human resources and
administration
Mike McMillan
Vice president and
treasurer
January
2009
December
2009
Mr. espey’s background includes change management and corporate strategy with a focus
on growth and business integration. He joined parkland in 2008 as Vice president retail
Markets, was promoted to Chief Operating Officer in 2010, and appointed to CEO in May
2011. prior to parkland, he was the executive in charge of worldwide sales and marketing
at FisherCast Global, before being promoted to Chief Executive Officer there. While Vice
president of algonquin automotive, Mr. espey led the reengineering of key supply chains to
significantly reduce costs. He also worked with Computer Sciences Corporation’s strategy and
change management practice out of london, england, assisting multinational clients including
alstom transport, airbus, Bata Shoes, Kvaerner engineering and Meggit Defence. In addition,
Mr. espey also worked with Coca Cola, Shell, unilever and the BBC as a consultant while with
What If Impact. Mr. Espey spent four years in the Canadian Navy as a commissioned officer,
possesses a Bachelor of Mechanical engineering from the royal Military College as well as a
Master of Business administration from the Ivy School of Business.
Mr. Lambert has extensive experience in leading the finance functions of large public
companies, broad exposure to operations and strategy, and a focus on increasing
organizational efficiency. Since 1983, Mr. Lambert has held numerous senior finance positions
in public companies that include CFo of the Forzani Group, executive Vice president and CFo
of Canadian Pacific Railway Company, Executive Vice President of Canadian Tire Limited
and president of their Mark’s Work Wearhouse Division and CFo of Mark’s Work Wearhouse
limited prior to its acquisition by Canadian tire. Mr. lambert is a Chartered accountant with a
Bachelor of Commerce degree (Honours) from the university of Windsor.
Mr. Cruickshank is both a Chartered Accountant (CA) and a Certified Public Accountant
(Cpa) with previous roles in other fuel marketing companies. prior to joining parkland,
Mr. Cruickshank’s previous roles included Vice president of Finance at uFa Co-operative
limited, a fuel and agricultural inputs reseller serving 110,000 members, CFo of Collicutt
energy Services ltd. and CFo of enwin utilities Group.
Since joining parkland in 2010 as General Counsel and Corporate Secretary, Mr. Fink has been
the driving force behind improvements in the areas of risk management, governance, contract
management and negotiation processes. prior to joining parkland, Mr. Fink was General
Counsel and Corporate Secretary of Fortisalberta Inc. where his responsibilities included
corporate governance, procurement, land and legal matters. He previously practiced in the
technology and corporate groups at Gowling Lafleur Henderson LLP and in the corporate and
tax groups at Macleod Dixon llp. Bob has been practicing law since 1996.
Mr. Mackey has 29 years of experience in human resources at multinational corporations.
prior to joining parkland, he was Vice president Human resources, north american Field
operations with americredit Financial Services. He also worked with the Quaker oats
Company of Canada ltd. as the executive in charge of Human resources.
Mr. McMillan, who was appointed to Vice president and treasurer in December 2011, is
responsible for treasury, Corporate planning and risk Management. Mike joined parkland
as the Controller of the retail division and later led the integration of Cango Inc. and retail
eastern operations. He has 17 years’ experience in a variety of public and private industry
roles including Director of Finance for nortel networks, retail Controller for nygard,
Controller of Buhler Industries and, prior to joining parkland, was Vp professional Services
for a toronto-based consulting company. He has a Master of Business administration from
the University of Calgary and is a Certified Management Accountant.
50
parkland fuel corporation annual report 2011
team Member
Start Date
Bio
karen putnam
Vice president,
Corporate Development
William rouse
Vice president,
Commercial Fuels east
and lubricants
September
2000
(Joined parkland
in 2010 with
Bluewave)
Ms. Putnam’s focus is the identification, negotiation and execution of strategic opportunities
that are accretive to parkland’s shareholders. She joined parkland in February 2010 following
the acquisition of Bluewave Energy. She possesses 25 years of financial management
experience in the energy sector including the role of Chief Financial Officer for Bluewave
energy. While at Bluewave, Ms. putnam built an extensive foundation of experience in the
acquisition and integration of companies. Ms. putnam is a Chartered accountant with a
Bachelor of Commerce from Mount allison university.
December
1987
(Joined parkland
in 2010 with
Bluewave)
Mr. rouse is responsible for the lubricants division and assumed responsibility for parkland’s
eastern Commercial Fuels operations from William (Bill) Sanford in 2011. He has 27 years of
downstream petroleum experience including Vice president, Western Canada for Bluewave
energy. During this time, he has been involved extensively with business development,
acquisitions, and integration of downstream petroleum businesses across Canada. Mr. rouse
possesses a Bachelor of Business administration with a Major in Management from Saint
Francis Xavier university.
Jane Savage
Vice president,
Wholesale and Supply
april 2011
donna Strating
Vice president,
administration and Chief
Information Officer
april 2010
allan Willms
Vice president,
Commercial Fuels
Division – West
May 2009
Ms. Savage leads the Wholesale and Supply division in its drive to enhance profits through
active management of parkland’s supply portfolio. She has 31 years of experience in the
downstream oil industry including 22 years with Imperial Oil in refining, supply and trading,
and wholesale sales divisions, and nine years as president and Ceo of the Canadian
Independent petroleum Marketers association. Ms. Savage is a professional engineer
(ontario) with a Chemical engineering degree from Queen’s university and a Master of
Business administration from McGill university.
Ms. Strating’s focus is enhancing the transactional efficiency of Parkland through
improvement and integration of parkland's information systems and accounting
systems. Ms. Strating possesses 20 years of management experience in information
technology and operations including Vice President and Chief Information Officer at Capital
Health (alberta) for nine years. In addition, she was previously a Management Consulting
partner for ernst & Young and was subsequently appointed to Vice president with Cap Gemini
ernst & Young. Ms. Strating has a Master of Science in Management Information Systems
from university of arizona and a Master of Business administration from the university of
Minnesota.
Mr. Willms assumed responsibility for parkland’s western Commercial Fuels operations from
William (Bill) Sanford in 2011. He started in 2009 as Director of Parkland’s Pacific Region,
responsible for the post-acquisition integration of Columbia Fuels and united petroleum.
He has 15 years of general management experience in the automotive industry and an
extensive international business development background. He is a values-based, results-
driven leader with a Bachelor of Science degree.
parkland fuel corporation annual report 2011
51
ManaGeMent’S diScuSSion and analYSiS
parkland’S board of directorS
the table below provides background information about the independent members of parkland’s Board of Directors.
More detailed information is available in parkland’s most recent Management Information Circular.
Board Member
Director since:
Bio
John f. bechtold august 2006
Mr. Bechtold has over 40 years of experience in the north american petroleum industry including
management roles at Gulf oil Corporation, Gulf Canada and petro-Canada. During his career, he
held senior leadership positions in the upstream, mid-stream and downstream segments of the
business including 15 years in crude oil and refined product supply and four years in the propane
business as president of ICG. He is currently a director of parex resources Inc. (member of
corporate governance and human resources committee and chair of the reserves and operations
committee). past board positions include being a member of each of the Industry advisory Board
to the Iea, the Canadian energy research Institute Board, the Canadian propane Gas association
Board, the British Columbia oil and Gas Commission and petro andina resources Inc. He holds
BSC (Honours) Chemical engineering and MSC petroleum reservoir engineering degrees and
completed the Senior executive Management program at Stanford university. Mr. Bechtold has
served on the Board of Directors since august 10, 2006 and is a member of the Compensation
and Corporate Governance Committee and the petroleum products Supply advisory Committee.
robert G. brawn november 1996 Mr. Brawn brings over 55 years of business experience to the Board of Directors, having held
Jim dinning
august 2004
alain ferland
June 1999
various management roles with companies operating in the oil and gas and resource industries.
Mr. Brawn holds several directorships that span a variety of industries, including energy,
construction and retail. He is currently a director of Grande Cache Coal Corporation (Chairman
of the Board and member of the audit Committee) and Black Diamond Group limited (lead
Director and member of the audit and Compensation committees). effective January 1, 2009, he
was appointed Chairman of the alberta economic Development authority and a member of the
premier's Council by the premier of alberta. Mr. Brawn is a professional engineer. Mr. Brawn has
served on the Board of Directors since november 13, 1996 and is a member of the Compensation
and Corporate Governance Committee.
Mr. Dinning is Chair of Western Financial Group Inc., an Alberta-based western Canadian financial
services company. He also chairs the board of liquor Stores na ltd. and export Development
Canada. He serves as a director for oncolytics Biotech Inc. (member of audit Committee) and
russel Metals Inc. (member of Governance and environmental/Safety Committees). He is a
director of armstrong Group and a member of the tD energy advisory Board. He is the Chairman
of the Canada West Foundation and a director of the norlien Foundation. In 2010, he was elected
Chancellor of the university of Calgary. Mr. Dinning earned a Bachelor of Commerce and a Master
in public administration from Queen's university. He was awarded an honorary doctorate from
the university of Calgary. He is a graduate of the Institute of Corporate Directors education
program. Mr. Dinning was appointed as a trustee on august 19, 2004 and was elected as a
director of parkland Industries ltd. on May 5, 2005 when parkland reorganized to a corporate
trust model. Mr. Dinning serves on parkland's audit Committee.
Mr. Ferland has over 30 years of experience in the petroleum industry and has acted as a
member of the senior management team in oil, oil services, plastic, airport and biotechnology
companies. Mr. Ferland has extensive experience in strategic planning, operations, logistics,
sales, marketing, project management and mergers. During his career, Mr. Ferland served
on more than ten boards in various capacities.He is also president of effa Management Inc.
Mr. Ferland has been president of torr Canada Inc., aéroports de Montréal, Ipl Inc., Geneka
Biotechnologies and, prior to that, was president of ultramar ltd. and Vice president of
ultramar Diamond Shamrock. He is a professional engineer. Mr. Ferland has served on the
Board of Directors since June 22, 1999 and is Chair of parkland's Compensation and Corporate
Governance Committee. He also serves as a member of the petroleum products Supply
advisory Committee. He is formerly a director of petrolia Inc. where he served as president of
the Compensation and Corporate Governance Committee.
52
parkland fuel corporation annual report 2011
Board Member
Director since:
Bio
Jim pantelidis
September 1999 Mr. pantelidis has over 30 years of experience in the petroleum industry. Mr. pantelidis is
chairman and director of the enerCare Inc. since 2002 (member of the audit, Governance
and Compensation, and Investment Committees). He also serves on the Board of each of
rona Inc. (Chairman of the Human resources and Compensation Committee and member
of the Development Committee) and Industrial alliance Insurance and Financial Services
Inc. (Chairman of the Investment Committee and member of the Human resources and
Compensation Committee). From 2002 to 2006, Mr. pantelidis was on the Board of FisherCast
Global Corporation and served as Chairman and Chief Executive Officer from 2004 to 2006.
Mr. pantelidis also previously served on the Board of equinox Minerals limited (Chairman of
the Human resources and Compensation Committee and member of the audit Committee).
Mr. pantelidis has a Bachelor of Science degree and a Master of Business administration
degree, both from McGill university. Mr. pantelidis has served on the Board of Directors since
September 7, 1999 and he is Chairman of the Board of Directors and a member of the audit
Committee. He also serves as Chair of the petroleum products Supply advisory Committee and
Chair of the project Drive advisory Committee.
ron rogers
September 2006 Mr. Rogers has over 35 years of experience in various financial and operating positions with
ernst & Young, Warrington Inc., the Crown Management Board of Saskatchewan, Moore
Corporation and Shaw Communications Inc. He received his Bachelor of Commerce degree
from St. Mary's university with concentrations on philosophy, economics and accounting and
subsequently earned his Chartered accountancy with ernst & Young. He has also attended
post-graduate seminars at north Western and Harvard universities. Mr. rogers is currently
a member of the Board of each of Corus entertainment (Chairman of audit Committee and
member of the executive Committee) and transforce Inc. (Chairman of audit Committee and
member of the Corporate Governance Committee). Mr. rogers previously served on the Boards
of the Brick Furniture Company and pizza pizza royalty Fund. His community involvement has
included such organizations as the Mississauga General Hospital Board, the Calgary division
of the united Way executive Board, the Festival of trees executive Committee for the alberta
Children's Hospital, the Juvenile Diabetes research Foundation and the Calgary Stampede
Compensation and pension Committee. Mr. rogers has served on the Board of Directors since
September 15, 2006, is Chairman of the audit Committee and a member of the project Drive
advisory Committee.
david a. Spencer april 2002
Mr. Spencer is a partner with Bennett Jones llp in Calgary where he specializes in corporate
finance, mergers and acquisitions and corporate governance. He has been a director since 2002
and is a member of parkland's Compensation and Corporate Governance Committee.
parkland fuel corporation annual report 2011
53
ManaGeMent’S diScuSSion and analYSiS
labour force
parkland had approximately 1,300 employees at
December 31, 2011, including 60 retail convenience store
personnel stationed throughout western Canada and 200
employees in its Red Deer, Alberta, head office.
parkland’s employees are also owners of the Corporation,
investing in parkland regularly through its share purchase
plan. A profit-sharing plan further contributes to the
entrepreneurial spirit of parkland’s employees, fostering
a sense of ownership and pride throughout parkland. By
constantly adhering to the Corporation’s values of integrity,
people, teamwork and success, parkland believes it has
the right tools to retain and develop the talent required to
achieve success.
parkland’s ability to deliver on its strategy is contingent
on retaining and attracting 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.
SYSteMS and proceSSeS
parkland utilizes a number of information technology
systems that assist and support the administration
and control of its operations. technology initiatives
are primarily implemented using in-house resources
with additional assistance from outside consultants
when required.
parkland’s technology initiatives include:
• upgrading point-of-Sale systems and implementing
the MasterCard and Visa (“eMV”) payment system at
convenience store and service station sites;
• upgrading truck technology for delivery management;
• Implementing technologies to improve back office
efficiency through automation; and
• Continued maintenance and security related to overall
network administration and emergency response
processes.
enterpriSe reSource planninG (erp)
SYSteM iMpleMentation
During 2010, parkland implemented an erp system
with the view to enhancing parkland’s long-term
efficiency, expanding Parkland’s ability to integrate
future acquisitions, and building a sustainable platform
for future growth and operational improvements. the
significant implementation issues with the ERP system
have been resolved. processes will continue to be
streamlined to automate and simplify the day-to-day
document flow within Parkland. Further integration of
staff and functions within local branches and across
broad geography continues to be a focus area in 2011 to
harmonize and simplify, to remove unnecessary costs
and to strengthen business controls.
SafetY
parkland Fuel Corporation is committed to ensuring a
safe working environment that protects its employees,
customers and the environment. as part of this
commitment, parkland has an established Health,
Safety & environment (HSe) program that includes
comprehensive policies and procedures designed
to manage and mitigate HSe risks. additionally,
employees have the opportunity to actively engage in
safety initiatives through numerous HSe committees
representing all areas of parkland’s business.
parkland’s primary business of selling and transporting
fuel products and other dangerous goods has an
inherent degree of risk. as such, parkland provides
training to all staff as required to mitigate these risks
and has operations and response procedures to deal with
emergency situations. Safety bonuses are also provided
to certain employees in higher risk roles as a means of
rewarding safe performance of duties.
Parkland maintains a Certificate of Recognition (COR)
in two provinces, and is a proud participant in alberta
WCB’s partnerships in Injury reduction program. In the
third quarter of 2011, parkland successfully underwent a
comprehensive external audit to re-certify its operations.
54
parkland fuel corporation annual report 2011
Segmented results
The following table details sales and operating revenue, cost of sales and gross profit for Parkland’s business segments:
three months ended december 31,
Year ended december 31,
2011
2010 % Change
2011
2010 % Change
(in millions of Canadian dollars)
Fuel Marketing Segment
Sales
Cost of sales
Gross profit
Gross margin
Cents per litre
Non-Fuel Commercial Segment
Sales
Cost of sales
Gross profit
Gross margin
Other Non-Fuel Segment
Sales
Cost of sales
Gross profit
Gross margin
Gross Profit Sources
933.0
858.2
74.8
8.0%
6.82
72.1
48.6
23.5
758.5
692.7
65.8
8.7%
6.71
51.4
32.7
18.7
32.6%
36.3%
9.2
4.4
4.8
14.8
3.9
10.8
52.2%
73.4%
23
24
14
2
40
49
26
(38)
–
(56)
14
26
(56)
8
3,668.1
2,680.0
3,360.3
2,461.4
307.8
8.4%
7.40
249.1
174.4
74.6
30.0%
63.3
37.3
26.0
41.1%
307.8
74.6
26.0
408.4
218.6
8.2%
6.26
146.3
95.1
51.3
35.0%
64.8
18.5
46.3
71.5%
218.6
51.3
46.3
316.2
37
37
41
18
70
84
46
(2)
–
(44)
41
45
(44)
29
Gross profit on Fuel Marketing Segment
Gross profit on Non-Fuel Commercial Segment
Gross profit on Other Non-Fuel Segment
Total consolidated gross profit
74.8
23.5
4.8
103.1
65.8
18.7
10.8
95.3
fuel MarketinG SeGMent
Fuel marketing consists of the sale and delivery of
gasoline, diesel and, to a lesser extent, propane through
the Corporation’s commercial, retail and wholesale
distribution channels. It is the Corporation’s most
important segment and the focus of its operations. a
more detailed review of this segment can be found in the
“Fuel Marketing operations” section later in this MD&a.
Q4 2011 vs. Q4 2010
For the three months ended December 31, 2011, parkland’s
fuel marketing segment accounted for approximately 92%
of sales and operating revenue compared with 92% in the
fourth quarter of 2010; and approximately 73% of gross
profit in the fourth quarter of 2011 compared with 69% in
the fourth quarter of 2010.
Fuel marketing sales increased 23% to $933.0 million in
the quarter ended December 31, 2011 from $758.5 million
in the fourth quarter of 2010. the increase in fuel
marketing sales was primarily driven by the addition
of the Cango business acquired in June 2011, as well as
significantly higher wholesale prices at refineries across
the country compared to the same quarter in 2010.
Fourth quarter 2011 fuel gross profit increased 14% to
$74.8 million compared with $65.8 million in the fourth
quarter of 2010, due to higher volumes.
please refer to the operational reviews of parkland’s
commercial and retail operations found later in this MD&a
for an in-depth discussion on fuel margins and volumes
for the quarter.
parkland fuel corporation annual report 2011
55
ManaGeMent’S diScuSSion and analYSiS
total Year 2011 vs. 2010
parkland’s fuel marketing segment accounted for
approximately 92% of sales and operating revenue in 2011
compared with 93% in 2010, and approximately 75% of
gross profit in 2011 compared with 69% in 2010.
total year fuel marketing sales increased 37% to
$3.7 billion for 2011 compared with $2.7 billion in 2010.
the increase in fuel marketing sales was primarily driven
by higher volumes and higher prices for the reasons
described previously.
Fuel gross profit increased 41% to $307.8 million for total
year 2011 compared with $218.6 million in 2010.
refinerS’ MarGinS
parkland’s Wholesale, Supply and Distribution, a part of the
Fuel Marketing Segment, includes profits from Parkland’s
participation in refiners’ profit margins and modest
profits from wholesale fuel sales. Parkland participates
in refiners’ margins for a portion of its supply volumes.
Refiners’ margins are driven by supply and demand, over
which the Corporation has no control. parkland continues
to execute its strategy to build fuel marketing profits to
offset fluctuations in refinery margins that are expected
to continue until the termination of the Suncor contract on
December 31, 2013.
Q4 2011 vs. Q4 2010
Gross profit in Parkland’s Wholesale, Supply and Distribution
division increased by 109% or $6.0 million to $11.5 million for
the three months ended December 31, 2011, compared with
$5.5 million for the same period in 2010.
total Year 2011 vs. 2010
Total year gross profit in Parkland’s Wholesale, Supply
and Distribution division increased $54.2 million to
$71.0 million for the year ended December 31, 2011,
compared with $16.8 million in 2010. Refiners’ margins in
2011 were strong for the majority of the year compared to
2010, when they were at the low end of season norms.
product supplies appear to be adequate to meet
forecasted commitments.
non-fuel coMMercial SeGMent
parkland’s non-Fuel Commercial Segment consists of
agricultural inputs, lubricants, and other products that
do not fall into the fuel category.
56
parkland fuel corporation annual report 2011
Q4 2011 vs. Q4 2010
For the three months ended December 31, 2011, this
segment accounted for approximately 7% of sales and
operating revenue compared with 6% in the fourth
quarter of 2010 and approximately 23% of gross profit
compared with 20% in the fourth quarter of 2010.
non-Fuel Commercial revenue increased to $72.1 million in
the fourth quarter of 2011 from $51.4 million in the fourth
quarter of 2010, principally due to growth in the lubricant
business.
total Year 2011 vs. 2010
For total year 2011 this segment accounted for approximately
6% of sales and operating revenue and approximately 18%
in of gross profit compared with 5% of sales and operating
revenue and 16% of gross profits in 2010.
non-Fuel Commercial revenue increased 70% to
$249.1 million for the year ended December 31, 2011
compared with $146.3 million for the year ended
December 31, 2010 due to additional lubricant business
and agricultural sales.
otHer non-fuel SeGMent
parkland’s other non-Fuel Segment consists of
convenience store revenue, lottery revenue, externally
charged freight revenue, retail variable rents received
from parkland’s retailers and vendor rebates.
Q4 2011 vs. Q4 2010
For the three months ended December 31, 2011, this
segment accounted for approximately 1% of sales and
operating revenue compared with 2% in the fourth
quarter of 2010 and approximately 5% of gross profit
compared with 11% in the fourth quarter of 2010.
Sales in this segment decreased 38% to $9.2 million in
the fourth quarter of 2011 compared with $14.8 million in
the fourth quarter of 2010, Other Non-Fuel gross profit
decreased by 56% or $6.1 million to $4.8 million in the
fourth quarter of 2011 compared with $10.8 million in the
fourth quarter of 2010. the reduction is due to the sale
of the long-haul trucking assets on august 13, 2011 and
rationalization of stations within parkland including the
acquired Cango network, decreasing convenience and
other non-fuel gross profits.
total Year 2011 vs. 2010
For total year 2011 this segment accounted for approximately
2% of sales and operating revenue compared with 2% at
the end of the year of 2010, and approximately 6% of gross
profit for total year 2011 compared with 15% at the end of
the year of 2010.
For total year 2011, other non-Fuel revenue decreased
2% to $63.3 million in 2011 compared with $64.8 million
in 2010. For the same reasons cited for the quarterly
movement, gross profit in this segment decreased 44% to
$26.0 million in the year 2011 compared with $46.3 million
in the year of 2010.
petroleum products, Island petroleum and race trac
cardlock locations. all of the brands feature quality
products and a commitment to locally delivered, premium
customer service.
Seasonality
Parkland’s commercial business is seasonal, reflecting
fluctuations in heating requirements through the year
and industry activity that can be more active in the
winter than in the summer. In general, the first and fourth
quarters are the busiest periods for Commercial Fuels
Commercial EBITDA fluctuates roughly according to the
following schedule
Fuel Marketing operations
parkland manages fuel distribution and marketing
through three different divisions:
Commercial
eBItDa
Q1
Q2
Q3
Q4
total
39%
16%
11%
34%
100%
• parkland Commercial Fuels
• parkland retail Fuels
• parkland Wholesale, Supply and Distribution
on august 13, 2011, parkland announced its binding
agreement to divest its transportation division, including
the petrohaul and Wiebe long-haul transportation,
to Seaboard liquid Carriers ltd. (“Seaboard”) for
$23.5 million. a gain of $12.8 million was realized on the
sale of these assets. the long-haul transportation section
has therefore been removed.
parkland coMMercial fuelS
parkland Commercial Fuels is a nationwide operation
serving commercial, industrial and residential customers
from coast to coast. this division delivers bulk fuel,
propane, heating oil, lubricants, agricultural inputs,
oilfield fluids and other related products and services to
commercial, industrial and residential customers through
an extensive nationwide delivery network.
Fuel volumes from parkland Commercial Fuels for the
three months ended December 31, 2011 accounted for 43%
of the Corporation’s total volumes compared with 46%
for the same period in 2010. Commercial fuel revenue
increased by 31% to $444.0 million in the fourth quarter
of 2011 compared with $338.8 million in 2010.
parkland Commercial Fuels’ family of successful brands
includes: Bluewave energy, Columbia Fuels, Great
northern oil, neufeld petroleum & propane, united
Volume and Margin Review
three months ended
december 31,
2011
476
2010
449
Year ended
december 31,
2011
1,785
2010
1,458
41.0
40.8
151.9
122.2
8.61
9.09
8.51
8.38
Volume (millions of litres)
Fuel gross profit (millions
of Canadian dollars)
Fuel gross profit
(cents per litre)
operational review
Q4 2011 vs. Q4 2010
For the three months ended December 31, 2011, parkland
Commercial Fuels’ volumes increased 6% to 476 million
litres compared with 449 million litres for the same
period in 2010 despite several regional challenges,
demonstrating the advantage of diverse geographic and
product portfolios.
In western Canada, oilfield activity remained strong
despite warmer conditions and low natural gas prices. For
the three months ended December 31, 2011, the Canadian
association of oilwell Drilling Contractors (CaoDC)
reported an average rig utilization rate of 61% compared
with 50% for the same period in 2010.
During the fourth quarter, commercial fuel volume
growth was hindered temporarily in western Canada by a
disruption in diesel supply in alberta, Saskatchewan and
northeast British Columbia that started with an explosion
at a Regina refinery which was further exacerbated by
parkland fuel corporation annual report 2011
57
ManaGeMent’S diScuSSion and analYSiS
a hydrogen shortage that impacted certain edmonton
refiners. While fuel requests from potential commercial
customers increased during the disruption, parkland did
not fulfill new fuel requests as it maintained and protected
its commitments to its current customer base. through
effective product and supply management parkland was
able to meet the fuel needs of the vast majority of its
customer base.
Weather had a significant impact on fuel volumes in the fourth
quarter, with warmer than normal weather in eastern and
central Canada leading to a $2.5 million reduction in eBItDa
in the fourth quarter of 2011 compared to the prior year.
Heating Degree Days
location
Halifax
ottawa
Victoria
three months ended december 31,
Year ended december 31,
normal*
1,395
1,562
1,048
2011
1,169
1,266
1,092
Difference
normal*
-16%
-19%
4%
4,367
4,521
3,041
2011
3,983
4,032
3,135
Difference
-9%
-11%
3%
*Normal is defined by the average of the past 30 years.
temperatures also had an impact on consumption in
northern alberta and northeast British Columbia, as
colder temperatures would normally drive higher demand
in the oilfield. That said, warmer temperatures also
allowed the diesel supply shortage to be resolved much
sooner than anticipated.
the lubricants business continues to outperform initial
expectations.
Sequential Margin review
Sales and operating revenue will fluctuate on a cents
per litre (cpl) basis and on a gross basis with the price
of crude oil, the primary input for fuel. net fuel gross
profit on a cents per litre basis drives the profitability
of the Commercial Fuels division, and is the metric that
management monitors when reviewing the division’s
performance and profitability.
Average net fuel gross profit on a cents per litre basis for
the fourth quarter of 2011 was 8.6 cpl, a decrease of 5%
or 0.5 cpl compared with 9.1 cpl in the fourth quarter of
2010 due to the addition of high-volume, lower-margin
accounts. However, average net fuel gross profit increased
in the fourth quarter of 2011 by 18% or 1.3 cpl compared
with 7.3 cpl in the third quarter of 2011 due to the seasonal
increase in higher margin heating oil and propane sales in
the fourth quarter.
Commercial Margins CPL
15.00
10.00
5.00
0
Q1
Q2 Q3 Q4
Q1
Q2 Q3 Q4
2010
2011
commercial Margins
Commercial margins decreased slightly year over year due to high-volume,
low-margin accounts. When wholesale accounts are factored out, margins
are improving in parkland’s regular commercial business.
2011 vs. 2010
In 2011, parkland Commercial Fuels’ volumes increased
22% to 1.8 billion litres compared with 1.5 billion litres for
the same period in 2010 due to the addition of Bluewave’s
January volumes in 2011 (91 million litres), stronger heating
oil sales through the first quarter of 2011 due to a cold
winter, the addition of fuel sales from Island petroleum
throughout the year, partially offset by weaker heating oil
sales in the fourth quarter of 2011 due to warm temperatures
in eastern and Central Canada.
During the year, warmer than normal weather led to a
$3.0 million reduction in eBItDa, with most of this impact
concentrated in the fourth quarter of 2011.
Average net fuel gross profit on a cents per litre basis in
2011 was 8.5 cpl, an increase of 2% or 0.1 cpl compared
with 8.4 cpl in 2010.
58
parkland fuel corporation annual report 2011
Divisional outlook
Oilfield activity in Northern Alberta and Northeast British
Columbia continues to be robust despite lower natural gas
prices. In January and February 2012, the CaoDC reported
an average rig utilization rate of 74% compared with 70%
for the same period in 2011.
a review of oil and gas well completion data available on
the CaoDC website demonstrates that Canadian drilling
activity is now dominated by oil wells which make up
more than 62% of completions compared with gas wells
at 28%. this is in stark contrast to completion data from
1999 to 2010 where gas wells represented 61% of the total
completions, followed by oil at 28% of total completions.
(the remainder in both periods is comprised of dry and
service wells) this change in mix makes the oil well drilling
industry less vulnerable to swings in natural gas prices
than it once was. Management believes that oilfield activity
will remain robust as long as oil prices remain within $20 of
the $100 mark.
the Diesel supply in western Canada has returned to
normal in large part due to warmer weather. While the
supply disruption in the fourth quarter constrained
parkland’s ability to sign new customers, it demonstrated
to current and potential customers the advantages of
working with a fuel marketer with multiple supply options
who is capable of meeting its fuel volume commitments.
In addition, through the shortage, parkland established
relationships with potential customers that will be
leveraged for business development in 2012.
Working capital requirements
Because collection isn’t immediate in most commercial
transactions, during the first and fourth quarters
(periods of higher commercial fuel sales) receivables in
the Commercial Fuels division tend to build up and then
diminish in the second and third quarters as the accounts
are collected.
Markets
on December 31, 2011, parkland Commercial Fuels had 126
commercial locations.
province
alberta
British Columbia
new Brunswick
nova Scotia
northwest territories
ontario
prince edward Island
Saskatchewan
Yukon
Grand total
Cardlock
Branch
Branch &
Cardlock
Grand
total
14
18
3
12
12
11
10
8
2
1
47
44
10
11
1
4
2
6
1
35
36
40
1
17
2
14
14
1
1
126
customers
parkland Commercial Fuels has a diverse customer base
operating across a broad cross-section of industries
with no single customer accounting for more than 5% of
consolidated revenue. this customer base includes:
• oil and gas industry participants;
In the areas where parkland sells propane, a regional
presence has allowed parkland to maintain stability. the
recent exit of a major competitor in some markets will allow
parkland to increase sales in these areas.
• Mining operations;
• Forestry operations;
• agricultural operations;
the commercial division will continue with the integration
of its western assets with an aim to simplify and
standardize the business. across the country, organic
growth will be driven by aggressive sales activity and
maintained through superior customer service. With fuel
volumes under pressure due to warmer weather, there will
be a focus on cost containment and margins. In parallel,
parkland has kicked off the strategic cost initiative that will
move the Corporation further towards having the lowest
transaction and operating cost structure in the industry.
• residential heating fuel clients; and
• other industrial operations.
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.
parkland fuel corporation annual report 2011
59
ManaGeMent’S diScuSSion and analYSiS
parkland retail fuelS
parkland retail Fuels operates and services a nationwide
network of retail service stations that serve Canadian
motorists from coast to coast.
Fuel volumes from parkland retail Fuels for the three
months ended December 31, 2011 accounted for 42% of
the Corporation’s total volume compared with 38% for the
same period of 2010. retail fuel revenue increased 34% to
$400.2 million in the fourth quarter of 2011 compared with
$297.9 million in the fourth quarter of 2010.
parkland is a retail Branded Distributor for Imperial
oil limited with locations in British Columbia, alberta,
Saskatchewan and ontario operating under the esso brand.
parkland also maintains two proprietary brands: Fas Gas
plus and race trac.
parkland operates service stations under the following
business models:
independent dealers – these dealer-owned, dealer-
operated sites enter into a contract with parkland for fuel
supply, the rights to a brand offering, and a point-of-sale
system. Parkland profits are derived from the fuel sold to
these operators. as a wholesale business, margins remain
fairly fixed in this segment, and the dealer takes the fuel
price risk. In addition, parkland doesn’t take on the capital
asset risk for these sites.
parkland retailers – these company-owned, retailer-
operated sites are managed by independent entrepreneurs
(“retailers”) who provide and manage staff in exchange
for a commission on fuel volumes sold, and pay rent to
parkland based on a percentage of non-fuel sales revenue.
using the retail commission model offers several
advantages including reducing overhead and operating
costs, transferring ownership of convenience store
inventories and their corresponding shrinkage risks to
the retailer, and leveraging the initiative and work ethic of
these entrepreneurs who are given incentives to achieve
parkland’s business objectives.
the retail fuel business is highly competitive, with margins
ultimately dependent on wholesale fuel costs and retail
fuel prices. parkland utilizes the dealer model to limit its
margin exposure in the more competitive, larger urban
markets where retail fuel sales are dominated by major oil
companies and by more recent entrants such as grocery
60
parkland fuel corporation annual report 2011
store chains and large retailers. parkland’s owned sites
operate in markets where the average sales volume per
site is lower but earnings are generally enhanced by less
price volatility, lower overhead costs and less expensive
real estate. parkland will continue to target growth by
leveraging its multi-brand strategy within its existing
network and through the acquisition of new sites.
Seasonality
Parkland’s retail business is seasonal, reflecting increased
travel during the summer months. In general, the second
and third quarters are the busiest periods for retail Fuels
Retail EBITDA fluctuates roughly according to the following
schedule
retail eBItDa
Q1
19%
Q2
27%
Q3
32%
Q4
total
22% 100%
Volume and Margin Review
three months ended
december 31,
Year ended
december 31,
Volume (millions of litres)
Fuel gross profit (millions
of Canadian dollars)
Fuel gross profit
(cents per litre)
operational review
2011
464
2010
376
2011
1,687
2010
1,470
23.4
18.5
85.7
77.4
5.04
4.92
5.08
5.27
Q4 2011 vs. Q4 2010
For the three months ended December 31, 2011, parkland
retail Fuels’ volumes increased 23% to 464 million litres
compared with 376 million litres for the same period in
2010. the increase was the result of additional fuel volumes
attributable to the Cango acquisition, network growth in
parkland’s company-owned and dealer network, partially
offset by the following factors:
• Diesel shortages across western Canada which led to
diesel run-outs at approximately 100 retail sites;
• planned rationalization of underperforming stations in
both parkland’s and Cango’s network;
• temporary closures for the purpose of upgrades; and
• Warm weather impacting demand for Fas Gas plus’ full
serve offering.
across parkland’s retail network, average quarterly
volumes increased to 621 thousand litres per location
for the three months ended December 31, 2011 compared
with 607 thousand litres per location during the same
period in 2010. the increase in sales is attributable to
the acquisition of higher throughput dealer locations in
ontario acquired with the Cango transaction.
2011 vs. 2010
In 2011, parkland retail Fuels’ volumes increased 15% to
1.7 billion litres compared with 1.5 billion litres in 2010.
the increase was the result of additional fuel volumes
attributable to the acquisitions of Cango and general
network growth through the acquisition of new sites and
continued expansion of the dealer business.
Sequential Margin review
Sales and operating revenue will fluctuate on a cents
per litre (cpl) basis and on a gross basis with the price
of crude oil, the primary input for fuel. net fuel gross
profit on a cents per litre basis drives the profitability
of the Commercial Fuels division, and is the metric that
management monitors when reviewing the division’s
performance and profitability.
Overall, Parkland Retail Fuels’ gross profit in the fourth
quarter of 2011 increased by 2% to 5.04 cpl compared
with 4.92 cpl in the fourth quarter of 2010. Compared with
the third quarter of 2011, fuel gross profit on a cents per
litre basis increased by 7%.
Fuel margins in the fourth quarter of 2011 reflect the
addition of Cango’s ontario locations which generally
have higher throughput but lower margins compared to
western locations that have lower average throughput but
higher average margins. this was offset by improvements
in the competitive environment across certain regions in
Canada, leading to higher margins for the quarter. the
Cango business, which was acquired June 22, 2011, is
performing on target with management’s expectations.
Retail Margins CPL
Retail Fuels’ gross profit decreased by 4% to 5.08 cpl
compared with 5.27 cpl in 2010 as the result of increased
competition that was particularly evident in the first and
third quarters.
Divisional outlook
Cango Inc. (“Cango”), and the seven retail fuel outlets
acquired from overwaitea Food Group (“Save on”)
that have been re-branded to Fas Gas will contribute to
increased volumes through the first and second quarters
of 2012 compared with the same periods in 2011.
europay MasterCard and Visa (“eMV”) is the global
standard for chip-based credit and debit card payments
that is required for all retailers in Canada. eMV
compliance within parkland’s retail fuel network was
achieved in the fourth quarter for in-store sales, and will
be rolled out at parkland’s pay-at-the-pump locations in
the second quarter of 2012.
Fas Gas plus currently offers customers a cash back loyalty
program known as the litre log™. this paper-based
program allows customers to accumulate 3 cents per litre
each time they fuel up and receive a loyalty reward in the
form of cash after 12 fills or 200 litres. Parkland continues
to investigate an electronic loyalty delivery system.
6.00
5.50
5.00
4.50
4.00
Q1
Q2 Q3 Q4
Q1
Q2 Q3 Q4
2010
2011
retail Margins
In the fourth quarter of 2011 retail margins increased 2% year over
year compared with the same period in 2010 and increased by 7%
when compared to the third quarter of 2011. This reflects the net effect
of higher-volume, lower-margin stations in the Cango network and
favourable shifts in the competitive environment.
province
alberta
British Columbia
Manitoba
new Brunswick
nova Scotia
northwest territories
ontario
prince edward Island
Quebec
Saskatchewan
Yukon territories
Grand total
parkland
retailers
Independent
Dealers
Grand
total
78
17
12
18
32
157
198
83
11
2
3
3
184
6
1
93
6
590
276
100
23
2
3
3
202
6
1
125
6
747
parkland fuel corporation annual report 2011
61
ManaGeMent’S diScuSSion and analYSiS
Compared to the 762 stations that were reported for the
period ending September 30, 2011, there were 15 fewer
stations for the period ending December 31, 2011 due to the
planned closure of underperforming sites within the Cango
network (total annual volume of less than 20 million litres),
and within parkland’s core network. this will be partially
offset by additional sites opening or re-opening in the near
future following construction and upgrading.
brands
parkland’s multi-brand strategy allows the Corporation to
provide an offering that targets different segments of the
fuel market.
Independent
Dealers
parkland
retailers
Fas Gas
plus
race
trac
esso
other
73
98
171
114
2
116
351
31
382
52
26
78
Grand
total
590
157
747
fas Gas plus – Fas Gas plus is a community-focused
independent brand that brings consumers an urban
offering in non-urban markets through a large well
merchandised convenience store, a strong loyalty
program, and a friendly operator. parkland’s strategy is
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 and acquiring new sites.
esso – the esso retail Branded Distributorship
agreement provides parkland with the opportunity to
offer esso’s nationally recognized brand to independent
operators or within the Corporation’s operated network in
alberta, Saskatchewan, British Columbia, ontario and the
northwest territories.
race trac – Is designed for the independent dealer that
might not be able to meet the brand standards required
by parkland’s other brand offerings but who wants to get
into the market. parkland has focused on increasing the
brand value of race trac to the operators. the race trac
brand is positioned for locations or markets where the Fas
Gas plus or esso brands are not suited and is an important
part of parkland’s brand portfolio.
other – In most cases “other” represents brands that are
being migrated to parkland’s primary brand offerings.
customers
parkland retail Fuels sells products to Canadian motorists
through its network of retail gas stations. Fuel products
sold through this network include gasoline and diesel fuel.
parkland WHoleSale, SupplY and diStribution
parkland Wholesale, Supply and Distribution (“WS&D”)
is responsible for managing parkland’s fuel supply
contracts, purchasing fuel from refiners, distribution
through third party long-haul carriers, and serving
wholesale and reseller customers.
Factoring out intersegment sales to parkland’s other
business units, for the three months ended December 31,
2011, fuel volumes sold via parkland’s Wholesale channel
accounted for 25% of the Corporation’s total fuel
distribution compared with 17% for the same period
of 2010.
RefineryContracts– Fuel supply contracts are maintained
with eight oil refiners. This diversity of supply allows
parkland to obtain fuel at highly competitive prices and
enhances the security of the Corporation’s fuel supply
by reducing the risk associated with any one supplier.
Maintaining lifting rights at a multitude of refineries and
primary terminals across Canada provides parkland with the
flexibility to serve customers in a timely and secure fashion.
bowden terminal – parkland is in the process of
converting its refinery storage into a terminal with a
200,000 barrel fuel storage capacity in Bowden, alberta.
the rail siding and rail car unloading station have now
been installed. Construction continues on retrofitting
the facility with a new loading rack for long-haul and
short-haul fuel transport trucks and adding the piping
and pumping capacity required to operate the terminal.
the capital cost of converting this facility to a terminal is
expected to be approximately $21 million. the terminal is
expected to be active in the fourth quarter of 2012.
Suncor contract
on December 31, 2010, parkland received notice that
the current supply contract with Suncor energy Inc.
(“Suncor”) will be terminated on December 31, 2013.
parkland currently purchases approximately one billion
litres of fuel from Suncor annually under this agreement,
which is priced using a formula that allows parkland to
benefit from a portion of refining margins.
62
parkland fuel corporation annual report 2011
this contract accounts for less than one-quarter of
parkland’s total fuel supply. parkland does not anticipate
any issues replacing the volumes by 2014.
operational review
Q4 2011 vs. Q4 2010
Fuel gross profits from Supply and Wholesale for the
three months ended December 31, 2011 increased 109%
to $11.5 million compared with $5.5 million for the same
period in 2010 primarily due to refiners’ margins.
parkland’s Wholesale, Supply and Distribution Division, a
part of the Fuel Marketing Segment, includes profits from
Parkland’s participation in refiners’ margins and profits
from wholesale fuel sales.
Refiners’ margins refer to the profit made between the
cost of the crude oil required to produce fuel, and the
wholesale price received by refiners for the fuel they sell.
Refiners’ margins in 2011 were strong due primarily to
weak mid-continent and Canadian crude prices relative
to Brent Crude prices. as mid-continent crude spreads
narrowed, and edmonton gasoline rack prices weakened
in November and December, refiners’ margins declined.
the diesel shortage in western Canada between october
and December 2011 was managed by WS&D. By finding
diesel supply options for the Corporation’s commercial
and retail business units during this diesel shortage,
parkland’s WS&D department played a large role in
mitigating the impact of the shortage on parkland’s
operations. Spot wholesale diesel sales were trimmed
in the fourth quarter to ensure the fuel requirements of
contracted customers across the division were met.
the wholesale division continued the process of optimizing
the entire wholesale portfolio to achieve an optimal
mix between volume, margin, and capital employed. By
tightening terms on certain accounts, parkland is targeting
improved return on capital employed.
During the quarter, further national focus was brought
to the distribution function with the improvement and
standardization of agreements and metrics for parkland’s
hired truck and rail carriers.
2011 vs. 2010
Fuel gross profits from Supply and Wholesale for
2011 increased 323% to $71.0 million compared with
$16.8 million in 2010 primarily due to strong refiners’
margins in 2011.
Divisional outlook
Refiners’ margins have strengthened since
December 2011.
parkland will continue to optimize a number of key supply
agreements in 2012 that will improve parkland’s supply
economics, diversify the supply portfolio, and provide
further supply security and flexibility for customers.
parkland will not announce new contracts due to the
confidential and sensitive nature of the volume and
pricing information of these supply agreements.
the Bowden terminal conversion project continues. the
terminal is scheduled to open in the fourth quarter of
2012. Bowden will enhance parkland’s storage and supply
capability for western Canada, and will also be available
for third parties to lease tankage for the storage of
petroleum products.
parkland fuel corporation annual report 2011
63
ManaGeMent’S diScuSSion and analYSiS
review of the eight Most recent Quarters
a Summary of the eight Most recently completed consolidated Quarterly results
(millions of canadian dollars, except volume and per Share/unit amounts)
($000’s except per Share/unit amounts)
For the three months ended,
Sales and operating revenue
Cost of sales
Gross profit
expenses
operating costs
Marketing, general and administrative
Depreciation and amortization
Customer finance income
Finance cost
net Finance costs
(Gain) loss on disposal of
property, plant and equipment
unrealized risk management loss
earnings (loss) before income taxes
Income tax expense (recovery)
Current
Deferred
net earnings (loss)
net earnings (loss) per Share/unit
– basic
– diluted(1)
Shares/units outstanding
Non GAAP Financial Measures
eBItDa
Distributable cash flow
Distributable cash flow per share
Dividends/distributions
Dividends/distribution to distributable
cash flow payout ratio
Key Metrics:
Fuel volume (millions of litres)
return on capital employed (roCe)
net unit operating costs (nuoC)
employees
Key Metrics – Cents per litre:
Average fuel retail gross profit
Average fuel commercial gross profit
operating costs
Marketing, general and administrative
Depreciation and amortization expense
2011
2010
Dec-31
Sep-30
Jun-30
Mar-31
Dec-31
Sep-30
Jun-30
Mar-31
1,014,313
911,197
103,116
1,060,775
958,203
102,572
(restated)
950,290
861,152
89,138
955,099
841,479
113,620
44,522
22,367
16,728
19,499
(654)
10,538
9,884
39,937
20,601
14,349
27,685
(905)
8,906
8,001
(1,107)
928
9,794
(14,376)
–
34,060
3,770
(1,359)
2,411
7,383
8,607
993
9,600
24,460
40,572
23,890
20,017
4,659
(691)
8,382
7,691
436
–
(3,468)
1,052
(307)
745
(4,213)
47,637
19,999
17,350
28,634
(589)
8,886
8,297
(891)
–
21,228
6,627
(1,684)
4,943
16,285
(restated)
824,591
729,319
95,272
40,999
19,996
16,788
17,489
(575)
8,779
8,204
(491)
–
9,776
28
(1,926)
(1,898)
11,674
790,825
718,273
72,552
600,556
522,635
77,921
675,201
604,782
70,419
33,830
20,702
16,551
1,469
(329)
8,191
7,862
(1,344)
–
(5,049)
32,569
17,218
15,697
12,437
(138)
8,479
8,341
(1,643)
–
5,739
31,448
20,303
13,881
4,787
(479)
1,918
1,439
359
–
2,989
(28)
(3,776)
(3,804)
(1,245)
3,500
(10,474)
(6,974)
12,713
(3,500)
2,803
(697)
3,686
$0.12
0.12
64,354
$0.41
0.36
63,113
(0.09)
(0.09)
62,120
0.30
0.28
54,048
$0.22
0.21
53,164
(0.02)
(0.02)
47,755
0.25
0.23
47,675
0.07
0.02
47,565
35,953
26,473
0.41
16,272
42,939
52,707
0.84
16,021
25,367
15,430
0.25
14,527
46,573
31,922
0.59
13,696
34,852
26,364
0.50
15,176
18,349
9,722
0.20
14,913
28,272
17,884
0.38
15,177
19,147
13,049
0.27
14,553
61%
30%
94%
43%
58%
153%
85%
112%
1,096
13.0%
3.52
1,267
5.04
8.61
4.06
2.04
1.53
1,098
13.3%
3.57
1,229
4.69
7.30
3.64
1.88
1.31
923
9.2%
4.39
1,393
5.51
8.04
4.40
2.59
2.17
1,044
10.9%
3.89
1,431
5.25
9.68
4.56
1.92
1.66
981
7.6%
3.21
1,561
4.92
8.51
4.18
2.04
1.71
901
5.5%
3.72
1,545
5.29
6.89
3.75
2.30
1.84
802
8.7%
3.02
1,536
5.52
7.90
4.06
2.15
1.96
816
10.4%
3.71
1,554
5.35
9.38
3.85
2.49
1.70
(1) Diluted earnings (loss) per Share/unit can be impacted by an anti-dilutive impact of conversion of the debentures.
Quarterly diluted earnings (loss) per Share/unit may therefore not accumulate to the same per Share/unit value as the year to date calculation.
64
parkland fuel corporation annual report 2011
non-Gaap Measures
this MD&a is prepared under Canadian generally
accepted accounting principles (“GAAP”) and reflects
parkland’s adoption of International Financial reporting
Standards (“IFrS”) as disclosed in this MD&a. However,
in this document there are references to non-Gaap
measures such as eBItDa and Distributable Cash Flow.
EBITDA refers to earnings before finance costs (accretion
on refinery remediation, accretion on asset retirement
obligation, interest on long-term debt, interest and
accretion on convertible debentures and revaluation of
embedded derivatives), income tax expense (recovery),
depreciation and amortization, and gain on disposal
of property, plant and equipment. 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
parkland’s debt and equity holders.
EBIT refers to EBITDA defined above, less depreciation
and amortization, and gain on disposal of property, plant
and equipment.
net unit operating Cost (nuoC) is calculated by adding
marketing, general and administrative and operating
costs less non-fuel commercial and other non-fuel gross
profits, as shown in the “Segmented Results” section of
this MD&a, divided by total fuel volumes. Management
uses NUOC as a measure of organizational efficiency, it is
expressed on a cents per litre basis.
Senior Debt is defined as the sum of other loans, extendible
facility, and mortgage payable, including current portions,
less cash and cash equivalents and restricted cash.
Net Debt is defined as Senior Debt, plus capital leases,
including current portion, other long-term liabilities,
including current portion, and convertible debentures.
Interest Coverage refers to eBIt, divided by total interest
expense. Interest expense is the sum of interest on long-
term debt plus interest on convertible debentures.
Distributable Cash means cash flows from operating
activities that are adjusted for but are not limited to the
impact of the seasonality of parkland’s businesses by
removing 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 expenditures
on intangible assets, in addition to allowing for the
proceeds received from the sale of capital items.
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 the 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 dividends or not,
will be sufficient to maintain or increase production levels
or cash flow from operating activities.
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, the current intention of Parkland’s
Directors is to pay consistent regular monthly dividends
throughout the year based on estimated annual cash flow.
parkland’s Directors review dividends quarterly giving
consideration to current performance, historical and future
trends in the business, expected sustainability of those
trends, as well as capital betterment requirements to
sustain performance.
parkland fuel corporation annual report 2011
65
ManaGeMent’S diScuSSion and analYSiS
eBItDa and Distributable Cash are not recognized
earnings measures and do not have standardized
meanings prescribed by Gaap. readers of this MD&a are
cautioned that eBItDa and Distributable Cash should not
be construed as an alternative to net earnings or loss
determined in accordance with Gaap as an indicator of
Parkland’s performance or to cash flows from operating,
investing and financing activities as a measure of liquidity
and cash flows.
parkland’s method of calculating eBItDa and Distributable
Cash may differ materially from the methods used by
other issuers and, accordingly, may not be comparable
to similarly titled measures used by other issuers.
Distributable Cash is not assured, and the actual amount
received by shareholders will depend on, among other
things, the Corporation’s financial performance, debt
covenants and obligations, working capital requirements,
future capital requirements and the deductibility of items
for income tax purposes, all of which are susceptible to a
number of risks, as described in Parkland’s public filings
available on SeDar at www.sedar.com.
Critical accounting estimates
estimates are used when accounting for items such
as: impairment and valuation allowances for accounts
receivable and inventory; calculation of fair value for
the convertible debentures; intangibles and goodwill;
amortization of property plant and equipment; asset
retirement obligations; 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.
accountS receiVable
parkland’s accounts receivable have been reduced
for amounts that have been deemed uncollectible. at
December 31, 2011, the provision for credit losses was
$10.7 million (December 31, 2010 – $8.3 million). this amount
is based on management’s judgment and assessment of
the financial condition of Parkland’s customers and the
industries in which they operate. the provision for credit
losses is subject to change as general economic, industry
and customer specific conditions change.
inVentorY
parkland’s inventory is comprised mainly of products
purchased for resale including fuel, lubricants,
66
parkland fuel corporation annual report 2011
agricultural and convenience store products. the
products are valued at the lesser of cost or net realizable
value. the determination of the net realizable value
includes certain estimates and judgements which could
affect the ending inventory valuations.
aMortization and accretion
the amortization of capital assets and intangibles
incorporates the use of estimates for useful lives and
residual values. these estimates are subject to change
as market conditions change or as operating conditions
change. accretion expense is recognized on the estimated
future asset retirement obligations for current sites and
for the future estimated cost of the Bowden refinery
remediation. these future obligations are estimated
and subject to change over time as more experience is
obtained or as conditions change.
effective July 1, 2011, the amortization period for
customer relationships included in intangible assets has
changed. prior to the start of the third quarter of 2011,
parkland amortized all customer relationships included in
intangible assets acquired through acquisition over a five
year period. With this change in estimate effective July 1,
2011, onwards, customer relationships are prospectively
amortized over a five- to thirteen-year period. The impact
commencing July 1, 2011 is to decrease amortization
expense by approximately $3.5 million a quarter or
$14.1 million a year.
aSSet retireMent obliGationS
the estimated future costs to remove underground fuel
storage tanks at locations where parkland has a legal
or constructive 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 future retirement costs are estimated
in consultation with parkland’s environmental technicians
and based on industry standards and would be subject to
change as more experience is obtained and as conditions
change. the costs are expected to be incurred between
2012 and 2046 and the total undiscounted obligation at
December 31, 2011 was estimated at $31.1 million with a net
present value of the obligations accrued at December 31,
2011 of $25.5 million (December 31, 2010 – $12.3 million).
intanGibleS and GoodWill
Intangible assets that are subject to amortization are
reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may
not be recoverable. an impairment loss is recognized
for the amount by which the asset’s carrying amount
exceeds its recoverable amount. the recoverable amount
is the higher of an asset’s fair value less costs to sell
and its value in use. Impairment is assessed at the Cash
Generating unit (CGu) level. Intangible assets, other
than goodwill, that suffered a previous impairment are
reviewed for possible reversal of the impairment at each
reporting date.
Goodwill is tested annually for impairment and is carried
at cost less accumulated impairment losses. Impairment
losses on goodwill are not reversed. Gains and losses on
the disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
incoMe taxeS
the Corporation follows the liability method of accounting
for income taxes whereby deferred income taxes are
recorded for the effect of differences between the
accounting and income tax basis of an asset or liability.
Deferred income tax assets and liabilities are measured
using enacted or substantively enacted income tax
rates at the consolidated balance sheets dates that
are anticipated to apply to taxable income in the years
in which temporary differences are anticipated to be
recovered or settled. Changes to these balances are
recognized in net earnings (loss) in the period during
which they occur. Changes in the assumptions used to
derive the future income tax rate could have a material
impact on the future income tax expense or recovery
incurred in the period.
conVertible debentureS
under previous Gaap, before the December 31,
2010 conversion to a corporation from a trust (the
“Conversion”), a portion of the proceeds of the
Debentures was allocated to unitholders’ capital,
representing the value of the conversion feature. under
IFrS, an equity portion is not determined; rather the
embedded derivative arising from the equity conversion
feature is valued at each reporting date with the
change in value at each reporting period included in the
Consolidated Statements of Comprehensive Income in
finance costs as “revaluation of embedded derivative”.
under IFrS, the binomial method was used to value the
conversion feature for the Debentures. on Conversion
the Series 1 Debentures had a conversion feature
value of $0 and the previously recognized conversion
feature of $5,266 was revalued accordingly. upon
issuance on December 21, 2010 and at Conversion, the
Series 2 Debentures had a conversion value of $0. post
Conversion, there is no requirement to further revalue the
conversion feature. the debt balance of the Debentures
in the Consolidated Balance Sheets, net of issue costs
and the value of the conversion feature at Conversion,
accretes over the remaining term of the Debentures.
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 Comprehensive Income.
boWden refinerY
In December 2004, parkland 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, based on the uncertainty of creating an
alternative to the refinery being dismantled and
remediated. The Refinery Remediation Accrual represents
the present value estimate of parkland’s cost to remediate
the site.
Parkland has previously used the refinery site for
processing fluids used in the oilfields. The contract was
terminated and parkland is, therefore, continuing to
pursue other economically viable uses for the refinery
site. parkland uses the tanks for storage and has been
upgrading the equipment for use as a 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.
the obligations relating to future environmental
remediation, however, continue to exist. the timing of this
remediation is uncertain at this point in time.
In September 2011, Parkland sold the refinery catalyst,
which is used to purify crude during a chemical process,
for $2.0 million, with a gain on disposal of $0.8 million.
Assuming Parkland continues operations at the refinery
site, remediation for any potential environmental liabilities
associated with a complete dismantling of the site would be
parkland fuel corporation annual report 2011
67
ManaGeMent’S diScuSSion and analYSiS
delayed indefinitely. Parkland 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
using 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 $15.9 million
(December 31, 2010 – $13.8 million). 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
4.31% (December 31, 2010 – 6.90%).
Impairment of assets
Impairment exists when the carrying value of an asset
or CGu exceeds its recoverable amount, which is the
higher of its fair value less costs to sell, and its value in
use. the value in use calculation is based on a discounted
cash flow model. These calculations require the use
of estimates and forecasts of future cash flows. The
expected cash flows are derived from budgets and do
not include restructuring activities that the Corporation
is not yet committed to or significant future investments
that will enhance the asset’s performance of the CGu
being tested. Qualitative factors, including market
presence and trends, strength of customer relationships,
strength of local management, and degree of variability
in cash flows, as well as other factors, are considered
when making assumptions with regard to future cash
flows and the appropriate discount rate. The recoverable
amount is most sensitive to the discount rate used for the
discounted cash flow model as well as the expected future
cash inflows and the growth rate used for extrapolation
purposes. A change in any of the significant assumptions
or estimates used to evaluate goodwill and other non-
financial assets could result in a material change to the
results of operations. the Corporation tests whether
goodwill has suffered any impairment at least annually.
Other non-financial assets are tested for impairment
when indicators of impairment arise.
the Corporation did not identify any indicators of
impairment at the transition Date. an impairment test
was conducted at the transition Date and the recoverable
amount of the CGu was determined on a value in use
basis. This calculation used pre-tax cash flow projections
based on expected performance and on management’s
expectations of market developments. the growth rates
used were consistent with the forecasts included in
industry reports. Pre-tax discount rates reflect specific
risks relating to the CGu.
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. the credit risk is minimized by parkland’s broad
customer and geographic base. In light of the current
market conditions, parkland’s credit department has been
expanded and policies have been strengthened to control
the credit-granting process. the Corporation manages its
exposure to credit risk through rigorous credit-granting
procedures, typically short-payment terms and security
interests where applicable. the Corporation attempts to
closely monitor the financial conditions of its customers
and the industries in which they operate. parkland
performs ongoing credit evaluations of its customers and
outstanding debts are regularly monitored.
as at December 31, 2011, parkland’s accounts receivable
balance was $329.8 million, up $44.5 million from
the December 31, 2010 balance of $285.3 million. the
increase in accounts receivable is principally due to
the 31% increase in Commercial Fuels sales from the
fourth quarter of 2010 to the fourth quarter of 2011, and
34% increase in retail Fuels sales, primarily due to the
acquisition of Cango Fuels Inc. and higher wholesale
prices at refineries across the country compared to the
same quarter in 2010. parkland has experienced an 11%
improvement in the average period of time trade accounts
receivable are outstanding in the fourth quarter of 2011
compared to the fourth quarter of 2010.
accounts receivable outstanding for more than 90 days past
terms have decreased by $4.4 million from $12.9 million
at December 31, 2010 to $8.5 million at December 31,
2011. at December 31, 2011, the provision for credit losses
was $10.7 million, up $2.4 million from $8.3 million as at
December 31, 2010. parkland considers the total reserve to
be adequate.
intereSt rate riSk
parkland is exposed to market risk from changes in
the Canadian prime interest rate which can impact its
borrowing costs. the $97.8 million series 1 convertible
68
parkland fuel corporation annual report 2011
unsecured subordinated 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. the $45.0 million principal
amount of series 2 convertible unsecured subordinated
debentures bear interest at a 5-year annual fixed rate of
5.75% payable semi-annually in arrears on June 30 and
December 31 in each year commencing June 30, 2011.
The fixed rates of the series 1 and series 2 convertible
unsecured subordinated debentures reduce parkland’s
exposure to variable rates.
foreiGn excHanGe riSk
the Corporation purchases certain products in u.S.
dollars and sells such products to its customers typically
in Canadian dollars. As a result, fluctuations in the value
of the Canadian dollar to the u.S. dollar can result in
foreign exchange gains and losses. as at December 31,
2011, parkland had u.S. dollar accounts payable totalling
uS$1.8 million and cash of uS$0.1 million. therefore,
the Corporation is not exposed to a significant foreign
exchange loss.
off-balance SHeet arranGeMentS
parkland has not engaged in any off-balance sheet
arrangements.
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 newer entrants such as grocery
chains and large retailers active in the marketplace. From
time to time, factors such as competitive pricing, seasonal
oversupply, 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 the wholesale business, which typically would only
share in a portion of any market erosion. there can be no
assurances that such mitigation efforts will be adequate,
in whole or in part.
competition
parkland competes 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 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
parkland’s markets, competitors have been in existence
longer and have greater financial, marketing and other
resources than parkland does. parkland may not be
able to compete successfully against current and future
competitors, and competitive pressures faced by parkland
could materially and adversely affect parkland’s business,
results of operations and financial condition.
Volatility in crude oil prices and in Wholesale
petroleum pricing and Supply
parkland’s motor fuel and propane revenues are a
significant component of total revenues. Crude oil and
domestic wholesale petroleum markets display significant
volatility. parkland is susceptible to interruptions in
supply. 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. Higher
supply and fuel costs can also result in increased working
capital and corresponding financing requirements.
In addition, changes in the retail price of petroleum
products could dampen consumer demand for motor
fuel. These factors could materially influence Parkland’s
motor fuel volume, motor fuel gross profit and overall
customer traffic which, in turn, could have a material
adverse effect on the Corporation’s operating results
and financial condition. The development of the oil sands
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.
parkland fuel corporation annual report 2011
69
ManaGeMent’S diScuSSion and analYSiS
parkland’s supply contract with Suncor allows parkland to
participate in refiners’ margins. These margins are volatile
and not assured. as a result, parkland has taken measures
intended to improve the probability of achieving its share
of the related refining margins through a hedging program
utilizing put option contracts. the contracts are intended
to protect against potential unfavorable declines in refining
margins and are based on the forecasted Suncor volume
for both heating oil and gasoline. the put options available
are nYMeX-based contracts, which although historically
have strongly correlated to products purchased by
parkland in Canada, can also have a varying degree of basis
risk that cannot be managed. parkland has received notice
from Suncor that the supply contract will terminate on
December 31, 2013. the Suncor supply contract represents
annual fuel volume of approximately one billion litres.
Suncor volumes currently account for approximately one-
quarter of parkland’s total fuel supply, and the Corporation
is continually negotiating new supply agreements for
its supply portfolio. In anticipation of receiving Suncor’s
notice of termination, parkland has already started
developing alternate supply options and related facilities to
economically replace the fuel supply contract with Suncor.
parkland does not anticipate any issues with replacing the
Suncor supply volumes for 2014.
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. parkland attempts to closely monitor
the financial conditions of its customers. As a result
of delayed invoicing caused by parkland’s 2010 erp
implementation, certain customer accounts and balances
have aged beyond normal terms which could result in
increased bad debts.
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. parkland is insured for all major
environmental risk areas. there can be no assurances
that such insurance will be adequate to cover all potential
losses or that parkland’s mitigation efforts will be
effective, in whole or in part.
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 parkland.
an interruption or reduction in the supply of products
and services by such suppliers could adversely affect
parkland’s revenue and dividends in the future.
Furthermore, 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 products 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, dividends and its
reputation. additionally, parkland cannot ensure that it will
be able to renegotiate such agreements or negotiate new
agreements on terms favourable 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 the Corporation’s
regional market. However, there can be no assurances that
such mitigation efforts will be adequate, in whole or in part.
parkland’s supply contract with Suncor will terminate on
December 31, 2013. the Suncor supply contract represents
a large annual fuel volume of approximately one billion litres
annually. In addition to Suncor, parkland has contracts in
place with seven refiners with contract durations ranging
from one to seven years and approximately 50% of
parkland’s fuel volumes correspond to contracts with three
years or more remaining.
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 dividends.
70
parkland fuel corporation annual report 2011
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 is impacted
by long-term trends in exploration activity. parkland
provides propane and related product sales to this sector.
Forestry has seen reduced activity over the past several
years and future activity is dependent upon trends in
construction activity.
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 the supply contract with Suncor.
Refiners’ margins may deteriorate in the face of declining
demand for petroleum products or surplus refining capacity.
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 be lower than normal if
winter temperatures are warmer. parkland has propane
and heating oil operations in atlantic Canada, ontario,
alberta, British Columbia and the Yukon territory 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 agricultural product sales in the
parkland Commercial Fuels Division.
dependence on key personnel
parkland’s success is substantially dependent on the
continued services of senior management, many of whom
are relatively new to their position at parkland. 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 & Hybrid Vehicles
the auto industry continues to develop technologies to
improve the efficiency of internal combustion engines and
produce economically viable alternate fuels.
although hybrid vehicles, and to a lesser extent electric
vehicles, have entered the market, the non-urban nature
of parkland’s market niche is expected to provide some
insulation from the impact of these vehicles on fuel sales
volumes. non-urban markets are expected to be late
adopters of these technologies due to the realities of
driving outside of Canada’s large urban centres.
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. parkland has already adopted biodiesel and
ethanol blended gasoline in certain markets to align with
these emerging policies.
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.
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.
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.
However, there can be no assurances that such mitigation
efforts will be successful in any circumstance and 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 fuel corporation annual report 2011
71
ManaGeMent’S diScuSSion and analYSiS
In March 2010, parkland commenced the implementation
of an upgrade to its erp system. the erp implementation
included the conversion and integration of existing legacy
applications and the reengineering of many processes
and controls. the March 2010 implementation caused
difficulties in processing transactions, issuing invoices
and collecting accounts receivable on a timely basis and
resulted in increased working capital requirements. While
parkland has made efforts to address the implementation
challenges experienced, there is risk that components of
the erp system and related applications will not perform
as planned, data could be lost and business could be
disrupted. In addition, because of invoicing complications
many customer accounts have paid beyond normal terms,
certain customers’ accounts may not be collected and
certain customers may choose to discontinue dealing with
parkland. If the implementation challenges experienced
are not fully overcome or additional difficulties or
problems are encountered during the continuing
implementation of the erp system or the integration of
other businesses with the erp system, parkland could
experience disruptions to its business and operations that
could have a material adverse effect on its business and
could impair its ability to report its operating results on a
timely and accurate basis.
insurance
although parkland has a comprehensive insurance
program in effect, there can be no assurance that
potential liabilities will not exceed the applicable
coverage limits under parkland’s 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 Corporation 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.
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 dividends. In addition, the market
price of the shares at any given time may be affected by
the level of interest rates prevailing at such time. the
$97.8 million principal amount of series 1 convertible
unsecured subordinated 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. the $45.0 million principal
amount of series 2 convertible unsecured subordinated
debentures bear interest at a 5-year annual fixed rate of
5.75% payable semi-annually in arrears on June 30 and
December 31 in each year commencing June 30, 2011. the
fixed rates of the series 1 and series 2 convertible secured
subordinated debentures reduce 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 Corporation.
RefineryOperatingPermit
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.
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 parkland’s sites are
located in markets which are more severely affected
by weak economic conditions. With the acquisition of
Bluewave energy, parkland added the risk of economic
exposure to atlantic Canada while at the same time
Parkland diversified overall Canadian exposure that was
previously heavily weighted to western Canada variables.
72
parkland fuel corporation annual report 2011
cash dividends are not Guaranteed and Will fluctuate
with performance of the business
Although Parkland intends to distribute a significant
portion of the income earned by the Corporation, less
expenses, capital additions, income taxes and amounts,
if any, paid by the Corporation in connection with
the redemption of shares, there can be no assurance
regarding the amounts of income to be generated by
the business. parkland’s Board of Directors will, at
their discretion, determine the amount of any future
dividends payable. the actual dividend will depend upon
numerous factors, including profitability, fluctuations in
working capital, the sustainability of margins and capital
expenditure programs.
capital investment
the timing and amount of expenditures for business
acquisitions, additions of property, plant and equipment
and intangibles will directly affect the amount of cash
available for distribution to shareholders. Dividends may
be substantially reduced at times when significant capital
or other expenditures are made.
restrictions on potential Growth
the payout by parkland 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 Parkland and its cash flow.
legal proceedings
the Corporation is subject to various legal proceedings
and claims that arise in the ordinary course of business
operations. the Corporation believes that the amount
of liability, if any, from these actions would not have a
material effect on the Corporation’s financial position or
results of operations.
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. parkland has developed a template
of supplementary information that is published with
each quarterly financial report. For persons seeking
information regarding fuel margins, please refer to
outside sources including: 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
the Corporation’s market region and supply contracts, but
should indicate margin trends.
Controls environment
Management is responsible for the preparation and fair
presentation of the consolidated financial statements.
parkland has established disclosure controls and
procedures, internal controls over financial reporting,
and corporate-wide policies to provide that parkland’s
consolidated financial condition, financial results and cash
flows are presented fairly. Parkland’s 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. Due to the
inherent limitations in all control systems, internal control
over financial reporting can provide only reasonable
assurance with respect to financial statement preparation
and may not prevent or detect all misstatements.
parkland, under the supervision and participation of
management, including the Chief Executive Officer
and Chief Financial Officer, has designed disclosure
controls and procedures and internal controls over
financial reporting to provide reasonable assurance that
information required is recorded, processed, summarized
and reported within the time periods specified by the
applicable Canadian securities regulators and 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 parkland’s management, including parkland’s
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure. In addition, these controls have been designed
to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial
parkland fuel corporation annual report 2011
73
ManaGeMent’S diScuSSion and analYSiS
statements for external purposes in accordance with
Canadian generally accepted accounting principles.
parkland has a Disclosure Committee, consisting of four
senior management members, that approves all items
for public disclosure and also considers whether all items
required to be disclosed are disclosed.
SiGnificant cHanGe in internal controlS
parkland has undergone extensive business process
reengineering and an upgrade of its erp software. the
upgraded system was implemented on March 1, 2010 with
the following objectives:
• 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 (initially excluding Columbia Fuels and
Bluewave); and
• Complete the integration of the acquired companies by
merging systems, processes, controls and operations.
Due to the size and complexity of the erp implementation,
the above stated objectives are still in progress.
Management has taken the prudent approach of continuing
to perform additional account reconciliations, specific
transaction price and volume testing procedures, senior
management review of adjustments and operating results
including comparisons to budget and prior period(s), and
other analytical procedures that were designed in 2010 and
continued to operate effectively throughout 2010 and 2011
and which mitigated against the risks from the introduction
of the erp system into the organization’s control structure.
Such additional procedures have been designed by, or
under the supervision of, parkland’s Chief executive
Officer and Chief Financial Officer. While management
is of the view that the procedures implemented to
compensate for the control exceptions encountered during
the implementation of the erp system and its ongoing
efforts are reasonable and adequate, the design and
implementation of any system of control is also based
upon certain assumptions about the likelihood of future
events, and there can be no assurance that the design or
the implementation of any system of control (including
compensating controls) will succeed in achieving its stated
goals under all potential conditions.
74
parkland fuel corporation annual report 2011
Changes in accounting policies
Parkland’s significant accounting policies are described
in note 3 in the December 31, 2011 audited consolidated
financial statements.
adoption of IFrS
effective January 1, 2011, parkland began reporting under
IFrS. the accounting policies referenced above have
been applied in preparing the financial results for the
year ended December 31, 2011 and the financial results
for the year ended December 31, 2010, and parkland’s
opening balance sheet as at January 1, 2010. a detailed
reconciliation of amounts reported under previous Gaap
to those presented in this MD&a is provided in note 5 to
the audited consolidated financial statements.
the following table provides a summary reconciliation of
consolidated net earnings reported under previous Gaap
to that reported under IFrS:
(in thousands of Canadian dollars
except per Share/unit amounts)
net earnings as reported under
previous Gaap
adjustments to net earnings:
Year ended
December 31, 2010
30,194
Marketing, general and administrative
(2,677)
Depreciation and amortization
Finance costs
other
(provision) recovery for deferred
income taxes
(324)
281
(125)
(521)
net earnings, as reported under IFrS
26,828
the transition to IFrS also required that parkland adopt
accounting policies that are different to those previously
reported. the accounting policies as adopted by parkland
have been explained further in note 3 of the consolidated
financial statements.
as a result of the adoption of IFrS, parkland made use
of certain exemptions allowed under IFrS 1 and made
adjustments and reclassifications to its balances. A
comprehensive analysis and listing of transition options
and its implications have been explained in note 5 of the
consolidated financial statements.
correction of prior period errorS
(b) ifrS 13 – fair Value MeaSureMent
on May 12, 2011, the IaSB issued IFrS 13, a comprehensive
standard for fair value measurement and disclosure
requirements for use across all IFrS standards. the new
standard clarifies that fair value is the price that would be
received to sell an asset, or paid to transfer a liability in an
orderly transaction between market participants, at the
measurement date. It also establishes disclosures about
fair value measurement. under existing IFrS, guidance on
measuring and disclosing fair value is dispersed among
the specific standards requiring fair value measurements
and in many cases does not reflect a clear measurement
basis or consistent disclosures. IFrS 13 is effective for
annual periods beginning on or after January 1, 2013, with
early adoption allowed.
(c) iaS 1 – financial StateMent preSentation
on June 16, 2011, the IaSB issued amendments to IaS 1
Financial Statement presentation. these amendments
improve the presentation of components of other
comprehensive income. the new requirements are effective
for annual periods beginning on or after July 1, 2012.
related party transactions
parkland receives legal services from Bennett Jones llp
where a director of the Corporation is a partner. the fees
paid during the year of 2011 amounted to $1.8 million
(2010 – $1.8 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.
In the interim consolidated financial statements for the
three months ended March 31, 2011 and the three and
six months ended June 30, 2011, parkland incorrectly
recorded its deferred tax asset, deferred tax liability
and deferred income tax expense due to the use of an
incorrect effective tax rate used to value deferred tax
timing differences. Commencing in the consolidated
financial statements for the three and nine months ended
September 30, 2011, this error has been corrected and
restated retroactively.
In the interim consolidated financial statements for the
three months ended March 31, 2011 and the three and
six months ended June 30, 2011, parkland incorrectly
recorded dividends as a reduction to shareholders’ capital
instead of a reduction to retained earnings (deficit).
Commencing in the consolidated financial statements for
the three and nine months ended September 30, 2011, this
error has been corrected and restated retroactively.
recently announced accounting
pronouncements
parkland is in the process of evaluating the impact of the
following new requirements and has not decided whether
to early adopt the following standards.
(a) ifrS 9 – financial inStruMentS
In november 2009, as part of the International
accounting Standards Board’s (IaSB) project to replace
International accounting Standard (IaS) 39 Financial
Instruments: recognition and Measurement, the IaSB
issued the first phase of IFRS 9 Financial Instruments,
that introduces new requirements for the classification
and measurement of financial assets. The standard
was revised in october 2010 to include requirements
regarding classification and measurement of financial
liabilities and is applicable for annual periods starting on
or after January 1, 2013. In December 2011, the effective
date of IFrS 9 was deferred to years beginning on or
after January 1, 2015. the full impact of the changes in
accounting for financial instruments will not be known
until the IaSB’s project has been completed.
parkland fuel corporation annual report 2011
75
ManaGeMent’S diScuSSion and analYSiS
Contractual obligations
parkland 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:
(in thousands of Canadian dollars)
as at December 31, 2011
2012
2013
2014
2015
2016
thereafter
Mortgages, bank
indebtedness, bank
loans, notes payable,
and convertible
debentures
257
169
324,280
45,035
–
–
other long term
liabilities
operating leases
Capital leases
2,236
313
–
–
–
–
6,002
6,530
5,121
4,113
3,499
10,916
36,181
2,762
776
86
60
60
679
4,423
369,741
2,549
the Corporation also has purchase commitments under
its fuel supply contracts that require the purchase of
approximately 2.4 billion litres of product over the next year
the series 1 convertible unsecured subordinated
debentures are convertible into common shares at the
option of the holder at any time up to the maturity on
november 30, 2014 at a conversion price of $14.60 per
share. the series 2 convertible unsecured subordinated
debentures are convertible into shares at the option of
the holder at any time up to the maturity on December 31,
2015 at a conversion price of $18.00 per share.
Shares outstanding
as at March 6, 2012, parkland had approximately
65.1 million shares outstanding and 0.7 million share
options outstanding consisting of 0.1 million share options
that are currently exercisable into shares.
76
parkland fuel corporation annual report 2011
noteS to conSolidated financial StateMentS
ManaGeMent’S reSponSibilitY for financial S tateMentS
The financial statements and the notes to the financial statements are the responsibility of the management of
parkland Fuel Corporation. they have been prepared in accordance with International Financial reporting Standards
(IFrS) as issued by the International accounting Standards Board which have been adopted in Canada. Financial
information that is presented in the Management Discussion and Analysis is consistent with the financial statements.
In preparation of these statements, estimates are sometimes necessary because a precise determination of certain
assets and liabilities is dependent on future events. Management believes such estimates have been based on careful
judgments and have been properly reflected in the accompanying financial statements.
Management is responsible for the reliability and integrity of the financial statements, the notes to the financial
statements, and other financial information contained in this report. In order to ensure that management fulfills its
responsibilities for financial reporting we have established an organizational structure that provides appropriate
delegation of authority, division of responsibilities, and selection and training of properly qualified personnel.
Management is also responsible for the development of internal controls over the financial reporting process.
the Board of Directors (the Board) is assisted in exercising its responsibilities through the audit Committee (the
Committee) of the Board. the Committee meets regularly with management and the independent auditors to satisfy
itself that management’s responsibilities are properly discharged, to review the financial statements and to recommend
approval of the financial statements to the Board.
pricewaterhouseCoopers llp, the independent auditors appointed by the shareholders, have audited parkland Fuel
Corporation’s consolidated financial statements in accordance with Canadian generally accepted auditing standards
and provided an independent professional opinion. the auditors have full and unrestricted access to the Committee to
discuss the audit and their related findings as to the integrity of the financial reporting process.
/s/
robert B. espey
president and Ceo
red Deer, alberta
March 6, 2012
/s/
Michael r. lambert
Senior Vice president and CFo
red Deer, alberta
March 6, 2012
parkland fuel corporation annual report 2011
77
independent auditor’S report
March 6, 2012
to tHe SHareHolderS of parkland fuel corporation
We have audited the accompanying consolidated financial statements of Parkland Fuel Corporation and its subsidiaries,
which comprise the consolidated balance sheets as at December 31, 2011 and December 31, 2010 and January 1, 2010
and the consolidated statements of comprehensive income, changes in equity and cash flows for the years ended
December 31, 2011 and December 31, 2010, and the related notes, which comprise a summary of significant accounting
policies and other explanatory information.
Management’sresponsibilityfortheconsolidatedfinancialstatements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted
our audit in accordance with Canadian generally accepted auditing standards. those standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
an audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
parkland Fuel Corporation and its subsidiaries as at December 31, 2011 and December 31, 2010 and January 1, 2010
and their financial performance and their cash flows for the years ended December 31, 2011 and December 31, 2010 in
accordance with International Financial reporting Standards.
/s/
pricewaterhouseCoopers llp
Chartered accountants
Calgary, alberta
78
parkland fuel corporation annual report 2011
Consolidated Balance Sheets
(in 000’s of Canadian Dollars)
Assets
current assets
Cash and cash equivalents
restricted cash (note 7)
accounts receivable (note 8)
Income tax receivable (note 15)
Inventories (note 9)
risk management (note 10)
prepaid expenses and other
property, plant and equipment (note 11)
Intangible assets (note 12)
Goodwill (note 13)
loan receivables (note 14)
Deferred tax asset (note 15)
Liabilities
current liabilities
accounts payable and accrued liabilities
Dividend/distributions declared and payable
Income tax payable (note 15)
Deferred revenue
Class B & C limited partnership units (note 21b)
long-term debt – current portion (note 16)
other long-term liabilities – current portion (note 17)
long-term debt (note 16)
other long-term liabilities (note 17)
Convertible debentures (note 18)
asset retirement obligations (note 19)
Refinery remediation accrual (Note 20)
Deferred tax liability (note 15)
Shareholders' Equity
Shareholders' capital (note 21a)
Contributed surplus
Deficit
Commitments (note 25)
Contingencies (note 32)
Signed on behalf of the Board of Directors:
conSolidated financial StateMentS
as at
December 31,
2011
as at
December 31,
2010 (note 5)
as at
January 1,
2010 (note 5)
24,905
3,000
329,758
–
84,257
347
8,629
450,896
246,961
119,378
89,883
6,307
10,024
923,449
196,360
5,469
17,026
4,533
–
2,779
2,236
228,403
228,241
313
135,544
25,478
11,242
8,034
637,255
300,981
1,814
(16,601)
286,194
923,449
18,523
–
285,270
788
61,722
–
11,703
378,006
242,597
118,352
90,369
3,585
8,253
841,162
169,918
5,622
–
5,215
–
80,392
1,223
262,370
240,649
2,339
133,360
12,338
6,827
3,475
661,358
179,804
–
–
179,804
841,162
17,612
–
114,763
771
51,757
–
8,146
193,049
217,108
35,485
28,269
2,927
–
476,838
107,473
5,205
–
5,520
56,321
13,939
–
188,458
41,030
–
93,515
11,219
6,527
13,752
354,501
122,337
–
–
122,337
476,838
/s/
James pantelidis
Chairman of the Board
/s/
ron rogers
Chairman of the audit Committee
The accompanying notes are an integral part of these consolidated financial statements.
parkland fuel corporation annual report 2011
79
conSolidated financial StateMentS
conSolidated financial StateMentS
Consolidated Statements of Comprehensive Income
(in 000’s of Canadian Dollars and shares except per share amounts)
Sales and operating revenue
Cost of sales, excluding depreciation
operating costs
Marketing, general and administrative
Depreciation and amortization
Customer finance income
Finance costs (note 22)
Gain on disposal of property, plant and equipment
unrealized risk management loss (note 10)
earnings before income taxes
Income tax expense (recovery) (note 15)
Current
Deferred
net earnings
total comprehensive income
net earnings per share (note 6)
– Basic
– Diluted
Shares outstanding
Years ended december 31,
2011
2010
3,980,477
2,891,173
3,572,031
2,575,009
172,668
86,857
68,444
(2,839)
36,712
(15,938)
928
61,614
20,056
(2,357)
43,915
43,915
138,846
78,219
62,917
(1,521)
27,367
(3,119)
–
13,455
–
(13,373)
26,828
26,828
0.74
0.73
0.52
0.44
64,354
53,164
The accompanying notes are an integral part of these consolidated financial statements.
80
parkland fuel corporation annual report 2011
Consolidated Statement of Changes in equity
(in 000’s of Canadian Dollars)
2011
Shareholders'/
unitholders'
capital
Contributed
Surplus
Deficit
total
number of
shares/units
Years ended december 31,
Balance, beginning of year
179,804
net earnings and comprehensive income
for the year
Dividends
Share incentive compensation
Issued under dividend re-investment plan,
net of issue costs
Issued for cash, net of issue costs
Issued under share option plan
Issued on vesting of restricted shares
Issued upon conversion of debentures
–
–
–
37,042
82,597
1,513
–
25
–
–
–
1,814
–
–
–
–
–
–
179,804
53,164
43,915
(60,516)
–
–
–
–
–
–
43,915
(60,516)
1,814
37,042
82,597
1,513
–
25
–
–
–
3,443
7,130
227
390
1
Balance, end of year
300,981
1,814
(16,601)
286,194
64,354
2010
Balance, beginning of year
net earnings and comprehensive income
for the year
Issued on capital acquisition, net of issue costs
allocation of retained earnings to Class B and C
lp units
Dividends/distributions
Issued under dividend/distribution re-investment
plan, net of issue costs
Issued under share/unit option plan
Issued on vesting of restricted shares/units
Share/unit incentive compensation
exchanged for fund shares/units and limited
partnership shares/units
Class B and C lp units included in equity upon
the Conversion
units cancelled under the Conversion
Common shares issued pursuant to
the Conversion
Balance, end of year
122,337
26,828
11,868
(2,544)
(59,819)
2,897
1,260
–
2,798
60,978
13,201
(179,804)
179,804
179,804
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
122,337
42,308
26,828
11,868
(2,544)
(59,819)
2,897
1,260
–
2,798
–
1,036
–
–
256
189
249
–
60,978
4,844
13,201
(179,804)
179,804
179,804
4,282
(53,164)
53,164
53,164
The accompanying notes are an integral part of these consolidated financial statements.
parkland fuel corporation annual report 2011
81
conSolidated financial StateMentS
conSolidated financial StateMentS
Consolidated Statements of Cash Flows
(in 000’s of Canadian Dollars)
Cash Provided by Operations
net earnings
adjustments for:
Depreciation and amortization
Gain on disposal of property, plant and equipment
Share/unit incentive compensation
Refinery remediation accrual
accretion expense on asset retirement obligation
revaluation of embedded derivative
accretion on convertible debentures (note 18)
Deferred taxes
Cash expenditures on asset retirement obligation
net changes in non-cash working capital (note 26)
Cash from (used for) operating activities
Financing Activities
long-term debt repayments
proceeds from long-term debt
Dividends/distributions to shareholders/unitholders, net of dividend re-investment plan
Shares/fund units issued for cash
Convertible debenture equity (note 18)
Issue of Series 2 convertible debenture, net of issue costs (note 18)
Cash from (used for) financing activities
Investing Activities
acquisition of Cango Incorporated, net of cash acquired (note 24a)
acquisition of Island petroleum, net of cash acquired (note 24b)
acquisition of Bluewave energy, net of cash acquired (note 24c)
acquisition of Shell Distribution agreement, net of cash acquired (note 24d)
Increase in loan receivables
additions of property, plant and equipment
additions of intangibles
proceeds on sale of property, plant and equipment and intangibles
Cash used for investing activities
Increase in cash
Cash, beginning of year
Cash, end of year
Represented by:
Cash and cash equivalents
restricted cash
total cash
Supplementary Cash Flow Information
Interest paid
Interest received
Income taxes paid
The accompanying notes are an integral part of these consolidated financial statements.
82
parkland fuel corporation annual report 2011
Years ended december 31,
2011
2010
43,915
26,828
68,444
(15,938)
1,814
4,414
6,567
–
2,209
(2,357)
(1,780)
(17,679)
89,609
(568,588)
470,318
(23,474)
84,110
–
–
62,917
(3,119)
2,798
300
(581)
(5,266)
2,110
(13,373)
(297)
(76,387)
(4,070)
(94,649)
353,392
(56,922)
1,260
2,676
40,325
(37,634)
246,082
(14,787)
(12,173)
–
–
(2,180)
(45,719)
(50)
32,316
–
–
(204,386)
(2,000)
(210)
(34,874)
(5,998)
6,367
(42,593)
(241,101)
9,382
18,523
27,905
24,905
3,000
27,905
24,550
2,839
1,820
911
17,612
18,523
18,523
–
18,523
30,789
1,521
–
noteS to tHe conSolidated financial StateMentS
notes to the Consolidated Financial Statements
For the years ended December 31, 2011 and 2010
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
1. reportinG entitY and deScription of tHe buSineSS
parkland Fuel Corporation and its wholly owned subsidiaries (collectively the “Corporation” or “parkland”) is a
Canadian independent marketer and distributor of fuels, managing a nationwide network of sales channels for retail,
commercial, wholesale and home heating fuel customers. The consolidated financial statements include the accounts
of parkland Fuel Corporation and its wholly-owned subsidiaries. parkland Fuel Corporation was incorporated under the
laws of the Province of Alberta on March 9, 2010 and has its corporate head office at Suite 236, Riverside Office Plaza,
4919 59th Street, red Deer, alberta.
2. baSiS of preparation and adoption of ifr S
(a) Statement of compliance
Parkland prepares its financial statements in accordance with Canadian generally accepted accounting principles
(“Gaap”) as set out in the Handbook of the Canadian Institute of Chartered accountants (“CICa Handbook”). In 2010,
the CICa Handbook was revised to incorporate International Financial reporting Standards (“IFrS”) as issued by
the International accounting Standards Board, and require publicly accountable enterprises to apply such standards
effective for years beginning on or after January 1, 2011. accordingly, the Corporation has commenced reporting on
this basis in these consolidated financial statements. In these financial statements, the term “Previous GAAP” refers to
Canadian Gaap before the adoption of IFrS.
These consolidated financial statements have been prepared in accordance with IFRS applicable to the preparation
of financial statements. Subject to certain transition elections disclosed in Note 5, the Corporation has consistently
applied the same accounting policies in its opening IFRS statement of financial position at January 1, 2010 and
throughout all periods presented, as if these policies had always been in effect. note 5 discloses the impact of the
transition to IFRS on the Corporation’s reported financial position, financial performance and cash flows, including
the nature and effect of significant changes in accounting policies from those used in the Corporation’s consolidated
financial statements for the year ended December 31, 2010 prepared under previous GAAP.
The policies applied in these annual consolidated financial statements are based on IFRS issued and outstanding as
of December 31, 2011, the date the Board of Directors approved the statements on March 6, 2012. any subsequent
changes to IFRS that are given effect in the Corporation’s annual consolidated financial statements for the year ending
December 31, 2011 could result in restatement of these consolidated financial statements, including the transition
adjustments recognized on the changeover to IFrS.
(b) conversion to a corporation
at the annual and special meeting of the parkland Income Fund (the “Fund”) on May 3, 2010, the unitholders approved
the conversion of the Fund to a corporation (the “Conversion”) by way of a plan of arrangement under the Business
Corporations Act (Alberta). The Court of Queen’s Bench of Alberta issued its final order approving the Conversion on
May 4, 2010.
pursuant to the Conversion, on December 31, 2010:
i.
all outstanding units of the Fund and all outstanding Class B units and Class C units of parkland Holdings limited
partnership were exchanged for common shares in the capital of parkland Fuel Corporation on a one-for-one basis.
Accordingly, the terms “shares” and “units” are used interchangeably throughout these financial statements.
parkland fuel corporation annual report 2011
83
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
ii.
all of the covenants and obligations of the Fund under the 6.5% series 1 convertible unsecured subordinated
debentures and the 5.75% series 2 convertible unsecured subordinated debentures (together the “Debentures”) of
the Fund were assumed by the Corporation.
iii. all outstanding incentive rights and obligations under the Fund’s unit option plan and restricted unit plan were
assumed by the Corporation on the same terms and conditions.
Prior to the Conversion on December 31, 2010, the consolidated financial statements included the accounts of the Fund
and its subsidiaries, partnerships and trusts.
3. SuMMarY of SiGnificant accountinG policieS
(a) basis of Measurement
The consolidated financial statements are prepared on a historical cost basis except as detailed in the Corporation’s
accounting policies. the accounting policies described below have been applied consistently to all periods presented
in these financial statements except for the opening IFRS consolidated balance sheets, which has utilized certain
exemptions available under IFrS 1.
(b) principles of consolidation
The financial statements of the Corporation consolidate the accounts of Parkland and its subsidiaries. All intercompany
transactions, balances and unrealized gains and losses from intercompany transactions are eliminated on consolidation.
Subsidiaries are those entities which the Corporation controls by having the power to govern the financial and
operating policies. the existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Corporation controls another entity. Subsidiaries are fully consolidated from
the date on which control is obtained by parkland and de-consolidated from the date that control ceases.
(c) functional and presentation currency
Functional and presentation currency items included in the consolidated financial statements of Parkland are measured
using the currency of the primary economic environment in which each entity operates (the “functional currency”). the
consolidated financial statements are presented in Canadian dollars, which is Parkland’s functional and presentation
currency.
(d) foreign currency translation
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Generally, foreign exchange gains and losses resulting from the settlement of foreign
currency transactions and from the translation at period end exchange rates of monetary assets and liabilities
denominated in currencies other than an operation’s functional currency are recognized in the consolidated statements
of comprehensive income.
(e) financial instruments
Financial assets and liabilities are recognized when the Corporation becomes a party to the contractual provisions of
the instrument. Financial assets are de-recognized when the rights to receive cash flows from the assets have expired
or have been transferred and the Corporation has transferred substantially all risks and rewards of ownership. Financial
liabilities are de-recognized when the contractual obligation that gives rise to the financial liability has been transferred
or discharged by performance.
Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheets when there is
a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize
the asset and settle the liability simultaneously.
At initial recognition, the Corporation classifies its financial instruments in the following categories depending on the
purpose for which the instruments were acquired.
84
parkland fuel corporation annual report 2011
Financialassetsandliabilitiesatfairvaluethroughprofitorloss:A financial asset or liability is classified in this
category if acquired principally for the purpose of selling or repurchasing in the short-term. Derivatives are also
included in this category unless they are designated as hedges. the conversion feature of the embedded derivative of
the Debentures and risk management assets (Note 10) have been classified as a financial asset and liability at fair value
through profit or loss.
Financial instruments in this category are initially recognized and subsequently measured at fair value. transaction
costs are expensed in the consolidated statements of comprehensive income. Gains and losses arising from changes
in fair value are presented in the consolidated statements of comprehensive income in the period in which they arise.
Non-derivative financial assets and liabilities at fair value through profit or loss are classified as current except for
the portion expected to be realized or paid beyond twelve months of the consolidated balance sheets’ date, which is
classified as non-current.
available-for-sale investments: available-for-sale investments are non-derivatives that are either designated in this
category or not classified in any of the other categories. Parkland has not designated any financial instruments as
available-for-sale investments.
available-for-sale investments are recognized initially at fair value plus transaction costs and are subsequently carried
at fair value. Gains or losses arising from changes in fair value are recognized in the consolidated statements of
comprehensive income. Available-for-sale investments are classified as non-current, unless the investment matures within
twelve months, or management expects to dispose of them within twelve months of the consolidated balance sheets’ date.
Interest on available-for-sale investments, calculated using the effective interest method, is recognized in the
consolidated statements of comprehensive income as part of interest income. Dividends on available-for-sale equity
instruments are recognized in consolidated statements of comprehensive income when the Corporation’s right to
receive payment is established.
loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. parkland has designated accounts receivable and loan receivables as loans and
receivables and are included as current assets due to their short term nature.
loans and receivables are initially recognized at the amount expected to be received less a discount to reduce the loans
and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective
interest method less a provision for impairment.
financial liabilities at amortized cost: Financial liabilities at amortized cost are initially recognized at the amount
required to be paid less a discount, when material, to reduce the liabilities to fair value. Subsequently, financial liabilities
at amortized cost are measured at amortized cost using the effective interest method. parkland has designated bank
indebtedness, accounts payable and accrued liabilities, dividends/distributions declared and payable, long-term debt,
other long-term liabilities, convertible debentures, asset retirement obligations, refinery remediation accrual and Class
B and C limited partnership units as financial liabilities at amortized cost.
Financial liabilities at amortized cost are classified as current liabilities if payment is due within twelve months of the
consolidated balance sheet date. otherwise, they are presented as non-current liabilities.
(f) derivative financial instruments
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value
any changes to the fair value during the year are recorded in the consolidated statements of comprehensive income
and loss within unrealized risk management (gain) / loss.
parkland fuel corporation annual report 2011
85
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
(g)Impairmentoffinancialassets
At each reporting date, the Corporation assesses whether there is objective evidence that a financial asset is impaired.
If such evidence exists, the Corporation recognizes an impairment loss as follows:
financial assets carried at amortized cost: the loss is the difference between the amortized cost of the loan or
receivable and the present value of the estimated future cash flows, discounted using the instrument’s original
effective interest rate. the carrying amount of the asset is reduced by this amount either directly or indirectly
through the use of an allowance provision.
Available-for-salefinancialassets:the impairment loss is the difference between the original cost of the asset
and its fair value at the measurement date, less any impairment losses previously recognized in the consolidated
statements of comprehensive income.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount
of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was
recognized. Impairment losses on available-for-sale financial assets are not reversed.
(h) cash and cash equivalents
Cash and cash equivalents consist primarily of cash in banks, term deposits, certificates of deposit and all other highly
liquid investments with a maturity of three months or less at the time of purchase.
(i) inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out (“FIFO”)
method. net realizable value is the estimated selling price less applicable selling expenses. parkland’s inventory consists
primarily of fuel, agriculture inputs and lubricants which tend to turnover quickly. any provision for obsolescence is
reduced from the value of inventory. 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.
(j) property, plant and equipment
property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are included in the
asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Corporation and the cost can be measured reliably. The carrying amount of
a replaced asset is de-recognized when replaced. repairs and maintenance costs are expensed as incurred.
property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. property, plant and equipment that suffered previous impairment are
reviewed for possible reversal of the impairment at each reporting date.
(k) depreciation
land is not depreciated. Depreciation on the other assets is provided for on a straight-line basis over the estimated
useful lives of assets as follows:
land improvements
Buildings
equipment
assets under capital lease
25 years
20 years
5 – 10 years
5 – 10 years (Shorter of useful life or lease term)
Parkland allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant
parts and depreciates separately each such part. residual values, method of depreciation and useful lives of the assets
are reviewed annually and adjusted if appropriate. For the purpose of measuring recoverable amounts, assets are grouped
at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs).
86
parkland fuel corporation annual report 2011
Gains and losses on disposals of property, plant and equipment are determined by comparing the disposal proceeds
with the carrying amount of the asset and are included as part of other gains and losses in the consolidated statements
of comprehensive income.
(l) intangible assets and Goodwill
the intangible assets are stated at cost less accumulated amortization, and include customer relationships,
tradenames, non-compete agreements and software systems with finite useful lives. Amortization of intangible assets
is provided for on a straight line basis over the estimated useful lives of assets as follows:
Customer relationships and tradenames
non-compete agreements
Software systems
5 – 13 years
term of the agreement
10 years
effective July 1, 2011 the amortization period for customer relationships included in intangible assets has changed.
Previous to July 1, 2011, Parkland amortized all customer relationships acquired through acquisition over a five year
period. Customer relationships effective July 1, 2011 are amortized over a five to thirteen year period. The impact
effective July 1, 2011 onward is to decrease amortization expense by approximately $3,500 a quarter or $14,000 a year.
Intangible assets that are subject to amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be fully recoverable. an impairment loss is recognized for the
amount by which the asset’s carrying amount exceeds its recoverable amount. the recoverable amount is the higher
of an asset’s fair value less costs to sell and its value in use. Impairment is assessed at the CGu level. Intangible assets,
other than goodwill, that suffered a previous impairment loss are reviewed for possible reversal of the impairment loss
at each reporting date.
acquisitions are accounted for using the purchase method, whereby the purchase consideration of the acquisition
is allocated to the identifiable assets, liabilities and contingent liabilities on the basis of fair value as of the date of
acquisition. Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets
expected to benefit from the synergies of the acquisition.
Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses. Impairment losses
on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill
relating to the entity sold.
Impairment exists when the carrying value of an asset or CGu exceeds its recoverable amount, which is the higher of its
fair value less costs to sell and its value in use. The value in use calculation is based on a discounted cash flow model.
These calculations require the use of estimates and forecasts of future cash flows. The expected cash flows are derived
from budgets and do not include restructuring activities that the Corporation is not yet committed to or significant future
investments that will enhance the asset’s performance of the CGu being tested. Qualitative factors, including market
presence and trends, strength of customer relationships, strength of local management, and degree of variability in
cash flows, as well as other factors, are considered when making assumptions with regard to future cash flows and the
appropriate discount rate. the recoverable amount is most sensitive to the discount rate used for the discounted cash
flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. A change in
any of the significant assumptions or estimates used to evaluate goodwill and other non-financial assets could result in a
material change to the results of operations. the Corporation tests whether goodwill has suffered any impairment at least
annually. Other non-financial assets are tested for impairment when indicators of impairment arise.
(m) leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. payments made under operating leases (net of any incentives received from the lessor) are charged
to the consolidated statements of comprehensive income on a straight-line basis over the period of the lease.
parkland fuel corporation annual report 2011
87
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
parkland leases certain property, plant and equipment. leases of property, plant and equipment, where parkland has
substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalized at
the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum
lease payments.
Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of
finance charges, are included in other long-term liabilities. The interest element of the finance cost is charged to the
consolidated statements of comprehensive income over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period. the property, plant and equipment acquired through
finance leases are depreciated over the shorter of the useful life of the asset and the lease term.
other leases are operating leases and the leased assets are not recognized on the parkland’s consolidated balance sheets.
(n) deferred revenue
Deferred revenue consists of deposits and prepayments from customers for the purchase of agricultural products not
yet delivered. revenue is recorded when products are delivered to customers.
(o) income taxes
the Corporation follows the liability method of accounting for income taxes whereby deferred income taxes are
recorded for the effect of differences between the accounting and income tax basis of an asset or liability. Deferred
income tax assets and liabilities are measured using enacted or substantively enacted income tax rates at the
consolidated balance sheets’ dates that are anticipated to apply to taxable income in the years in which temporary
differences are anticipated to be recovered or settled. Changes to these balances are recognized in net earnings (loss)
in the period during which they occur.
(p)AssetRetirementObligationsandRefineryRemediationAccrual
Provisions for asset retirement obligations related to underground fuel storage tanks and the Bowden, Alberta refinery
remediation are recognized when the Corporation has a present legal or constructive obligation as a result of past
events; it is probable that an outflow of resources will be required to settle the obligation or to restore the property
to its condition before the fuel storage tanks were installed or before the refinery was constructed; and the amount to
settle or restore has been reliably estimated.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a whole. a provision is recognized even if the likelihood of an
outflow with respect to any one item included in the same class of obligations may be small.
asset retirement obligations are measured at the present value of the expenditures expected to be required to settle
the obligation using a pre-tax credit adjusted discount rate that reflects current market assessments of the time value
of money and the risks specific to the obligation. The increase in the provision due to passage of time is included in
finance costs.
(q) revenue
parkland recognizes revenue on its sale of goods and services when title passes to the purchaser, physical delivery
has occurred and collection is reasonably assured. the major categories of revenue include retail and commercial
fuel, heating oil, lubricants, agricultural products, convenience store merchandise and other products. revenue is
measured based on the price specified in the sales contract, net of discounts and estimated returns at the time of sale.
Historical experience is used to estimate and provide for discounts and returns. Volume discounts are assessed based
on anticipated annual purchases. parkland operates a loyalty program where customers accumulate earnings for
purchases made, which entitle them to receive cash. revenue is recognized for any unclaimed earnings at the expiry of
the twelve months after the initial sale.
88
parkland fuel corporation annual report 2011
(r) cost of sales
Cost of sales includes costs incurred to transport inventory.
(s) Grants of options and restricted units
parkland accounts for its grants of options and restricted shares/units in accordance with the fair value based method
of accounting for stock-based compensation.
(t) borrowing costs
Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of those
assets, until such time as the assets are substantially ready for their intended use. all other borrowing costs are recognized
as interest expense in the consolidated statements of comprehensive income in the period in which they are incurred.
(u) customer finance income and finance costs
Customer finance income is recognized as it accrues in the consolidated statements of comprehensive income, using
the effective interest method.
Finance costs include interest expense on borrowings, unwinding of the discount on provisions, distributions on
Class B and C limited partnership units classified as liabilities, revaluation of the embedded derivative on convertible
debentures, changes in the fair value of financial assets at fair value through profit or loss and impairment losses
recognized on financial assets. All borrowing costs are recognized in the consolidated statements of comprehensive
income using the effective interest method, except for those amounts capitalized as part of the cost of qualifying
property, plant and equipment.
Foreign currency gains and losses are reported on a net basis.
(v) dividends
Dividend distributions to Parkland’s shareholders are recognized as liabilities in the financial statements in the period in
which the dividends are approved by parkland’s Board of Directors.
(w) earnings per Share/unit
1) Basic
Basic earnings per share is calculated by dividing the net earnings (loss) of the Corporation by the weighted average
number of common shares in issue during the period.
2) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding to
assume conversion of all dilutive potential common shares. the Corporation has two categories of dilutive potential
common shares: Debentures and share/unit options. the Debentures are assumed to have been converted into common
shares. For the share/unit options, a calculation is done to determine the number of shares/units that could have
been acquired at fair value (determined as the average annual market share/unit price of the Corporation’s shares/
units) based on the monetary value of the subscription rights attached to outstanding share/unit options. the number
of shares/units calculated is compared with the number of shares/units that would have been issued assuming the
exercise of the share/unit options.
(x) 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.
parkland fuel corporation annual report 2011
89
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
estimates are used when accounting for items such as amortization of property, plant and equipment, asset retirement
obligations, the refinery remediation accrual, value in use calculations for impairment, intangible assets and goodwill,
impairment and valuation allowances for accounts receivable and inventory, contingent liabilities including matters in
litigation, fair value of financial instruments, amortization and income taxes, grants of options and restricted units, and
calculation of fair values for the debentures.
the following discussion outlines the Corporation’s critical accounting estimates adopted under IFrS.
The accounting estimate that has the greatest impact on Parkland’s financial results is depreciation and amortization.
Depreciation and amortization of parkland’s capital assets and intangible assets incorporate estimates of useful lives
and residual values. these estimates may change as more experience is obtained or as general market conditions
change impacting the operation of parkland’s capital assets.
Asset retirement obligation and refinery remediation accrual represents the present value estimate of Parkland’s cost
to remediate the site. asset retirement obligations are measured at the present value of the expenditures expected
to be required to settle the obligation using a pre-tax credit adjusted discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation.
parkland performs impairment tests of long-lived assets with determinable useful lives when indications of impairment
exist. application of judgement is required in determining whether an impairment test is warranted. When indicators
support the asset is no longer impaired, parkland will reverse impairment losses. Similar to the impairment, application
of judgement is required to determine whether a reversal should be considered.
parkland regularly performs a review of outstanding accounts receivable balances greater than 90 days past due to
determine eventual collectibility. If an account is deemed uncollectible, a provision for bad debt is recorded. parkland
also analyzes the bad debt provision regularly to determine if any of the accounts provided for should be written
off. these accounts which are deemed uncollectible could materially change as a result of changes in a customer’s
financial situation.
estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of
the ability to use the underlying future tax deductions against future taxable income before the deductions expire. the
assessment is based upon existing tax laws and estimates of future taxable income. parkland maintains provisions for
uncertain tax positions using the best estimate of the amount expected to be paid based on a qualitative assessment of
all relevant factors. parkland reviews the adequacy of these provisions at each reporting period.
Compensation expense for options under the Share option plan and restricted Share unit plan are estimated based on
various assumptions at grant date, such as volatility and expected life using the Black-Scholes methodology to produce
an estimate of the fair value of such compensation and are re-measured at the end of each reporting period.
the conversion feature in the convertible debentures is valued by binomial method using various assumptions for
volatility, market price and dividend yield.
(y) Segment reporting
operating segments are reported in a manner consistent with the internal reporting provided to senior management.
Senior management responsible for allocating resources and assessing performance of the operating segments has
been identified to include the Chief Executive Officer (CEO), Chief Financial Officer (CFO), vice presidents and members
of the Board of Directors.
90
parkland fuel corporation annual report 2011
4. recentlY announced accountinG pronounceMentS
parkland is in the process of evaluating the impact of the following new requirements and has not decided whether to
early adopt the following standards.
(a) ifrS 9 – financial instruments
In november 2009, as part of the International accounting Standards Board’s (IaSB) project to replace International
accounting Standard (IaS) 39 Financial Instruments: recognition and Measurement, the IASB issued the first phase
of IFrS 9 Financial Instruments, that introduces new requirements for the classification and measurement of financial
assets. The standard was revised in October 2010 to include requirements regarding classification and measurement
of financial liabilities and is applicable for annual periods starting on or after January 1, 2013. In December 2011, the
effective date of IFrS 9 was deferred to years beginning on or after January 1, 2015. the full impact of the changes in
accounting for financial instruments will not be known until the IASB’s project has been completed.
(b) ifrS 13 – fair Value Measurement
on May 12, 2011 the IaSB issued IFrS 13, a comprehensive standard for fair value measurement and disclosure
requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be
received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the
measurement date. It also establishes disclosures about fair value measurement. under existing IFrS, guidance on
measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in
many cases does not reflect a clear measurement basis or consistent disclosures. IFRS 13 is effective for annual periods
beginning on or after January 1, 2013, with early adoption allowed.
(c) iaS 1 – financial Statement presentation
on June 16, 2011 the IaSB issued amendments to IaS 1 Financial Statement presentation. these amendments improve
the presentation of components of other comprehensive income. the new requirements are effective for annual periods
beginning on or after July 1, 2012.
5. firSt-tiMe adoption of ifr S
the Corporation adopted IFrS on January 1, 2011, with a date of transition effective January 1, 2010. prior to the
adoption of IFRS, the Corporation prepared its annual consolidated financial statements in accordance with Previous
GAAP. The annual consolidated financial statements as at and for the year ended December 31, 2011, will be the first
annual financial statements issued by the Corporation that comply with IFRS. The Corporation’s transition date is
January 1, 2010 (“the transition date”) and the Corporation prepared its opening IFrS consolidated balance sheets
at that date. These consolidated financial statements have been prepared in accordance with the accounting policies
described in note 3 and in accordance with existing IFrS with an effective date of December 31, 2011 or earlier.
reconciliations from previous Gaap to IFrS for comparative periods are provided on the following pages.
parkland fuel corporation annual report 2011
91
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
reconciliation of equity at december 31, 2010
(in 000’s of Canadian Dollars)
Assets
current assets
Cash and cash equivalents
accounts receivable
Income tax receivable
Inventories
prepaid expenses and other
property, plant and equipment
Intangible assets
Goodwill
loan receivables
Deferred tax asset
Liabilities and Shareholders' / Unitholders' Equity
current liabilities
accounts payable and accrued liabilities
Distributions declared and payable
Deferred revenue
long-term debt – current portion
other long-term liabilities – current portion
long-term debt
other long-term liabilities
Convertible debentures
asset retirement obligations
Refinery remediation accrual
Deferred tax liability
Shareholders' / unitholders' equity
92
parkland fuel corporation annual report 2011
previous
Gaap
IFrS
adjustments
18,523
284,470
788
61,722
11,703
377,206
235,970
118,352
93,925
3,585
10,651
–
800
(6)
–
–
–
800
6,627
(5)
–
(2,508)
(248)
(800)
–
(2)
(1)
(6)
(2,398)
(8)
839,689
1,473
168,778
5,622
5,215
80,392
1,223
261,230
240,649
2,339
130,262
6,386
6,827
–
191,996
839,689
(540)
1,680
(3)
(4)
–
–
–
–
1,140
–
3,098
5,952
–
3,475
(248)
(2,508)
540
(1,680)
675
(3,098)
(5,873)
1,473
(7)
(5)
(8)
(1)
(2)
(3)
(4)
(5)
(7)
(8)
IFrS
18,523
285,270
788
61,722
11,703
378,006
242,597
118,352
90,369
3,585
8,253
841,162
169,918
5,622
5,215
80,392
1,223
262,370
240,649
2,339
133,360
12,338
6,827
3,475
179,804
841,162
reconciliation of equity at January 1, 2010
(in 000’s of Canadian Dollars)
Assets
current assets
Cash and cash equivalents
accounts receivable
Income tax receivable
Inventories
prepaid expenses and other
property, plant and equipment
Intangible assets
Goodwill
loan receivables
Deferred tax asset
Liabilities and Shareholders' / Unitholders' Equity
current liabilities
accounts payable and accrued liabilities
Distributions declared and payable
Deferred revenue
Class B & C limited partnership units
long-term debt – current portion
long-term debt
Convertible debentures
asset retirement obligations
Refinery remediation accrual
Deferred tax liability
Shareholders' / unitholders' equity
previous
Gaap
IFrS
adjustments
17,612
114,763
771
51,757
8,146
193,049
210,985
35,485
28,269
2,927
3,620
–
–
–
–
–
–
6,123
(5)
–
–
–
(3,620)
(8)
474,335
2,503
106,047
5,205
5,520
(129)
1,555
(3)
(4)
–
–
–
56,321
(1)
13,939
130,711
41,030
87,827
5,462
6,527
12,020
190,758
474,335
–
57,747
–
5,688
5,757
–
1,732
(56,321)
129
(1,555)
366
(5,688)
(5,352)
2,503
(7)
(5)
(8)
(1)
(3)
(4)
(5)
(7)
(8)
IFrS
17,612
114,763
771
51,757
8,146
193,049
217,108
35,485
28,269
2,927
–
476,838
107,473
5,205
5,520
56,321
13,939
188,458
41,030
93,515
11,219
6,527
13,752
122,337
476,838
parkland fuel corporation annual report 2011
93
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
reconciliation of comprehensive income and loss
for the Year ended december 31, 2010
(in 000’s of Canadian Dollars except per share/unit amounts)
Sales and operating revenue
Cost of sales, excluding depreciation
expenses
operating costs
Marketing, general and administrative
Depreciation and amortization
Customer finance income
Finance costs
Gain on disposal of property, plant and equipment
earnings (loss) before income taxes
Income tax (recovery) expense
Deferred
net earnings (loss)
previous
Gaap
IFrS
adjustments
IFrS
2,911,899
2,575,009
–
(20,726)
(4)
2,891,173
336,890
(20,726)
159,447
75,542
62,593
39,308
(1,521)
27,648
26,127
(3,119)
16,300
(13,894)
(13,894)
30,194
(4)
(2)
(3)
(5)
(1)
(5)
(7)
(20,601)
3,088
(411)
324
(3,126)
–
5,618
(633)
(5,266)
(281)
–
(2,845)
(8)
521
521
(3,366)
2,575,009
316,164
138,846
78,219
62,917
36,182
(1,521)
27,367
25,846
(3,119)
13,455
(13,373)
(13,373)
26,828
total comprehensive income (loss)
30,194
(3,366)
26,828
explanation of ifrS adjustments made
(1) Under Previous GAAP, prior to the Conversion, the Class B and C Limited Partnership (“LP”) units were classified
as unitholders’ capital. under IFrS the redemption feature provides the holder of the lp unit the ability to ‘put’ the
option back to the Trust at a specified value and was considered a puttable instrument, therefore, the Class B and C
LP units are classified as a liability as of date of transition at cost in accordance with the requirements of IAS 32 para
16(c). Distributions to holders of Class B and C LP units are classified as interest expense after the transition to IFRS.
upon Conversion to a Corporation on December 31, 2010 the Class B and C lp units were converted on a one-for-one
basis into Fund units.
(2) parkland has applied IFrS 3 to all business combinations that have occurred since January 1, 2010. accordingly, the
purchase accounting has been revised to expense transaction costs. under previous Gaap the consideration paid
in units was valued using the 10 day weighted average closing price. under IFrS the units given as consideration
are valued at the price on the date of closing the transaction. From January 1, 2010 parkland has applied IFrS
3 Business Combinations (2008) in accounting for business combinations. the change in accounting policy has
been applied prospectively. as part of the transition to IFrS, parkland elected to restate only those business
94
parkland fuel corporation annual report 2011
combinations that occurred on or after January 1, 2010. In respect of acquisitions prior to January 1, 2010, goodwill
represents the amount recognized under previous Gaap.
(3) IFrS requires an estimate of future forfeitures of shares/units arising at the date of grant of shares/units under the
restricted Share unit plan as described in note 21(d). under previous Gaap no estimate of future forfeitures was
required.
(4) as a result of the adoption of IFrS, the presentation of parkland’s customer and dealer incentive programs have
been reclassified to their appropriate presentation in the consolidated financial statements.
(5) Under Previous GAAP, increases in estimated cash flows for asset retirement obligations were discounted using the
credit adjusted risk-free rate. Under IFRS, estimated cash flows are discounted using the current pre-tax discount
rate for risks specific to the obligation that exist at the consolidated balance sheets’ date. In accordance with IFRS
1, the Corporation elected to re-measure its asset retirement obligations and refinery remediation accrual at the
transition Date and has estimated the related asset by discounting the liability to the date in which the liability
arose and recalculated the accumulated depreciation and amortization under IFrS. asset retirement obligations
and the refinery remediation accrual are recognized for legal as well as constructive obligations under IFRS.
Asset retirement obligations and the refinery remediation accrual are measured based on the estimated cost of
abandonment discounted to their net present value.
(6) as part of the acquisition of the fuel distribution business of Bluewave energy limited partnership, parkland
received $800 in 2011 as a final settlement of the purchase price consideration owed to the seller. Under IFRS,
parkland is required to record an accounts receivable at December 31, 2010 as the recovery was more likely than not
considering the circumstances at December 31, 2010.
(7) under previous Gaap, before the Conversion, a portion of the proceeds of the Debentures was allocated to
unitholders’ capital, representing the value of the conversion feature. under IFrS, an equity portion is not
determined; rather the embedded derivative arising from the equity conversion feature is valued at each reporting
date with the change in value at each reporting period included in the consolidated statements of comprehensive
income in finance costs as “revaluation of embedded derivative”. Under IFRS the binomial method was used to value
the conversion feature for the Debentures. on Conversion the Series 1 Debentures had a conversion feature value of
$0 and the previously recognized conversion feature of $5,266 was reversed. upon issuance on December 21, 2010
and at Conversion, the Series 2 Debentures had a conversion value of $0. post Conversion there is no requirement
to further revalue the conversion feature. the debt balance of the Debentures in the consolidated balance sheets,
net of issue costs and the value of the conversion feature at Conversion, accretes over the remaining term of the
Debentures. 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 Comprehensive Income.
(8) the Corporation recognized deferred income taxes primarily in respect of the above changes.
prior to the Conversion on December 31, 2010, the Corporation itself was not subject to income tax provided it
distributed all of its taxable income to unitholders. For taxation purposes the Corporation was considered a specified
investment flow-through (“SIFT”) entity and was to become subject to tax on its distributions commencing January
1, 2011 at the corporate tax rate. temporary timing differences between tax basis and carrying values under previous
Gaap were tax effected at the tax rate expected when the temporary timing differences were expected to reverse.
under IFrS parkland is required to tax effect the temporary timing differences at the undistributed SIFt rate of
39% prior to the Conversion on December 31, 2010. Following the Conversion, the Corporation’s temporary timing
differences are taxed at the corporate rate in effect.
on January 1, 2010, the date of transition, the net impact of the transition to IFrS was a decrease in retained earnings
of $5,352, an increase to deferred income tax liability of $1,732, and a decrease to deferred income tax asset of $3,620.
parkland fuel corporation annual report 2011
95
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
at December 31, 2010, the impact was a decrease in retained earnings of $5,873, increase to deferred tax liability of
$3,475, and a decrease in deferred tax asset of $2,398.
Mandatory exceptions to retrospective application
In preparing these consolidated financial statements in accordance with IFRS 1, the Corporation has applied the
mandatory exception applicable for estimates. IFrS estimates at January 1, 2010 are consistent with the estimates as at
the same date made in conformity with previous Gaap.
the other compulsory exceptions of IFrS 1 that have not been applied as these are not relevant to the Corporation are
as follows:
i. De-recognition of financial assets and liabilities
ii. non-controlling interests
iii. Hedge accounting
(a) elective exemptions from full retrospective application
In preparing these consolidated financial statements in accordance with IFRS 1, the Corporation has applied certain of
the optional exemptions for full retrospective application. the optional exemptions applied are described below.
(b) Business Combinations
IFrS 1 provides the option to apply IFrS 3 Business combinations, prospectively from the transition date or from a
specific date prior to the transition date. This provides relief from full retrospective application that would require
restatement of all business combinations prior to the transition date. parkland elected to apply IFrS 3 prospectively to
business combinations occurring after its transition date. Business combinations occurring prior to the transition date
have not been restated.
(c) unit based compensation
the Corporation has elected not to apply IFrS 2 to equity instruments that were granted on or before november 7,
2002 or equity instruments granted after november 7, 2002 and vested by the date of transition.
(d) Decommissioning liabilities
the Corporation has elected to apply the short-cut method for decommissioning liabilities within the scope of
International Financial reporting Interpretation Committee 1. the short-cut method permits the Corporation to
estimate the amount that would have been included in the cost of the related asset when the liability first arose by
discounting the liability to that date using the Corporation’s best estimate of historical risk adjusted discount rates that
would have applied for that liability over the period since it was first incurred.
accumulated depreciation on the discounted amount is then calculated at the date of transition to IFrS, based on the
current estimate of the useful life of the asset and using the depreciation policy adopted by the Corporation under IFrS.
96
parkland fuel corporation annual report 2011
6. earninGS analYSiS and earninGS per SHare/unit
(in 000’s of Canadian Dollars)
net earnings, basic
Interest and accretion on convertible debentures, net of tax
revaluation of embedded derivative, net of tax
net earnings, diluted
earnings per share
– basic
– diluted
equivalent share/units outstanding, beginning of year
Weighted average of Class C units issued
Weighted average of Common Shares issued
Weighted average of Fund units issued
Weighted average of equivalent shares/units issued pursuant to restricted unit plan
Weighted average of equivalent shares/units issued pursuant to dividend/distribution
re-investment plan
Weighted average of equivalent shares/units issued pursuant to exercise of share/unit options
Weighted average of equivalent shares/units issued pursuant to conversion of
convertible debentures
Denominator utilized in basic earnings per share/unit
Incremental equivalent shares/units options that were dilutive
Incremental equivalent shares/units for debentures that were dilutive
Denominator utilized in diluted earnings per share/unit
Year ended december 31,
2011
43,915
8,178
–
52,093
0.74
0.73
53,164
–
4,200
–
278
1,610
177
1
59,430
54
12,167
71,651
2010
26,828
5,961
(3,702)
29,087
0.52
0.44
50,194
1,145
–
88
249
135
152
–
51,963
150
13,710
65,823
7. reStricted caSH
Restricted cash is comprised of $3,000 (December 31, 2010 – $0) of Guaranteed Investment Certificates used to secure
the original issued amount of other loans (note 16).
8. accountS receiVable
trade accounts receivable
Miscellaneous, government and other non-trade accounts receivable
allowance for doubtful accounts
December 31,
2011
282,339
58,086
(10,667)
329,758
December 31,
2010
248,109
45,414
(8,253)
285,270
January 1,
2010
110,858
7,505
(3,600)
114,763
Miscellaneous, government and other non-trade accounts receivable includes over-remittances of fuel and other taxes
made to federal and provincial jurisdictions.
parkland fuel corporation annual report 2011
97
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
9. inVentorieS
Gas and diesel
propane
agricultural inputs
lubricants
Convenience store merchandise
other
December 31,
2011
52,098
2,324
7,403
19,606
39
2,787
84,257
December 31,
2010
41,691
1,601
5,397
8,932
2,026
2,075
61,722
January 1,
2010
36,261
1,364
4,848
4,174
1,962
3,148
51,757
For the year ended December 31, 2011, the amount of inventory recognized as cost of goods sold amounted to
$3,566,030 (December 31, 2010 – $2,566,829).
10. riSk ManaGeMent
the fair value of the outstanding nYMeX new York harbour WtI to heating oil put option contract (the “risk management
asset”) is reflected on the consolidated balance sheets with the changes during the year recorded in the consolidated
statements of comprehensive income and loss within unrealized risk management loss.
as at December 31, 2011 and December 31, 2010, the only asset or liability measured at fair value on a recurring basis
was the risk management asset, which was valued based on “level 2 inputs”.
The different levels have been defined as follows:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices) (level 2).
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table reconciles the changes in the fair value of the financial instruments outstanding including any
realized components (settlements in cash) in the year:
nYMeX new York harbour WtI to heating oil put option contract
Balance, beginning of year
additions
unrealized loss
total fair value, end of year
January 1, 2011 to
December 31, 2011
–
1,275
(928)
347
Based on December 31, 2011 pricing, a $1.00 change in the price per barrel of nYMeX new York harbour WtI to heating
oil is estimated to change pre-tax unrealized risk management by approximately $77.
parkland had the following nYMeX new York harbour WtI to heating oil put option contract outstanding as at
December 31, 2011. Fair values are determined using external counterparty information, which is compared to
observable market data. parkland limits its credit risk by executing counterparty risk procedures which include
transacting only with financial institutions within Parkland’s Extendible Facility (see Note 16).
notional volume
remaining term
pricing
84,000 bbls/month
January – March 2012
uS$22.50/bbl
Fair value
$347
98
parkland fuel corporation annual report 2011
Subsequent to December 31, 2011, parkland entered into the following additional nYMeX new York harbour WtI to
heating oil and gasoline put option contracts.
notional volume and term
pricing
premium
78,000 bbls in the month of april 2012,
77,000 bbls in the month of May 2012 and
77,000 bbls in the month of June 2012
189,000 bbls per month in the months
of March to June 2012
buSineSS riSkS
uS$22.50/bbl
uS$25.00/bbl
$1,067
$3,044
Credit 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. the credit risk is minimized by parkland’s broad customer and
geographic base. In light of the current market conditions, parkland’s credit department has been expanded and policies
strengthened to control the credit granting process. 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 the financial conditions of its customers and the industries in which they operate. Parkland performs ongoing credit
evaluations of its customers and outstanding debts are regularly monitored and when deemed uncollectible a provision is
established. at December 31, 2011, the provision for impairment of credit losses was $10,667 (December 31, 2010 – $8,253).
Parkland does not have a significant credit exposure to any individual customer. Parkland reviews each new customer’s
credit history before extending credit and conducts regular reviews of its existing customers’ credit performance. the
maximum exposure to credit risk at the reporting date is the carrying value of parkland’s accounts receivable balance.
parkland does not hold any collateral as Security.
as at December 31, 2011
accounts receivable
accounts payable
as at December 31, 2010
accounts receivable
accounts payable
Current or
within terms
31 – 60 Days
past terms
61 – 90 Days
past terms
over 90 Days
past terms
308,917
194,728
7,571
1,374
4,803
184
8,467
74
Current or
within terms
31 – 60 Days
past terms
61 – 90 Days
past terms
over 90 Days
past terms
258,795
161,745
10,461
3,000
3,097
2,573
12,917
2,600
total
329,758
196,360
total
285,270
169,918
Interest rate risk
parkland is exposed to market risk from changes in the Canadian prime interest rate and Bankers’ acceptance rate which can
impact its borrowing costs. parkland analysis the interest rate risk on a regular basis and mitigates that risk by considering
refinancing, renewal of existing credit lines and hedging options. A 1% change in these interest rates would have caused an
increase or decrease to earnings for the year ended December 31, 2011 of $2,494 (December 31, 2010 – $3,210).
Foreign Currency rate risk
parkland purchases certain products in u.S. dollars and sells such products to its customers typically in Canadian
dollars. As a result, fluctuations in the value of the Canadian dollar to the unbilled U.S. dollar can result in foreign
exchange gains and losses. as at December 31, 2011 parkland had u.S. dollar accounts payable totalling $uS1,758 and
u.S. dollar cash of $uS28. parkland purchases u.S. funds as required to pay u.S. dollar denominated invoices. parkland
does not forward contract purchases of u.S. funds. u.S. dollar accounts payable are payable in terms of less than 15
days. In the opinion of Parkland management there is no significant risk of exposure to foreign exchange loss due to
fluctuations of exchange rates.
parkland fuel corporation annual report 2011
99
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
liquidity risk
Liquidity risk is the risk that Parkland will encounter difficulties in meeting its short term financial obligations. Cash liquidity
of Parkland is mainly provided by cash flows from operating activities and borrowings available under its extendible credit
facility. In managing liquidity risk, parkland has access to various credit products at competitive rates. as at December 31,
2011, parkland has available unused credit facilities in the amount of $194,298 (December 31, 2010 – $40,400). parkland
believes it has sufficient funding through the use of its facility to meet foreseeable borrowing requirements.
Undiscounted cash outflows relating to financial liabilities are outlined in the tables below:
as at December 31, 2011
accounts payable
Dividends declared and payable
long-term debt, including capital
lease obligations(1)
obligations under operating leases
other long-term liabilities (1)
Convertible debentures (1)
as at December 31, 2010
accounts payable
Distributions declared and payable
long-term debt, including capital
lease obligations (1)
obligations under operating leases
other long-term liabilities (1)
Convertible debentures (1)
196,360
5,469
11,653
5,975
2,448
8,964
2012
169,918
5,622
330,330
7,088
1,316
8,940
2012
2013
2014
2015
2016
thereafter
total
–
–
–
–
9,850
6,530
288
231,951
5,121
–
–
–
95
4,113
–
8,940
106,125
47,586
–
–
–
–
196,360
5,469
60
679
254,288
3,499
10,723
–
–
–
–
2013
2014
2015
2016
thereafter
–
–
–
–
–
–
–
–
2,734
6,089
2,444
8,964
–
–
687
5,358
288
91
60
739
334,641
3,952
3,566
15,615
–
–
41,668
4,048
180,555
–
–
8,940
106,125
47,586
35,961
2,736
171,615
total
169,918
5,622
(1) principal and interest, including current portion
11. propertY, plant and eQuipMent
as at December 31, 2011
Cost
Balance, as at January 1, 2011
additions
Disposals
Balance, as at December 31, 2011
Accumulated depreciation
Balance, as at January 1, 2011
Depreciation charge for the year
Disposals
Balance, as at December 31, 2011
Carrying amount
as at January 1, 2011
as at December 31, 2011
land
Improvements
land
Buildings
assets under
Capital lease
plant and
equipment
total
33,530
13,408
(3,117)
43,821
–
–
–
–
19,509
8,799
(378)
27,930
4,916
847
(204)
5,559
70,941
4,824
(6,728)
69,037
20,266
4,053
(1,749)
22,570
7,141
261,708
392,829
–
–
31,735
(31,514)
58,766
(41,737)
7,141
261,929
409,858
1,181
1,816
–
2,997
123,869
31,337
(23,435)
131,771
150,232
38,053
(25,388)
162,897
33,530
43,821
14,593
22,371
50,675
46,467
5,960
4,144
137,839
130,158
242,597
246,961
100
parkland fuel corporation annual report 2011
land
Improvements
land
Buildings
assets under
Capital lease
plant and
equipment
31,714
2,891
(1,075)
33,530
–
–
–
–
13,449
6,486
(426)
19,509
3,548
1,368
–
4,916
66,444
7,295
(2,798)
70,941
16,953
4,880
(1,567)
20,266
4,302
2,839
–
7,141
666
515
–
1,181
total
333,619
67,844
(8,634)
217,710
48,333
(4,335)
261,708
392,829
95,344
32,430
(3,905)
123,869
116,511
39,193
(5,472)
150,232
31,714
33,530
9,901
14,593
49,491
50,675
3,636
5,960
122,366
137,839
217,108
242,597
at December 31, 2011, parkland had assets under construction of $17,391 (December 31, 2010 – $6,090) consisting of
retail stations and a rail siding terminal development project at Bowden, alberta.
In august 2011, parkland divested long-haul transportation assets for proceeds of $25,150, with a gain on disposal
of $12,817.
as at December 31, 2010
Cost
Balance, as at January 1, 2010
additions
Disposals
Balance, as at December 31, 2010
Accumulated depreciation
Balance, as at January 1, 2010
Depreciation charge for the year
Disposals
Balance, as at December 31, 2010
Carrying amount
as at January 1, 2010
as at December 31, 2010
12. intanGible aSSetS
as at December 31, 2011
Cost
Balance, as at January 1, 2011
additions
Disposals
Balance, as at December 31, 2011
Accumulated amortization
Balance, as at January 1, 2011
amortization charge for the year
Balance, as at December 31, 2011
Carrying amount
as at January 1, 2011
as at December 31, 2011
Customer
relationships
tradenames
non-compete
agreements
Software
systems
127,674
25,863
(28)
153,509
31,353
21,123
52,476
96,321
101,033
total
155,421
25,913
(28)
6,366
3,309
18,072
50
–
–
–
–
–
6,416
3,309
18,072
181,306
4,060
1,271
5,331
2,306
1,085
1,204
658
1,862
2,105
1,447
452
1,807
2,259
37,069
24,859
61,928
17,620
15,813
118,352
119,378
parkland fuel corporation annual report 2011
101
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
as at December 31, 2010
Cost
Balance, as at January 1, 2010
additions
Balance, as at December 31, 2010
Accumulated amortization
Balance, as at January 1, 2010
amortization charge for the year
Balance, as at December 31, 2010
Carrying amount
as at January 1, 2010
as at December 31, 2010
13. GoodWill
Customer
relationships
tradenames
non-compete
agreements
Software
systems
29,696
97,978
127,674
10,067
21,286
31,353
19,629
96,321
4,966
1,400
6,366
2,819
1,241
4,060
2,147
2,306
2,171
1,138
3,309
674
530
1,204
1,497
2,105
total
49,045
106,376
155,421
13,560
23,509
37,069
12,212
5,860
18,072
–
452
452
12,212
17,620
35,485
118,352
Balance, beginning of year
acquired through Island petroleum ltd. purchase (note 24b)
acquired through Bluewave energy purchase (note 24c)
acquired through eagle Marine ltd. purchase
acquired through anmart Fuels purchase
acquired through Columbia Fuels ltd. purchase
Balance, end of year
January 1, 2011 to
December 31, 2011
January 1, 2010 to
December 31, 2010
January 1, 2009 to
January 1, 2010
90,369
(486)
–
–
–
–
28,269
2,779
59,321
–
–
–
89,883
90,369
13,500
–
–
400
188
14,181
28,269
the Corporation did not identify any indicators of impairment at the transition Date. an impairment test was conducted
at the transition Date and the recoverable amount of the CGu was determined on a value in use basis.
The entire goodwill has been allocated to the fuel marketing segment. No impairment was identified for Goodwill for
January 1, 2010, December 31, 2010 and for December 31, 2011.
This calculation used pre-tax cash flow projections based on expected performance and on management’s expectations of
market developments. the growth rates used were consistent with the forecasts included in industry reports which were
developed based on macro-economic factors such as inflation rates and demand-supply fundamentals. Cash flows beyond
the four-year period were extrapolated using the estimated growth rates below. Pre-tax discount rates reflect specific
risks relating to the CGu. the key assumptions used for the calculations for the transition Date to IFrS are as follows:
long term growth rate
pre-tax discount rate
Budgeted Gross Margin Cents per litre (Cpl)
2.0%
12.0%
5-9 Cpl
No impairment was identified as a result of this analysis.
14. loan receiVableS
loan receivables consisting of loans to retail and commercial dealers are receivable in monthly instalments of $79
(December 31, 2010 – $144), bear interest at rates ranging between nil% and 10.25% (December 31, 2010 – nil% and
10.75%) and are secured by specific assets of the borrower.
102
parkland fuel corporation annual report 2011
15. incoMe taxeS
Immediately prior to giving effect to the Conversion on December 31, 2010, the Fund itself was not subject to income
tax provided it distributed all of its taxable income to unitholders. For taxation purposes, the Fund was considered a
specified investment flow-through (“SIFT”) entity and was to become subject to tax commencing January 1, 2011. For
accounting purposes, the Fund computed deferred tax based on temporary differences that were expected to reverse
after 2010, at the tax rate expected to apply for those periods. realization of deferred tax assets is dependent on
generating sufficient taxable income during the period in which the temporary differences are deductible. Although
realization is not assured, management believes it is more likely than not that all deferred tax assets will be realized
based on reversals of temporary timing differences, projections of operating results and tax planning strategies
available to parkland Fuel Corporation and its subsidiaries. effective December 31, 2010, after giving effect to the
Conversion, parkland became subject to tax on taxable income earned from that date forward.
income tax expense
Current tax:
Current tax on profits for the year
adjustments in respect of prior years
total current tax
Deferred tax:
origination and reversal of temporary differences
total deferred tax (recovery)
income tax expense
Year ended december 31,
2011
2010
18,113
1,943
20,056
(2,357)
(2,357)
17,699
–
–
–
(13,373)
(13,373)
(13,373)
The tax on Parkland’s profit before tax differs from the theoretical amount that would arise using the statutory tax rate
applicable to profits of the consolidated entities as follows:
Profitbeforetax
tax calculated at statutory tax rates
tax effects of:
non-taxable portion of gain on sale of property, plant and equipment
non-deductible expenses
adjustments in respect of prior years
rate differential and other items
Income earned in limited partnership
tax charge
Year ended december 31,
2011
61,614
2010
13,455
17,104
3,992
(563)
215
1,943
(1,000)
–
17,699
–
–
–
2,050
(19,415)
(13,373)
the statutory tax rate was 27.8% (2010 – 29.7%). the decrease in statutory tax rate was primarily due to a reduction in the
federal rate from 18% in 2010 to 16.5% in 2011 and a change in the provincial allocation as a result of the Cango acquisition.
parkland fuel corporation annual report 2011
103
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
deferred income tax
the analysis of deferred tax assets and deferred tax liabilities is as follows:
Deferred income tax
Deferred tax assets
Deferred tax liabilities
Deferred tax assets (net)
Year ended december 31,
2011
10,024
8,034
1,990
2010
8,253
3,475
4,778
Deferred tax assets of $723 (December 31, 2010 – $371) and deferred tax liabilities of $2,899 (December 31, 2010 – $1,726)
are expected to reverse during the next 12 months.
the gross movement on the deferred income tax account is as follows:
Balance, beginning of year
acquisition of subsidiary – Cango Inc. (note 24a)
acquisition of subsidiary – Bluewave energy limited partnership (note 24c)
Income statement charge
Balance, end of year
January 1, 2011 to
December 31, 2011
January 1, 2010 to
December 31, 2010
4,778
(5,145)
–
2,357
1,990
(13,752)
–
5,157
13,373
4,778
the movement in deferred income tax assets and liabilities during the year is as follows:
property, plant and equipment
Intangibles
asset retirement obligations
Refinery remediation
Fair value gains
other
consolidated Statements of
comprehensive income
consolidated balance Sheets
2011
(2,593)
6,503
(2,063)
(801)
1,173
(4,576)
(2,357)
2010
(4,715)
(11,429)
(1,361)
(509)
(163)
4,804
(13,373)
Dec 31,
2011
(11,896)
5,587
6,666
2,942
(2,899)
1,590
1,990
Dec 31,
2010
(14,146)
19,107
2,388
2,141
(1,726)
(2,986)
4,778
Jan 1,
2010
(13,033)
(3,307)
1,027
1,632
(1,889)
1,818
(13,752)
Deferred tax has not been recognized for temporary differences arising on investments in subsidiaries because the
reversal of the temporary differences can be controlled and it is probable that the differences will not be reversed in
the foreseeable future.
16. financinG and credit facilitie S
(a) long-term debt
other loans
extendible facility
Mortgage payable
Capital lease obligations
less current portion
104
parkland fuel corporation annual report 2011
December 31, 2011
December 31, 2010
January 1, 2010
578
226,413
–
4,029
231,020
(2,779)
228,241
–
315,690
275
5,076
321,041
(80,392)
240,649
–
51,504
295
3,170
54,969
(13,939)
41,030
Estimated repayments for the next five years are:
obligations under capital lease
2,762
2012
other loans
257
3,019
2013
776
2014
86
169
226,530
945
226,616
2015
2016
thereafter
60
35
95
60
–
60
679
–
679
Interest expense
included in minimum
lease payments
total
(394)
4,029
–
226,991
(394)
231,020
(b) extendible facility
a new revolving extendible credit facility (the “extendible Facility”) agreement was executed on June 30, 2011 for a
period of three years. the facility is extendible each year for a rolling three-year period at the option of parkland. If the
extendible Facility is not extended past the maturity date of June 29, 2014, all amounts outstanding are repayable on
the maturity date.
prior to June 30, 2011, parkland maintained a revolving extendible facility for a maximum amount of $400,000
consisting of a revolving operating loan to a maximum of $90,000 plus a capital loan to a maximum of $275,000 plus a
letter of credit facility to a maximum of $35,000.
the new extendible Facility is for a maximum amount of $450,000 (December 31, 2010 – $400,000) with interest only
payable at the bank’s prime lending rate plus 1.0% to 2.5% (December 31, 2010 – 2.5% to 3.75%) per annum. the new
extendible Facility includes the following components:
i)
a revolving operating loan to a maximum of $450,000 less the value of letters of credit issued (December 31, 2010
– $90,000 operating loan and $275,000 capital loan). as at December 31, 2011, the outstanding balances totalled
$227,431 (December 31, 2010 – $45,900 operating loan and $273,881 capital loan). the revolving operating loan
bears interest at prime plus 1.5% (December 31, 2010 prime plus 3.25%) or Bankers’ acceptance rate plus 2.5%
(December 31, 2010 Bankers’ acceptance rate plus 4.25%). the interest rate at December 31, 2011 was 4.5% for
prime-based loans (December 31, 2010 6.3% prime based loans) and 3.45% for Bankers’ acceptance based loans
(December 31, 2010 Bankers’ acceptance based loans 5.5%).
ii)
a letter of credit facility to a maximum of $60,000 (December 31, 2010 – $35,000). as at December 31, 2011, outstanding
balances totalled $28,173 (December 31, 2010 – $33,480) which mature at various dates up to July 31, 2012.
the revolving operating loan incurs standby fees for any unused portion of the facility at a rate of 0.5% to 0.8750%
(December 31, 2010 – 0.875% to 1.1875%) depending on the ratio of funded debt to earnings before interest, taxes
and depreciation and amortization (“EBITDA” a non-GAAP financial measure). See Note 23 for a reconciliation of net
earnings to EBITDA). Security on the new Extendible Facility is the assignment of insurance and a floating charge demand
debenture for $650,000 creating a first floating charge over all of the undertaking, property and assets of Parkland.
Deferred finance charges of $1,018 (December 31, 2010 – $3,843) have reduced the value of the new Extendible Facility
and are amortized in proportion to the facility utilized.
as at December 31, 2011, parkland was in compliance with all lender covenants under the new extendible Facility.
(c) capital lease obligations
Capital leases are payable in monthly instalments totalling $126 (December 31, 2010 – $135) including interest varying
from 0% to 8.05% (December 31, 2010 – 0% to 10.37%). the leases are for land, buildings and equipment with a net
book value of $5,382 (December 31, 2010 – $5,960), and mature at various dates ending up to July 2022.
parkland fuel corporation annual report 2011
105
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
17. otHer lonG-terM liabilitieS
the other long-term liabilities are non-interest bearing loans from a vendor of Bluewave energy limited partnership,
with principal repayments of $2,236 required in 2012 and $313 in 2013. the debt has been recorded at amortized cost.
other long-term liabilities were valued using an interest rate of 7.6% (December 31, 2010 – 7.6%).
18. conVertible debentureS
on December 1, 2009, parkland issued $97,750 principal amount of 6.5% series 1 convertible unsecured subordinated
debentures (“Series 1 Debentures”), at a price of $1 per debenture. Interest on the Series 1 Debentures is paid semi-
annually in arrears, on november 30 and May 31 in each year commencing May 31, 2010. on December 21, 2010,
parkland issued $45,000 principal amount of 5.75% series 2 convertible unsecured subordinated debentures (“Series 2
Debentures”), at a price of $1 per debenture. Interest on the Series 2 Debentures is paid semi-annually in arrears, on
June 30 and December 31 in each year commencing June 30, 2011. Collectively, the Series 1 Debentures and the Series 2
Debentures are referred to as the “Debentures”. the Debentures are convertible at the option of the holder at any
time into common shares of the Corporation at a conversion price of $14.60 per share for the Series 1 Debentures and
$18.00 per share for the Series 2 Debentures.
the Series 1 Debentures mature on november 30, 2014 and the Series 2 Debentures mature on December 31, 2015 at
which time the Debentures are due and payable. the Series 1 Debentures may be redeemed in whole or in part at the
option of parkland on or after november 30, 2012 and prior to november 30, 2013 and the Series 2 Debentures may be
redeemed in whole or in part at the option of parkland on or after December 31, 2013 and prior to December 31, 2014,
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 common shares of parkland on the date
immediately preceding the date on which the notice of redemption is given is not less than 125% of the conversion
price. the Debentures may be redeemed prior to their maturity dates in whole or in part at a price equal to their
principal amount plus accrued and unpaid interest on or after november 30, 2013 for the Series 1 Debentures and on or
after December 31, 2014 for the Series 2 Debentures.
upon the maturity or redemption of the Debentures, parkland 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 common shares obtained by dividing the aggregate
principal amount of the Debentures which have matured or redeemed by 95% of the weighted average trading price of
the common shares of Parkland on the Toronto Stock Exchange 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.
under previous Gaap, before the Conversion, a portion of the proceeds of the Debentures was allocated to unitholders’
capital, representing the value of the conversion feature. under IFrS, an equity portion is not determined; rather the
embedded derivative arising from the debt-equity conversion feature is valued at each reporting date with the change
in value at each reporting period included in the Consolidated Statements of Comprehensive Income in finance costs
as “revaluation of embedded derivative”. under IFrS, the binomial method was used to value the conversion feature
for the Debentures. on Conversion, the Series 1 Debentures had a conversion feature value of $0 and the previously
recognized conversion feature of $5,266 was reversed. upon issuance on December 21, 2010 and at Conversion, the
Series 2 Debentures had a conversion value of $0. post Conversion, there is no requirement to further revalue the
conversion feature. the debt balance of the Debentures in the Consolidated Balance Sheets, net of issue costs and the
value of the conversion feature at Conversion, accretes over the remaining term of the Debentures. 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
Comprehensive Income.
106
parkland fuel corporation annual report 2011
the following table reconciles the principal amount, debt component and equity component of the Debentures.
January 1, 2011 to
december 31, 2011
January 1, 2010 to
december 31, 2010
January 1, 2009 to
January 1, 2010
principal
amount of
Debentures
Convertible
Debenture
Debt
principal
amount of
Debentures
Convertible
Debenture
Debt
principal
amount of
Debentures
Convertible
Debenture
Series 1 Debentures
Balance, beginning of year
December 1, 2009 issuance
Issue costs
revaluation of embedded
derivative
Change due to passage of time
Balance, end of year
97,750
97,750
90,358
97,750
93,515
–
–
–
–
–
–
–
1,808
92,166
–
–
–
–
97,750
–
–
(5,266)
2,109
90,358
Series 2 Debentures
Balance, beginning of year
December 1, 2010 issuance
unwinding of equity portion upon
Conversion
Conversion to common shares
Issue costs
Change due to passage of time
45,000
43,002
–
–
–
–
(25)
–
–
–
–
(25)
–
401
45,000
42,200
–
–
–
2,676
(1,875)
1
Balance, end of year
44,975
43,378
45,000
43,002
–
97,750
–
–
–
97,750
–
92,484
(4,310)
5,266
75
93,515
–
–
–
–
–
–
–
–
–
–
–
–
Series 1 and Series 2 Debentures,
end of year
142,725
135,544
142,750
133,360
97,750
93,515
assumptions used under the binomial method:
Series 1 Debentures
Volatility
Market price per unit
Dividend yield
Series 2 Debentures
Volatility
Market price per unit
Dividend yield
January 1, 2010
December 31, 2010
58.0%
$
13.40
9.4%
56.4%
$
11.48
11.0%
December 14, 2010
December 31, 2010
61.2%
$
10.74
11.7%
61.2%
$
11.48
11.0%
parkland fuel corporation annual report 2011
107
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
19. aSSet retireMent obliGationS
a reconciliation of parkland’s estimated liability for the removal of its underground storage tanks is as follows:
asset retirement obligations, beginning of year
additional provisions during the year
amounts used during the year
unused amounts reversed during the year
Change due to passage of time and discount rate
asset retirement obligations, end of year
January 1, 2011 to
December 31, 2011
January 1, 2010 to
December 31, 2010
January 1, 2009 to
January 1, 2010
12,338
9,414
(1,780)
(1,061)
6,567
25,478
11,219
3,187
(118)
(1,369)
(581)
12,338
5,462
7,384
–
(1,261)
(366)
11,219
parkland is liable for the environmental obligations related to the removal of its underground storage tanks at
properties that it leases and owns. the asset retirement obligation represents the present value estimate of parkland’s
cost to remove these tanks. The total undiscounted estimated future cash flows required to settle Parkland’s obligation
was $31,147 at December 31, 2011 (December 31, 2010 – $22,715). the costs are expected to be incurred between 2012
and 2046. at December 31, 2011, the discount rate used to determine the present value of the future costs was 4.31%
(December 31, 2010 – 7.36%).
20. refinerY reMediation accrual
Refinery remediation accrual, beginning of year
additions during the year
Change due to passage of time
Refinery remediation accrual, end of year
January 1, 2011 to
December 31, 2011
January 1, 2010 to
December 31, 2010
January 1, 2009 to
January 1, 2010
6,827
1,147
3,268
11,242
6,527
–
300
6,827
6,107
–
420
6,527
In December 2004, Parkland eliminated the carrying value of its Bowden refinery and recorded a net liability of
$3,400 for future estimated costs of remediation of the site, based on the uncertainty of creating an alternative to the
refinery being dismantled and remediated. The Refinery Remediation Accrual represents the present value estimate of
parkland’s cost to remediate the site.
Parkland has previously used the refinery site for processing fluids used in the oilfields. The contract was terminated
and Parkland is therefore continuing to pursue other economically viable uses for the refinery site. Parkland uses the
tanks for storage and has been upgrading the equipment for use as a 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. the obligations relating to future environmental remediation, however, continue to exist. the timing of this
remediation is uncertain at this point of time.
In September 2011, Parkland sold refinery catalyst, which is used to purify crude during a chemical process, for $2,018,
with a gain on disposal of $796.
Assuming Parkland continues operations at the refinery site, remediation for any potential environmental liabilities
associated with a complete dismantling of the site would be delayed indefinitely. Parkland 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 using 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 $15,919 (December 31, 2010 – $13,800). 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 4.31% (December
31, 2010 – 6.90%).
108
parkland fuel corporation annual report 2011
21. SHareHolderS’ capital
(a) Shareholders’ capital
authorized capital of parkland consists of an unlimited number of common shares and an unlimited number of
preferred shares issuable in series.
January 1, 2011 to
december 31, 2011
January 1, 2010 to
december 31, 2010
January 1, 2009 to
January 1, 2010
number of
Shares
amount
number of
Shares
amount
number of
Shares
amount
Shares
Balance, beginning of year
53,164
179,804
–
–
Common shares issued pursuant to
the Conversion
Issued under dividend re-investment plan
Issued on vesting of restricted shares
Issued for cash, net of issue costs
Issued on capital acquisition, net of
issue costs
Issued under share option plan
Issued upon conversion of debentures
–
3,443
390
7,130
–
227
1
–
53,164
179,804
37,042
–
82,597
–
1,513
25
–
–
–
–
–
–
–
–
–
–
Balance, end of year
64,354
300,981
53,164
179,804
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
on May 12, 2011, parkland entered into an agreement with a syndicate of underwriters (“underwriters”), under which
the underwriters have agreed to purchase for resale to the public, on a bought deal basis 6,200,000 common shares
in the capital of parkland, at a price of $12.10 per common share resulting in aggregate gross proceeds of $75,020. the
underwriters have exercised the option to purchase from the Corporation an additional 930,000 common shares at the
same price per common share which increased the aggregate gross proceeds of the offering to $86,273 (the “offering”).
In January 2011, parkland launched the premium Dividend and enhanced Dividend reinvestment plan as a means to
incrementally raise equity capital for growth and other corporate purposes.
the premium Dividend plan provides eligible shareholders with a 2% cash premium on top of their regular cash
dividend. participants electing this option will receive a monthly payment of $0.0867 per share. the enhanced Dividend
reinvestment plan allows shareholders to purchase additional shares with their dividend at a 5% discount to the volume
weighted average price as defined by the plan. Those shareholders who do not elect to participate in the Premium
Dividend and enhanced Dividend reinvestment plan will still receive their regular monthly dividend of $0.085 per share.
(b) unitholders’ capital
authorized capital of the Fund consisted of an unlimited number of Fund units and Class B and Class C limited
partnership (“lp”) units.
Fund units represented an undivided interest in the Fund. Class B and Class C lp units represented a partnership
interest in parkland Holdings limited partnership and were exchangeable on a one-for-one basis into Fund units. Fund
unitholders and Class B and Class C lp unitholders were entitled to vote at meetings of the Fund and were entitled to
distributions from time to time as determined by the Board of Directors.
parkland fuel corporation annual report 2011
109
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
January 1, 2011 to
december 31, 2011
January 1, 2010 to
december 31, 2010
January 1, 2009 to
January 1, 2010
number of
units
amount
number of
units
amount
number of
units
Class B Limited Partnership Units
Balance, beginning of year
allocation of retained earnings
Distribution to partners
exchanged for fund units
units cancelled under the Conversion
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
units cancelled under the Conversion
Balance, end of year
total for Class B and C
Fund Units
Balance, beginning of year
allocation of retained earnings
Distribution to unitholders
Issued under distribution
re-investment plan
Issued on vesting of restricted units
unit incentive compensation
Issued for cash, net of issue costs
Issued on capital acquisition, net of
issue costs
Issued under unit option plan
exchange of limited partnership units
expired exchange units
units cancelled under the Conversion
Balance, end of year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,577
–
–
(19)
(2,558)
–
2,440
1,474
–
(252)
(3,662)
2,885
–
–
(308)
–
–
2,577
2,440
amount
3,153
2,730
(3,443)
–
–
5,309
53,881
5,238
53,461
1,240
–
–
15,314
1,070
–
(4,825)
(60,726)
(1,724)
(9,539)
208
–
–
(137)
–
1,935
5,174
(6,689)
–
–
–
–
–
–
5,309
53,881
7,886
56,321
January 1, 2011 to
december 31, 2011
January 1, 2010 to
december 31, 2010
January 1, 2009 to
January 1, 2010
number of
units
amount
number of
units
amount
number of
units
amount
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42,308
–
–
256
249
–
–
1,036
189
4,844
–
122,337
24,284
(59,819)
2,897
–
2,798
–
11,868
1,260
60,978
–
(48,882)
(166,603)
41,542
134,942
–
–
34,288
(52,152)
144
136
–
4
–
146
445
(109)
–
1,332
–
2,950
35
–
942
–
–
–
–
–
42,308
122,337
(c) Share option plan
parkland has a Share option plan under which parkland may issue from treasury, together with any other compensation
arrangement, an amount not to exceed 10% of the issued and outstanding common shares. the eligible participants are
110
parkland fuel corporation annual report 2011
officers, employees or consultants of the Corporation. The exercise price shall be fixed by the Board of Directors at the time
of grant; provided that the exercise price shall not be less than fair market value of the common shares. all units granted
under the former unit option plan were transferred under the same terms and conditions to options for common shares
under the Conversion. the unit options granted under the former unit option plan have a ten year term and, with limited
exceptions, vest proportionally over the first three anniversary dates following the grant. All new share option grants under
the Share option plan have an eight year term and vest over three years. each annual vesting tranche is considered a
separate award with its own vesting period and grant date fair value. Fair value of each annual vesting tranche is measured
at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s
vesting period by increasing contributed surplus based on the number of awards expected to vest. the number of awards
expected to vest is reviewed at least annually, with any impact being recognized immediately.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Grant-vest
2003-06
2004-07
2004-07
2005-08
2005-08
2005-08
2011-12
2011-12
2011-13
2011-13
2011-14
2011-14
expiry Date
Jan 2014
Jan 2014
Jan 2014
Jan 2015
Jan 2015
Jan 2015
May 2019
May 2019
May 2019
May 2019
May 2019
May 2019
exercise price in
$ per share
4.15
6.32
6.68
6.73
7.10
7.27
10.47
12.25
10.47
12.25
10.47
12.25
2011
27
12
15
–
10
57
29
156
29
156
29
156
676
Shares
2010
33
53
30
120
10
101
–
–
–
–
–
–
347
pursuant to parkland’s Share option plan, on May 12, 2011, 510 options for common shares were granted at an exercise price
of $12.25 per share vesting over three years and having an eight year term. on September 6, 2011, 86 options for common
shares were granted at an exercise price of $10.47 per share vesting over three years and having an eight year term.
parkland fuel corporation annual report 2011
111
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
the total compensation cost that has been included in marketing, general and administrative expenses for the year
ended December 31, 2011 is $340 (December 31, 2010 – $0).
option shares/units, beginning of year
Granted
exercised
Forfeited
option shares/units, end of year
January 1, 2011 to
december 31, 2011
January 1, 2010 to
december 31, 2010
January 1, 2009 to
January 1, 2010
number of
Shares
347
596
(227)
(40)
676
average
exercise
price
$6.79
11.99
6.68
12.25
$10.98
number of
Shares/units
average
exercise
price
number of
units
536
$6.62
–
–
(189)
6.30
–
–
347
$6.79
682
–
(146)
–
536
average
exercise
price
$6.58
–
6.45
–
$6.62
exercisable options, end of year
121
$6.39
347
$6.79
536
$6.62
out of the 676 outstanding options (2010: 347 options), 121 options (2010: 347) were exercisable. options exercised
in 2011 resulted in 226 shares being issued at a weighted average price of $6.68 each (2010: $6.30 each). the related
weighted average share price over the period of exercise was $11.59 (2010: $11.37) per share.
the weighted average fair value of options granted during the period determined using the Black-Scholes valuation
model was $1.23 per option. The significant inputs into the model were weighted average share price of $12.25 at
the grant date, exercise price of $12.25, volatility of 27.1%, dividend yield of 8.0%, an expected option life of eight
years and an annual risk-free interest rate of 4.3%. the volatility measured at the standard deviation of continuously
compounded share returns is based on statistical analysis of daily share prices over the last two years. there were no
share options granted in 2010.
(d) restricted Share unit plan
Parkland awards certain directors, officers, employees and consultants restricted share units at no cost, and the
restricted share units are expensed uniformly over their vesting period. the fair market value of the award is based
on the volume weighted average trading price for the Shares on the Toronto stock exchange for the five trading days
immediately preceding the date of the grant. under the Conversion, all grants under the former restricted unit plan
will be settled in common shares of the Corporation, with all other terms and conditions remaining the same. no further
grants will be made from the former restricted unit plan.
112
parkland fuel corporation annual report 2011
Under the Restricted Share Unit Plan, the units granted in 2006 vest over a five year period and the units granted in 2007,
2008, 2009 and 2010 vest over a three year period. For grants prior to 2011, the restricted share units vesting is typically
subject to entity performance criteria, including maintenance of the annual fund distribution target. For restricted share
units granted on or after January 1, 2011, restricted share units shall be earned over a three year period with vesting at the
third anniversary of the grant. the number of shares earned can range from 0 to 200% of the grant amount based on entity
performance criteria, specifically Total Shareholder Return (“TSR”) ranking versus a specified peer group of companies.
January 1, 2011 to
december 31, 2011
January 1, 2010 to
december 31, 2010
January 1, 2009 to
January 1, 2010
number of
Shares
Weighted
average
Share price
number of
Shares/units
Weighted
average
unit price
number of
units
Weighted
average
unit price
restricted shares/units, beginning of year
Granted
Issued on vesting
Forfeited
restricted share/units, end of year
670
140
(269)
(106)
435
$9.86
12.25
10.33
9.35
$10.41
685
311
(249)
(77)
670
$8.35
13.22
9.81
10.11
$9.86
339
506
(136)
(24)
685
$12.97
6.40
13.00
9.06
$8.35
the total compensation cost that has been included in marketing, general and administrative expenses for the year
ended December 31, 2011 is $1,411 (December 31, 2010 – $2,798).
22. finance coStS
Finance Costs
Accretion on refinery remediation
accretion on asset retirement obligation
Interest on long-term debt
Interest and accretion on convertible debentures
revaluation of embedded derivative
total Finance Costs
23. capital ManaGeMent
Years ended december 31,
2011
2010
3,268
6,567
15,550
11,327
–
36,712
300
(581)
24,435
8,479
(5,266)
27,367
parkland’s capital structure is comprised of bank indebtedness, long-term debt including current portion, other
long-term liabilities including current portion, convertible debentures and shareholders’ equity, less cash and cash
equivalents. parkland’s objectives when managing its capital structure are to:
I.
maintain financial flexibility so as to preserve the Corporation’s access to capital markets and its ability to meet
its financial obligations; and
II. finance internally generated growth as well as potential acquisitions.
Parkland 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 Corporation’s overall debt position as a measure of parkland’s overall
financial strength and flexibility of capital structure.
parkland fuel corporation annual report 2011
113
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
parkland currently targets a net Debt to Capitalization ratio of below 50% on a long-term basis. this target may be
periodically exceeded if strategic acquisitions are available. parkland has exceeded this ratio primarily as a result of the
January 2010 acquisition of Bluewave energy. the net Debt to Capitalization ratio has decreased from December 31,
2010 to December 31, 2011 partially as a result of the issuance of 7,130 common shares on June 2, 2011 for proceeds of
$82,597, net of issue costs. at December 31, 2011, the net Debt to Capitalization ratio was 54% (December 31, 2010 –
71%), calculated as follows:
long-term debt (including current portion), long-term liabilities
(including current portion) and convertible debentures
Cash and cash equivalents
restricted cash
net Debt
Class B & C limited partnership units
Shareholders' / unitholders' equity
Capitalization
December 31, 2011
December 31, 2010
January 1, 2010
369,113
(24,905)
(3,000)
341,208
–
286,194
627,402
457,963
(18,523)
–
439,440
–
179,804
619,244
148,484
(17,612)
–
130,872
56,321
122,337
309,530
net Debt to Capitalization
54%
71%
42%
parkland currently targets a net Debt to eBItDa ratio of less than 4.0 times (4.0 times – December 31, 2010). this target
may be periodically exceeded if strategic acquisitions are available. eBItDa from acquisitions is not included for periods
prior to acquisition in the following trailing twelve-month eBItDa calculation. at December 31, 2011 the debt to eBItDa
ratio was 2.26 times (December 31, 2010 – 4.37 times) calculated on a trailing twelve-month basis as follows:
net Debt
net earnings
add
Finance costs
Gain on disposal of property, plant and equipment
Depreciation and amortization
Income tax expense (recovery)
eBItDa
December 31, 2011
December 31, 2010
January 1, 2010
341,208
439,440
43,915
26,828
36,712
(15,938)
68,444
17,699
150,832
27,367
(3,119)
62,917
(13,373)
100,620
130,872
48,604
6,356
(863)
37,878
(1,135)
90,840
net Debt to eBItDa
2.26
4.37
1.44
the Corporation manages its capital structure and makes adjustments according to market conditions to maintain
flexibility while achieving objectives stated above. To manage the capital structure, Parkland may adjust capital
spending, adjust dividends/distributions paid to shareholders/unitholders, issue new equity, issue new debt or repay
existing debt.
114
parkland fuel corporation annual report 2011
24. acQuiSitionS
(a) cango incorporated
on June 22, 2011, parkland acquired 100% of shares in Cango Inc., a company involved in the wholesale and retail sale of
automotive fuels and other products in ontario for cash consideration of $20,000. the acquisition of Cango Inc. advances
parkland’s strategy of continued growth of market share in Canada and results in expansion in the ontario market.
the fair value of net assets acquired from Cango Inc. is as follows:
December 31, 2011
estimated fair value of net assets acquired:
Intangible asset – customer relationships
Cash and cash equivalent
restricted cash
property, plant and equipment
loan receivables
Deferred tax liability
Working capital
asset retirement obligations assumed
other liabilities assumed
Consideration:
Cash paid to vendor
Cash consideration
Cash and cash equivalents acquired
restricted cash
25,863
2,213
3,000
10,942
184
(5,145)
(9,080)
(6,452)
(1,525)
20,000
20,000
20,000
(2,213)
(3,000)
14,787
trade receivables acquired in the transaction have a fair value of $2,351 that equals their gross contractual value and
expected cash flows at the acquisition date.
Since the date of acquisition, revenue of $180,106 and net earnings of $285 are included in the December 31, 2011
consolidated statement of comprehensive income. Had parkland acquired and consolidated Cango Inc. on January 1, 2011,
the December 31, 2011 consolidated statement of comprehensive income would include additional revenue of $187,018 and
net earnings of $802. This pro-forma financial information is not necessarily indicative of the financial position or results
of operations that would have resulted had the relevant transaction taken place at the beginning of the year.
(b) island petroleum limited
on December 30, 2010, parkland acquired assets of Island petroleum ltd., a company specializing in distribution of
heating oil based in prince edward Island for $24,040. the purchase price included $12,173 paid in cash consideration
in January 2011 and the December 2010 issuance of 1,036 fund units valued at $11,867. the acquisition of Island
petroleum ltd. advanced the Corporation’s strategy of continued growth of market share of the distribution of heating
oil in Canada. the transaction was an asset purchase and accounted for using the purchase method as no voting equity
interest was acquired.
parkland fuel corporation annual report 2011
115
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
the fair value of net assets acquired from Island petroleum ltd. is as follows:
estimated fair value of net assets acquired:
Intangible asset – customer relationships
Intangible asset – non-compete agreement
Goodwill
property, plant and equipment
other long-term receivables
Working capital
Consideration:
Cash paid to vendor
Fund units/shares
non cash consideration:
Fund units/shares
December 31, 2011
12,139
537
2,293
4,303
358
4,410
24,040
12,173
11,867
24,040
(11,867)
12,173
the goodwill of $2,293 which arose from the acquisition was attributable to the synergies from combining operations of
heating oil and fuel distribution, increased market presence, combining offices and resource optimization for Parkland.
none of the goodwill recognized is expected to be deductible for income tax purposes. no liabilities were assumed as a
result of this acquisition.
the fair value of the 1,036 fund units issued as part of the consideration paid for Island petroleum ltd. was based on the
published share price on December 30, 2010 of $11.45 per unit.
trade and other receivables acquired in the transaction have a fair value of $5,441, with gross contractual amounts
receivable of $6,365. The best estimate at the acquisition date of the contractual cash flows for which collection is
uncertain is $924.
no revenue was included in the December 31, 2010 consolidated statement of comprehensive income. Had parkland
acquired and consolidated Island petroleum ltd. from January 1, 2010, the December 31, 2010 consolidated statement
of comprehensive income would include additional revenue of $50,300 and net earnings of $3,700. these pro-forma
financial information are not necessarily indicative of the financial position or results of operations that would have
resulted had the relevant transaction taken place at the beginning of the year.
(c) bluewave energy limited partnership
on January 31, 2010, parkland acquired substantially all of the assets, property and undertakings of Bluewave energy
limited partnership (“Bluewave”) for an aggregate purchase price before acquisition costs of $228,408. Bluewave is
a national petroleum distribution company headquartered in Dartmouth, nova Scotia, and is Shell’s largest branded
distributor in Canada. The acquisition of Bluewave provides Parkland with significant growth in fuel volume, both
immediately and through a pipeline of potential future acquisitions.
the goodwill of $59,321 recognized in this acquisition essentially represents the expected synergies from the combined
operations as it expands parkland’s geographic reach into atlantic Canada and improves parkland’s overall geographic
and customer diversity. the acquisition will also increase the Corporation’s total purchasing volume, which is expected
to give rise to additional cost-saving opportunities. Goodwill in the value of $86,550 is expected to be deductible for
income tax purposes in the future.
116
parkland fuel corporation annual report 2011
the transaction was effective February 1, 2010, and was accounted for using the purchase method with the allocation
of the purchase price as follows:
December 31, 2010
estimated fair value of net assets acquired:
Intangible asset – customer relationships
Intangible asset – tradenames
Intangible asset – non-compete agreement
Goodwill
property, plant and equipment
other long-term receivable
Deferred tax asset
Working capital
Consideration:
liabilities assumed
Cash paid to vendor
Class C limited partnership units
non cash consideration:
liabilities assumed
Class C limited partnership units issued
83,700
1,400
600
59,321
25,753
448
5,157
52,029
228,408
8,708
204,386
15,314
228,408
(8,708)
(15,314)
204,386
the fair value of the 1,240 Class C limited partnership units issued as part of the consideration paid for Bluewave was
based on the published share price of $12.35 on February 1, 2010.
trade receivables acquired in the transaction have a fair value of $7,124, with gross contractual amounts receivable of
$9,565. The best estimate at the acquisition date of the contractual cash flows for which collection is uncertain is $2,441.
acquisition related costs of $2,538 are included in Marketing, General and administrative expenses.
From the date of acquisition to December 31, 2010, Bluewave’s revenue of $545,937 and net earnings of $5,054 have
been included in the consolidated statement of comprehensive income for the year ended December 31, 2010. Had the
Bluewave acquisition occurred on January 1, 2010 additional revenue of $54,719 and net earnings of $753 would have
been recorded in the December 31, 2010 consolidated statement of comprehensive income. These pro-forma financial
information are not necessarily indicative of the financial position or results of operations that would have resulted had
the relevant transaction taken place at the beginning of the year.
(d) Shell alliance distributor
on September 30, 2010, parkland acquired from Shell Canada products and pennzoil-Quaker State Canada Inc. the
right to sell lubricants and car care products branded with Shell or Pennzoil-Quaker State trademarks to a specific list
of customer accounts for cash consideration of $2,000 paid to the vendor. the $2,000 estimated fair value of the net
assets acquired was allocated to customer relationships included within intangible assets.
25. coMMitMentS
the Corporation has purchase commitments under its fuel supply contracts that require the purchase of approximately
2.4 billion litres of fuel products at variable cost in the 12 months following December 31, 2011.
parkland fuel corporation annual report 2011
117
noteS to tHe conSolidated financial StateMentS
In 000’s of Canadian Dollars and shares/units (except per share/unit amount)
26. net cHanGeS in non-caSH WorkinG capital
accounts receivable
Income tax receivable
Inventories
risk management
prepaid expenses and other
accounts payable and accrued liabilities
Income taxes payable
Deferred revenue
Dividends/distributions declared and payable
total for operating activities
27. SeGMented inforMation
Year ended december 31,
2011
2010
(42,396)
(81,558)
788
(21,501)
(347)
3,080
26,477
17,026
(653)
(153)
(17)
(391)
–
(2,011)
7,844
–
(671)
417
(17,679)
(76,387)
parkland’s retail operations have been predominantly in fuel marketing and convenience store sales. parkland’s
Commercial segment includes sales of propane, fertilizer, lubricants, home heating oil, other agricultural inputs and
industrial products and services.
Fuel Marketing includes sales of gasoline, diesel, home heating oil, propane fuel and variable rents derived from service
station sites.
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.
2011
Sales and operating revenue
Cost of sales
Gross profit
2010
Sales and operating revenue
Cost of sales
Gross profit
for the year ended december 31,
Fuel
Marketing
non-Fuel
Commercial
other
non-Fuel
total
3,668,093
3,360,322
307,771
249,074
174,444
74,630
63,310
37,265
3,980,477
3,572,031
26,045
408,446
2,680,027
2,461,407
218,620
146,324
95,064
51,260
64,822
2,891,173
18,538
2,575,009
46,284
316,164
28. related partY tranSactionS
parkland receives legal services from Bennett Jones llp where a director of the Corporation is a partner. the fees paid
during the year ended December 31, 2011 amounted to $1,828 (December 31, 2010 – $1,820) including $68 (December 31,
2010 – $514) in amounts payable at December 31, 2011.
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.
118
parkland fuel corporation annual report 2011
29. SeaSonalitY
Parkland’s retail fuels and supply and wholesale operations typically experience higher volumes and refiners’ margins
during the second and third quarters of the year, driven by higher consumer purchases during the summer months. the
commercial fuels segment experiences higher volumes during the first and fourth quarters of the year, due to higher
heating fuel and propane demand during the colder months.
30. expenSe bY nature
employee costs included in the consolidated statement of comprehensive income is shown below:
Cost of sales
operating costs
Marketing, general and administrative
Year ended december 31,
2011
6,001
37,438
51,461
94,900
2010
8,180
28,694
41,169
78,043
31. keY ManaGeMent coMpenSation
the remuneration of key management personnel of the Corporation, which includes both members of the Board of
Directors and leadership team including the Ceo, CFo and vice presidents, is set out below in aggregate:
Salaries and short-term employee benefits
Termination benefits
Share-based payments
32. continGencieS
Year ended december 31,
2011
4,593
2,965
156
7,714
2010
6,325
137
157
6,619
the Corporation 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 parkland’s
financial position, results of operations, or cash flows. Any amounts awarded as a result of these actions will be
reflected when known.
33. coMparatiVe fiGureS
Certain comparative figures have been reclassified to comply with the presentation adopted in the current period.
parkland fuel corporation annual report 2011
119
SuppleMentarY inforMation
Supplementary Information (unaudited)
three months ended december 31,
Year ended december 31,
2011
2010
2011
2010
Volume (millions of litres)
retail fuels
Commercial fuels
Supply & Wholesale
Intersegment sales
total fuel volume
Net sales and operating revenue (millions of Canadian dollars)
retail fuels
Commercial fuels
Supply & Wholesale
Fuel sales
non-fuel commercial revenue
other non-fuel revenue(1)
total gross sales and operating revenue
Intersegment revenue
total sales and operating revenue
Fuel gross profit (millions of Canadian dollars)
retail fuels
Commercial fuels
Supply & Wholesale(2)
Fuel inventory market valuation adjustment
Fuel gross profit
Cents per litre
Fuel gross profit
Non-fuel commercial gross profit
Other non-fuel gross profit(1)
Gross profit
464
476
273
(117)
1,096
400.2
444.0
191.9
1,036.1
72.1
9.2
1,117.4
(103.1)
1,014.3
23.4
41.0
11.5
(1.1)
74.8
6.82
74.8
23.5
4.8
103.1
376
449
165
(9)
981
297.9
338.8
128.4
765.1
51.4
14.7
831.2
(6.6)
824.6
18.5
40.8
5.5
1.0
65.8
6.71
65.8
18.6
10.9
95.3
1,687
1,785
958
(269)
4,161
1,564.2
1,625.3
718.5
3,908.0
249.0
63.3
4,220.3
(239.8)
3,980.5
85.7
151.9
71.0
(0.8)
307.8
7.40
307.8
74.6
26.0
408.4
1,470
1,458
682
(110)
3,500
1,134.5
1,093.5
533.3
2,761.3
146.4
65.3
2,973.0
(81.8)
2,891.2
77.4
122.2
16.8
2.2
218.6
6.26
218.6
51.3
46.3
316.2
(1) this category includes convenience store sales, variable rents, trucking and delivery charges to customers, lottery, vendor rebates and other.
(2)
Included in this category is Parkland’s share of refinery margin and modest profits from wholesale sales.
120
parkland fuel corporation annual report 2011
corporate inforMation
PARKlAND fuel CORPORATiON
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 AND SPeCiAl meeTiNG
tuesday, May 8th, 2012
9:00 a.m. (Mountain time)
Black Knight Inn
2929 – 50 avenue
red Deer, alberta t4r 1H1
BANKeRS
Royal Bank of Canada
888 – 3rd Street SW
Suite 3900, Calgary, Alberta T2P 5C5
The Bank of Nova Scotia
700 – 2nd Street SW
Suite 3950, Calgary, Alberta T2P 2W2
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
parkland Fuel Corporation common
shares and debentures are listed
on the Toronto Stock Exchange under
the following symbols:
Common Shares: PKi
Debenture Series 1: PKi.DB
Debenture Series 2: PKi.DB.A
ReGiSTRAR AND TRANSfeR AGeNT
valiant Trust Company
310, 606 – 4th Street SW
Calgary, alberta t2p 1t1
DiReCTORS
John f. Bechtold
Robert G. Brawn
Jim Dinning
Bob espey
Alain ferland
Jim Pantelidis
Ron Rogers
David A. Spencer
SeNiOR leADeRSHiP TeAm
Robert B. espey
President and Chief Executive Officer
michael R. lambert
Senior Vice President and Chief Financial Officer
Andrew S. Cruickshank
Vice president Finance
Robert J. fink
General Counsel and Corporate Secretary
Dean mackey
Senior Vice President, human Resources
and administration
mike mcmillan
Vice president and treasurer
Karen Putnam
Vice president Corporate Development
William Rouse
Vice president, Commercial Fuels
east and lubricants
Jane Savage
Vice President Wholesale and Supply
Donna Strating
Vice president, administration
and Chief Information Officer
Allan Willms
Vice president, Commercial Fuels West
WHOllY OWNeD SuBSiDiARieS Of
PARKlAND fuel CORPORATiON
Parkland industries ltd.
1472490 Alberta ltd.
united Petroleum Products inc.
Columbia fuels ltd.
Parkland Refining ltd.
Neufeld Petroleum & Propane ltd.
Bluewave energy ltd.
ANNuAl RePORT DeSiGN
Tmx equicom
p
a
r
k
l
a
n
d
f
u
e
l
c
o
r
p
o
r
a
t
i
o
n
2
0
1
1
A
N
N
u
A
l
R
e
P
O
R
T
Suite 236, Riverside Office Plaza
4919 – 59th Street
Red Deer, Alberta T4N 6C9
www.parkland.ca