(cid:16)(cid:14)(cid:14)(cid:21)(cid:1)(cid:30)(cid:43)(cid:43)(cid:50)(cid:30)(cid:41)(cid:1)(cid:47)(cid:34)(cid:45)(cid:44)(cid:47)(cid:49)
(cid:37)(cid:42)(cid:52)(cid:53)(cid:51)(cid:42)(cid:35)(cid:54)(cid:53)(cid:42)(cid:48)(cid:47)(cid:1)(cid:52)(cid:53)(cid:34)(cid:35)(cid:42)(cid:45)(cid:42)(cid:53)(cid:58)(cid:1)(cid:56)(cid:42)(cid:53)(cid:41)(cid:1)(cid:40)(cid:51)(cid:48)(cid:56)(cid:53)(cid:41)
Superior pluS AT A GlAnce
Superior pluS income Fund, which was established in 1996, has a portfolio of diversified businesses which operate
in four different sectors including: propane distribution, Specialty chemicals , construction products distribution, and
Fixed‑price energy Services. each of the high‑quality businesses has a strong market position focused on operational excellence,
quality service, and high safety standards. The Fund continues to focus on its core businesses providing a foundation for stable
distributions with a growth profile.
Superior plus income Fund trust units are listed on the Toronto Stock exchange under the symbol SpF.un.
propAne diSTriBuTion
Superior propane is canada’s
largest distributor of propane,
related products and services and
provider of natural gas liquids
wholesale marketing services.
SpeciAlTY cHemicAlS
erco Worldwide is a leading
supplier of sodium chlorate and
technology to the pulp and paper
industries, and a u.S. regional
midwest supplier of potassium and
chloralkali products.
Company operations
Key strengths
›
›
›
Began operations in 1951.
operational locations: six regions,
45 markets, 125 satellites.
Approximately 1,700 employees.
›
›
›
leading competitive position.
Geographic and end‑use customer
diversification.
Full service capabilities and brand
reputation.
›
›
›
in business since 1897.
nine specialty chemicals plants
strategically located with six in
canada, two in the united States
and one in chile.
Approximately 500 employees.
›
›
›
›
leading competitive position.
Geographic and customer
diversification.
low cost structure.
Simple and safe manufacturing
process.
conSTrucTion producTS diSTriBuTion
Winroc is the largest distributor of
specialty construction products to
the walls and ceilings industry in
canada and a leading distributor in
north America.
in business since 1971.
42 branches with 34 locations in
Western canada and ontario; and
eight in minnesota and parts of the
southwestern united States.
Approximately 900 employees.
›
›
›
FiXed‑price enerGY SerViceS
Superior energy management is
a provider of fixed‑price natural
gas supply services in ontario,
Quebec, and British columbia
and fixed‑price electricity supply
services in ontario.
›
›
›
commenced operations in 2002.
main focus areas are residential
customers in ontario and
British columbia.
provides fixed‑price natural gas and
electricity solutions to commercial
customers in ontario and Quebec.
Approximately 55 employees.
›
›
›
›
›
›
›
›
›
leading competitive position.
Geographic and end‑use customer
diversification.
Full‑service capabilities and brand
reputation.
Attractive industry.
consolidation opportunities.
Stable contract‑based business.
predictable customer
acquisition costs.
Strong growth potential in other
north American jurisdictions.
contents
message to unitholders
propane distribution
Specialty chemicals
corporate Governance
management’s discussion
and Analysis
management’s report
3
8
9
construction products distribution 10
Auditors’ report
13
14
44
45
Fixed‑price energy Services
11
consolidated Financial Statements 46
notes to the consolidated
Financial Statements
Selected Historical information
corporate information
unitholder information
49
72
74
75
2007 HigHLigHTs
1
Operating Highlights
(millions of dollars, except per trust unit amounts)
Revenue
Gross profit
EBITDA (1)
Net earnings (loss) from continuing operations
Net earnings (loss)
Operating distributable cash flow
Superior Propane
ERCO Worldwide
Winroc
Superior Energy Management (SEM)
Operating distributable cash flow from continuing operations
Discontinued operations—JW Aluminum
Total operating distributable cash flow
Distributable cash flow (1)
Distributable cash flow per trust unit, basic
Distribution payout ratio
Balance Sheet Highlights
Total assets
Total liabilities
Growth and acquisition capital expenditures
Senior debt (2)
Total debt (2)
Senior debt/EBITDA (3)
Total debt/EBITDA (3)
Average number of trust units outstanding (millions)
2007
2,355.4
661.8
221.6
119.4
119.8
99.6
79.3
34.6
12.1
225.6
-
225.6
170.4
1.97
79%
1,542.8
926.1
13.1
440.5
687.8 (5)
1.9
3.0
86.5
2006
2,264.3 (4)
630.9 (4)
205.8 (4)
(55.6)
(80.8)
90.6
75.7
34.6
10.3
211.2
38.9
250.1
180.4
2.11
86%
1,536.9
941.3
53.0
441.7
755.6
1.9 (4)
3.4 (4)
85.5
(1)
(2)
(3)
EBITDA and distributable cash flow are not defined performance measures under the Canadian Generally Accepted Accounting Principles. Non-GAAP financial
measures are defined in the Management’s Discussion and Analysis.
Includes off-balance sheet receivable sales program amounts.
Debt ratios include off-balance sheet receivable sales program amounts and cash on hand.
(4)
Excludes EBITDA from discontinued operations.
(5)
Excludes deferred issue costs.
›
strong performance from all of our businesses resulted in a 7% increase in operating distributable
cash flow from continuing operations.
›
Distributable cash flow per trust unit for the year ended December 31, 2007 was $1.97 resulting in
a payout ratio of 79%.
›
superior Plus announced a distribution increase of 4% to $0.135 per trust unit per month
($1.62 annualized) commencing with the April 15, 2008 payment, due to a positive outlook and
solid financial results.
›
Total debt levels were reduced to 3.0 times EBiTDA and financial capacity increased to greater than
$330 million as at December 31, 2007.
›
Efficiency improvement and growth projects provide the foundation for distribution stability with
long-term growth.
2007 ANNUAL REPORT
2
DivERsiFiCATiON wORks
(cid:25)(cid:17)(cid:17)
(cid:24)(cid:17)(cid:17)
(cid:23)(cid:17)(cid:17)
(cid:22)(cid:17)(cid:17)
(cid:21)(cid:17)(cid:17)
(cid:20)(cid:17)(cid:17)
(cid:19)(cid:17)(cid:17)
(cid:18)(cid:17)(cid:17)
(cid:17)
Superior Energy
Management
Winroc
ERCO Worldwide
Superior Propane
(cid:41)(cid:74)(cid:84)(cid:85)(cid:80)(cid:83)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:40)(cid:83)(cid:80)(cid:84)(cid:84)(cid:1)(cid:49)(cid:83)(cid:80)(cid:71)(cid:74)(cid:85)(cid:1)(cid:67)(cid:90)(cid:1)(cid:35)(cid:86)(cid:84)(cid:74)(cid:79)(cid:70)(cid:84)(cid:84)(cid:1)(cid:9)(cid:5)(cid:1)(cid:78)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:84)(cid:10)
(cid:23)(cid:19)(cid:20)(cid:15)(cid:23)
(cid:23)(cid:20)(cid:17)(cid:15)(cid:26)
(cid:23)(cid:23)(cid:18)(cid:15)(cid:25)
(cid:22)(cid:21)(cid:19)(cid:15)(cid:25)
(cid:21)(cid:24)(cid:18)(cid:15)(cid:24)
(cid:177)(cid:17)(cid:20)
(cid:177)(cid:17)(cid:21)
(cid:177)(cid:17)(cid:22)
(cid:177)(cid:17)(cid:23)
(cid:177)(cid:17)(cid:24)
(cid:46)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:37)(cid:74)(cid:87)(cid:70)(cid:83)(cid:84)(cid:74)(cid:71)(cid:74)(cid:68)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)
(cid:40)(cid:70)(cid:80)(cid:72)(cid:83)(cid:66)(cid:81)(cid:73)(cid:74)(cid:68)(cid:1)(cid:37)(cid:74)(cid:87)(cid:70)(cid:83)(cid:84)(cid:74)(cid:71)(cid:74)(cid:68)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)
5%
10%
19%
10%
1%
11%
12%
9%
4%
15%
4%
WINROC
Residential Construction
Commercial Construction
SUPERIOR ENERGY
MANAGEMENT
Natural Gas
SUPERIOR PROPANE
Propane Heating
Propane Non-Heating
Value Added Services
Wholesale Supply/Fixed-Price
Program
ERCO WORLDWIDE
North American Sodium
Chlorate
International Sodium Chlorate
Chloralkali and Potassium
Technology
5%
5%
5%
20%
10%
11%
19%
5%
5%
15%
SUPERIOR PROPANE
Western Canada
Eastern Canada
Atlantic Canada
ERCO WORLDWIDE
North American Sodium
Chlorate and Technology
International Sodium Chlorate
and Technology
North American Chloralkali
and Potassium
WINROC
Western Canada Construction
Ontario Construction
US Construction
SUPERIOR ENERGY
MANAGEMENT
Natural Gas
sUPERiOR PLUs iNCOME FUND
Message to Unitholders
3
wE MADE sigNiFiCANT
PROgREss iN 2007
Chairman and CEO, Grant D. Billing
FOR sUPERiOR PLUs, 2007 was an excellent year with strong results from each of the four divisions.
The Fund is well diversified and consists of high-quality businesses with growth opportunities in each
of its core sectors: Propane Distribution, specialty Chemicals, Construction Products Distribution, and
Fixed-Price Energy services. All of superior’s businesses have an inventory of efficiency improvement
projects and growth opportunities, positioning the Fund to execute on its long-term objective of stability
of distributions with value growth. The strong performance in 2007 and the positive outlook going
forward supported the Board’s decision to increase the monthly cash distribution rate by 4%.
OvER THE PAsT yEAR, we increased efficiencies in our core businesses, strengthened our balance
sheet, and proactively managed risk factors. in addition, we improved our corporate governance
processes and enhanced our Board of Directors with the addition of three new members. The new
members provided valuable expertise and relevant experience to the Board and their respective business
advisory committees on which they sit.
EACH BUsiNEss sEgMENT HAs EFFiCiENCy
iMPROvEMENT AND gROwTH PROjECTs
wiTH A MiNiMUM AFTER-TAx RETURN OF 15%
$2,355.4mm
Total
revenues
$661.8mm
Total
gross profit
170.4mm
Distributable
cash flow
$1.97
Distributable cash
flow per trust unit
2007 RESULTS
2007 ANNUAL REPORT
4
Message to Unitholders
TARgETED PAy-OUT RATiO iN 2007
85-90%
79%
ACTUAL PAy-OUT RATiO iN 2007› 13¢/month
$1.56
PER TRUsT UNiT iN 2007
DisTRiBUTiON PER TRUsT UNiT iN 2007
Execution of the Growth Strategy
2007 MARkED THE LAUNCH of superior’s corporate growth strategy which included the following
major accomplishments:
›
›
›
›
›
›
›
›
superior Propane increased sales volumes by 3% as a result of customer improvement initiatives and weather
conditions consistent with the historical five-year average.
superior Propane’s customer service initiative was enhanced with a reorganization of the business into six
regional markets allowing for increased focus on customer retention and growth through improved service.
superior Propane’s total gross profit increased to $294.2 million from $272.9 million representing an increase of
8% over the prior year primarily driven from increases in volumes, margins and value-added services.
ERCO achieved a 98% average utilization rate at its facilities demonstrating excellent operational management
and continued progress on its efficiency improvement projects.
ERCO announced the Us$95 million Port Edwards modernization and expansion project.
sEM expanded into the British Columbia fixed-price natural gas market and entered the Ontario fixed-price
electricity market penetrating two new growth channels.
sEM established long-term supply partnerships with Bruce Power LP and Constellation Energy Commodities
group, inc. providing increased financial flexibility and stability of supply for its customers.
winroc added two new greenfield locations and completed two regional tuck-in acquisitions while maintaining a
strict focus on relationship, margin and expense management.
Stability of Distributions
THE FUND CONTiNUED to invest in efficiency improvement projects in each of the four businesses providing
a foundation for long-term, stable distributions in 2007. Total cash distributions in 2007 were $1.56 per trust unit
representing a constant $0.13 per trust unit per month. A targeted payout ratio of 85-90% was established in 2006
in order to provide increased financial flexibility for future growth. Distributable cash flow of $1.97 per trust unit
resulted in an actual payout ratio of 79% in 2007, which was well below our targeted range. The Fund continues to
forecast a payout ratio well below 90%, following the announced distribution increase to $0.135 per unit per month
($1.62 annualized). superior will also be suspending its distribution reinvestment program commencing with the
April 15, 2008 payment due to forecast surplus cash flows and declining debt levels. in addition, we consider this
program to be dilutive for our unitholders at this time.
sUPERiOR PLUs iNCOME FUND
Message to Unitholders
5
OUR PROjECTED gROwTH RATE
is ExPECTED TO OFFsET THE 2011
TAx CHANgEs
Income Funds New Tax Regime
ON OCTOBER 31, 2006, the Minister of Finance (Canada) announced new tax proposals concerning
the taxation of income trusts and other flow-through entities (the “siFT Rules”) which received Royal
Assent on june 22, 2007. Following the announcement, superior Plus completed a five-year business
plan incorporating its tax pools and announced growth projects to assess the impact of the new tax.
The results of the detailed planning model indicated superior Plus will have growth opportunities
to more than offset the impact of the new siFT tax post-2011 resulting in stable distributions for its
unitholders over the long-term.
Financial Position
iN 2007, sUPERiOR PLUs continued to improve and maintain a strong balance sheet. The Fund
established a new syndicated credit facility of $595 million with enhanced debt covenants and increased
financial capacity maturing in 2010. superior Plus has conservative leverage target ranges with its senior
Debt to EBiTDA ratio between 1.5x-2.0x and its Total Debt to EBiTDA ratio between 2.5x-3.0x. in 2008,
the Fund has forecast it will be at the mid-point of the target ranges, which are significantly lower than
its lenders’ covenants. As at December 31, 2007, superior Plus had $670 million of credit capacity
with 11 chartered banks and approximately $330 million of undrawn credit availability excluding its
securitization program.
Financial Outlook
(millions of dollars, except per trust unit amounts)
Operating distributable cash flow
2007E
2007A
2008P(3)
2009P(3)
Superior Propane
95-100
99.6
100-105
105-110
ERCO
Winroc
SEM
70-75
30-35
12-15
79.3
34.6
12.1
75-80
32-37
15-18
78-83
32-37
18-23
Distributable cash per trust unit
1.80-1.90
1.97
1.90-2.10
2.05-2.25
Payout ratio
Average Senior Debt/EBITDA (target of 1.5 to 2.0x)
Average Total Debt/EBITDA (target of 2.5 to 3.0x)
84%
2.0(2)
3.1(2)
79%
1.9(2)
3.0(2)
80%(1)
75%(1)
1.7(2)
2.8(2)
1.6(2)
2.7(2)
(1)
(2)
(3)
Based on mid-point of the distributable cash flow per unit range and includes distribution increase effective April 15, 2008.
Superior’s debt ratios take into account the impact of the off-balance sheet receivable sales program amounts, cash on hand, suspension of DRIP program, and
the Port Edwards Project.
The assumptions relating to the Financial Outlook are discussed in the Financial Discussion of 2007 Fourth Quarter and 2007 Year-End Results.
2007 ANNUAL REPORT
6
Message to Unitholders
wE ExPECT TO gROw
DisTRiBUTABLE CAsH FLOw
iN 2008 AND 2009
Consolidated Outlook
sUPERiOR’s operating distributable cash flow per trust unit was $1.97 in 2007,
exceeding the Fund’s expectations due to strong performance from all of its core
businesses. superior Propane continues to expand its product offering and increase
propane volumes while experiencing average weather conditions. ERCO worldwide
continues to operate at a high level of utilization due to increased demand in the
sodium chlorate industry with most of its volumes contracted in 2008 and 2009.
winroc’s market and geographic diversification strategy continues to provide stability
to its business during a Us housing downturn. sEM continues to penetrate the
fixed-price electricity market in Ontario while expanding its fixed-price natural gas
presence in British Columbia.
given the strong momentum achieved in 2007 and our positive outlook, we have
increased our 2008 expectations of consolidated distributable cash flow per trust
unit to the range of $1.90 to $2.10, increasing in 2009 to the range of $2.05 to $2.25.
The improved operating environments of our core businesses, reduced payout ratio,
increased financial capacity, and inventory of efficiency and expansion projects provide
our unitholders a platform for distribution stability and growth over the long term.
Acknowledgements
sUPERiOR PLUs made significant progress over the past year due to the hard work
of over 3,200 employees. i would like to thank all of our employees for their dedication
and commitment to their respective businesses. in addition, i would also like to thank
each of our directors for your guidance, stewardship, and efforts in helping achieve
strong financial results. Finally, on behalf of the entire organization, i would like to
thank our securityholders for your continued support and confidence in the Fund.
(signed) “grant D. Billing”
Chairman and Chief Executive Officer
March 10, 2008
sUPERiOR PLUs iNCOME FUND
Management Team
7
Grant D. Billing
Chairman and Chief Executive Officer
Mr. Billing has served as Chairman of superior Plus since
the Fund’s inception in 1996. He assumed the dual role
of Chairman and CEO in 2006 to focus on maximizing
unitholder value and long-term value growth. Mr. Billing
has extensive strategic and business experience and is a
chartered accountant.
Wayne M. Bingham
Executive Vice-President and Chief Financial Officer
Mr. Bingham joined superior Plus in 2006. He previously
was Chief Financial Officer at Finning international inc.
and Ontario Power generation. He has extensive
experience in financial reporting, strategy, compliance,
risk management, treasury and supply chain operations.
Mr. Bingham holds a B.Comm. (Honours) and is a
chartered accountant.
John D. Gleason
President, Superior Propane
Mr. gleason joined
superior Plus as senior
vice-President, Corporate
Development in 2005
and became President of
superior Propane in early
2006. He held executive
positions in finance and
business development at
MDs inc. for 14 years and
holds B. Comm., M.B.A.
and C.A. designations.
Paul S. Timmons
President, ERCO Worldwide
Mr. Timmons has been
with ERCO for 27 years and
was appointed President
in 2001. He holds an
Engineering Diploma
from st. Francis xavier
University and a degree in
Metallurgical Engineering
from Technical University of
Nova scotia.
Paul J. Vanderberg
President, Winroc
Mr. vanderberg has been
President of winroc since
2000 and previously held
various executive positions
in general management
and business development
at Usg Corporation, a
leading building products
manufacturer. He holds B.A.
and M.B.A. designations.
Greg L. McCamus
President, Superior Energy
Management
Mr. McCamus joined sEM
as President in 2005. He
previously was President
of sprint Canada Business
solutions and held various
executive positions within
the deregulated telecom
industry over a 20-year
period. He holds B.A. and
M.B.A. designations.
2007 ANNUAL REPORT
8
Our Businesses:
PROPANE DISTRIBUTION
$1,075.7mm
Total revenues
$294.2mm
Total gross profit
20.6¢/l
gross profit margin
$99.6 mm
Distributable cash flow
2007 RESULTS
sUPERiOR PROPANE contributed $99.6 million in
operating distributable cash flow in 2007, an increase
of 10% over 2006. The increase in sales volumes and
value-added services revenue contributed to a total
gross profit of $294.2 million or 20.6 cents per litre.
These results reflect considerable improvement in all
areas of the business due to the implementation of
several initiatives as described below.
for 2008 with forecasting of routing and scheduling
improvements to be completed in 2009.
superior expanded its master lease program adding
134 new bulk and service trucks in 2007 with another
113 trucks expected to be brought into service in 2008.
This level of fleet renewal is approximately double
the amount invested compared to prior years. The
reduction in maintenance capital and lower repair costs
The reorganization of the business into six regional
is expected to offset the increase in lease costs over the
centres has already shown early signs of improving
life of the fleet. The dollar value equivalent of trucks
customer retention and growth. This new structure
brought into service during 2007 by way of operating
allows for relationships to be managed with direct
lease was $20 million.
customer contact at the local level while receiving
benefits of standardized processes and a
technology platform.
Our wholesale natural gas liquids marketing business
continues to provide transportation, storage, risk
management, supply, logistics and fixed-price offerings
During 2006, superior completed the installation of
for superior Propane as well as to third parties in
on-board bulk truck computers which reduced driver
Canada and the United states.
and office administration in 2007. This on-board
technology improves our ability to reduce out-of-gas
occurrences and is expected to improve distribution
efficiencies for routing and scheduling logistics. The
implementation of asset management, real-time
communications and gPs technology are scheduled
(cid:48)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:37)(cid:74)(cid:84)(cid:85)(cid:83)(cid:74)(cid:67)(cid:86)(cid:85)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:36)(cid:66)(cid:84)(cid:73)(cid:1)(cid:39)(cid:77)(cid:80)(cid:88)
(cid:9)(cid:78)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:69)(cid:80)(cid:77)(cid:77)(cid:66)(cid:83)(cid:84)(cid:10)
(cid:15)(cid:16)(cid:14)
(cid:15)(cid:14)(cid:14)
(cid:22)(cid:14)
(cid:20)(cid:14)
(cid:18)(cid:14)
(cid:16)(cid:14)
(cid:14)
(cid:15)(cid:14)(cid:14)(cid:11)(cid:15)(cid:14)(cid:19) (cid:15)(cid:14)(cid:19)(cid:11)(cid:15)(cid:15)(cid:14)
(cid:15)(cid:14)(cid:14)
(cid:23)(cid:15)
(cid:17)(cid:23)(cid:29)
(cid:29) actual
(cid:17)(cid:24)(cid:29)
(cid:44)(cid:1)projected
(cid:17)(cid:25)(cid:44)
(cid:17)(cid:26)(cid:44)
estimated range
superior continues to expand its service offerings such
as preventative maintenance and warranty programs
and has separated its service business from the
propane delivery business to gain further efficiencies
and implement best practices across Canada.
we continue to implement these initiatives and
forecast an operating distributable cash flow for
2008 in the range of $100-$105 million, increasing
in 2009 to $105-$110 million. we are encouraged by
the significant improvements made in the propane
distribution business and expect further growth to
be achieved over the long term.
sUPERiOR PLUs iNCOME FUND
Our Businesses:
SPECIALTY CHEMICALS
9
$460.6mm
Total revenues
$207.7mm
Total gross profit
$272.0/mt
gross profit margin
$79.3mm
Distributable cash flow
2007 RESULTS
ERCO wORLDwiDE contributed $79.3 million in
operating distributable cash flow in 2007, compared
ERCO continues to invest growth capital into the business
with half of the expenditures allocated to its ongoing
to $75.7 million in 2006. Total gross profit increased
electrical cell replacement program which provides for a
to $207.7 million due to higher chemical volumes
reduction in overall electrical consumption. in addition,
and strong pricing received on sodium chlorate and
ERCO has several projects which capture hydrogen,
chloralkali/potassium products. Pulp prices continued to
replace fossil fuels, and reduce greenhouse gas emissions.
rise throughout 2007 resulting in increased demand for
with the closure of two high cost facilities in 2006, ERCO
North American sodium chlorate. Total chemical sales
is now well positioned as a low-cost manufacturer with
volumes were 768,000 tonnes, representing an increase
facilities close to its customers.
of 12,000 tonnes over the prior year as ERCO’s Chilean
facility completed its first full year of operations. ERCO was
able to achieve a 1% increase in average sodium chlorate
prices over the prior year despite an 18% increase in the
appreciation of the Canadian dollar against the United
states dollar due to the Fund’s proactive hedging program.
strategic diversification of our chemical sales volumes
towards higher volume of chloralkali products has
reduced our portfolio weighting to sodium chlorate and
our dependency on the North American pulp and paper
industry over the past three years. ERCO’s chlorine,
hydrochloric acid, potassium hydroxide and potassium
ERCO achieved a 98% average utilization rate at
carbonate production, and approximately 94% of its
its facilities based upon total production capacity
caustic soda production are sold to end markets not
of approximately 733,000 metric tonnes. ERCO is
related to the pulp and paper industry.
the second largest producer of sodium chlorate in
North America and has patented technology utilizing
industry leading equipment and processes required by
pulp producers. This proprietary technology allows ERCO
to have an early look on investment opportunities both
domestically and internationally.
(cid:48)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:37)(cid:74)(cid:84)(cid:85)(cid:83)(cid:74)(cid:67)(cid:86)(cid:85)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:36)(cid:66)(cid:84)(cid:73)(cid:1)(cid:39)(cid:77)(cid:80)(cid:88)
(cid:9)(cid:78)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:69)(cid:80)(cid:77)(cid:77)(cid:66)(cid:83)(cid:84)(cid:10)
(cid:23)(cid:14)
(cid:21)(cid:19)
(cid:20)(cid:14)
(cid:18)(cid:19)
(cid:17)(cid:14)
(cid:15)(cid:19)
(cid:14)
(cid:21)(cid:23)
(cid:21)(cid:19)(cid:11)(cid:22)(cid:14)
(cid:21)(cid:22)(cid:11)(cid:22)(cid:17)
(cid:21)(cid:20)
(cid:17)(cid:23)(cid:29)
(cid:29) actual
(cid:17)(cid:24)(cid:29)
(cid:44)(cid:1)projected
(cid:17)(cid:25)(cid:44)
(cid:17)(cid:26)(cid:44)
estimated range
in August 2007, ERCO announced the conversion of its
Port Edwards, wisconsin potassium/chloralkali facility
from a mercury-based process to membrane technology
at a cost of approximately Us$95 million and with a
projected completion date in the second half of 2009.
This project will allow ERCO to further enhance its
diversification strategy and will improve the facility’s
capacity and process efficiency. The project is expected
to reduce plant costs by approximately 25% and increase
facility capacity by an additional 30% generating a
forecast after-tax rate of return over 15%. This plant was
anticipated to be closed within 4-6 years before the Fund
made the decision to convert the facility.
Based on the current inventory of efficiency improvement
and growth projects, the stability of the sodium chlorate
market, and a proactive hedging program, we expect
ERCO’s operating distributable cash flow net of
maintenance capital expenditures to be $75-$80 million
for 2008, increasing in 2009 to $78-$83 million.
2007 ANNUAL REPORT
10
Our Businesses:
CONSTRUCTION PRODUCTS DISTRIBUTION
$512.3mm
Total revenues
$129.8mm
Total gross profit
$34.6mm
Distributable cash flow
2007 RESULTS
wiNROC contributed operating distributable cash
flow of $34.6 million in 2007, matching the record
and Minnesota. These significant market positions
are important both to suppliers and customers during
distributable cash flow in 2006 despite a significant
changes in the economic cycle. winroc continues to
downturn in United states residential housing demand.
focus on improving its core operating areas including:
Total revenue and total gross profit were $512.3 million
service, contractor and supplier relationships, margin and
and $129.8 million, respectively, a decrease of 1% and
operating expense, and working capital management.
2%, respectively, from the prior year.
winroc continues to invest in the business expanding its
strong western Canada residential and commercial
master lease program by adding 19 new trucks in 2007
sales demand continued to primarily offset weakness in
with an additional 35 trucks expected to be brought into
United states residential markets and some softness in
service in 2008. The reduction in maintenance capital
Ontario markets. winroc’s geographical diversification
and lower repair costs are expected to offset the increase
provides stability of sales volumes as different
in lease costs while lowering the average age of the fleet.
geographical regions should experience changes in
For 2007, winroc entered into an equivalent dollar value
end-use demand at different rates. winroc’s end-use
of $3.6 million worth of leases, replacing previously
market split is approximately 50% residential new
owned trucks.
construction and renovation and 50% commercial.
The fragmented nature of the specialty building
while winroc is a distribution business, providing
distribution industry continues to provide attractive
premium service is the key to its continued success.
consolidation opportunities. winroc has identified a
it is a productivity partner for its installing contractor
number of acquisition and expansion opportunities
customers utilizing a stock and scatter delivery model.
which are expected to add value over the long term.
winroc estimates its gypsum board market position at
in 2007, winroc added two new greenfield locations
an average market share between 10%-20% in Canada
and completed two regional acquisitions, increasing its
and 8%-10% in the four states of Utah, Nevada, Arizona
branch network to 42 locations.
For 2008, we expect continued weakness in the new
home construction market in the United states to be
offset by strength in the western Canada residential
and commercial markets. we are estimating operating
distributable cash flow after maintenance capital
expenditures in the range of $32-$37 million for both
2008 and 2009, with some improvement in the new
home construction segment in 2009.
(cid:48)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:37)(cid:74)(cid:84)(cid:85)(cid:83)(cid:74)(cid:67)(cid:86)(cid:85)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:36)(cid:66)(cid:84)(cid:73)(cid:1)(cid:39)(cid:77)(cid:80)(cid:88)
(cid:9)(cid:78)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:69)(cid:80)(cid:77)(cid:77)(cid:66)(cid:83)(cid:84)(cid:10)
(cid:20)(cid:14)
(cid:19)(cid:14)
(cid:18)(cid:14)
(cid:17)(cid:14)
(cid:16)(cid:14)
(cid:15)(cid:14)
(cid:14)
(cid:17)(cid:19)
(cid:17)(cid:19)
(cid:17)(cid:16)(cid:11)(cid:17)(cid:21)
(cid:17)(cid:16)(cid:11)(cid:17)(cid:21)
(cid:17)(cid:23)(cid:29)
(cid:29) actual
(cid:17)(cid:24)(cid:29)
(cid:44)(cid:1)projected
(cid:17)(cid:25)(cid:44)
(cid:17)(cid:26)(cid:44)
estimated range
sUPERiOR PLUs iNCOME FUND
Our Businesses:
FIXED-PRICE ENERGY SERVICES
11
$320.4mm
Total revenues
$30.1mm
Total gross profit
81.3¢/gj
gross profit margin
$12.1mm
Distributable cash flow
2007 RESULTS
sUPERiOR ENERgy MANAgEMENT
contributed $12.1 million of operating distributable
in addition, sEM entered the high-growth fixed-price
retail electricity market by establishing a long-term
cash flow in 2007, representing an increase of 17%
electricity supply agreement with Bruce Power LP,
over the prior year. These results reflect sEM’s
one of Ontario’s largest independent electricity
successful strategy of increased focus on lower
generators. sEM is marketing fixed-price electricity
volume, higher margin residential customers. The
contracts to residential and commercial customers
improvement in margins contributed to a total gross
in Ontario, which will result in the electricity flow in
profit of $30.1 million or 81.3 cents per gigajoule.
2008. This market has approximately four million
During 2007, sEM made substantial progress in
expanding the infrastructure to support its growth
plans beyond the Ontario residential market and the
customers and a low penetration rate relative to
the mature Ontario natural gas market and thereby
represents a significant growth opportunity for sEM.
Ontario and Quebec commercial natural gas markets.
sEM invested $10.9 million in customer costs,
sEM expanded into the newly deregulated natural
exiting 2007 with 94,400 residential and 6,400
gas market in British Columbia on May 1, 2007
commercial natural gas customers and 1,630 electricity
resulting in the addition of 13,100 customers with
customers. sEM incurred $1.5 million in growth capital
the natural gas flow commencing November 1, 2007.
expenditures related to its entrance into the fixed-price
On january 7, 2008, sEM announced it had entered
electricity market in Ontario during 2007.
into a long-term fixed-price natural gas agreement with
Constellation Energy Commodities group, inc. This
partnership provides sEM with stability of supply and
increased financial capacity to achieve its long-term
growth objectives.
Based on the growth profile in its existing business,
sEM is expected to generate operating distributable
cash flow for 2008 of $15-$18 million, increasing in
2009 to $18-$23 million. sEM continues to assess the
potential of entering certain United states markets in
the future to further enhance its growth platform.
(cid:48)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:37)(cid:74)(cid:84)(cid:85)(cid:83)(cid:74)(cid:67)(cid:86)(cid:85)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:36)(cid:66)(cid:84)(cid:73)(cid:1)(cid:39)(cid:77)(cid:80)(cid:88)
(cid:9)(cid:78)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:69)(cid:80)(cid:77)(cid:77)(cid:66)(cid:83)(cid:84)(cid:10)
(cid:17)(cid:14)
(cid:16)(cid:19)
(cid:16)(cid:14)
(cid:15)(cid:19)
(cid:15)(cid:14)
(cid:19)
(cid:14)
(cid:15)(cid:22)(cid:11)(cid:16)(cid:17)
(cid:15)(cid:16)(cid:11)(cid:15)(cid:19)
(cid:15)(cid:16)
(cid:15)(cid:14)
(cid:17)(cid:23)(cid:29)
(cid:29) actual
(cid:17)(cid:24)(cid:29)
(cid:44)(cid:1)projected
(cid:17)(cid:25)(cid:44)
(cid:17)(cid:26)(cid:44)
estimated range
2007 ANNUAL REPORT
12
Board of Directors
Grant D. Billing
Chairman and CEO of superior
Plus since july 2006, Executive
Chairman since 1998 and Director
since 1994. Director of Provident
Energy Ltd. (Provident), and
BreitBurn Energy Partners L.P.
(BreitBurn). Previously, President
and CEO of Norcen Energy
Resources Limited.
Catherine (Kay) M. Best
Director since july 1, 2007.
Executive vice President, Risk
Management and Chief Financial
Officer of the Calgary Health
Region. Director of Canadian
Natural Resources Limited and
Enbridge income Fund. Member
of the Audit Committee.
Robert J. Engbloom, Q.C.
Director since 1996.
Partner of Macleod Dixon LLP.
Member of governance and
Nominating Committee.
Randall J. Findlay
Director since March 6, 2007.
Corporate Director of Provident,
BreitBurn, Canadian Helicopters
income Fund and Pembina Pipeline
Corporation. Formerly President
of Provident, senior vice President
of TransCanada Pipelines Ltd., and
President of TransCanada Midstream.
Member of governance and
Nominating Committee.
Norman R. Gish
Director since 2003, Trustee of
the Fund from 2000 to 2003 and
Chairman of iCg Propane inc. from
1998 to 2000. Director of Provident,
and Chairman and Director of
Railpower Technologies Corp.
Previously Chairman, President and
CEO of Alliance Pipeline Ltd.
Chair of Compensation Committee.
sUPERiOR PLUs iNCOME FUND
Peter A.W. Green
Lead Director since 2003, Director
since 1996 and Chairman and
Trustee of the Fund from 1996 to
2003. Chairman of Frog Hollow
group inc. and Patheon inc.
Member of Audit Committee.
Chair of governance and
Nominating Committee.
James S.A. MacDonald
Director since 2000, Director
of iCg Propane inc. from
1998 to 2000 and Director in
1998. Chairman and Managing
Partner, Enterprise Capital
Management inc. and Director
of Manitoba Telecom inc.
and MDs inc. Member of
Compensation Committee.
Walentin (Val) Mirosh
Director since March 6, 2007.
vice President of NOvA Chemicals
and President of NOvA Chemicals
Olefins and Feedstock. Also current
Director of the Energy Council of
Canada and Co-Chairman of the
Advisory Council to the Faculty
of social sciences, University of
Calgary. Member of Compensation
Committee.
David P. Smith
Director since 1998.
Managing Partner, Enterprise
Capital Management inc. and
Director of jannock Properties
Limited and Creststreet kettles
Hill windpower general
Partner Limited. Chair of Audit
Committee.
Peter Valentine
Director since 2004. Corporate
Director and Consultant. Former
senior advisor to the CEO of the Calgary
Health Region and past senior advisor
to the Dean of Medicine, University of
Calgary. Auditor general of Alberta from
1995 to 2002. Also current Director
of Fording Canadian Coal Trust,
Livingstone international income Fund
and ResMor Trust Company. Member of
Audit Committee.
corporate Governance
13
13
SUPERiOR PLUS AdmiNiSTRATiON iNc. is the administrator of the Fund and its Board is
responsible for overseeing the Fund’s investments and reporting to Unitholders. Superior Plus inc.,
as general partner of Superior Plus LP is governed by a Board that is responsible for overseeing the
management and operations of the business of the partnership. Unitholders are entitled to elect the
directors of both boards at each annual meeting of the Fund.
Both Boards have the same directors. Each director has extensive business and board experience,
high standards of ethics and strong visions dedicated to guiding the strategic direction of your
investment. Of the ten members, nine are independent, with Grant Billing, chairman and chief
Executive Officer, being the sole management director. Since 2003, Peter Green has served as
lead director to strengthen the independence of the Boards from management.
Following a thorough review of the makeup of the Boards over the past year, three new directors
were added to the Boards bringing with them valuable skill sets and expertise relating to the Fund’s
business sectors. Both Randall (Randy) Findlay and Walentin (Val) mirosh have extensive experience
in energy, midstream and international business. catherine (Kay) Best has extensive experience in
the areas of risk management, finance and strategic business development.
in keeping with Superior’s ongoing commitment to high standards of corporate governance, the
Fund’s advisory committees completed their first full year of contribution to the businesses. The
focus on operational performance helps provide stability of cash flow and distributions and long-
term value growth. These disciplines are reinforced throughout the businesses and underpinned
by Superior’s performance-oriented culture, dedicated to economic, environmental and social
responsibility.
The Boards’ fundamental objectives are to enhance the Fund’s investments and ensure that
the Fund and Superior Plus meet their obligations and operate the underlying businesses in a
responsible, reliable and safe manner. during 2007, the Board conducted a two-day strategy session
which includes a detailed analysis of the five-year business plans for each of the Fund’s businesses.
The Boards work with management to identify business risks and to oversee the appropriate
strategies to maximize unitholder value.
in addition, the Boards review the organization’s policies and procedures on an annual basis,
including the code of Business conduct and Ethics, the communication and disclosure, insider
Trading and Whistleblower policies, which are all designed to promote honesty and integrity
throughout Superior Plus and its businesses.
To assist the Boards with their fiduciary responsibilities, the Board of the administrator is supported
by an Audit committee and by a Governance and Nominating committee. The Board of the general
partner is supported by a compensation committee. Only independent directors serve on Board
committees. As Superior Plus moves forward, the Boards of Superior Plus continue to be committed
to high standards in corporate governance and corporate conduct.
A detailed overview of the Fund’s corporate governance practices, including compliance with
corporate governance guidelines is contained in the Fund’s 2008 information circular. The Board
and committee mandates, position descriptions, as well as the policies and procedures are posted on
the Fund’s website at www.superiorplus.com.
2007 ANNUAL REPORT
2007 ANNUAL REPORT
14
management’s discussion and Analysis
The following discussion is a review of the financial performance and position of the Superior Plus income Fund (the
Fund) for the years ended december 31, 2007 and 2006. The information in this management’s discussion and Analysis
is current to march 10, 2008. The discussion should be read in conjunction with the Fund’s audited consolidated Financial
Statements and notes to those statements. All amounts are expressed in canadian dollars, except where otherwise noted.
Organization and Structure
Superior Plus income Fund is a diversified business trust. The Fund holds 100% of Superior Plus LP (Superior), a limited
partnership formed between Superior Plus inc., as general partner and the Fund as limited partner. The distributable cash
flow of the Fund is solely dependent on the results of Superior and is derived from the allocation of Superior’s income to
the Fund by means of partnership allocations. Superior has four operating businesses: a propane distribution and related
services business operating under the trade name Superior Propane; a specialty chemicals business operating under the
trade name ERcO Worldwide; a construction products distribution business operating under the trade name Winroc; and
a fixed-price energy services business operating under the trade name Superior Energy management or SEm.
Summary Financial Results
DISTRIBUTABLE CASH FLOW (1) (millions of dollars except per unit amounts)
Cash flows from operating activities of continuing operations
Less: Total capital expenditures
Standardized distributable cash flow (2)
Add: Growth capital expenditures
Proceeds on disposal of capital items
Natural gas customer acquisition costs capitalized
Acquisitions
Management internalization costs
Strategic plan costs
Distributable cash flow from discontinued operations (3)
Less: Increase (decrease) in non-cash working capital
Amortization of natural gas customer acquisition costs
Distributable cash flow
Distributable cash flow
Distributable cash flow reinvested (6)
Distributed cash flow
Distributable cash flow per trust unit, basic (4) and diluted (5)
Distribution payout ratio (6)
2007
134.3
(27.0)
107.3
8.8
4.8
10.9
4.3
0.5
5.7
–
34.7
(6.6)
170.4
170.4
(35.5)
134.9
$1.97
79%
2006
151.7
(72.3)
79.4
53.0
5.5
8.4
–
1.3
19.7
38.9
(22.6)
(3.2)
180.4
180.4
(24.7)
155.7
$2.11
86%
(1) See the Consolidated Financial Statements for cash flows from operating activities of continuing operations, capital expenditures (maintenance, growth and acquisitions),
natural gas customer acquisition costs, management internalization costs, and changes in non-cash working capital.
(2) Standardized distributable cash flow is a measure defined by the Canadian Institute of Chartered Accountants (CICA). See Non-GAAP Financial Measures.
(3) See Discontinued Operation – JW Aluminum.
(4) The weighted average number of trust units outstanding for the year ended December 31, 2007 was 86.5 million (2006 – 85.5 million).
(5) For the year ended December 31, 2007 and December 31, 2006 there were no dilutive instruments.
(6) See “Distributions Paid to Unitholders”.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
15
distributable cash flow for the year ended december 31, 2007 was $170.4 million, a decrease of $10.0 million or 6% from
the prior year, as improved operating cash flow at Superior Propane, ERcO and SEm, and lower interest costs were fully
offset by the absence of JW Aluminum as a result of its sale on december 7, 2006. distributable cash flow per trust unit
was $1.97 per trust unit, compared to $2.11 per trust unit in the prior year due to a 6% decrease in the distributable cash
flow and a 1% increase in the weighed average number of trust units outstanding.
As outlined in the following chart, the Fund is well diversified with Superior Propane, ERcO Worldwide, Winroc and SEm
(cid:48)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:37)(cid:74)(cid:84)(cid:85)(cid:83)(cid:74)(cid:67)(cid:86)(cid:85)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:36)(cid:66)(cid:84)(cid:73)(cid:1)(cid:39)(cid:77)(cid:80)(cid:88)(cid:1)(cid:9)(cid:5)(cid:1)(cid:78)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:84)(cid:10)
n�(cid:52)(cid:86)(cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:83)(cid:1)(cid:49)(cid:83)(cid:80)(cid:81)(cid:66)(cid:79)(cid:70) n�(cid:38)(cid:51)(cid:36)(cid:48)(cid:1)(cid:56)(cid:80)(cid:83)(cid:77)(cid:69)(cid:88)(cid:74)(cid:69)(cid:70)(cid:1) n�(cid:56)(cid:74)(cid:79)(cid:83)(cid:80)(cid:68)
n�(cid:43)(cid:56)(cid:1)(cid:34)(cid:77)(cid:86)(cid:78)(cid:74)(cid:79)(cid:86)(cid:78)(cid:9)(cid:18)(cid:10)(cid:1) n�(cid:52)(cid:86)(cid:81)(cid:70)(cid:83)(cid:74)(cid:80)(cid:83)(cid:1)(cid:38)(cid:79)(cid:70)(cid:83)(cid:72)(cid:90)(cid:1)(cid:46)(cid:66)(cid:79)(cid:66)(cid:72)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)
(cid:3)(cid:15)(cid:23)(cid:14)(cid:12)(cid:20)
(cid:21)(cid:12)(cid:21)
(cid:15)(cid:18)(cid:12)(cid:18)
(cid:18)(cid:12)(cid:19)
(cid:3)(cid:16)(cid:15)(cid:23)(cid:12)(cid:18)
(cid:19)(cid:12)(cid:17)
(cid:22)(cid:12)(cid:20)
(cid:17)(cid:14)(cid:12)(cid:16)
(cid:3)(cid:16)(cid:19)(cid:14)(cid:12)(cid:15)
(cid:3)(cid:16)(cid:17)(cid:15)(cid:12)(cid:18)
(cid:15)(cid:14)(cid:12)(cid:17)
(cid:3)(cid:16)(cid:16)(cid:19)(cid:12)(cid:20)
(cid:17)(cid:22)(cid:12)(cid:23)
(cid:17)(cid:18)(cid:12)(cid:20)
(cid:15)(cid:16)(cid:12)(cid:15)
(cid:17)(cid:18)(cid:12)(cid:20)
(cid:21)(cid:21)(cid:12)(cid:18)
(cid:23)(cid:15)(cid:12)(cid:17)
(cid:23)(cid:17)(cid:12)(cid:15)
(cid:21)(cid:19)(cid:12)(cid:21)
(cid:21)(cid:23)(cid:12)(cid:17)
(cid:15)(cid:14)(cid:22)(cid:12)(cid:21)
(cid:15)(cid:14)(cid:20)(cid:12)(cid:14)
(cid:23)(cid:18)(cid:12)(cid:16)
(cid:23)(cid:14)(cid:12)(cid:20)
(cid:23)(cid:23)(cid:12)(cid:20)
(cid:14)(cid:17)
(cid:14)(cid:18)
(cid:14)(cid:19)
(cid:14)(cid:20)
(cid:14)(cid:21)
(cid:9)(cid:18)(cid:10)(cid:1)(cid:43)(cid:56)(cid:1)(cid:34)(cid:77)(cid:86)(cid:78)(cid:74)(cid:79)(cid:86)(cid:78)(cid:1)(cid:88)(cid:66)(cid:84)(cid:1)(cid:84)(cid:80)(cid:77)(cid:69)(cid:1)(cid:80)(cid:79)(cid:1)(cid:37)(cid:70)(cid:68)(cid:70)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:24)(cid:13)(cid:1)(cid:19)(cid:17)(cid:17)(cid:23)(cid:15)(cid:1)(cid:1)
(cid:1)(cid:1)(cid:1)(cid:1)(cid:52)(cid:70)(cid:70)(cid:1)(cid:47)(cid:80)(cid:85)(cid:70)(cid:1)(cid:20)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:80)(cid:77)(cid:74)(cid:69)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:39)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:52)(cid:85)(cid:66)(cid:85)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:15)
(cid:17)(cid:14)(cid:14)
(cid:16)(cid:19)(cid:14)
(cid:16)(cid:14)(cid:14)
(cid:15)(cid:19)(cid:14)
(cid:15)(cid:14)(cid:14)
(cid:19)(cid:14)
(cid:14)
contributing 44%, 35%, 15% and 6% of operating
distributable cash flow in 2007, respectively.
The Fund had net earnings of $119.8 million for
2007, compared to a net loss of $80.8 million for
2006. The change in net earnings for 2007 from
a net loss in 2006 is due principally to non-cash
impairment charges of $170.8 million (net of tax)
recorded in the prior year related to the write-down
of ERcO Worldwide’s Bruderheim, Alberta and
Valdosta, Georgia sodium chlorate facilities and
ERcO Worldwide’s goodwill. (See Note 5 to the
consolidated Financial Statements). Additionally,
Superior recorded a $56.3 million impairment
on the carrying value of JWA during 2006 (see
Note 3 to the consolidated Financial Statements).
consolidated revenues of $2,355.4 million in 2007
were $91.1 million higher than in the prior year due
principally to higher revenues at Superior Propane
as a result of higher sales volumes and selling prices.
Gross profits of $661.8 million were $30.9 million
higher than the prior year, reflecting improved
operating results at Superior Propane and ERcO
Worldwide. Operating expenses of $439.7 million in
2007 were $15.8 million higher than in the prior year and were the result of higher sales activity at Superior Propane and
Superior Energy management. Amortization was lower than in the prior year due to reduced amortization at ERcO, as a
result of asset impairments recorded in the prior year. Total interest expense of $44.7 million was $18.6 million lower than
the prior year due principally to lower average debt levels as a result of the sale of JW Aluminum on december 7, 2006
for net proceeds of $356.1 million. Future income taxes were impacted in 2006 due to the recognition of the asset
impairments that were noted above (see Note 13 to the consolidated Financial Statements). The change in net earnings
from discontinued operations is due to the sale of JW Aluminum on december 7, 2006. Additionally, net earnings for
2007 were affected for the same reasons as distributable cash flow.
A more detailed discussion and analysis of the annual financial and operating results of Superior’s businesses is provided
on the following pages.
2007 ANNUAL REPORT
16
management’s discussion and Analysis
Superior propane
Superior Propane generated operating distributable cash flow of $99.6 million for 2007. compared to 2006,
Superior Propane’s operating distributable cash flow increased by $9.0 million or 10% due to improved gross profit in all
segments, offset in part, by higher operating costs.
condensed operating results for 2007 and 2006 are provided in the following table. See “Segmented distributable
cash Flow” for detailed comparative business segment results and page 72 for selected historical information for the last
five years.
(millions of dollars except per litre amounts)
Revenue (1)
Cost of sales
Gross profit
Less: Cash operating, administration and tax costs
Cash generated from operations before changes
in net working capital
Maintenance capital proceeds (expenditures), net
Operating distributable cash flow
Propane retail volumes sold (millions of litres)
2007
2006
1,075.7
(781.5)
294.2
(194.8)
99.4
0.2
99.6
¢/litre
75.3
(54.7)
20.6
(13.6)
7.0
–
7.0
985.4
(712.5)
272.9
(182.6)
90.3
0.3
90.6
¢/litre
71.1
(51.4)
19.7
(13.2)
6.5
–
6.5
1,429
1,386
(1) Effective January 1, 2007, Superior discontinued hedge accounting for all economic hedging activities. As such, amounts related to these contracts must be accounted
for separately on Superior’s financial statements (see Notes 12 and 20 to the Consolidated Financial Statements). In order to provide meaningful comparative results,
these amounts have been reclassified in a manner consistent with the accounting treatment in the comparative period. As such, included in revenue for the year ended
December 31, 2007 is $1.2 million in realized foreign currency forward contract gains.
Revenues were $1,075.7 million in 2007, an increase of $90.3 million from revenues of $985.4 million in 2006. The
increase in revenues is principally due to higher propane sales volumes in conjunction with higher retail propane prices.
Total gross profit for 2007 was $294.2 million, an increase of $21.3 million over the prior year. Total gross profit per litre
for 2007 was 20.6 cents/litre, an increase of 0.9 cents/litre or 5% from the prior year, due to Superior Propane’s ongoing
efforts to increase total gross profit per litre by unbundling the price of propane and the price of value-added services to
its customers. Traditionally, Superior Propane had included a portion of its service offerings in the base price of its retail
propane. As the price of propane and other services is unbundled, Superior Propane will continue to benefit from the
focus on its service business, ensuring that value-added services are separately billed.
Gross Profit by Segment (millions of dollars)
Retail propane and delivery
Other services
Wholesale and related
Total gross profit
2007
246.1
24.7
23.4
294.2
2006
239.0
20.8
13.1
272.9
Retail propane and delivery gross profits for 2007 were $246.1 million, an increase of $7.1 million or 3% from 2006
due principally to an increase in sales volume of 43 million litres or 3% from 2007. Residential and commercial sales
volumes in 2007 increased by 27 million litres or 6% from the prior year due principally to colder weather in most of
canada in 2007 compared to the record warm weather experienced across most of canada in the first quarter of 2006,
which negatively impacted prior year volumes. Average temperatures across canada in 2007 were 7% colder than in
2006 and 2% colder than the five-year average. Residential and commercial sales volumes also benefited from improved
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
17
customer growth and retention due to customer service initiatives implemented throughout 2006 and 2007. industrial
sales volumes in 2007 increased by 30 million litres or 4% as heating-related volumes were positively impacted by the
colder weather and continued strong demand from oilfield activities. Agricultural volumes were consistent with the prior
year due to comparable crop drying conditions. Auto propane sales volumes declined by 17 million litres or 11% due to the
continued structural decline in this end-use market.
Superior Propane continues to actively manage sales margins, resulting in average retail propane and delivery sales
margins of 17.2 cents per litre in 2007, which was consistent with sales margins of 17.2 cents per litre in 2006, despite
volatile and high wholesale propane costs experienced throughout 2007. As shown in the following chart, wholesale
propane costs were driven up by record or near record high crude oil prices. Approximately 50% of Superior Propane’s
sales volumes are due to heating-related applications and 50% are related to economic activity levels.
(cid:51)(cid:70)(cid:77)(cid:66)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:36)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:1)(cid:74)(cid:79)(cid:1)(cid:56)(cid:53)(cid:42)(cid:1)(cid:36)(cid:83)(cid:86)(cid:69)(cid:70)(cid:1)(cid:48)(cid:74)(cid:77)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:47)(cid:66)(cid:85)(cid:86)(cid:83)(cid:66)(cid:77)(cid:1)(cid:40)(cid:66)(cid:84)(cid:1)(cid:49)(cid:83)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)(cid:87)(cid:84)(cid:15)(cid:1)(cid:52)(cid:66)(cid:83)(cid:79)(cid:74)(cid:66)(cid:1)(cid:49)(cid:83)(cid:80)(cid:81)(cid:66)(cid:79)(cid:70)(cid:1)(cid:49)(cid:83)(cid:74)(cid:68)(cid:70)
(cid:52)(cid:66)(cid:83)(cid:79)(cid:74)(cid:66)(cid:1)(cid:49)(cid:83)(cid:80)(cid:81)(cid:66)(cid:79)(cid:70)
(cid:56)(cid:53)(cid:42)(cid:1)(cid:36)(cid:83)(cid:86)(cid:69)(cid:70)(cid:1)(cid:48)(cid:74)(cid:77)
(cid:34)(cid:87)(cid:70)(cid:83)(cid:66)(cid:72)(cid:70)(cid:1)(cid:46)(cid:80)(cid:79)(cid:85)(cid:73)(cid:77)(cid:90)(cid:1)(cid:38)(cid:78)(cid:81)(cid:83)(cid:70)(cid:84)(cid:84)(cid:1)(cid:47)(cid:66)(cid:85)(cid:86)(cid:83)(cid:66)(cid:77)(cid:1)(cid:40)(cid:66)(cid:84)(cid:1)
(cid:10)
(cid:70)
(cid:72)
(cid:79)
(cid:66)
(cid:73)
(cid:68)
(cid:1)
(cid:70)
(cid:87)
(cid:74)
(cid:85)
(cid:66)
(cid:77)
(cid:70)
(cid:51)
(cid:9)
(cid:16)(cid:14)(cid:14)
(cid:15)(cid:19)(cid:14)
(cid:15)(cid:14)(cid:14)
(cid:19)(cid:14)
(cid:43)(cid:34)(cid:47)
(cid:14)(cid:20)
(cid:39)(cid:38)(cid:35)
(cid:14)(cid:20)
(cid:46)(cid:34)(cid:51)
(cid:14)(cid:20)
(cid:34)(cid:49)(cid:51)
(cid:14)(cid:20)
(cid:46)(cid:34)(cid:58)
(cid:14)(cid:20)
(cid:43)(cid:54)(cid:47)
(cid:14)(cid:20)
(cid:43)(cid:54)(cid:45)
(cid:14)(cid:20)
(cid:34)(cid:54)(cid:40)
(cid:14)(cid:20)
(cid:52)(cid:38)(cid:49)
(cid:14)(cid:20)
(cid:48)(cid:36)(cid:53)
(cid:14)(cid:20)
(cid:47)(cid:48)(cid:55)
(cid:14)(cid:20)
(cid:37)(cid:38)(cid:36)
(cid:14)(cid:20)
(cid:43)(cid:34)(cid:47)
(cid:14)(cid:21)
(cid:39)(cid:38)(cid:35)
(cid:14)(cid:21)
(cid:46)(cid:34)(cid:51)
(cid:14)(cid:21)
(cid:34)(cid:49)(cid:51)
(cid:14)(cid:21)
(cid:46)(cid:34)(cid:58)
(cid:14)(cid:21)
(cid:43)(cid:54)(cid:47)
(cid:14)(cid:21)
(cid:43)(cid:54)(cid:45)
(cid:14)(cid:21)
(cid:34)(cid:54)(cid:40)
(cid:14)(cid:21)
(cid:52)(cid:38)(cid:49)
(cid:14)(cid:21)
(cid:48)(cid:36)(cid:53)
(cid:14)(cid:21)
(cid:47)(cid:48)(cid:55)
(cid:14)(cid:21)
(cid:37)(cid:38)(cid:36)
(cid:14)(cid:21)
Other services’ gross profit reached $24.7 million in 2007, an increase of $3.9 million or 19% from the prior year. The
increase in other services’ gross profit is due to improved service and equipment rental gross profits, the result of Superior
Propane’s continued focus on providing and billing for value-added services. Wholesale and related gross profits were
$23.4 million in 2007, an increase of $10.3 million or 79% from the prior year due to Superior Propane’s fixed-price
propane sales program returning to normal profitability in 2007. The 2005/2006 fixed-price heating season program was
negatively impacted by the 2005 Gulf coast hurricanes which dramatically increased hedging costs of this program. Gross
profits from Superior Propane’s wholesale trading business were consistent with the prior year.
Superior Propane continues to benefit from its leading market share and considerable operational and customer
diversification. Superior Propane’s operations are well distributed across its 45 market operations, with the largest five
markets representing approximately 22% of cash generated from operations. Superior Propane’s customer base is well
diversified geographically and across end-use applications as illustrated in the following table. its largest customer
contributed approximately 3% of gross profits in 2007.
2007 ANNUAL REPORT
18
management’s discussion and Analysis
Superior Propane Annual Sales Volumes
Volumes by End-Use Application (1)
Volumes by Region (1) (2)
Residential
Commercial
Agricultural
Industrial
Automotive
2007
171
315
92
716
135
1,429
2006
163
296
89
686
152
1,386
Western Canada
Eastern Canada
Atlantic Canada
2007
768
556
105
2006
747
542
97
1,429
1,386
(1) Volume: Volume of retail propane sold (millions of litres).
(2) Regions: Western Canada region consists of British Columbia, Alberta, Saskatchewan, Manitoba, Northwest Ontario, Yukon and Northwest Territories; Eastern Canada
region consists of Ontario (except for Northwest Ontario) and Quebec.
cash operating, administration and tax costs were $194.8 million in 2007, an increase of $12.2 million or 7% from 2006.
The increase in expenses was principally due to higher wages and benefits, higher truck leasing costs and higher fuel and
operating costs. cost increases were due in part to inflationary pressures, higher sales volumes and the ongoing investment
in the service business. Operating costs were also impacted by Superior Propane reorganizing its administrative and
marketing centers from a centralized model to a regional model, to assist in Superior Propane’s ongoing customer service
improvement initiatives. cash operating costs were 13.6 cents per litre, an increase of 0.4 cents per litre or 3% over 2006
as the increase in costs noted above more than offset the increase in sales volumes.
Capital Expenditure Summary
(millions of dollars)
Maintenance capital expenditures
Maintenance capital proceeds
Other capital expenditures – growth
Acquisitions
Other capital (1)
2007
4.1
(4.3)
0.4
–
20.0
2006
5.2
(5.5)
–
–
5.1
(1) Other capital, as it relates to Superior Propane, reflects the total dollar value of capital items that have been acquired through operating leases. See discussion below.
Net maintenance capital expenditures resulted in proceeds of $0.2 million in 2007 compared to proceeds of $0.3 million
in 2006. Gross maintenance capital expenditures were $4.1 million in 2007 compared to $5.2 million in 2006, and were
directed principally towards infrastructure associated with Superior Propane’s customer service initiatives. maintenance
capital associated with fleet renewal was lower in 2007 than in 2006 due to the implementation of a master leasing
agreement. Proceeds on disposals were $4.3 million in 2007 (2006 – $5.5 million) and consisted of the sale of excess land
and surplus fleet, tanks and cylinders. Growth capital expenditures were $0.4 million in 2007 and consisted of a small
acquisition. There were no growth capital expenditures in 2006.
Superior Propane had been leasing a portion of its service trucks, crane trucks and tandem tractors for several years,
and during 2007 expanded and streamlined its leasing programs with a master lease and other lease arrangements at
competitive rates. Superior has expanded the program to include bulk trucks to accelerate the fleet renewal for 2007 and
2008, resulting in 134 new bulk and service trucks being brought into service during 2007, and 113 trucks anticipated to
be brought into service during 2008. increasing lease costs are anticipated to be offset over time by lower operating costs
resulting from lower repair and maintenance costs and lower maintenance capital expenditures. Additional benefits are
also expected in the form of improved fleet reliability, improved productivity, safety and corporate image. The program
is designed to better align the cost structure with Superior Propane’s ongoing operations and result in customer service
improvements. The dollar value equivalent of trucks entered into service during 2007 by means of operating lease was
$20.0 million, (2006 – $5.1 million) and is denoted as other capital in the capital expenditure summary table.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
19
Outlook
Superior Propane expects operating distributable cash flow for 2008 to be between $100 million and $105 million,
increasing in 2009 to between $105 million and $110 million. Superior Propane’s significant assumptions underlying its
outlook are:
•
•
Superior Propane forecasts average temperatures across canada to be consistent with the most recent five
year average;
Superior Propane expects that wholesale propane prices will not significantly impact demand for propane
and related propane services;
• Total gross profit for Superior Propane is projected to increase due to the ongoing implementation of customer
service programs and an increase in propane volumes; and
• market opportunities for Superior Propane’s wholesale trading division are expected to be consistent with
prior years.
in addition to Superior Propane’s significant assumptions detailed above, refer to the Fund’s Annual information Form
for a detailed review of Superior Propane’s operations and its significant business risks.
erCo WorldWide
ERcO Worldwide generated operating distributable cash flow of $79.3 million for 2007, an increase of $3.6 million or 5%
from $75.7 million generated in 2006. The increase in operating distributable cash flow is principally due to improved
sodium chlorate operating cash flow, the result of strong sodium chlorate sales volumes and pricing, offset in part by the
appreciation of the canadian dollar on US dollar denominated sales.
condensed operating results for 2007 and 2006 are provided in the following table. See “Segmented distributable cash Flow”
for detailed comparative business segment results and page 72 for selected historical information for the last five years.
(millions of dollars except per metric tonne (MT) amounts)
Revenue
Chemicals (1)
Technology
Cost of sales
Chemicals (1)
Technology
Gross profit
Less: cash operating, administration and tax costs
Cash generated from operations before changes
in net working capital
Maintenance capital expenditures, net
Operating distributable cash flow
Chemical volumes sold (thousands of MT)
2007
$/MT
2006
$/MT
430.3
30.3
(231.9)
(21.0)
207.7
(119.7)
88.0
(8.7)
79.3
560
40
(301)
(27)
272
(156)
116
(11)
105
408.6
28.6
(214.9)
(18.2)
204.1
(120.9)
83.2
(7.5)
75.7
540
38
(284)
(24)
270
(160)
110
(10)
100
768
75 6
(1) Effective January 1, 2007, Superior discontinued hedge accounting for all economic hedging activities. As such, amounts related to these contracts must be accounted
for separately on Superior’s financial statements (see Notes 12 and 20 to the Consolidated Financial Statements). In order to provide meaningful comparative results,
these amounts have been reclassified in a manner consistent with the accounting treatment in the comparative period. As such, included in gross profit for the year
ended December 31, 2007 is $13.6 million in realized foreign currency forward contract gains and included in chemical cost of sales for the year ended December 31,
2007 is $7.6 million in realized fixed-price electricity gains.
2007 ANNUAL REPORT
20
management’s discussion and Analysis
chemical and technology revenues were $460.6 million in 2007, $23.4 million or 5% higher than in the prior year due to
higher chemical sales volumes and pricing. Gross profit of $207.7 million in 2007, increased by $3.6 million or 2% over
2006 due to higher chemical gross profits, offset by lower technology gross profits.
chemical gross profits increased by $4.7 million or 2% due to an increase in sodium chlorate and chloralkali/potassium
gross profits. Sodium chlorate gross profit increased by $2.9 million or 2% due to a 20,000-tonne (4%) increase in the
sales volume for sodium chlorate, the result of a full year’s impact of ERcO’s 55,000-tonne chilean facility, offset in
part, by reduced North American volumes as a result of the closure of ERcO’s Bruderheim, Alberta facility in November
2006. Average selling prices for sodium chlorate were 1% higher than in the prior year, as product price increases and
the impact of foreign currency hedging gains, more than offset the 18% year-over-year appreciation of the canadian dollar
against the US dollar. ERcO realized $13.7 million in hedging gains in 2007 as a result of its foreign currency hedging
program. See “Financial instruments – Risk management” for a discussion of hedge positions. Operating costs for sodium
chlorate were 4% lower than in the prior year due principally to the impact of the appreciation of the canadian dollar
on US denominated expenses. Electrical costs, which represent approximately 70% to 85% of the variable costs of the
production of sodium chlorate, were 3% higher than in the prior year due principally to higher electrical costs at ERcO’s
Valdosta, Georgia facility as a result of the renewal of ERcO’s power supply agreement at a higher effective electrical rate.
chloralkali/potassium gross profits increased by $1.8 million or 3%, as a 6% increase in the average aggregate selling
price, more than offset the 8,000-tonne or 3% decrease in sales volumes. Sales volumes decreased as a result of ERcO
not renewing several low-margin contracts in 2007. Technology gross profits of $9.3 million (including $1.0 million in
hedging gains) were $1.1 million lower than the prior year due to reduced project activity.
Total chemical sales volumes were 768,000 tonnes in 2007, an increase of 12,000 tonnes or 2% over the prior year, as
the increase in sodium chlorate sales volumes more than offset the decrease in chloralkali/potassium sales volumes.
Average chemical revenue per mT was $560, compared to $540 per mT in 2006, an increase of 3% reflecting improved
overall pricing on sodium chlorate and chloralkali/potassium, that more than offset the impact of the appreciation of the
canadian dollar on US-denominated sales. Sodium chlorate and chloralkali/potassium production capacity utilization
averaged 99% (2006 – 89%) and 97% (2006 – 92%), respectively.
cash operating, administration and tax costs were $119.7 million in 2007, a decrease of $1.2 million or 1% from the
prior year. Operating expenses benefited from the impact of the appreciation of the canadian dollar on US-denominated
expenses and the closure of ERcO’s Bruderheim facility in 2006, offset by a full year’s costs associated with the sodium
chlorate facility in chile and losses on US-denominated working capital due to the appreciation of the canadian dollar.
chloralkali/potassium sales in 2007 contributed 28% of operating cash flow from chemical operations before
maintenance capital expenditures, a decrease of 2% from the 30% contribution in 2006. Sodium chlorate sales in 2007
represented 72% of ERcO’s operating cash flow from chemical operations before maintenance capital expenditures, an
increase of 2% from the 70% contribution in 2007. Sodium chlorate is principally sold to bleached pulp manufacturers,
as it is a required input to generate chlorine dioxide, which is in turn used to bleach pulp. Sodium chlorate represents
approximately 5% of the variable cost to manufacture bleached pulp. As a result, sodium chlorate sales volumes and
prices tend to be stable over time despite the volatility of bleached pulp prices (see the chart on the following page).
ERcO Worldwide’s top 10 customers comprised approximately 41% of its revenues in 2007, with its largest customer
representing 6% of its revenues.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
21
(cid:49)(cid:86)(cid:77)(cid:81)(cid:1)(cid:49)(cid:83)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:83)(cid:70)(cid:69)(cid:1)(cid:85)(cid:80)(cid:1)(cid:52)(cid:80)(cid:69)(cid:74)(cid:86)(cid:78)(cid:1)(cid:36)(cid:73)(cid:77)(cid:80)(cid:83)(cid:66)(cid:85)(cid:70)(cid:1)(cid:49)(cid:83)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:52)(cid:66)(cid:77)(cid:70)(cid:84)(cid:1)(cid:55)(cid:80)(cid:77)(cid:86)(cid:78)(cid:70)(cid:84)
(cid:52)(cid:80)(cid:69)(cid:74)(cid:86)(cid:78)(cid:1)(cid:36)(cid:73)(cid:77)(cid:80)(cid:83)(cid:66)(cid:85)(cid:70)(cid:1)
(cid:9)(cid:52)(cid:80)(cid:86)(cid:83)(cid:68)(cid:70)(cid:1)(cid:46)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:56)(cid:74)(cid:83)(cid:70)(cid:10)
(cid:47)(cid:35)(cid:52)(cid:44)(cid:1)
(cid:9)(cid:52)(cid:80)(cid:86)(cid:83)(cid:68)(cid:70)(cid:1)(cid:49)(cid:66)(cid:81)(cid:70)(cid:83)(cid:1)(cid:45)(cid:80)(cid:80)(cid:81)(cid:10)
(cid:52)(cid:80)(cid:69)(cid:74)(cid:86)(cid:78)(cid:1)(cid:36)(cid:73)(cid:77)(cid:80)(cid:83)(cid:66)(cid:85)(cid:70)(cid:1)(cid:52)(cid:66)(cid:77)(cid:70)(cid:84)(cid:1)(cid:55)(cid:80)(cid:77)(cid:86)(cid:78)(cid:70)(cid:84)
(cid:9)(cid:38)(cid:51)(cid:36)(cid:48)(cid:1)(cid:56)(cid:80)(cid:83)(cid:77)(cid:69)(cid:88)(cid:74)(cid:69)(cid:70)(cid:10)
(cid:10)
(cid:70)
(cid:79)
(cid:79)
(cid:80)
(cid:85)
(cid:16)
(cid:5)
(cid:52)
(cid:54)
(cid:9)
(cid:23)(cid:19)(cid:14)
(cid:22)(cid:19)(cid:14)
(cid:21)(cid:19)(cid:14)
(cid:20)(cid:19)(cid:14)
(cid:19)(cid:19)(cid:14)
(cid:18)(cid:19)(cid:14)
(cid:17)(cid:19)(cid:14)
(cid:16)(cid:19)(cid:14)
(cid:16)(cid:14)(cid:14)(cid:14)
(cid:16)(cid:14)(cid:14)(cid:15)
(cid:16)(cid:14)(cid:14)(cid:16)
(cid:16)(cid:14)(cid:14)(cid:17)
(cid:16)(cid:14)(cid:14)(cid:18)
(cid:16)(cid:14)(cid:14)(cid:19)
(cid:16)(cid:14)(cid:14)(cid:20)
(cid:16)(cid:14)(cid:14)(cid:21)
Capital Expenditure Summary
(millions of dollars)
Maintenance capital expenditures
Other capital expenditures – growth
Acquisitions
Other capital
2007
8.7
6.0
–
–
(cid:10)
(cid:84)
(cid:70)
(cid:79)
(cid:79)
(cid:80)
(cid:53)
(cid:1)
(cid:68)
(cid:74)
(cid:83)
(cid:85)
(cid:70)
(cid:46)
(cid:1)
(cid:84)
(cid:14)
(cid:14)
(cid:14)
(cid:9)
(cid:23)(cid:19)(cid:14)
(cid:22)(cid:19)(cid:14)
(cid:21)(cid:19)(cid:14)
(cid:20)(cid:19)(cid:14)
(cid:19)(cid:19)(cid:14)
(cid:18)(cid:19)(cid:14)
(cid:17)(cid:19)(cid:14)
(cid:16)(cid:19)(cid:14)
2006
7.5
51.4
–
–
ERcO’s maintenance capital expenditures were $8.7 million in 2007, $1.2 million higher than the prior year. The increase
in maintenance capital costs for 2007 is due to the number and timing of projects in 2007 and a full year of operations
at the chilean facility.
Growth capital expenditures were $6.0 million in 2007, with $1.8 million of expenditures related to the ongoing electrical
cell replacement program, which provides the benefit of reducing overall electrical consumption. ERcO continues to
evaluate the merits of converting additional electrical cells. Additionally, ERcO spent $2.8 million on various other plant
efficiency projects and $1.4 million (USd and cdN) related to its Port Edwards, Wisconsin chloralkali facility. Growth
capital expenditures of $51.4 million in 2006 were principally directed towards the completion of ERcO’s chilean sodium
chlorate facility.
during 2007, ERcO determined that it would convert its Port Edwards, Wisconsin chloralkali facility from mercury-based
technology to membrane technology. The project is intended to maintain the facility’s ability to produce both sodium and
potassium products, provides increased production capacity of approximately 30%, provides a significant extension of
the plant life and enhances the efficiency of ERcO’s use of electrical energy. The cost of the conversion is estimated to be
US $95 million and is expected to be completed during the second half of 2009.
during 2007, ERcO completed the closure and decommissioning of its Bruderheim, Alberta sodium chlorate facility,
incurring $4.9 million in costs during the year (2006 – $4.1 million). See the discussion on strategic plan costs in the
“corporate” section for additional details.
2007 ANNUAL REPORT
22
management’s discussion and Analysis
Outlook
ERcO Worldwide expects operating distributable cash flow for 2008 to be between $75 million and $80 million, increasing
in 2009 to between $78 million and $83 million. ERcO Worldwide’s significant assumptions underlying its outlook are:
• current supply and demand fundamentals for sodium chlorate and potassium/chloralkali products will remain
stable, resulting in no significant changes to total chemical sales prices and sales volumes;
• ERcO’s average plant utilization is expected to be greater than 90%;
• The foreign currency exchange rate between the canadian and US dollar is expected to be par on all unhedged
foreign currency transactions; and
• ERcO’s conversion of its Port Edwards, Wisconsin chloralkali facility from mercury-based technology to
membrane technology for US $95 million is expected to be completed on-budget in the second half of 2009.
in addition to ERcO Worldwide’s significant assumptions detailed above, refer to the Fund’s Annual information Form
for a detailed review of ERcO Worldwide’s operations and its significant business risks.
WinroC
Winroc generated operating distributable cash flow of $34.6 million in 2007, consistent with the $34.6 million generated
in 2006. Operating distributable cash flow was impacted by reduced sales and gross profits and higher operating and
administrative expenses, offset by reduced maintenance capital expenditures.
condensed operating results for 2007 and 2006 are provided in the following table. See “Segmented distributable cash Flow”
for detailed comparative business segment results and page 72 for selected historical information for the last five years.
(millions of dollars)
Distribution and direct sales revenue
Distribution and direct sales cost of sales
Distribution and direct sales gross profit
Less: Cash operating, administration and tax costs
Cash generated from operations before changes in net working capital
Maintenance capital expenditures
Operating distributable cash flow
Years Ended December 31
2007
512.3
(382.5)
129.8
(94.6)
35.2
(0.6)
34.6
2006
518.7
(386.5)
132.2
(91.0)
41.2
(6.6)
34.6
distribution and direct sales revenues of $512.3 million were $6.4 million or 1% lower than in the prior year, due principally
to a 10% reduction in drywall sales volumes from the prior year, as drywall sales volumes are an indicator of overall sales
volumes. The impact of a decrease in sales volumes was partially offset by an increase in overall average selling prices.
distribution and direct sales gross profit was $129.8 million in 2007, a decrease of $2.4 million or 2% from 2006, due
principally to the reduction in volumes, as noted above. Gross profits were higher than in the prior year in Western canada
but were lower than in the prior year in the United States and Ontario, with the variances due principally to changes in
sales volumes in these regions. The reduction in sales volumes was due to reduced demand in the United States and
Ontario outpacing the increase in demand in Western canada. Sales volumes continued to be affected by new housing
starts, as reduced new home demand in the United States and Ontario and strong new home demand in Western canada
had a direct impact on overall sales volumes. Non-residential sales volumes, which comprise approximately 50% of sales
volumes, were consistent with the prior year in Ontario and the United States and were higher than in the prior year in
Western canada.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
23
cash operating, administration and tax costs were $94.6 million for 2007, an increase of $3.6 million or 4% over 2006
due principally to higher volumes in Western canada, offset in part by reduced volumes in the United States and Ontario.
Additionally, operating expenses were impacted by increased occupancy costs due to additional operating branches, general
inflationary pressures and the implementation of a comprehensive operating lease program in 2007, which resulted in
higher operating expenses and lower maintenance capital.
Capital Expenditure Summary
(millions of dollars)
Maintenance capital expenditures
Other capital expenditures – growth
Acquisitions
Other capital (1)
2007
0.6
0.9
4.3
3.6
2006
6.6
1.6
-
-
(1) Other capital reflects the total dollar value of capital items that have been acquired through operating leases. See discussion below.
maintenance capital expenditures were $0.6 million for 2007 and consisted of expenditures of $1.1 million and proceeds
on disposals of $0.5 million. Net maintenance capital expenditures were $6.0 million lower than 2006, due principally
to the implementation of a master leasing agreement. Superior Propane and Winroc have entered into master lease
arrangements for the ongoing requirements of their delivery fleet, resulting in 19 new Winroc trucks being brought
into service during 2007, with a further 35 trucks anticipated to be brought into service during 2008. The dollar value
equivalent of trucks brought into service during 2007 by means of operating lease was $3.6 million (2006 – $nil) and is
denoted as other capital in the capital expenditure summary table above.
Winroc’s growth capital expenditures and acquisitions totaled $5.2 million in 2007. Growth capital was $0.9 million
and consisted of a payment made pursuant to the Leon’s acquisition agreement (original acquisition made in 2005).
Acquisitions totaled $4.3 million and consisted of the purchase of two gypsum supply dealers. For 2006 growth capital
expenditures were $1.6 million and consisted of the purchase of a small gypsum supply dealer and a payment pursuant
to the Leon’s acquisition agreement.
Winroc enjoys considerable geographical and customer diversification, servicing over 8,000 customers across
42 distribution branches. (See “distribution Revenues by Region” pie chart, below.) Winroc’s 10 largest customers represent
approximately 11% of its annual distribution sales. Winroc enjoys a strong position in the distribution markets where
it operates, supported by its complete walls and ceilings product line and procurement capabilities. (See “distribution
Revenues by Product” pie chart, below.)
(cid:37)(cid:74)(cid:84)(cid:85)(cid:83)(cid:74)(cid:67)(cid:86)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:51)(cid:70)(cid:87)(cid:70)(cid:79)(cid:86)(cid:70)(cid:84)(cid:1)(cid:67)(cid:90)(cid:1)(cid:51)(cid:70)(cid:72)(cid:74)(cid:80)(cid:79)(cid:1)(cid:172)(cid:1)(cid:19)(cid:17)(cid:17)(cid:24)
(cid:37)(cid:74)(cid:84)(cid:85)(cid:83)(cid:74)(cid:67)(cid:86)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:51)(cid:70)(cid:87)(cid:70)(cid:79)(cid:86)(cid:70)(cid:84)(cid:1)(cid:67)(cid:90)(cid:1)(cid:49)(cid:83)(cid:80)(cid:69)(cid:86)(cid:68)(cid:85)(cid:1)(cid:172)(cid:1)(cid:19)(cid:17)(cid:17)(cid:24)
(cid:10)(cid:11)(cid:6)
(cid:9)(cid:17)(cid:6)
(cid:11)(cid:8)(cid:6)
n�(cid:54)(cid:52)
n�(cid:49)(cid:83)(cid:66)(cid:74)(cid:83)(cid:74)(cid:70)(cid:84)
n�(cid:35)(cid:36)
n�(cid:48)(cid:79)(cid:85)(cid:66)(cid:83)(cid:74)(cid:80)(cid:1)
(cid:10)(cid:16)(cid:6)
(cid:13)(cid:6)
(cid:14)(cid:6)
n�(cid:37)(cid:83)(cid:90)(cid:88)(cid:66)(cid:77)(cid:77)(cid:1)(cid:7)(cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:80)(cid:79)(cid:70)(cid:79)(cid:85)(cid:84)
(cid:9)(cid:17)(cid:6)
(cid:9)(cid:11)(cid:6)
(cid:12)(cid:14)(cid:6)
n�(cid:36)(cid:70)(cid:74)(cid:77)(cid:74)(cid:79)(cid:72)(cid:84)
n�(cid:52)(cid:85)(cid:70)(cid:70)(cid:77)(cid:1)(cid:39)(cid:83)(cid:66)(cid:78)(cid:74)(cid:79)(cid:72)
n�(cid:42)(cid:79)(cid:84)(cid:86)(cid:77)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)
n�(cid:52)(cid:85)(cid:86)(cid:68)(cid:68)(cid:80)(cid:1)(cid:7)(cid:1)(cid:49)(cid:77)(cid:66)(cid:84)(cid:85)(cid:70)(cid:83)
(cid:9)(cid:9)(cid:6)
n�(cid:53)(cid:80)(cid:80)(cid:77)(cid:84)(cid:13)(cid:1)(cid:39)(cid:66)(cid:84)(cid:85)(cid:70)(cid:79)(cid:70)(cid:83)(cid:84)(cid:1)(cid:7)(cid:1)(cid:46)(cid:74)(cid:84)(cid:68)(cid:15)
2007 ANNUAL REPORT
24
management’s discussion and Analysis
Sales to commercial builders and contractors are comprised of Winroc’s full product line whereas sales to residential
builders and contractors are principally comprised of drywall and components, insulation and plaster products. demand
for walls and ceiling construction products is influenced by overall economic conditions with approximately 50% of sales
from servicing residential new construction and remodelling activity and 50% of sales from servicing commercial new
construction and remodelling activity. Overall demand has grown steadily over time as new commercial construction
demand trends have historically lagged new residential construction, while remodelling expenditures have increased
steadily. (See “US and canadian End-Use construction demand Profile” charts below.)
(cid:46)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:48)(cid:87)(cid:70)(cid:83)(cid:87)(cid:74)(cid:70)(cid:88)(cid:1)(cid:54)(cid:52)(cid:34)(cid:1)(cid:38)(cid:79)(cid:69)(cid:14)(cid:54)(cid:84)(cid:70)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:85)(cid:83)(cid:86)(cid:68)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:52)(cid:70)(cid:72)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)
(cid:54)(cid:52)(cid:1)(cid:47)(cid:80)(cid:79)(cid:14)(cid:51)(cid:70)(cid:84)(cid:74)(cid:69)(cid:70)(cid:79)(cid:85)(cid:74)(cid:66)(cid:77)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:85)(cid:83)(cid:86)(cid:68)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)
(cid:39)(cid:80)(cid:80)(cid:85)(cid:66)(cid:72)(cid:70)(cid:1)(cid:49)(cid:86)(cid:85)(cid:1)(cid:42)(cid:79)(cid:1)(cid:49)(cid:77)(cid:66)(cid:68)(cid:70)
(cid:54)(cid:52)(cid:1)(cid:51)(cid:70)(cid:84)(cid:74)(cid:69)(cid:70)(cid:79)(cid:85)(cid:74)(cid:66)(cid:77)(cid:1)(cid:34)(cid:69)(cid:69)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)
(cid:66)(cid:79)(cid:69)(cid:1)(cid:34)(cid:77)(cid:85)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)
(cid:54)(cid:52)(cid:1)(cid:41)(cid:80)(cid:86)(cid:84)(cid:74)(cid:79)(cid:72)(cid:1)
(cid:52)(cid:85)(cid:66)(cid:83)(cid:85)(cid:84)
(cid:10)
(cid:70)
(cid:72)
(cid:79)
(cid:66)
(cid:73)
(cid:68)
(cid:1)
(cid:85)
(cid:79)
(cid:70)
(cid:68)
(cid:83)
(cid:70)
(cid:81)
(cid:9)
(cid:10)
(cid:70)
(cid:72)
(cid:79)
(cid:66)
(cid:73)
(cid:68)
(cid:1)
(cid:85)
(cid:79)
(cid:70)
(cid:68)
(cid:83)
(cid:70)
(cid:81)
(cid:9)
(cid:16)(cid:16)(cid:19)
(cid:16)(cid:14)(cid:14)
(cid:15)(cid:21)(cid:19)
(cid:15)(cid:19)(cid:14)
(cid:15)(cid:16)(cid:19)
(cid:15)(cid:14)(cid:14)
(cid:21)(cid:19)
(cid:19)(cid:14)
(cid:15)(cid:23)(cid:22)(cid:18)
(cid:22)(cid:19)
(cid:22)(cid:20)
(cid:22)(cid:21)
(cid:22)(cid:22)
(cid:22)(cid:23)
(cid:23)(cid:14)
(cid:23)(cid:15)
(cid:23)(cid:16)
(cid:23)(cid:17)
(cid:23)(cid:18)
(cid:23)(cid:19)
(cid:23)(cid:20)
(cid:23)(cid:21)
(cid:23)(cid:22)
(cid:23)(cid:23)
(cid:14)(cid:14)
(cid:14)(cid:15)
(cid:14)(cid:16)
(cid:14)(cid:17)
(cid:14)(cid:18)
(cid:14)(cid:19)
(cid:14)(cid:20)
(cid:16)(cid:14)(cid:14)(cid:21)
(cid:36)(cid:37)(cid:47)(cid:1)(cid:38)(cid:79)(cid:69)(cid:14)(cid:54)(cid:84)(cid:70)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:85)(cid:83)(cid:86)(cid:68)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:52)(cid:70)(cid:72)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)
(cid:36)(cid:37)(cid:47)(cid:1)(cid:47)(cid:80)(cid:79)(cid:14)(cid:51)(cid:70)(cid:84)(cid:74)(cid:69)(cid:70)(cid:79)(cid:85)(cid:74)(cid:66)(cid:77)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:85)(cid:83)(cid:86)(cid:68)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)
(cid:39)(cid:80)(cid:80)(cid:85)(cid:66)(cid:72)(cid:70)(cid:1)(cid:49)(cid:86)(cid:85)(cid:1)(cid:42)(cid:79)(cid:1)(cid:49)(cid:77)(cid:66)(cid:68)(cid:70)
(cid:16)(cid:14)(cid:14)
(cid:36)(cid:37)(cid:47)(cid:1)(cid:41)(cid:80)(cid:86)(cid:84)(cid:74)(cid:79)(cid:72)(cid:1)
(cid:52)(cid:85)(cid:66)(cid:83)(cid:85)(cid:84)
(cid:15)(cid:21)(cid:19)
(cid:15)(cid:19)(cid:14)
(cid:15)(cid:16)(cid:19)
(cid:15)(cid:14)(cid:14)
(cid:21)(cid:19)
(cid:19)(cid:14)
(cid:15)(cid:23)(cid:22)(cid:18)
(cid:22)(cid:19)
(cid:22)(cid:20)
(cid:22)(cid:21)
(cid:22)(cid:22)
(cid:22)(cid:23)
(cid:23)(cid:14)
(cid:23)(cid:15)
(cid:23)(cid:16)
(cid:23)(cid:17)
(cid:23)(cid:18)
(cid:23)(cid:19)
(cid:23)(cid:20)
(cid:23)(cid:21)
(cid:23)(cid:22)
(cid:23)(cid:23)
(cid:14)(cid:14)
(cid:14)(cid:15)
(cid:14)(cid:16)
(cid:14)(cid:17)
(cid:14)(cid:18)
(cid:14)(cid:19)
(cid:14)(cid:20)
(cid:16)(cid:14)(cid:14)(cid:21)
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
25
Outlook
Winroc expects operating distributable cash flow for 2008 and 2009 to be between $32 million and $37 million. Winroc’s
significant assumptions underlying its outlook are:
• The current economic conditions in canada and the United States are expected to prevail in 2008 with a slight
improvement in 2009; and
• Gross profit is expected to be stable as strong demand in Western canada for residential and commercial sales
volumes continues to offset weakness in Ontario and United States residential sales volumes.
in addition to Winroc’s significant assumptions detailed above, refer to the Fund’s Annual information Form for a detailed
review of Winroc’s operations and its significant business risks.
Superior energy ManageMent (SeM)
SEm generated operating distributable cash flow of $12.1 million in 2007, an increase of $1.8 million or 17% from
$10.3 million in 2006, due principally to improved margins.
condensed operating results for 2007 and 2006 are provided in the following table. See “Segmented distributable cash Flow”
for detailed comparative business segment results and page 73 for selected historical information for the last five years.
(millions of dollars except per gigajoule (GJ) amounts)
Revenue
Cost of sales (1)
Gross profit
Less: Operating, administration and selling costs
Operating distributable cash flow
Natural gas sold (millions of GJs)
2007
2006
320.4
(290.3)
30.1
(18.0)
12.1
¢/GJ
865.9
(784.6)
81.3
(48.6)
32.7
325.6
(303.9)
21.7
(11.4)
10.3
¢/GJ
814.0
(759.7)
54.3
(28.5)
25.8
37
40
(1) Effective January 1, 2007, Superior discontinued hedge accounting for all economic hedging activities. As such, amounts related to these contracts must be accounted
for separately on Superior’s financial statements (see Notes 12 and 20 to the Consolidated Financial Statements). In order to provide meaningful comparative results,
these amounts have been reclassified in a manner consistent with the accounting treatment in the comparative period. As such, included in cost of sales for the year
ended December 31, 2007 is $19.3 million in realized foreign currency forward contract losses and $14.9 million of natural gas commodity realized fixed-price losses.
SEm provides fixed-price, term natural gas sales to residential customers in Ontario and British columbia (effective
may 1, 2007), and to commercial and light industrial consumers in Ontario and Quebec. Additionally, on August 1, 2007,
SEm began marketing fixed-price electricity sales contracts to residential and commercial customers in Ontario, which
will benefit SEm in 2008 when material amounts of electricity begin to flow to customers.
SEm’s revenues of $320.4 million were $5.2 million or 2% lower than in the prior year, due principally to lower overall
sales volumes. Gross profit for 2007 reached $30.1 million, an increase of $8.4 million or 39% from $21.7 million in
gross profit earned in 2006. Gross profit per gigajoule (GJ) was 81.3 cents per GJ, an increase of 27.0 cents per GJ or
50%, which more than offset the 8% reduction in overall natural gas volumes. The change in gross margin per GJ and
the decrease in natural gas volume sold, reflect SEm’s continued strategy of increasing gross profit through growth in
its lower-volume, higher-margin residential and small commercial customer base. Residential and small commercial
customer volumes comprised approximately 32% of total sales volumes in 2007 compared to 26% in 2006. Operating,
administration and selling costs were $18.0 million in 2007, an increase of $6.6 million or 58% over 2006. Amortization
of customer acquisition costs of $6.6 million (2006 – $3.2 million) accounted for $3.4 million of the increase in expenses.
The remaining increase in costs is due to higher customer service and overhead costs attributable to the growth in SEm’s
business and to $0.4 million in costs associated with the entrance into the British columbia fixed-price natural gas and
Ontario fixed-price electricity markets.
2007 ANNUAL REPORT
26
management’s discussion and Analysis
SEm invested $10.9 million in customer acquisition costs ($4.3 million net of amortization) during 2007, compared to
$8.4 million ($5.2 million net of amortization) in 2006, resulting in a net increase of 14,200 customers (2006 – increase
of 45,000 customers). The acquisition of new customers and the retention rate of SEm’s existing customers have been
challenged in all of SEm’s markets due principally to the low system price of natural gas compared to the fixed-rate option
SEm is able to offer on its long-term contracts. The system price of natural gas has been both constant and low due to the
absence of volatility in the spot price of natural gas over the past year, resulting in reduced customer demand for long-
term, fixed-price natural gas contracts, as the immediate perceived benefit of entering into a long-term deal is reduced at
the current fixed-price rates. SEm’s sign-up rate for fixed-price electricity customers has also been lower than expected for
reasons similar to conditions in the natural gas market.
SEm’s fixed-price natural gas contracts are for a maximum term of five years. As at december 31, 2007, the average
remaining term of SEm’s contracts was 37 months (2006 – 42 months), reflecting the slowdown in the sign-up of
new customers, and the retention of existing customers. SEm’s largest customer represented 1% of 2007 gross profits
(2006 – 3%). At december 31, 2007, SEm’s largest fixed-price natural gas supplier represented 30% (2006 – 32%) of its
supply portfolio.
during 2007, SEm incurred $1.5 million in growth capital expenditures related to its expansion into the Ontario fixed-price
electricity market.
On June 13, 2007, SEm announced it had entered into a long-term electricity supply agreement with Bruce Power LP,
enabling SEm to market long-term, fixed-price electricity sales contracts. Additionally, on January 7, 2008, SEm announced
it had entered into a long-term natural gas supply agreement with constellation Energy commodities Group, inc.,
providing SEm with a dependable long-term, fixed-price natural gas supply.
Outlook
SEm expects operating distributable cash flow for 2008 to be between $15 million and $18 million, increasing in 2009 to
between $18 million to $23 million. SEm’s significant assumptions underlying its outlook are:
•
SEm is able to access sales channel agents on acceptable contract terms;
• Natural gas markets in Ontario and British columbia will continue to provide significant growth opportunities
for SEm; and
• The electricity market in Ontario is expected to provide an additional growth opportunity for SEm.
in addition to SEm’s significant assumptions detailed above, refer to the Fund’s Annual information Form for a detailed
review of SEm’s operations and its significant business risks.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
27
diSContinued operation – JW aluMinuM
in July 2006, the Fund announced as part of its strategic plan, its decision to sell JWA in order to focus on its canadian
businesses and to reduce debt. As a result, JWA was sold on december 7, 2006 for net proceeds of $356.1 million,
resulting in the 2006 comparative period being classified as a discontinued operation.
Operating distributable cash flow for the period ended december 7, 2006 is provided below:
(millions of dollars except per pound amounts)
Gross profit
Less: Cash operating, administration and tax costs
Cash generated from operations before changes in net working capital
Maintenance capital expenditures
Operating distributable cash flow
Aluminum sold (millions of pounds)
(1) JWA was sold on December 7, 2006 (see Note 3 to the Consolidated Financial Statements).
January 1 – December 7
2006 (1)
58.7
(17.0)
41.7
(2.8)
38.9
317
¢/lb
18.5
(5.4)
13.1
(0.9)
12.2
Operating distributable cash flow for the period ended december 7, 2006 was $38.9 million. As a result of the sale of
JWA on december 7, 2006, the 2007 financial results of the Fund have no contribution from JWA.
Corporate
cash corporate and administrative costs were $10.5 million in 2007, an increase of $4.1 million from 2006. The increase
over the prior year was due to a $5.3 million reversal of executive stock-based compensation and short-term bonuses in the
prior year due to the decrease in the value of the Fund’s trust units in the prior year. Excluding the impact of long-term
compensation, corporate and administrative expenses were consistent with the prior year.
in 2007, costs associated with the completion of the Fund’s strategic plan related to the completion of employee retention
programs and ERcO’s closure of its Bruderheim, Alberta sodium chlorate facility. The Fund’s strategic plan was
substantially completed in 2006, and included the sale of JW Aluminum and using the sales proceeds to reduce debt, the
refinancing of term debt, the reorganization into a trust-over-partnership structure and the closure of ERcO’s Bruderheim
sodium chlorate facility, all of which have been substantially completed.
costs associated with the strategic plan totaled $5.7 million during the year (2006 – $19.7 million) and are detailed below:
(millions of dollars)
Operating and administrative expenses:
Employee severance and retention
Partnership reorganization costs
ERCO – Bruderheim closure costs
Advisory and other
Write-off of deferred financing costs
Total strategic plan costs
2007
0.8
–
4.9
–
–
5.7
2006
11.0
1.9
4.1
0.7
2.0
19.7
2007 ANNUAL REPORT
28
management’s discussion and Analysis
On January 31, 2008 ERcO entered into an agreement to sell its Bruderheim facility, excluding a portion of the land,
subject to normal purchase/sale conditions, which are anticipated to be closed during the second quarter of 2008. The sale
will result in minimum proceeds of approximately $3.5 million less closing costs, with the potential for additional proceeds
based on a gross overriding royalty. ERcO will continue to explore opportunities to sell the land not included in the sale of
the facility. The Fund does not anticipate any strategic plan costs for 2008.
interest expense on Superior’s revolving term bank credits and term loans was $25.2 million for 2007, a decrease of
$17.9 million from $43.1 million in interest incurred in the prior year. The decrease in interest expense was due to lower
average debt levels as a result of Superior repaying debt facilities with the net proceeds ($356.1 million) from the sale of
JWA to reduce debt, the impact of the appreciation of the canadian dollar on US-denominated interest costs, offset in part
by marginally higher floating interest rates.
interest on the Fund’s convertible unsecured subordinated debentures (the debentures) was $19.5 million for 2007,
a decrease of $0.7 million from 2006. The reduction in debenture interest is due to the maturity of $8.1 million
Series 1, 8% debentures on July 31, 2007 and the Fund’s early redemption of $59.2 million Series 2, 8% debentures on
November 5, 2007.
Income Taxes
Total income tax recovery for 2007 was $5.1 million, comprised of $5.3 million in cash income taxes and a $10.4 million
future income tax recovery, compared to a total income tax recovery of $100.0 million in the prior year, comprised of
$9.2 million in cash income taxes and a $109.2 million future income tax recovery.
cash income and withholding taxes with respect to operations in the United States for 2007 were $5.3 million
(2006 – $7.5 million). The decrease in United States cash tax was due to lower US-denominated taxable earnings. in
canada, cash capital taxes for 2007 were $nil (2006 – $1.7 million). The decrease in canadian cash taxes was due to the
Fund’s conversion to a trust-on-partnership structure on September 30, 2006. cash income taxes have been charged to
the businesses from which the taxable income was derived.
Future income tax recovery for 2007 was $10.4 million (2006 – $109.2 million), resulting in a corresponding future
income tax asset of $20.3 million as at december 31, 2007. The change in future income taxes is principally the result of
the asset impairments recorded in the prior year that resulted in $95.8 million in future income tax recoveries.
in June 2007 the Government of canada enacted new legislation imposing additional income taxes upon publicly traded
income trusts, including the Superior Plus income Fund, effective January 1, 2011. Prior to this legislation, the Fund
was only taxable on any taxable income not allocated to the Unitholders and estimated its future income tax on certain
temporary differences between amounts recorded on its balance sheet for book and tax purposes at a nil effective tax rate.
Under the legislation, the Fund estimates the effective tax rate on the post-2010 reversal of these temporary differences
to be 29.5% in 2011 and 28.0% in years thereafter. Temporary differences reversing before 2011 will still give rise to nil
future income taxes. consistent with prior years, the Fund in 2007 also recognized a provision for income taxes for its
subsidiaries that are subject to current and future income taxes, including United States income tax, United States non-
resident withholding tax and chilean income tax.
The Fund believes it will be subject to current and future income taxes under the new legislation; however, the estimated
effective tax rate on temporary difference reversals after January 1, 2011 may change in future periods. As the legislation is
new, future technical interpretations of the legislation may occur and could materially affect management’s estimate of the
future income tax asset/liability. The amount and timing of reversals of temporary differences will also depend on the Fund’s
future operating results, acquisitions and dispositions of assets and liabilities, and distribution policy. A significant change in
any of the preceding assumptions could materially affect the Fund’s estimate of the future income tax asset/liability.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
29
As a result of the Government of canada’s enacted legislation imposing additional income taxes on the Fund for taxation
years commencing January 1, 2011, the Fund is continuing to evaluate the new legislation and the Fund’s organizational
alternatives in order to maximize Unitholder value. As the legislation is not effective until 2011, the Fund’s current financial
condition is unaffected by this change. The Fund is continuing to explore opportunities to grow its businesses to offset the
impact of this legislation on the distributable cash flow of the Fund. Superior had approximately $428 million in tax pools
as at december 31, 2007. These tax pools will be impacted by adjustments to reduce tax at the Fund level due to a payout
ratio below 100% and additional capital outlays.
Consolidated Outlook
The Fund expects consolidated distributable cash flow per trust unit to be between $1.90 and $2.10 per trust in 2008,
increasing in 2009 to between $2.05 and $2.25 per trust unit. The Fund’s consolidated distributable cash flow outlook is
dependent on the operating results of its four divisions. See the discussion of operating results by division for additional
details on the Fund’s 2008 and 2009 guidance. in addition to the operating results of the Fund’s four divisions, significant
assumptions underlying the Fund’s 2008 and 2009 outlook are:
• The Fund expects current economic conditions in canada and the United States to prevail for 2008 with an
improved outlook for 2009;
• The Fund continues to attract capital and obtain financing on acceptable terms;
•
•
•
•
The foreign currency exchange rate between the canadian and United States dollar is expected to be par on all
unhedged foreign currency transactions;
Superior’s average interest rate on floating rate debt is expected to remain stable to marginally lower throughout
2008, increasing modestly in 2009;
Financial and physical counterparties continue to fulfill their obligations to Superior; and
Regulatory authorities do not impose any new regulations impacting the Fund.
in addition to the Fund’s significant assumptions detailed above, refer to the Fund’s Annual information Form for a
detailed review of the Fund’s operations and its significant business risks.
Capital Expenditure Summary and Financing Activities
(millions of dollars)
Maintenance capital expenditures (proceeds)
Other capital expenditures – growth capital
Acquisitions
Other capital (1)
Superior
Propane
(0.2)
0.4
–
20.0
ERCO
Winroc
SEM
8.7
6.0
–
–
0.6
0.9
4.3
3.6
–
1.5
–
4.3
Total
9.1
8.8
4.3
27.9
Total
13.8
53.0
–
5.1
(1) Other capital, as it relates to Superior Propane and Winroc, reflects the total dollar value of capital items that have been acquired through operating leases. Other capital,
as it relates to SEM, is equal to SEM’s customer acquisition costs, net of amortization.
2007
2006
2007 ANNUAL REPORT
30
management’s discussion and Analysis
maintenance capital expenditures amounted to $9.1 million in 2007 (2006 – $13.8 million) and were funded from
operating cash flow. Growth capital expenditures totaled $8.8 million in 2007 (2006 – $53.0 million) and were funded
from a combination of operating cash flow and proceeds received from Superior’s trust unit reinvestment program. See
operating results by division for additional details on maintenance capital and growth capital expenditures.
Acquisitions for 2007 totaled $4.3 million and were comprised of Winroc’s acquisition of two small gypsum supply
dealers. Acquisitions were funded from a combination of operating cash flow and proceeds received from Superior’s trust
unit reinvestment program. Superior did not undertake any acquisitions in 2006.
in January 2007, the Fund commenced a distribution reinvestment plan and an optional unit purchase plan (the dRiP).
The dRiP provides Unitholders with the opportunity to reinvest their cash distributions at a 5% discount to the market
price of the trust units. For 2007, proceeds of $25.3 million were received from the dRiP and were principally used to
fund growth capital and acquisitions.
Liquidity
Superior’s total and available sources of credit are detailed in the chart below:
Available Credit Facilities
(millions of dollars)
Revolving term bank credit facilities (1)
Term loans
Accounts receivable sales program
Total
Total
Amount
595.0
178.1
100.0
873.1
As at December 31, 2007
Borrowings
Letters of
Credit Issued
Amount
Available
162.4
178.1
100.0
440.5
31.7
–
–
31.7
400.9
–
–
400.9
(1) Revolving term bank credit facilities and term loan balances are presented before deferred financing fees.
Superior’s revolving term bank credit and term loans before deferred financing fees, including $100.0 million related to
the accounts receivable securitization program totaled $440.5 million as at december 31, 2007, a decrease of $1.2 million
from the prior year-end. The decrease in revolving term bank credits and terms loans is predominately due to the repayment
of existing debt facilities with operating cash flow in excess of distributions for the year and the non-cash impact of the
appreciation of the canadian dollar on US dollar-denominated debt, offset by the impact of the repayment and redemption
of $8.1 million Series 1 and $59.2 million Series 2, 8% convertible unsecured subordinated debentures.
As at december 31, 2007, $400.9 million was available under the credit facilities and accounts receivable sales program
and is considered to be sufficient to meet Superior’s net working capital funding requirements and expected capital
expenditures. Principal covenants are described in “contractual Obligations and Other commitments” on page 31.
consolidated net working capital was $173.0 million as at december 31, 2007, a decrease of $5.9 million from
december 31, 2006 ($178.9 million). Net working capital was consistent with the prior year-end as lower cash on-hand and
reduced working capital requirements at ERcO were offset by higher working capital requirements at Superior Propane due
to higher sales volumes and selling prices. See Note 20 to the consolidated Financial Statements for segmented net working
capital levels by division, net of the accounts receivable sales program. Superior’s net working capital requirements are
financed from revolving term bank credit facilities and by proceeds raised from a trade accounts receivable sales program.
Superior has entered into an agreement to sell, with limited recourse, certain accounts receivables on a 30-day revolving
basis to an entity sponsored by a canadian chartered bank to finance a portion of its working capital requirements, and
this represents an off-balance sheet obligation. The receivables are sold at a discount to face value based on prevailing
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
31
money market rates. As at december 31, 2007, proceeds of $100.0 million (december 31, 2006 – $95.0 million) had been
raised from this program and were used to repay revolving term bank credits (See Note 6 to the consolidated Financial
Statements). Superior is able to adjust the size of the sales program on a seasonal basis in order to match the fluctuations
of its accounts receivable funding requirements. The program requires Superior to maintain a minimum secured credit
rating of BB and meet certain collection performance standards. Superior is currently fully compliant with program
requirements. The program expires on June 30, 2008.
during 2007, Superior renegotiated its previous bilateral and syndicated credit facilities into a syndicated facility
of $595.0 million with 11 banks. The secured revolving facility matures on June 28, 2010 and can be expanded to
$600.0 million.
On April 26, 2007, dBRS confirmed Superior’s senior secured notes rating at BBB (low) and the Fund’s stability rating
at STA-3 (low), and changed Superior’s negative outlook to stable. On August 2, 2007, Standard and Poor’s confirmed
Superior’s BBB- (negative outlook) secured long-term debt credit rating.
Contractual Obligations and Other Commitments
(millions of dollars)
Notes (1)
Revolving term bank credits and term loans
Convertible Debentures
Operating lease and capital commitments (2)
9
10
18(i)
Natural gas, propane and electricity
purchase commitments (3) (4)
Future employee benefits (5)
Total contractual obligations
18(ii)(iii)
11
Total
340.5
247.3
135.3
651.4
23.8
1,398.3
Payments Due In
2009 – 2010
2008
2011 – 2012
Thereafter
3.9
–
42.5
253.1
5.3
304.8
179.4
–
45.9
268.2
10.6
504.1
66.3
172.8
26.3
41.6
7.9
314.9
90.9
74.5
20.6
88.5
–
274.5
(1) Notes to the Consolidated Financial Statements.
(2) Operating lease and capital commitments together with the accounts receivable sales program, comprise Superior’s off-balance sheet obligations.
(3) Superior, with respect to its natural gas and propane commitments, is similarly committed to long-term natural gas and propane sales customer commitments.
(4) Does not include the impact of financial derivatives. See Note 12 to the Consolidated Financial Statements.
(5) Does not include the Superior Propane defined benefit pension asset.
Revolving term bank credits and term loans are secured by a general charge over the assets of Superior and certain of its
subsidiaries. As at december 31, 2007, Superior’s senior debt to EBiTdA ratio (see “Non-GAAP Financial measures) was
1.9 times to 1.0 after taking into account the impact of the off-balance sheet receivable sales program amounts and the
impact of cash on hand (december 31, 2006 – 1.9 times to 1.0).
Senior bank debt covenants limit incurring additional long-term debt and payments of distributions to the Fund if Superior’s
consolidated senior debt (including proceeds raised from the accounts receivable sales program) exceeds 3.5 times to
1.0 EBiTdA (as previously defined) for the last 12-month period as adjusted for the pro forma impact of acquisitions
and dispositions. Senior secured notes covenants limit the incurrence of additional long-term debt and payments of
distributions to the Fund if Superior’s consolidated senior debt (including proceeds raised from the accounts receivable
sales program) exceeds 3.0 times to 1.0 EBiTdA (as previously defined) for the last 12-month period as adjusted for the pro
forma impact of acquisitions and dispositions. Additionally, the Fund’s distributions (including payments to debenture
holders) cannot exceed EBiTdA plus $25.0 million. At december 31, 2007, senior debt and total debt ratios when
calculated in accordance with Superior’s senior credit agreements were 2.0 times to 1.0 (december 31, 2006 – 2.1 times
to 1.0). Total debt to EBiTdA ratio for purposes of senior credit agreements does not include the debentures.
2007 ANNUAL REPORT
32
management’s discussion and Analysis
debentures are obligations of the Fund and consist of $174.9 million Series 1, 5.75% debentures maturing on
december 31, 2012 and $75.0 million Series 1, 5.85% debentures maturing on October 31, 2015. The 5.75% Series 1 and
5.85% Series 1 debentures are convertible at the option of the holder into trust units at $36.00 and $31.25 per trust unit,
respectively. during 2007, the Fund repaid and redeemed $8.1 million and $59.2 million, the entire obligation associated
with its Series 1 and Series 2, 8% debentures, respectively. The Fund may elect to satisfy interest and principal debenture
obligations by the issuance of trust units.
As at december 31, 2007, Superior’s total debt (including debentures) to EBiTdA ratio was 3.0 times to 1.0 after taking
into account the impact of the off-balance sheet receivable sales program amounts and the impact of cash on hand. debt
covenants limit incurring additional long-term debt and payments of distributions to the Fund if Superior’s total debt
(including proceeds raised from the accounts receivable sales program) exceeds 5.0 times EBiTdA for senior bank debt
and 5.5 times EBiTdA for senior secured notes (see Non-GAAP Financial measures) for the last 12-month period as
adjusted for the pro forma impact of acquisitions and dispositions.
Approximately 58% of Superior’s revolving term bank credits and term loans and debenture obligations were not
repayable for at least five years and approximately 51% of Superior’s total debt obligations (including accounts receivable
sales program) are subject to fixed interest rates. Superior’s policy is to target a fixed-to-floating interest rate profile of
approximately 50%.
Operating leases consist of rail cars, distribution/delivery fleet, other vehicles, premises and other equipment. Rail car
leases at december 31, 2007 comprised 23% (2006 – 35%) of total operating lease commitments and are used to transport
ERcO Worldwide’s finished product to its customer locations and by Superior Propane to transport propane from supply
sources to its branch distribution locations. distribution/delivery operating leases at december 31, 2007 comprised
21% (2006 – 2%) of total operating lease commitment and are used by Superior Propane and Winroc to deliver product
to customers.
Natural gas and propane fixed-price supply commitments are used to resource similar volume and term fixed-price sales
commitments to customers of SEm and Superior Propane. ERcO Worldwide has entered into fixed-price electricity
contracts for a term of up to 10 years representing 100% of its annual power requirements in deregulated jurisdictions.
Superior’s operating lease and capital commitments, natural gas, propane and electricity purchase commitments and
future employee benefits are normal course operating commitments. Superior expects to fund these commitments through
a combination of cash flow from operations, proceeds on revolving term bank credits and proceeds on the issuance of trust
unit equity.
in the normal course of business, Superior is subject to lawsuits and claims. Superior believes the resolution of these
matters will not have a material adverse effect, individually or in the aggregate, on Superior’s liquidity, consolidated financial
position or results of operations. Superior records costs as they are incurred or when they become determinable.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
33
Unitholders’ Capital
The weighted average number of trust units outstanding was 86.5 million in 2007 compared to 85.5 million units in
2006, an increase of 1% due to trust units issued under the Fund’s distribution reinvestment program. The quoted market
value of the Fund’s trust unit capital and debentures was $1,024.9 million and $219.7 million, respectively, based on
closing prices on december 31, 2007 on the Toronto Stock Exchange.
As at december 31, 2007 and 2006, the following trust units and securities convertible into trust units were outstanding:
March 10, 2008
December 31, 2007
December 31, 2006
(millions)
Trust units outstanding
Series 1, 8% Debentures (1)
Series 2, 8% Debentures (2)
Series 1, 5.75% Debentures (3)
Series 1, 5.85% Debentures (4)
Warrants
Convertible
Securities
–
–
$ 174.9
$
75.0
2.3
Trust units outstanding, and issuable
upon conversion of Debenture
and Warrant securities
Convertible
Securities
–
–
$ 174.9
$
75.0
2.3
Trust
Units
88.1
–
–
4.9
2.4
2.3
97.7
Convertible
Securities
$
$
8.1
59.2
$ 174.9
$
75.0
2.3
Trust
Units
87.6
–
–
4.9
2.4
2.3
97.2
Trust
Units
85.5
0.5
3.0
4.9
2.4
2.3
98.6
(1) Convertible at $16 per trust unit. On July 31, 2007, $8.1 million Series I, 8% Debentures matured and were repaid.
(2) Convertible at $20 per trust unit. On November 5, 2007, $59.2 million Series 2, 8% Debentures were redeemed.
(3) Convertible at $36 per trust unit.
(4) Convertible at $31.25 per trust unit.
The warrants are exercisable at $20 per trust unit until may 2008. in addition, as at march 10, 2008 and december 31, 2007,
there were 500,500 trust unit options outstanding (december 31, 2006 – 1,086,000 trust units) with a weighted average
exercise price of $23.87 per trust unit (2006 – $22.69 per trust unit). The number of trust units issued upon exercise of
the trust unit options is equal to the growth in the value of the options at the time the options are exercised (represented by
the market price less the exercise price), times the number of options exercised, divided by the current trust unit market
price.
Distributions Paid to Unitholders
The Fund distributes to holders of trust units the income earned by Superior LP after interest payments to holders of
the convertible unsecured subordinated debentures (the debentures) of the Fund (debentureholders), and provision for
administrative expenses and reserves of the Fund. The Fund’s distributions to Unitholders are sourced entirely from its
equity in Superior LP. See “Summary of cash Flows” on page 34 for additional details on the sources and uses of cash. The
Fund’s investments are in turn financed by trust unit equity and by the debentures.
As detailed on page 14, distributable cash flow for 2007 was $170.4 million, a decrease of $10.0 million or 6% from the prior
year. For 2007, distributions paid to Unitholders were $1.56 per trust unit, a decrease of 14% from $1.82 per trust unit, in
2006. This resulted in a payout ratio of 79% in 2007 compared to 86% in 2006. The decrease in distributions paid was the
result of a change in the Fund’s monthly distributions in 2006 to $0.13 per trust unit ($1.56 on an annualized basis) effective
with the may 2006 monthly distribution. The Fund will continue to assess its distribution level in light of the Government
of canada’s announcement on October 31, 2006 to tax income trusts and limited partnerships, beginning in 2011.
2007 ANNUAL REPORT
34
management’s discussion and Analysis
The Fund’s primary sources and uses of cash are detailed below:
Summary of Cash Flows (1) (millions of dollars)
Cash flows from operating activities of continuing operations
Investing activities:
Maintenance capital expenditures
Other capital expenditures – growth
Acquisitions
Proceeds on the sale of JW Aluminum
Cash flows from investing activities
Financing activities:
Distributions to Unitholders
Repayment of 8%, Series 1 convertible debentures
Redemption of 8%, Series 2 convertible debentures
Proceeds from DRIP
Revolving term bank credits and term loans
Other
Cash flows from financing activities
Net increase (decrease) in cash from continuing operations
Net increase (decrease) in cash from discontinued operations
Cash, beginning of year
Cash, end of year
(1) See the Consolidated Statements of Cash Flows for additional details.
2007
134.3
(9.1)
(8.8)
(4.3)
1.4
(20.8)
(134.9)
(8.1)
(59.2)
25.3
38.4
5.5
(133.0)
(19.5)
–
33.6
14.1
2006
151.7
(13.8)
(53.0)
–
354.7
287.9
(155.7)
–
–
–
(290.5)
(2.7)
(448.9)
(9.3)
23.0
19.9
33.6
For income tax purposes, distributions paid in 2007 of $1.56 per trust unit are classified as other income. A summary of
cash distributions since inception and related tax information is posted under the “investor information” section of the
Fund’s website at www.superiorplus.com. For 2008, the Fund expects the majority of the distribution to be in the form
of other income.
(millions of dollars except per trust unit amounts)
Distributions paid in the calendar year
Distributable cash flow reinvested
Distributable cash flow
Distribution payout ratio
Financial Instruments – Risk Management
2007
2006
Trust
Unit
$1.56
0.41
$1.97
134.9
35.5
170.4
Trust
Unit
$1.82
0.29
$2.11
155.7
24.7
180.4
79%
86%
derivative and non-financial derivatives are used by Superior to manage its exposure to fluctuations in foreign currency
exchange rates, interest rates and commodity prices. Superior’s policy is not to use derivative or non-financial derivative
instruments for speculative purposes. Superior does not formally designate its derivatives as hedges; as a result, Superior does
not apply hedge accounting and is required to designate its derivatives and non-financial derivatives as held for trading.
SEm enters into NYmEX and AEcO natural gas financial swaps with a variety of counterparties to manage the economic
exposure of providing fixed-price natural gas to its customers. SEm monitors its fixed-price natural gas positions on a
daily basis to monitor compliance with established risk management policies. SEm maintains a substantially balanced
fixed-price natural gas position in relation to its customer supply commitments. Additionally, SEm enters into electricity
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
35
financial swaps with a single counterparty to manage the economic exposure of providing fixed-price electricity to its
customers. SEm monitors its fixed-price electricity positions on a daily basis to monitor compliance with established risk
management policies. SEm maintains a substantially balanced fixed-price electricity position in relation to its customer
supply commitments.
ERcO has entered into fixed-price electricity purchase agreements to manage the economic exposure of certain of its
chemical facilities to changes in the market price of electricity in deregulated markets.
Superior Propane enters into various propane forward purchase and sale agreements to manage the economic exposure
of its wholesale customer supply contracts. Superior Propane monitors its fixed-price propane positions on a daily basis
to monitor compliance with established risk management policies. Superior Propane maintains a substantially balanced
fixed-price propane gas position in relation to its wholesale customer supply commitments.
Superior, on behalf of its operating divisions, enters into foreign currency forward contracts to manage the economic
exposure of Superior’s operations to movements in foreign currency exchange rates. SEm and Superior Propane contract
a portion of their fixed-price natural gas and propane purchases and sales in US dollars and enter into forward US dollar
purchase (sales) contracts to create an effective canadian dollar fixed-price purchase cost. ERcO Worldwide enters into
US dollar forward sales contracts on an ongoing basis to mitigate the impact of foreign exchange fluctuations on sales
margins on production from its canadian plants that is sold in US dollars. interest expense on Superior’s US dollar-
denominated debt is also used to mitigate the impact of foreign exchange fluctuations.
As at december 31, 2007, SEm and Superior Propane had hedged approximately 100% of their US dollar natural gas and
propane purchase (sales) obligations and ERcO Worldwide had hedged 85%(2) and 40%(2) respectively, of its estimated
US dollar exposure for the remainder of 2008 and 2009. The estimated distributable cash flow sensitivity for Superior,
including divisional US exposures and the impact on US denominated debt with respect to a $0.01 change in the canadian
to United States exchange rate is: 2008 – $0.1 million and 2009 – $0.6 million, after giving effect to United States
forward contracts for 2008 and 2009, as shown in the table below. Superior’s sensitivities and guidance are based on an
anticipated canadian to USd foreign currency exchange rate for 2008 and 2009 of 1.00.
(US$ millions)
SEM – US$ forward purchases (1)
Superior Propane – US$ forward purchases (sales)
ERCO – US$ forward sales (2)
Net US$ forward purchases
SEM – Average US$ forward purchase rate (1)
Superior Propane – Average US$ forward rate
ERCO – Average US$ forward sales rate (2)
Net average external US$/Cdn$ exchange rate
2008
118.3
9.8
(88.3)
39.8
1.22
1.00
1.11
1.17
2009
111.1
–
(48.0)
63.1
1.21
–
1.06
1.16
2010
2011
2012
2013
61.9
–
–
61.9
1.16
–
–
1.16
5.4
–
–
5.4
1.11
–
–
1.11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
296.7
9.8
(136.3)
170.2
1.20
1.00
1.09
1.16
(1) SEM is now sourcing its fixed-price natural gas requirements in Canadian dollars. As such, SEM will no longer be required to use US dollar forward contracts to fix its
Canadian dollar exposure.
(2) Does not include the impact of the US dollar conversion of ERCO’s Port Edwards, Wisconsin chloralkali facility which is anticipated to cost US$95.0 million in aggregate,
of which $1.4 million was incurred in 2007, with the remaining costs expected to be US$37.3 million in 2008 and US$56.3 million in 2009.
Superior utilizes interest rate swaps to manage the interest rate mix of its total debt portfolio and related overall cost of
borrowing. Superior manages its overall liquidity risk in relation to its general funding requirements by utilizing a mix of
short-term and longer-term maturity debt instruments. (See Notes 9, 10 and 12 to the consolidated Financial Statements.)
2007 ANNUAL REPORT
36
management’s discussion and Analysis
Superior utilizes a variety of counterparties in relation to its derivative and non-financial derivative instruments in order to
mitigate its counterparty risk. Superior assesses the creditworthiness of its significant counterparties at the inception and
through out the term of a contract. Superior is also exposed to customer credit risk. Superior Propane and Winroc deal with
a large number of small customers, thereby reducing this risk. ERcO, due to the nature of its operations, sells its products
to a relatively small number of customers. ERcO mitigates its customer credit risk by actively monitoring the overall
creditworthiness of its customers. SEm has minimal exposure to customer credit risk as local natural gas and electricity
distribution utilities have been mandated to provide SEm with invoicing, collection and the assumption of bad debt risks for
residential and small commercial customers. SEm actively monitors the creditworthiness of its industrial customers.
For additional details on the Fund’s financial instruments, including the amount and classification of gains and losses
recorded in the Fund’s consolidated Financial Statements and significant assumptions used in the calculation of the fair
value of the Fund’s financial instruments, see Note 12 to the consolidated Financial Statements.
Sensitivity Analysis
The Fund’s estimated cash flow sensitivity in 2007 to the following changes is provided below:
Change
Change
Impact on
Distributable
Cash Flow
Per Trust
Unit
Superior Propane
Change in sales margin
Change in sales volume
ERCO Worldwide
Change in sales price
Change in sales volume
Winroc
$0.005/litre
50 million litres
$10.00/tonne
15,000 metric tonnes
Change in distribution sales margin
1% change in average gross margin
Change in sales volume
4% of distribution sales revenues
Superior Energy Management
Change in sales margin
Change in sales volume
$0.02/GJ
2 million GJ
Corporate
Change in Cdn$/US$ exchange rate (1)
Corporate change in interest rates
$0.01
0.5%
(1) After giving effect to US$ forward sales contracts for 2008. See “Financial Instruments – Risk Management”.
Critical Accounting Estimates
3%
4%
2%
2%
3%
4%
2%
5%
$7.1 million
$6.8 million
$6.6 million
$3.9 million
$4.3 million
$2.6 million
$0.7 million
$1.6 million
1%
10%
$0.1 million
$1.4 million
$0.08
$0.08
$0.08
$0.04
$0.05
$0.03
$0.01
$0.02
_
$0.02
The Fund’s significant accounting policies are contained in Note 2 to the consolidated Financial Statements. certain
of these policies involve critical accounting estimates because they require the Fund to make particularly subjective or
complex judgments about matters that are inherently uncertain and because of the likelihood that materially different
amounts could be reported under different conditions or using different assumptions. The Fund constantly evaluates
these estimates and assumptions.
AllowAnce for Doubtful Accounts
The Fund expects that a certain portion of required customer payments will not be made and maintains an allowance
for these doubtful accounts. This allowance is based on the Fund’s estimate of the likelihood of recovering its accounts
receivable. it incorporates current and expected collection trends. if economic conditions change, actual results or specific
industry trends differ from the Fund’s expectations, the Fund will adjust its allowance for doubtful accounts and its bad
debts expense accordingly.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
37
employee future benefits
The accrued benefit obligation is determined by independent actuaries using the projected benefit method prorated
on service and based on management’s best economic and demographic estimates. The benefit relates to the Fund’s
defined benefit plans. The expected return on plan assets is determined by considering long-term historical returns, future
estimates of long-term investment returns and asset allocations.
Asset impAirment
The Fund reviews long-lived assets and intangible assets with finite lives whenever events or changes in circumstances
indicate that the carrying amounts of such assets may not be fully recoverable. determination of recoverability is based
on an estimate of undiscounted future cash flows, and measurement of an impairment loss is based on the fair value of
the assets.
Goodwill is not amortized, but is assessed for impairment at the reporting unit level annually, or sooner if events or
changes in circumstances indicate that the carrying amount could exceed fair value. Goodwill is assessed for impairment
using a two-step approach, with the first step being to assess whether the fair value of the reporting unit to which the
goodwill is associated is less than its carrying value. if this is the case, a second impairment test is performed which
requires a comparison of the fair value of goodwill to its carrying amount. if fair value is other than temporarily less than
the carrying value, goodwill is considered to be impaired and an impairment charge would be recognized immediately.
Changes in Accounting Policies
finAnciAl instruments
On January 1, 2007, the Fund adopted on a prospective basis four new accounting standards that were issued by the
canadian institute of chartered Accountants (cicA): Handbook Section 1530, Comprehensive Income, Handbook Section
3855, Financial Instruments – Recognition and Measurement, Handbook Section 3861, Financial Instruments – Disclosure and
Presentation, and Handbook Section 3865, Hedges. These standards, and the impact on our financial position and results
of operations, are discussed in Note 2 to the consolidated Financial Statements.
Accounting chAnges
On January 1, 2007 the Fund adopted cicA Handbook Section 1506, Accounting Changes. The amendments to this section
were made to harmonize this section with current international Financial Reporting Standards. Revisions to section 1506
require that voluntary changes in accounting policy are only permitted if they result in financial statements that provide
more reliable and relevant information. Accounting policy changes are applied on a retrospective basis unless impractical
to do so. corrections of prior-period errors are applied retrospectively and changes in accounting estimates are applied
prospectively by including the changes through net income. This section also outlines additional disclosure requirements
when accounting changes are applied including justification for voluntary changes, a description of the policy, the primary
source of generally accepted accounting policies (GAAP) and a detailed effect on financial statement line items.
Recent Accounting Pronouncements
finAnciAl instruments – Disclosure AnD presentAtion
Effective January 1, 2008 for the Fund, the cicA has replaced Handbook Section 3861, Financial Instruments Disclosure
and Presentation with Handbook Section 3862 Financial Instruments – Disclosures and Handbook Section 3863 Financial
Instruments – Presentation. The revised standards provide enhanced disclosure and presentation requirements, with an
increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the
entity manages these risks.
2007 ANNUAL REPORT
38
management’s discussion and Analysis
cApitAl Disclosures
Effective January 1, 2008 for the Fund, the cicA has issued Handbook Section 1535, Capital Disclosures. This section
requires the disclosure of (i) the Fund’s objectives, policies and processes for managing capital; (ii) quantitative data about
what the Fund regards as capital; (iii) whether the Fund has complied with any capital requirements; and (iv) if the Fund
has not complied, the consequences of such non-compliance.
inventory
Effective January 1, 2008 for the Fund, the cicA has issued Handbook Section 3031, Inventories, replacing Handbook
Section 3030, Inventories. This section provides increased guidance on the determination of the cost and financial statement
presentation of inventory. The Fund anticipates that the calculation of the cost of inventory of ERcO Worldwide will be
impacted by this revised standard, due to the requirement to inventory the cost of certain fixed overhead items, principally
the amortization of property, plant and equipment. The Fund does not anticipate that this will have a material impact on its
net earnings, but rather that it will affect the classification of amortization expense on the financial statements. Previously,
all amortization was expensed and classified on the income statement as amortization. The revised standard requires that
the amortization that is inventoried be classified as a component of cost of product sold.
Selected Financial Information
(millions of dollars except per trust unit amounts)
Total assets (as at December 31)
Total revenues (1)
Gross profit (1)
Net earnings (loss) from continuing operations
Net earnings (loss)
Per basic trust unit, from continuing operations
Per diluted trust unit, from continuing operations
Per basic trust unit
Per diluted trust unit
Cash generated from continuing operations
Distributable cash flow
Per trust unit
Cash distributions per trust unit (2)
Current and long-term debt (3) (as at December 31)
(1) Total revenues and gross profit from continuing operations.
(2) Cash distributions per trust unit paid in fiscal year.
(3) Current and long-term debt before deferred financing fees.
Fourth Quarter Results
2007
1,542.8
2,355.4
661.8
119.4
119.8
1.38
1.38
1.38
1.38
134.3
170.4
$
$
$
$
$ 1.97
$
1.56
340.5
2006
1,536.9
2,264.3
630.9
(55.6)
(80.8)
(0.65)
(0.65)
(0.94)
(0.94)
151.7
180.4
2.11
1.82
346.7
$
$
$
$
$
$
2005(1)
2,373.6
2,059.2
623.6
101.3
104.4
1.27
1.26
1.31
1.30
144.4
187.0
2.35
2.41
644.7
$
$
$
$
$
$
Fourth quarter distributable cash flow was $63.0 million, an increase of $7.4 million or 13% over the prior year’s quarter.
The increase in distributable cash flow was due to improved operating cash flow at Superior Propane, due principally
to higher volumes and other service and wholesale gross profits, and at ERcO due to improved sodium chlorate gross
profits. Fourth quarter results were also impacted by lower interest and corporate costs, offset in part by the absence of a
contribution from JW Aluminum as a result of its sale on december 7, 2006, and marginally lower operating cash flow
at Winroc and SEm. distributable cash flow per trust unit was $0.72 per trust unit in the fourth quarter, an increase of
$0.07 per trust unit or 11% from the prior year’s quarter, due to the increase in distributable cash flow, offset in part by a
2% increase in the average number of trust units outstanding.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
39
Net earnings for the fourth quarter were $64.5 million, compared to $38.1 million for the prior year quarter. The increase
in net earnings was due principally to improved gross profits at Superior Propane as a result of higher sales volumes.
Additionally, the 2007 fourth quarter included unrealized gains on financial instruments that were not present in the
prior year’s quarter, due to the adoption of new accounting standards on January 1, 2007, (see “changes in Accounting
Policies” for further discussion of these changes). The unrealized gain was the result of gains on SEm’s financial natural
gas derivative contracts due to changes in the forward price of natural gas, which were partially offset by losses on ERcO
Worldwide’s fixed-price electricity purchase agreement due to changes in the forecasted price of electricity in deregulated
markets. Amortization was lower than the prior year due to reduced amortization at ERcO Worldwide, as a result of asset
impairments recorded in the prior year. Total interest expense of $10.7 million in the fourth quarter was $5.7 million lower
than in the prior year’s quarter, due principally to lower average debt levels. Additionally, fourth quarter net earnings were
affected for the same reasons as the analysis of distributable cash flow for the fourth quarter. Further discussion of the 2007
fourth quarter results is provided in the Fund’s Fourth Quarter and 2007 Earnings Release, dated February 28, 2008.
Quarterly Financial and Operating Information
Quarterly financial and operating information for 2007 and 2006 is provided in the table below. Superior’s overall
operating cash flow and working capital funding requirements are modestly seasonal as approximately 80% of Superior
Propane’s operating cash flow is generated during the first and fourth quarters of each year as approximately 50% of its
sales are generated from space heating end-use applications. Net working capital funding requirements follow a similar
seasonal trend, peaking during the first quarter of each year and declining to seasonal lows during the third quarter. The
seasonality of Winroc’s operating cash flow and working capital funding requirements is modestly complementary to
Superior Propane’s as new construction and remodelling activity typically peaks during the second and third quarter of
each year. ERcO Worldwide and SEm’s operating cash flow and net working capital requirements do not have significant
seasonal fluctuations.
(millions of dollars except per trust unit amounts)
Fourth
Third
Second
First
Fourth
Third
Second
First
2007
Quarter
2006
Quarter
Propane sales volumes (millions of litres)
Chemical sales volumes
(thousands of metric tonnes)
Natural gas sales volumes (millions of GJs)
Gross profit
Asset impairments, net of tax
Net earnings (loss) from
continuing operations
Net earnings (loss)
Per basic trust unit from
continuing operations
Per diluted trust unit from
continuing operations
Per basic trust unit
Per diluted trust unit
Distributable cash flow
Per basic trust unit
Per diluted trust unit
Net working capital (1)
416
194
9
185.8
–
64.5
64.5
256
187
9
145.9
–
280
477
193
9
144.4
–
194
10
185.7
–
(25.9)
(26.9)
(25.5)
(25.5)
106.3
107.7
407
191
10
174.1
–
25.3
38.1
261
190
11
143.5
56.3
270
183
10
141.2
170.8
46.3
1.1
(157.4)
(153.3)
448
191
9
172.1
–
30.2
33.3
$ 0.74 $ (0.30) $ (0.30) $ 1.24 $ 0.30 $ 0.54 $ (1.84) $ 0.35
$ 0.74 $ (0.30) $ (0.30) $ 1.24 $ 0.30 $ 0.54 $ (1.84) $ 0.35
$ 0.74 $ (0.31) $ (0.30) $ 1.26 $ 0.45 $ 0.01 $ (1.79) $ 0.39
$ 0.74 $ (0.31) $ (0.30) $ 1.26 $ 0.45 $ 0.01 $ (1.79) $ 0.39
63.0
25.7
19.4
62.3
55.6
33.8
34.6
56.5
$ 0.72 $ 0.30 $ 0.23 $ 0.73 $ 0.65 $ 0.40 $ 0.40 $ 0.66
$ 0.72 $ 0.30 $ 0.23 $ 0.73 $ 0.65 $ 0.40 $ 0.40 $ 0.66
310.6
162.7
134.1
141.9
173.0
237.9
294.8
178.9
(1) Net working capital reflects amounts as at the quarter end and is comprised of cash and cash equivalents, accounts receivable and inventories, less bank indebtedness,
accounts payable and accrued liabilities.
2007 ANNUAL REPORT
40
management’s discussion and Analysis
Segmented Distributable Cash Flow (1)
Superior
Propane
ERCO Winroc
SEM Corporate
Discontinued
Operations
JWA (2)
Total
Consolidated
103.8
22.9
33.3
17.8
(58.4)
0.4
119.8
For the year ended
December 31, 2007
(millions of dollars)
Net earnings (loss) from
continuing operations
Add: Amortization of property,
plant and equipment,
intangible assets and
convertible debenture
issue costs
Future income tax
expense (recovery)
Management
internalization costs
Superior Propane non-cash
pension expense
Unrealized (gains) losses
on financial instruments
Strategic plan costs
15.7
42.6
4.2
–
2.8
(19.9)
12.1
(2.3)
0.8
(1.1)
–
1.7
(2.3)
0.4
–
–
5.5
4.9
–
–
–
–
–
–
–
(6.9)
0.4
–
–
0.5
–
1.0
–
–
–
–
–
–
–
–
–
(0.4)
–
–
65.3
(10.4)
0.5
1.7
(2.7)
5.7
(0.4)
(9.1)
170.4
Discontinued operations
–
–
Less: Maintenance capital
expenditures, net
0.2
(8.7)
(0.6)
Distributable cash flow before
strategic plan costs
99.6
79.3
34.6
12.1
(55.2)
(1) See the Consolidated Financial Statements for net earnings (loss), amortization of property, plant and equipment, intangible assets and convertible debenture issue
costs, future income tax expense (recovery), trust unit incentive plan expense (recovery), management internalization costs, impairment of property, plant and
equipment and goodwill, and maintenance capital expenditures.
(2) See Note 3 to the Consolidated Financial Statements.
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
41
For the year ended
December 31, 2006
(millions of dollars)
Net earnings (loss) from
continuing operations
Add: Amortization of property,
plant and equipment,
intangible assets and
convertible debenture
issue costs
Future income tax
expense (recovery)
Trust unit incentive
plan recovery
Management
internalization costs
Superior Propane
non-cash pension expense
Impairment of property,
plant and equipment,
and goodwill (2)
Superior
Propane
ERCO Winroc
SEM Corporate
Discontinued
Operations
JWA (1)
Total
Consolidated
115.8
(59.3)
46.0
12.6
(170.7)
20.4
52.6
4.1
–
2.3
(49.2)
(133.9)
(8.9)
(2.6)
85.4
–
–
2.2
–
–
–
–
218.7
–
–
–
–
(1.2)
1.3
–
–
0.3
13.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(55.6)
79.4
(109.2)
(1.2)
1.3
2.2
218.7
19.7
Strategic plan costs
1.1
5.1
Distributable cash from
discontinued operations
–
–
Less: Maintenance capital
expenditures, net
0.3
(7.5)
(6.6)
–
–
–
–
38.9
38.9
–
(13.8)
Distributable cash
flow before strategic
plan costs
90.6
75.7
34.6
10.3
(69.7)
38.9
180.4
(1) See Note 3 to the Consolidated Financial Statements.
(2) See Note 5 to the Consolidated Financial Statements.
Disclosure Controls and Procedures
disclosure controls and procedures are designed by, or designed under the supervision of Superior’s chairman and chief
Executive Officer (cEO) and the Executive Vice President and chief Financial Officer (cFO) to provide reasonable assurance
that all material information relating to Superior is communicated to them by others in the organizations as it becomes
known and is appropriately disclosed as required under the continuous disclosure requirements of securities legislation.
in essence, these types of controls are related to the quality and timeliness of financial and non-financial information in
securities filings. They are assisted in this responsibility by the disclosure committee (dc) which is composed of senior
managers of Superior. The dc has established procedures so that it can be aware of any material information affecting
Superior in order to evaluate and discuss this information and determine the appropriateness and timing of its public
release. An evaluation of the effectiveness of the design and operation of the Fund’s disclosure controls and procedures
was conducted as at december 31, 2007 by and under the supervision of Superior’s management, including the cEO and
2007 ANNUAL REPORT
42
management’s discussion and Analysis
cFO. Based on this evaluation, the cEO and cFO have concluded that the Fund’s disclosure controls and procedures, as
defined in multilateral instrument 52-109, certification of disclosure in issuers’ Annual and interim Filings, are effective
to ensure that information required to be disclosed in reports that are filed or submitted under canadian securities
legislation is recorded, processed, summarized and reported within the times specified in those rules and forms.
Internal Control Over Financial Reporting
Superior’s management, including the cEO and cFO is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with canadian GAAP.
in 2005, at the direction and oversight of the Audit committee of the Board of directors, the cEO and cFO established a
project team to ensure Superior’s ability to meet its obligations under multilateral instrument 52-109. An external advisor was
engaged, and a steering committee to oversee the project was established. The evaluation of the design of internal controls
over financial reporting was completed as at december 31, 2007. Based on the assessment, management, including the cEO
and cFO determined that the design of the Fund’s internal control over financial reporting provided reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.
No changes were made in the Fund’s internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, the Fund’s internal control over financial reporting in the quarter ended december 31, 2007.
Forward Looking Information
certain information included or incorporated by reference herein is forward-looking, within the meeting of applicable
canadian securities laws. Forward-looking information includes, without limitation, statements regarding the future
financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, distributable
cash flow, taxes and plans and objectives of or involving Superior Plus income Fund (the Fund) or Superior Plus LP
(Superior LP or the Partnership). much of this information can be identified by looking for words such as “believe”,
“expects”, “expected”, “will”, “intends”, “projects”, “anticipates”, “estimates”, “continues” or similar words. Forward-looking
information in this management’s discussion and Analysis, includes but is not limited to, outlooks, capital expenditures,
business strategy and objectives. The Fund and Superior LP believe the expectations reflected in such forward-looking
information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-
looking information should not be unduly relied upon.
Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties
some of which are described herein. Such forward-looking information necessarily involves known and unknown risks
and uncertainties, which may cause the Fund’s or Superior LP’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 information. These risks and uncertainties include but are not limited to the risks identified in the Fund’s Annual
information Form under “Risk Factors”. Any forward-looking information is made as of the date hereof and, except as
required by law, neither the Fund nor Superior LP undertakes any obligation to publicly update or revise such information
to reflect new information, subsequent or otherwise.
Non-GAAP Financial Measures
DistributAble cAsh flow
distributable cash flow of the Fund available for distribution to Unitholders is equal to cash generated from operations
adjusted for changes in non-cash working capital and natural gas and electricity customer acquisition costs, less maintenance
capital expenditures. maintenance capital expenditures are equal to capital expenditures incurred to maintain the capacity
SUPERiOR PLUS iNcOmE FUNd
management’s discussion and Analysis
43
of Superior’s operations and are deducted from the calculation of distributable cash flow. Acquisitions and other capital
expenditures incurred to expand the capacity of Superior’s operations or to increase its profitability (“growth capital”)
are excluded from the calculation of distributable cash flow. The Fund may deduct or include additional items to its
calculation of distributable cash flow; these items would generally, but not necessarily, be items of a non-recurring nature.
distributable cash flow is the main performance measure used by management and investors to evaluate the performance
of the Fund and its businesses. Readers are cautioned that distributable cash flow is not a defined performance measure
under canadian GAAP, and that distributable cash flow cannot be assured. The Fund’s calculation of distributable cash
flow, maintenance capital and growth capital may differ from similar calculations used by comparable entities. Operating
distributable cash flow is distributable cash flow before corporate and interest expenses. it is also a non-GAAP measure
and is used by management to assess the performance of the operating divisions.
stAnDArDizeD DistributAble cAsh flow
during 2007, the cicA published an interpretive release, Standardized Distributable Cash in Income Trusts and Other
Flow-Through Entities: Guidance on Preparation and Disclosure, in order to provide its recommendations related to the
measurement and disclosure of cash available for distributions. The guidance was issued in an effort to improve the
consistency, comparability and transparency of the reporting of the measure commonly referred to as distributable cash
flow. Superior’s calculation of standardized distributable cash flow is, in all material respects, in accordance with the
recommendations provided by the cicA.
Superior views the cicA recommendations as a positive step in providing stakeholders with meaningful information,
but consistent with the guidance provided by the cicA, Superior has determined that, due to the nature of Superior’s
businesses, certain adjustments to standardized distributable cash flow are required to better reflect the cash flow available
to be distributed to Unitholders. Superior’s adjusted standardized distributable cash flow is referred to as distributable
cash flow and is unchanged from Superior’s previous definition or measurement of distributable cash flow. Superior’s
distribution policy is based on distributable cash flow on an annualized basis; accordingly, the seasonality of Superior’s
individual quarterly results must be assessed in the context of annualized distributable cash flow. Adjustments recorded by
Superior as part of its calculation of distributable cash flow include, but are not limited to, the impact of the seasonality of
Superior’s businesses, principally Superior Propane, by adjusting for non-cash working capital items, thereby eliminating
the impact of the timing between the recognition and collection/payment of Superior’s revenues and expenses, which
can from quarter to quarter differ significantly. Superior’s calculation also distinguishes between capital expenditures that
are maintenance related and those that are growth related, in addition to allowing for the proceeds received on the sale of
certain capital items. Adjustments are also made to reclassify the cash flows related to natural gas and electricity customer
acquisition costs in a manner consistent with the income statement recognition of these costs.
ebitDA
EBiTdA represents earnings before interest, taxes, depreciation and amortization calculated on a 12-month trailing basis
giving pro forma effect to acquisitions and divestitures and is used by Superior to calculate its debt covenants and other
credit information, and is not a defined performance measure under GAAP. Superior’s calculation of EBiTdA may differ
from similar calculations used by comparable entities.
business risks AnD ADDitionAl informAtion
Additional information relating to the Fund and Superior, including a detailed review of the Fund’s business risks
is provided in the Fund’s 2007 Annual information Form, which is available free of charge on the Fund’s website at
www.superiorplus.com and on the canadian Securities Administrators’ website at www.sedar.com.
2007 ANNUAL REPORT
44
management’s Report
Management’s Responsibility for Financial Reporting
The financial statements of the Superior Plus income Fund (the Fund) and all of the information in this annual
report are the responsibility of the Superior Plus Administration inc., the Administrator of the Fund.
The consolidated Financial Statements have been prepared by management in accordance with canadian
generally accepted accounting principles and include certain estimates that are based on management’s best
judgments. Actual results may differ from these estimates and judgments. management has ensured that the
consolidated Financial Statements are presented fairly in all material respects.
management has developed and maintains a system of internal controls to provide reasonable assurance that
the Fund’s assets are safeguarded, transactions are accurately recorded, and the financial statements realistically
report the Fund’s operating and financial results in a timely manner. Financial information presented
elsewhere in this annual report has been prepared on a consistent basis with that in the consolidated Financial
Statements.
The Board of directors of Superior Plus Administration inc. is responsible for reviewing and approving
the financial statements and primarily through its Audit committee ensures that management fulfills its
responsibilities for financial reporting. The Audit committee meets with management and its external auditors,
to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues,
to satisfy itself that each party is properly discharging its responsibilities and to review the annual report, the
financial statements and the external auditors’ report. The committee reports its findings to the Board for the
Board’s consideration in approving the financial statements for issuance to the Unitholders. The committee
also considers, for review by the Board and approval by the Unitholders, the engagement or re-appointment of
the external auditors.
deloitte & Touche LLP, an independent firm of chartered accountants, was appointed by a vote of Unitholders
at the Fund’s last annual meeting to audit the Fund’s consolidated Financial Statements in accordance with
canadian generally accepted auditing standards. They have provided an independent professional opinion.
deloitte & Touche LLP has full and free access to the Audit committee.
(signed) "Grant d. Billing "
(signed) "Wayne m. Bingham"
chairman and chief Executive Officer
Executive Vice-President and chief Financial Officer
Superior Plus Administration inc.
Superior Plus Administration inc.
calgary, Alberta
February 15, 2008
SUPERiOR PLUS iNcOmE FUNd
Auditors’ Report
45
To the Unitholders of Superior Plus Income Fund:
We have audited the consolidated balance sheets of Superior Plus income Fund as at december 31, 2007
and 2006 and the consolidated statements of net earnings (loss), comprehensive income (loss) and deficit
and cash flows for the years then ended. These financial statements are the responsibility of the
Fund’s management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.
in our opinion, these financial statements present fairly, in all material respects, the financial position of
the Fund as at december 31, 2007 and 2006 and the results of its operations and its cash flows for the
years then ended in accordance with canadian generally accepted accounting principles.
calgary, Alberta
February 15, 2008
(signed) "deloitte & Touche LLP"
chartered Accountants
2007 ANNUAL REPORT
46
consolidated Balance Sheets
2006
33.6
246.1
142.8
–
422.5
571.1
25.9
31.5
452.4
23.7
9.8
–
1,536.9
243.6
10.8
17.9
–
272.3
344.0
305.8
19.2
–
941.3
1,340.8
(745.3)
0.1
595.6
1,536.9
As at December 31
(millions of dollars)
Assets
Current Assets
Cash and cash equivalents
Accounts receivable and other (Note 6)
Inventories (Note 7)
Current portion of unrealized gains on financial instruments (Note 12)
Property, plant and equipment (Note 8)
Deferred costs (Note 8)
Intangible assets (Note 8)
Goodwill
Accrued pension asset (Note 11)
Future income tax asset (Note 13)
Long-term portion of unrealized gains on financial instruments (Note 12)
liAbilities AnD unitholDers’ equity
Current Liabilities
Accounts payable and accrued liabilities
Current portion of term loans (Note 9 and 10)
Distributions and interest payable to Unitholders and Debentureholders
Current portion of unrealized losses on financial instruments (Note 12)
Revolving term bank credits and term loans (Note 9)
Convertible unsecured subordinated debentures (Note 10)
Future employee benefits (Note 11)
Long-term portion of unrealized losses on financial instruments (Note 12)
Total Liabilities
Unitholders’ Equity
Unitholders’ capital (Note 14)
Accumulated deficit
Accumulated other comprehensive income (loss) (Note 14)
Total Unitholders’ Equity
(See Notes to the Consolidated Financial Statements)
2007
14.1
265.8
105.2
48.0
433.1
514.4
17.4
23.5
451.8
21.9
20.3
60.4
1,542.8
212.1
3.9
12.1
51.1
279.2
334.1
240.0
18.5
54.3
926.1
1,366.8
(729.8)
(20.3)
616.7
1,542.8
(signed) "David Smith"
Director
(signed) "Peter Valentine"
Director
SUPERiOR PLUS iNcOmE FUNd
consolidated Statements of Net Earnings (Loss),
comprehensive income (Loss) and deficit
47
Years ended December 31
(millions of dollars except per trust unit amounts)
Revenues
Cost of products sold
Realized gains (losses) on financial instruments (Note 12)
Gross profit
Expenses
Operating and administrative
Amortization of property, plant and equipment
Amortization of intangible assets
Interest on revolving term bank credits and term loans
Interest on convertible unsecured subordinated debentures
Accretion of convertible debenture issue costs
Management internalization costs
Impairment of property, plant and equipment and goodwill (Note 5)
Unrealized losses (gains) on financial instruments (Note 12)
Net earnings (loss) before income taxes from continuing operations
Income tax recovery (Note 13)
Net earnings (loss) from continuing operations
Net earnings (loss) from discontinued operations (Note 3)
Net Earnings (Loss)
Net earnings (loss)
Other comprehensive income (loss), net of tax:
Unrealized foreign currency gains (losses) on translation of self-sustaining
foreign operations
Reclassification of derivative gains and losses previously deferred
Comprehensive Income (Loss)
Deficit, Beginning of Year
Cumulative impact of adopting new accounting requirements for
financial instruments (Note 2 (b))
Net earnings (loss)
Distributions to Unitholders
Deficit, End of Year
Net earnings (loss) per trust unit from continuing operations, basic
and diluted (Note 15)
Net earnings (loss) per trust unit from discontinued operations, basic
and diluted (Note 15)
Net earnings (loss) per trust unit, basic and diluted (Note 15)
(See Notes to the Consolidated Financial Statements)
2007
2,355.4
(1,681.8)
(11.8)
661.8
439.7
57.6
4.9
25.2
19.5
2.8
0.5
–
(2.7)
547.5
114.3
5.1
119.4
0.4
119.8
119.8
(13.6)
11.3
117.5
(745.3)
30.6
119.8
(134.9)
(729.8)
2006
2,264.3
(1,633.4)
–
630.9
423.8
72.0
5.1
43.1
20.2
2.3
1.3
218.7
–
786.5
(155.6)
100.0
(55.6)
(25.2)
(80.8)
(80.8)
0.8
–
(80.0)
(508.8)
–
(80.8)
(155.7)
(745.3)
$
1.38
$
$
–
1.38
$
$
$
(0.65)
(0.29)
(0.94)
2007 ANNUAL REPORT
48
consolidated Statements of cash Flows
Years ended December 31
(millions of dollars)
Operating Activities
Net earnings (loss)
Net loss (earnings) from discontinued operations
Items not affecting cash:
Amortization of property, plant and equipment and intangible assets
and accretion of convertible debenture issue costs
Amortization of natural gas customer acquisition costs
Trust unit incentive plan compensation recovery
Superior Propane pension expense
Impairment of property, plant and equipment and goodwill
Unrealized losses (gains) on financial instruments
Future income tax recovery of Superior
Natural gas customer acquisition costs
Decrease (increase) in non-cash operating working capital items (Note 17)
Cash flows from operating activities of continuing operations
Investing Activities
Maintenance capital expenditures
Other capital expenditures
Acquisitions (Note 4)
Proceeds on sale of JW Aluminum Company (Note 3)
Cash flows from investing activities
Financing Activities
Revolving term bank credits and term loans
Repayment of 8%, Series 1 subordinated unsecured convertible debentures
Repayment of 8%, Series 2 subordinated unsecured convertible debentures
Issuance of Medium Term Notes
Repayment of Medium Term Notes
Repayment of JW Aluminum Company acquisition credit facility
Net proceeds (repayment) of accounts receivable sales program
Receipt of management internalization loans receivable
Proceeds from exercise of trust unit warrants
Proceeds from trust unit distribution reinvestment plan
Distributions to Unitholders
Cash flows from financing activities
Net increase (decrease) in cash from continuing operations
Net increase (decrease) in cash from discontinued operations (Note 3)
Cash and cash equivalents beginning of year
Cash and cash equivalents end of year
Supplementary cash flow information:
Cash income taxes paid
Cash interest paid
(See Notes to the Consolidated Financial Statements)
2007
119.8
(0.4)
65.3
6.6
–
1.7
–
(2.7)
(10.4)
(10.9)
(34.7)
134.3
(9.1)
(8.8)
(4.3)
1.4
(20.8)
38.4
(8.1)
(59.2)
–
–
–
5.0
0.5
–
25.3
(134.9)
(133.0)
(19.5)
–
33.6
14.1
7.8
43.4
SUPERiOR PLUS iNcOmE FUNd
2006
(80.8)
25.2
79.4
3.2
(1.2)
2.2
218.7
–
(109.2)
(8.4)
22.6
151.7
(13.8)
(53.0)
–
354.7
287.9
(122.7)
–
–
197.2
(197.2)
(167.8)
(5.0)
2.1
0.2
–
(155.7)
(448.9)
(9.3)
23.0
19.9
33.6
13.8
63.0
Notes to the consolidated Financial Statements
(tabular amounts in Canadian millions of dollars, unless noted otherwise, except per trust unit amounts)
49
1. Organization
The Superior Plus income Fund (the Fund) is a limited purpose, unincorporated trust governed by the laws of the Province
of Alberta. The Fund, directly and indirectly, owns 100% of Superior Plus LP (Superior). The Fund does not conduct active
business operations, but rather, it distributes to Unitholders the income it receives from Superior in the form of partnership
allocations, net of expenses and interest payable on the convertible unsecured subordinated debentures (the debentures).
The Fund’s investment in Superior is comprised of 2,997 class A limited partnership units and 3 class B general partnership
units of Superior. The Fund’s investments in Superior are financed by trust unit equity and debentures.
2. Accounting Policies
(A) bAsis of presentAtion
The accompanying consolidated Financial Statements have been prepared according to canadian generally accepted
accounting principles (GAAP), applied on a consistent basis, and include the accounts of the Fund, its wholly owned
subsidiaries, Superior and Superior’s subsidiaries. The accounting principles applied are consistent with those as set
out in the Fund’s annual financial statements for the year ended december 31, 2006, except as noted in Note 2(b). All
transactions and balances between the Fund, the Fund’s subsidiaries, Superior and Superior’s subsidiaries have been
eliminated on consolidation.
(b) chAnges in Accounting policies
Financial Instruments
On January 1, 2007, the Fund adopted four new accounting standards that were issued by the canadian institute of
chartered Accountants (cicA): Handbook Section 1530, Comprehensive Income, Handbook Section 3855, Financial
Instruments – Recognition and Measurement, Handbook Section 3861 Financial Instruments – Disclosure and Presentation,
and Handbook Section 3865, Hedges. The Fund adopted these standards prospectively, accordingly, comparative amounts
for prior periods have not been restated.
Comprehensive Income
Section 1530 introduces comprehensive income, which consists of net income and other comprehensive income (Oci).
Oci represents changes in equity during a period arising from transactions and other events with non-owner sources
and includes unrealized gains and losses on financial assets classified as available-for-sale, unrealized foreign currency
translation gains or losses arising from self-sustaining foreign operations, net of hedging activities, and changes in the
fair value of the effective portion of cash flow hedging instruments. The Fund has included in the consolidated Financial
Statements a Statement of comprehensive income for the changes in these items. The cumulative changes in Oci are
included in accumulated other comprehensive income (AOci), which is presented as a new category of Unitholders’
equity on the consolidated Balance Sheets.
Financial Instruments – Recognition and Measurement
Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial
derivatives. it requires that financial assets and financial liabilities, including derivatives, be recognized on the consolidated
Balance Sheets when the Fund becomes a party to the contractual provisions of the financial instrument or non-financial
derivative contract. Under this standard, all financial instruments are required to be measured at fair value on initial
recognition except for certain related party transactions. measurement in subsequent periods depends on whether the
financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or
other financial liabilities. After initial recognition, items classified as held-for-trading or available-for-sale are revalued at
fair values, and items classified as held-to-maturity, loans and receivables, and other financial liabilities are measured at
amortized cost using the effective interest method. Transaction costs are expensed as incurred for financial instruments
classified or designated as held-for-trading. For other financial instruments, transaction costs are recorded as part of the
underlying financial instrument and are amortized or accreted into net income.
2007 ANNUAL REPORT
50
Notes to the consolidated Financial Statements
derivative instruments are recorded on the consolidated Balance Sheets at fair value, including those derivatives that
are embedded in financial or non-financial contracts that are considered to be derivatives. changes in the fair values of
derivative instruments are recognized in net income with the exception of derivatives designated as effective cash flow
hedges or hedges of foreign currency exposure of a net investment in a self-sustaining foreign operation.
Financial Instruments – Presentation and Disclosure
Section 3861 established standards for the presentation and disclosure of financial instruments and non-financial
derivatives.
Hedges
Section 3865 specifies the criteria that must be satisfied in order for hedge accounting to be applied and the accounting for
each of the permitted hedging strategies: fair value hedges, cash flow hedges and hedges of foreign currency exposures of
net investments in self-sustaining foreign operations. The revised standards require the Fund to record all derivatives at
fair value. Prior to January 1, 2007, the Fund accounted for derivatives as hedges that qualified for hedge accounting.
Impact Upon Adoption of Sections 1530, 3855, 3861 and 3865
As a result of adopting these standards, on January 1, 2007 the Fund recorded previously unrecorded assets and liabilities
of $110.1 million and $97.6 million, respectively, resulting in a $30.6 million reduction to the Fund’s opening accumulated
deficit as at January 1, 2007 and the recognition of $18.1 million in accumulated other comprehensive income. The
Fund’s opening adjustment to accumulated other comprehensive income was $18.0 million, reflecting the transitional
adjustment of $18.1 million and the Fund’s net cumulative translation adjustment on the translation of its self-sustaining
foreign operations of $0.1 million.
Additionally, on January 1, 2007, the Fund reclassified $2.9 million of deferred financing fees previously classified as
deferred costs to revolving term bank credits and term loans, and $10.1 million of deferred convertible debenture issue
costs previously classified as deferred costs to convertible debentures.
Effective January 1, 2007, the Fund ceased formally designating and documenting economic hedges in accordance with
the requirements of Section 3865; accordingly, all derivative instruments are now recorded at fair value with changes in
the fair value recorded in net income.
Accounting chAnges
On January 1, 2007 the Fund adopted cicA Handbook Section 1506, Accounting Changes. Section 1506 permits voluntary
changes in accounting policy only if they result in financial statements that provide more reliable and relevant information.
Accounting policy changes are applied retrospectively unless it is impractical to determine the period or cumulative
impact of the change. corrections of prior period errors are applied retrospectively and changes in accounting estimates
are applied prospectively by including the changes through net income. This section also outlines additional disclosure
requirements when accounting changes are applied including justification for voluntary changes, a description of the
policy, the primary source of GAAP and a detailed effect on financial statement line items.
(c) business segments
Superior operates four continuing distinct business segments; a propane distribution and related services business
operating under the Superior Propane trade name; a specialty chemicals manufacturer operating under the ERcO
Worldwide trade name (ERcO); a construction products distribution business operating under the Winroc trade name; and
a fixed-price energy services business operating under the Superior Energy management trade name (SEm). (See Note 20).
JW Aluminum company (JWA or JW Aluminum), a manufacturer of specialty flat-rolled aluminum products, has been
sold and classified as a discontinued operation (See Note 3).
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
51
(D) cAsh AnD cAsh equivAlents
cash and cash equivalents include cash and short-term investments which, on acquisition, have a term to maturity of three
months or less.
(e) Accounts receivAble sAles progrAm
Superior has a revolving trade accounts receivable sales program under which all transactions are accounted for as sales.
Losses on sales depend in part on the previous carrying amount of trade accounts receivable involved in the sales and have
been included in interest on revolving term bank credits and term loans. The carrying amount is allocated between the
assets sold and retained interests based on their relative fair value at the date of the sale which is calculated by discounting
expected cash flows at prevailing money market rates.
(f) inventories
Superior Propane
Propane inventories are valued at the lower of weighted average cost and market determined on the basis of estimated
net realizable value. Appliances, materials, supplies and other inventories are stated at the lower of cost and market
determined on the basis of estimated replacement cost or net realizable value, as appropriate.
ERCO Worldwide
inventories are valued at the lower of cost and net realizable value. The cost of chemical inventories is determined on a
first-in, first-out basis. Stores and supply inventories are costed on an average basis. Transactions are entered into from
time to time with other companies to exchange chemical inventories in order to minimize working capital requirements
and to facilitate distribution logistics. Balances related to quantities due to or payable by ERcO are included in inventory.
Winroc
inventories of building products are valued at the lower of cost and net realizable value. cost is calculated on a weighted
average cost basis.
(g) finAnciAl instruments AnD DerivAtives
Financial Instruments
Financial instruments are recognized at fair value upon their initial recognition. measurement in subsequent periods is
dependent on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity,
loans and receivables, or other financial liabilities. After initial recognition, items classified as held-for-trading or available-
for-sale are revalued at fair values; items classified as held-to-maturity, loans and receivables, and other financial liabilities
are measured at amortized cost using the effective interest method. Transaction costs are expensed as incurred for financial
instruments classified or designated as held-for-trading. For other financial instruments, transaction costs are recorded as
part of the underlying financial instrument and are amortized or accreted into net income.
Derivatives
Financial and non-financial derivatives, including derivatives that are embedded in financial or non-financial contracts that are
considered to be derivatives, are recognized at fair value upon their initial recognition. measurement in subsequent periods is
at fair value with changes in fair value recorded to net income. Effective January 1, 2007, the Fund ceased formally designating
and documenting economic hedges in accordance with the requirements of applying hedge accounting under GAAP.
(h) property, plAnt AnD equipment
Cost
Property, plant, and equipment is recorded at cost less accumulated amortization. major renewals and improvements,
which extend the useful lives of equipment, are capitalized, while repair and maintenance expenses are charged to
operations as incurred. disposals are removed at carrying costs less accumulated amortization with any resulting gain or
loss reflected in operations.
2007 ANNUAL REPORT
52
Notes to the consolidated Financial Statements
Interest Capitalization
interest costs relating to major capital projects are capitalized as part of property, plant and equipment. capitalization of
interest ceases when the related asset is substantially complete and ready for its intended use.
Amortization
Superior Propane and Winroc
Property, plant and equipment assets are amortized over their respective estimated useful lives using the straight line
method except for loaned propane dispensers which use the declining balance method at a rate of 10%. The estimated
useful lives of major classes of property, plant and equipment are:
Buildings
Tanks and cylinders
20 to 40 years
20 years
Truck tank bodies, chassis and other Winroc distribution equipment 7 to 10 years
ERCO Worldwide
Property, plant and equipment assets are amortized on a straight-line basis. The estimated useful lives of major classes of
property, plant and equipment are:
Furniture and fixtures
Plant and equipment
3 to 5 years
15 to 30 years
Asset Retirement Obligations
certain of ERcO Worldwide’s assets may be subject to asset retirement obligations for which the fair value cannot be
reasonably determined because the assets currently have an indeterminate life and/or the potential obligations are
unknown. The asset retirement obligation for these assets is reviewed regularly, and will be recorded in the first period in
which the lives of the assets and the extent of an obligation are known.
Impairment
The Fund reviews long-lived assets and intangible assets with finite lives whenever events or changes in circumstances
indicate that the carrying amounts of such assets may not be fully recoverable. determination of recoverability is based
on an estimate of undiscounted future cash flows, and measurement of an impairment loss is based on the fair value of
the assets.
(i) intAngible Assets AnD DeferreD costs
ERCO Worldwide
The value of acquired royalty assets is amortized over the remaining term of the royalty agreements up to 10 years. The
costs of patents are amortized on a straight-line basis over their estimated useful lives, which approximate 10 years.
Natural Gas Customer Acquisition Costs
costs incurred by SEm to acquire natural gas customer contracts are capitalized as deferred costs at the time the cost
is incurred. The costs are recognized into net earnings as an operating and administrative expense over the term of the
underlying contracts, which approximates three to four years.
(j) gooDwill
All business combinations are accounted for using the purchase method. Goodwill is carried at cost, is not amortized
and represents the excess of the purchase price and related costs over the fair value assigned to the net tangible assets of
businesses acquired. Goodwill is tested for impairment on an annual basis using a two-step approach, with the first being
to assess whether the fair value of the reporting unit to which goodwill is associated is less than its carrying value. if this
is the case, a second impairment test is performed which requires a comparison of the fair value of goodwill to its carrying
amount. if the fair value is other than temporarily less than the carrying value, goodwill is considered to be impaired and
an impairment charge would be recognized immediately.
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
53
(k) revenue recognition
Superior Propane
Revenues from sales are recognized at the time of delivery, or when related services are performed and there is evidence
of an arrangement at a fixed or determinable price and the collectibility of the sale is assured.
ERCO Worldwide
Revenues from chemical sales are recognized at the time of delivery and when there is evidence of an arrangement at
a fixed or determinable price and the collectibility of the sale is assured. Revenues associated with the construction of
chlorine dioxide generators are recognized using the percentage-of-completion method based on cost incurred compared
to the total estimated cost.
Superior Energy Management
Natural gas revenues are recognized as gas is delivered to local natural gas distribution companies and when there is
evidence of an arrangement at a fixed or determinable price and the collectibility of the sale is assured. costs associated
with balancing the amount of gas used by SEm’s customers with the volumes delivered by SEm to the local distribution
companies are recognized as period costs. Electricity revenues are recognized as the electricity is consumed by the end-use
customer or sold to third parties.
Winroc
Revenue is recognized when products are delivered to the customer and when there is evidence of an arrangement at a fixed
or determinable price and the collectibility of the sale is assured. Revenue is stated net of discounts and rebates granted.
(l) rebAtes – winroc
Purchase rebates are recognized as a reduction of cost of goods sold when the related performance is completed and the
inventory is sold. Vendor rebates that are contingent upon completing a specified level of purchases are recognized as
a reduction of cost of goods sold based on a systematic and rational allocation of the cash consideration to each of the
underlying transactions that results in progress toward earning that rebate or refund, assuming that the rebate can be
reasonably estimated and it is probable that the specified target will be obtained. Otherwise, the rebate is recognized as the
milestone is achieved and the inventory is sold.
(m) future employee benefits
Superior has a number of defined benefit and defined contribution plans providing pension and other post-employment
benefits to most of its employees, and accrues its obligations under the plans and the related costs, net of plan assets.
Past service costs and actuarial gains and losses in excess of 10% are amortized into income over the expected average
remaining life of the active employees participating in the plans.
(n) income tAxes
The Fund is a mutual fund trust for income tax purposes. As such, the Fund is only taxable on any taxable income
not allocated to the Unitholders. Future income tax assets and liabilities are determined based on differences between
accounting and tax bases of assets and liabilities, and are measured using substantively enacted tax rates and laws that will
be in effect when the differences are expected to reverse. A future tax asset is recognized if it is more likely than not to be
realized. The effect of a change in tax rates on future income tax assets and liabilities is recorded in the period in which
the change occurs.
(o) foreign currency trAnslAtion
The accounts of the operations of ERcO and Winroc in the United States, and ERcO’s operations in chile are considered
to be self-sustaining foreign operations and are translated using the current rate method, under which all assets and
liabilities are translated at the exchange rate prevailing at the balance sheet date, and revenues and expenses at average
rates of exchange during the period. Other monetary assets and liabilities held by Superior are converted using the current
rate method.
2007 ANNUAL REPORT
54
Notes to the consolidated Financial Statements
Transactions denominated in a foreign currency, other than the translation of self-sustaining operations, are translated
into the functional currency at rates in effect at the date of the transaction. At the balance sheet date, monetary foreign
currency assets and liabilities are translated at exchange rates then in effect. The resulting translation gains or losses are
recognized in the determination of earnings.
(p) trust unit-bAseD compensAtion
Superior has a Trust Unit incentive Plan (TUiP) as described in Note 16(ii). The TUiP is a Stock Appreciation Right as
defined by the cicA. compensation expense recognized represents the difference between the market price of the trust
units and the grant price for the outstanding options multiplied by the number of options, reflecting the vesting features
of the plan. Upon exercise, the compensation is settled in trust units of the Fund.
The Fund has established other unit based compensation plans whereby restricted trust units and/or performance trust
units may be granted to employees. The fair value of these trust units is estimated and recorded as an expense with an
offsetting amount to accrued liabilities, with the payments settled in cash.
(q) net eArnings per trust unit
Basic net earnings per trust unit is calculated by dividing the net earnings by the weighted average number of trust units
outstanding during the year. The weighted average number of trust units outstanding during the year is calculated using
the number of trust units outstanding at the end of each month during the year. diluted net earnings per trust unit is
calculated by factoring in the dilutive impact of the dilutive instruments, including the exercise of trust unit options, the
conversion of debentures to trust units, and the exercise of trust unit warrants. The Fund uses the treasury stock method
to determine the impact of dilutive instruments, which assumes that the proceeds from in-the-money trust unit options
are used to repurchase trust units at the average market price during the period.
(r) use of estimAtes AnD Assumptions
The preparation of the Fund’s consolidated Financial Statements in accordance with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets, liabilities, net income and related disclosures.
certain estimates, including the allowance for doubtful accounts, employee future benefits and asset impairments require
management to make subjective or complex judgments. Accordingly, actual results could differ from these and other
estimates thereby impacting the Fund’s consolidated Financial Statements.
(s) future Accounting chAnges
Financial Instruments – Disclosure and Presentation
Effective January 1, 2008 for the Fund, the cicA has replaced Handbook Section 3861 Financial Instruments Disclosure
and Presentation with Handbook Section 3862 Financial Instruments – Disclosures and Handbook Section 3863 Financial
Instruments – Presentation. The revised standards provide enhanced disclosure and presentation requirements, with an
increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the
entity manages these risks.
Capital Disclosures
Effective January 1, 2008 for the Fund, the cicA has issued Handbook Section 1535 Capital Disclosures. This section
requires the disclosure of (i) the Fund’s objectives, policies and processes for managing capital; (ii) quantitative data about
what the Fund regards as capital; (iii) whether the Fund has complied with any capital requirements; and (iv) if the Fund
has not complied, the consequences of such non-compliance.
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
55
Inventory
Effective January 1, 2008 for the Fund, the cicA has issued Handbook Section 3031 Inventories, replacing Handbook
Section 3030 Inventories. This section provides increased guidance on the determination of the cost and financial statement
presentation of inventory. The Fund anticipates that the calculation of the cost of inventory of ERcO Worldwide will be
impacted by this revised standard, due to the requirement to inventory the cost of certain fixed overhead items, principally,
the amortization of property, plant and equipment. The Fund does not anticipate that this will have a material impact on
its net earnings, but rather it will affect the classification of amortization expense on the financial statements. Previously,
all amortization was expensed and classified on the income statement as amortization. The revised standard requires that
the amortization that is inventoried be classified as a component of cost of product sold.
3. Disposition – JW Aluminum
in July of 2006, the Fund announced the results of its strategic review designed to maximize Unitholder value which
included the decision to sell JWA in order to reduce debt levels and refocus its operations on its existing canadian
businesses. Accordingly, effective July 1, 2006, JWA’s balance sheet, results of operations and cash flows were classified
as discontinued operations on a retroactive basis. As a result of its classification as a discontinued operation, amortization
of JWA’s property, plant and equipment and intangible assets ceased on July 1, 2006.
On december 7, 2006, the Fund completed the sale of all of the issued and outstanding shares of JWA on a cash and
debt free basis to Wellspring capital management LLc, for total consideration of $356.1 million (US$310.1 million), net of
$4.9 million (US$4.3 million) in disposition costs.
The results of discontinued operations presented in the consolidated statements of net earnings (loss) were as follows:
Years ended December 31
Revenue
Cost of product sold
Gross profit
Operating and administrative
Amortization of property, plant and equipment and intangibles
Loss (gain) on sale of JWA, including final working capital adjustments
Income tax expense (recovery)
Net earnings (loss) from discontinued operations
The cash flows from (used in) discontinued operations were as follows:
Years ended December 31
Cash generated from discontinued operations before changes in working capital
Increase in non-cash operating working capital items
Cash flows from discontinued operations
Maintenance capital expenditures
Other capital expenditures
Cash flows used in investing activities
Cash flows from financing activities
Cash flows from (used in) discontinued operations
4. Acquisitions
2007
–
–
–
–
–
(0.4)
–
0.4
2007
–
–
–
–
–
–
–
–
during 2007, Winroc acquired the assets of two gypsum supply dealers, for consideration of $4.3 million.
There were no acquisitions completed by Superior during 2006.
2006
573.3
(514.6)
58.7
9.5
19.1
51.6
3.7
(25.2)
2 006
41.7
(12.2)
29.5
(2.8)
(3.7)
(6.5)
–
23.0
2007 ANNUAL REPORT
56
Notes to the consolidated Financial Statements
5. Asset Impairments
Superior determined during 2006 that the net book value of ERcO’s sodium chlorate facilities located in Bruderheim,
Alberta and Valdosta, Georgia and ERcO’s goodwill were impaired. An aggregate impairment charge of $218.7 million was
recorded in 2006 ($170.8 million net of tax) which was equivalent to the pre-impairment net book value of the assets.
A pre-tax impairment charge of $73.4 million ($47.7 million net of tax) was recorded with respect to ERcO’s Bruderheim,
Alberta sodium chlorate facility, based on estimates of the future cash flows from the facility which have been negatively
impacted by high electrical prices, lower sodium chlorate selling prices resulting from the appreciation of the canadian
dollar on US dollar-denominated sales, and reduced demand for sodium chlorate due to various bleached pulp mill
closures in North America.
A pre-tax impairment charge of $55.9 million ($33.7 million net of tax) was recorded with respect to ERcO’s Valdosta,
Georgia sodium chlorate facility based on estimates of the future cash flows from the facility which have been negatively
impacted by high electrical prices and reduced demand for sodium chlorate due to various bleached pulp mill closures in
North America.
As part of Superior’s assessment of ERcO’s overall operations, the fair value of ERcO was estimated using various
valuation methods based on current market assumptions surrounding the sodium chlorate industry which has been
negatively impacted by reduced demand for North American sodium chlorate due to various pulp mill closures, the impact
of the appreciation of the canadian dollar on ERcO’s US dollar-denominated sales and on the competitiveness of its
canadian pulp producer customer base, and increased power costs. Based on the estimated fair values, it was determined
that ERcO’s goodwill was impaired and as such an impairment charge of $89.4 million was recorded.
6. Accounts Receivable and Other
Superior sells, with limited recourse, certain trade accounts receivable on a revolving basis to an entity sponsored by a
canadian chartered bank. The accounts receivable are sold at a discount to face value based on prevailing money market
rates. Superior has retained the servicing responsibility for the accounts receivable sold and has therefore recognized a
servicing liability. The level of accounts receivable sold under the program fluctuates seasonally with the level of accounts
receivable. At december 31, 2007 proceeds of $100.0 million (december 31, 2006 – $95.0 million) had been received. The
accounts receivable program expires on June 30, 2008.
included in accounts receivable and other is $15.1 million (2006 – $15.3 million) of prepaid expenses.
7. Inventories
As at December 31
Propane
Propane retailing materials, supplies, appliances and other
Chemical finished goods and raw materials
Chemical stores, supplies and other
Walls and ceiling construction products
2007
36.8
13.9
7.9
11.0
35.6
105.2
2006
70.8
13.8
10.0
10.9
37.3
142.8
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
57
8. Property, Plant and Equipment, Deferred Costs and Intangible Assets
As at December 31
2007
2006
Land
Buildings
ERCO plant and equipment
Superior Propane
retailing equipment
Winroc distribution equipment
Cost
22.9
94.3
558.3
367.6
28.0
Property, plant and equipment
1,071.1
Natural gas customer
acquisition costs
Deferred finance costs (1)
Deferred costs
ERCO royalty assets and patents
SEM intangible assets
Winroc intangible assets
Superior Propane
intangible assets
Intangible assets
Total property, plant and
equipment, deferred costs
and intangible assets
28.9
–
28.9
41.5
1.2
2.1
2.8
47.6
Accumulated
Amortization
Net Book
Value
22.9
62.6
346.5
61.6
20.8
Cost
29.6
86.8
558.9
386.3
30.6
514.4
1,092.2
17.4
–
17.4
20.6
1.2
1.2
0.5
23.5
20.1
22.7
42.8
48.9
–
2.1
2.8
53.8
Accumulated
Amortization
Net Book
Value
–
27.7
177.7
309.9
5.8
521.1
7.2
9.7
16.9
19.7
–
0.6
2.0
22.3
29.6
59.1
381.2
76.4
24.8
571.1
12.9
13.0
25.9
29.2
–
1.5
0.8
31.5
_
31.7
211.8
306.0
7.2
556.7
11.5
–
11.5
20.9
–
0.9
2.3
24.1
1,147.6
592.3
555.3
1,188.8
560.3
628.5
(1) Deferred finance costs have been reclassified to the obligations they relate to in accordance with the new financial instrument section.
2007 ANNUAL REPORT
58
Notes to the consolidated Financial Statements
9. Revolving Term Bank Credits and Term Loans
Maturity
Date
Effective Interest Rate
December 31
2007
December 31
2006
Revolving term bank credits (1)
Bankers Acceptances (BA)
LIBOR Loans (US$66.7 million;
2006 – US$92.3 million)
Floating BA rate plus
applicable credit spread
Floating LIBOR rate plus
applicable credit spread
2010
2010
Other Debt
Notes payable
2007-2010
Prime
Deferred consideration
2008-2010 Non-interest bearing
Loan payable
2008-2014
6.3%
Mortgage payable (US$1.0 million;
2006 – US$1.0 million)
2011
7.53%
96.5
65.9
162.4
6.8
7.0
5.2
1.0
20.0
35.0
107.5
142.5
7.4
9.2
–
1.1
17.7
Senior Secured Notes
Senior secured notes subject to
floating interest rates (US$85.0
million; 2006 – US$85.0 million) (2)
Senior secured notes subject to
fixed interest rates (US$75.0 million;
2006 – US$75.0 million) (2)
JWA acquisition credit facility
(US$145.0 million) (3)
Medium Term Notes (4)
Total revolving term bank credits and term
loans before deferred financing fees
Deferred financing fees
Revolving term bank credits and
term loans
Current maturities
Revolving term bank credits and
term loans
2015
Floating LIBOR rate plus 1.7%
84.0
99.1
2013, 2015
6.65%
74.1
87.4
Floating LIBOR rate plus
credit applicable spread
5.57%
2007
2016
–
–
158.1
340.5
(2.5)
338.0
(3.9)
–
–
186.5
346.7
–
346.7
(2.7)
334.1
344.0
(1) Superior and its wholly-owned subsidiaries, Superior Plus US Holdings Inc. and Commercial e Industrial (Chile) Limitada have revolving term bank credit borrowing
capacity of $595.0 million. These facilities are secured by a general charge over the assets of Superior and certain of its subsidiaries.
(2) Senior Secured Notes (the Notes) totaling US$160.0 million (CDN $158.1 million at December 31, 2007 (2006 – CDN $186.5 million) are secured by a general charge
over the assets of Superior and certain of its subsidiaries. Principal repayments begin in 2009. Management has estimated the fair value of the Notes based on
comparisons to treasury instruments with similar maturities and interest rates. The estimated fair value of the Notes at December 31, 2007 was CDN $163.8 million
(2006 – CDN $181.0 million). In conjunction with the issue of the Notes, Superior swapped US $85.0 million (CDN $84.0 million at December 31, 2007 (2006 – CDN
$99.1 million) of the fixed rate obligation into a US dollar floating rate obligation.
(3) On October 19, 2005, Superior Plus US Holdings Inc. entered into a secured non-revolving term bank facility for US$145.0 million to partially finance the acquisition of
JWA. The facility was secured by a general charge over the assets of Superior and certain of its subsidiaries. This facility was repaid and cancelled in March 2006 from
proceeds raised through the issuance of Medium Term Notes.
(4) On March 3, 2006, Superior issued $200.0 million, 5.50% coupon, Medium Term Notes maturing on March 3, 2016 with an effective yield to maturity of 5.57%. This
facility was secured by a general charge over the assets of Superior and certain of its subsidiaries. On August 8, 2006, Superior repaid the Medium Term Notes from
borrowings under the revolving term credit facilities referred to in footnote 1 above, providing enhanced debt repayment and covenant flexibility.
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
59
Repayment requirements of the revolving term bank credits and term loans are as follows:
Current portion
Due in 2009
Due in 2010
Due in 2011
Due in 2012
Subsequent to 2012
Total
3.9
10.9
168.5
33.7
32.6
90.9
340.5
10. Convertible Unsecured Subordinated Debentures
The Fund has issued four series of debentures denoted as 8% Series 1, 8% Series 2, 5.75% Series 1, and 5.85% Series 1
as follows:
Unamortized
Discount
Total
Carrying
Value
Series 1 (1)
Series 2 (2)
Series 1
Series 1
July 31,
2007
November 1,
2008
December
31, 2012
October 31,
2015
8.0%
$ 16.00
8.0%
$ 20.00
5.75%
5.85%
$ 36.00 $ 31.25
8.1
59.2
174.9
75.0
(3.3)
313.9
Maturity date
Interest rate
Conversion price per trust unit
Debentures outstanding at
December 31, 2006 (3)
Conversion and repayment /
redemption of Debentures and
accretion of discount during 2007
Deferred issue costs
Debentures outstanding
Quoted market value December 31, 2007
(8.1)
(59.2)
–
–
–
–
–
–
–
(4.8)
170.1
152.2
157.5
–
(2.5)
72.5
67.5
66.4
0.7
(66.6)
(7.3)
(2.6)
240.0
Quoted market value December 31, 2006
8.2
60.8
(1) On July 31, 2007, $8.1 million Series 1, 8% Debentures matured and were repaid.
(2) On November 5, 2007, $59.2 million Series 2, 8% Debentures were redeemed.
(3) As at December 31, 2006, the current portion of Series 1, 8% Debentures outstanding was $8.1 million.
The debentures may be converted into trust units at the option of the holder at any time prior to maturity and may be
redeemed by the Fund in certain circumstances. The Fund may elect to pay interest and principal upon maturity or
redemption by issuing trust units to a trustee in the case of interest payments, and to the debentureholders in the case of
payment of principal. The number of any trust units issued will be determined based on market prices for the trust units
at the time of issuance.
2007 ANNUAL REPORT
60
Notes to the consolidated Financial Statements
11. Future Employee Benefits
Superior Propane and ERcO Worldwide have defined benefit (dB) and defined contribution (dc) pension plans covering
most employees. The benefits provided under dB pension plans are based on the employees’ years of service and on the
highest average earnings for a specified number of consecutive years. information about Superior’s dB and other post-
retirement benefit plans as at december 31, 2007 and 2006 in aggregate, is as follows:
Accrued benefit obligation, beginning of year
Current service cost
Past service cost
Interest cost
Benefits paid
Actuarial loss (gain)
Accrued benefit obligation, end of year
Fair value of plan assets, beginning of year
Actual return on plan assets
Transfers to defined contribution plan
Employer contributions
Benefits paid
Fair value of plan assets, end of year
Funded status – plan surplus (deficit)
Unamortized net actuarial loss
Unamortized past service costs
Unamortized transitional asset
Accrued net pension asset
Accrued net benefit obligation
Current portion of accrued net benefit
obligation recorded in accounts payable
and accrued liabilities
Long-term accrued net benefit obligation
(2007: $18.5 million; 2006: $19.2 million)
Superior Propane
Pension Benefit Plans
ERCO
Pension Benefit Plans
Total Other
Benefit Plans
2007
53.9
0.1
–
2.7
(4.1)
(1.4)
51.2
63.6
0.2
(2.6)
–
(4.1)
57.1
5.9
16.0
–
–
2006
56.0
0.3
–
2.9
(4.1)
(1.2)
53.9
63.4
6.8
(2.5)
–
(4.1)
63.6
9.7
14.0
–
–
2007
60.9
2.7
–
3.3
(1.7)
(1.2)
64.0
53.2
0.6
–
3.8
(1.7)
55.9
(8.1)
1.8
0.3
–
2006
56.9
2.7
–
3.1
(1.4)
(0.4)
60.9
45.1
6.5
–
3.0
(1.4)
53.2
(7.7)
(0.2)
0.6
–
2007
26.3
0.5
(2.5)
1.4
(1.1)
0.1
24.7
–
–
–
1.1
(1.1)
_
(24.7)
9.4
(2.5)
–
2006
25.9
0.5
–
1.4
(1.1)
(0.4)
26.3
–
–
–
1.1
(1.1)
_
(26.3)
9.9
–
–
21.9
23.7
(6.0)
(7.3)
(17.8)
(16.4)
(4.2)
(3.4)
(1.1)
(1.1)
(1.8)
(3.9)
(16.7)
(15.3)
The accrued net pension asset related to the Superior Propane pension benefit plan in 2007 was $21.9 million (2006 –
$23.7 million) and an expense for the year ended december 31, 2007 of $1.8 million (2006 – $2.2 million). The accrued
net benefit obligation related to the ERcO Worldwide pension benefit plan in 2007 was $6.0 million (2006 – $7.3 million)
and an expense for the year ended december 31, 2007 of $2.5 million (2006 – $2.7 million).
The accrued net benefit obligation related to the total other benefit plans of Superior Propane and ERcO Worldwide in
2007 was $17.8 million (2006 – $16.4 million) and an expense for the year ended december 31, 2007 of $2.5 million
(2006 – $2.5 million).
Superior’s dc pension plans are fully funded by their nature. Accordingly, dc pension plan assets equal the related
obligation. The total cost of Superior Propane’s dc plan in 2007 was $2.6 million (2006 – $2.5 million) and was fully
funded and offset by the return earned on the unrecognized dB plan’s net benefit asset. Superior Propane expects to
continue to fund its required annual obligation under the dc pension plan over the medium term from returns earned
on the dB plan’s net benefit asset.
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
61
The significant actuarial assumptions adopted in measuring accrued benefit obligations are as follows:
Discount rate
Expected long-term rate-of-return on plan assets (1)
Rate of compensation increase
(1) Based on market related values.
DB Plans
Other Benefit Plans
2007
5.50%
7.00%
3.50%
2006
5.25%
7.00%
3.25%
2007
5.50%
–
3.50%
2006
5.25%
–
3.25%
The weighted average annual assumed health care cost inflation trend used in the calculation of accrued Other Benefit
Plan Obligations is 10% initially, decreasing gradually to 5% in 2010 and thereafter. A 1% change in the health care trend
rate would result in a change to the accrued benefit obligation of $2.4 million and a change to the current service expense
of $0.2 million.
The most recent funding valuation dates for Superior’s defined benefits plans range from January 1, 2006 to January 1, 2007.
The next funding valuation dates are scheduled between January 1, 2009 and January 1, 2010.
The fair value of defined benefit plan assets at december 31, 2007 are comprised of the following major investment
categories: cash and cash equivalents 3% (2006 – 2%); Bonds 34% (2006 – 38%); Equities 63% (2006 – 60%).
12. Financial Instruments
The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s length
transaction between knowledgeable, willing parties who are under no compulsion to act. Fair values are determined by
reference to quoted bid or asking prices, as appropriate, in the most advantageous active market for that instrument to
which the Fund has immediate access. Where bid and ask prices are unavailable, the Fund uses the closing price of the
most recent transaction of the instrument. in the absence of an active market, the Fund determined fair values based on
prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk profiles or
internal or external valuation models, such as discounted cash flow analysis, using observable market-based inputs.
Fair values determined using valuation models require the use of assumptions concerning the amount and timing of
estimated future cash flows and discount rates. in determining those assumptions, the Fund looks primarily to external
readily observable market inputs including factors such as interest rate yield curves, currency rates, and price and rate
volatilities as applicable. With respect to the valuation of ERcO’s fixed-price electricity agreements, the valuation of these
agreements requires Superior to make assumptions about the long-term price of electricity in electricity markets for
which active market information is not available. The impact of the assumption for the long-term price of electricity has a
material impact on the fair value of these agreements. Any changes in the fair values of financial instruments classified or
designated as held-for-trading measured at fair value are recognized in net income.
2007 ANNUAL REPORT
62
Notes to the consolidated Financial Statements
finAnciAl AnD non-finAnciAl DerivAtives
Fair Value as
at December
31, 2007
Fair Value as
at January 1,
2007
Description
Natural gas financial swaps – NYMEX
Natural gas financial swaps – AECO
SEM electricity swaps
Foreign currency forward contracts, net
Interest rate swaps – US
Interest rate swaps – CDN
Propane wholesale purchase and
sale contracts, net
ERCO fixed-price electricity purchase
agreement
Notional
43.6 GJ (1)
36.4 GJ (1)
0.2 MW (2)
US$170.2 (3)
US$85.0 (3)
$100.0 CDN (3)
Term
2008-2011
2008-2012
Effective Rate
US$7.30/GJ
$7.74/GJ CDN
2008-2013
$72.54/MWh
2007-2011
1.17
2013-2015
2007
4.95%
5.33%
14.4 USG (4)
2007-2008
$1.25/USG
33.4
(18.7)
(0.4)
(46.0)
2.6
–
5.5
45 MW (2)
2008-2017
$45-$52/MWh
26.6
26.9
(29.4)
–
(15.0)
(1.2)
0.6
3.2
27.4
(1) Millions of gigajoules purchased (2) Mega watts (MW) on a 24/7 continual basis per year purchased (3) Millions of dollars purchased (4) Millions of United States gallons
purchased.
Description
Natural gas financial swaps – NYMEX and AECO
SEM electricity swaps
Foreign currency forward contracts, net
Interest rate swaps
Propane wholesale purchase and sale contracts
ERCO fixed-price power purchase agreements
As at December 31, 2007
As at January 1, 2007 upon adoption of new financial
instruments accounting requirements
Description
Natural gas financial swaps – NYMEX and AECO
SEM electricity swaps
Foreign currency forward contracts, net
Interest rate swaps
Propane wholesale purchase and sale contracts
ERCO fixed-price power purchase agreements
Current
Assets
Long-term
Assets
Current
Liabilities
Long-term
Liabilities
23.8
_
7.3
0.7
10.7
5.5
48.0
33.7
34.7
0.1
2.6
1.9
_
21.1
60.4
76.4
21.6
0.3
24.0
_
5.2
_
51.1
36.1
22.2
0.2
31.9
_
_
_
54.3
61.5
Year Ended December 31, 2007
Realized
Gain (Loss)
Unrealized
Gain (Loss)
(14.9)
–
(4.5)
–
–
7.6
(11.8)
–
–
(11.8)
7.3
(0.4)
(33.3)
3.8
2.3
(0.7)
(21.0)
27.7
(4.0)
2.7
Total realized and unrealized gains (losses) on financial and non-financial derivatives
Foreign currency translation of senior secured notes
Foreign currency translation of ERCO royalty assets
Total realized and unrealized gains (losses)
non-DerivAtive finAnciAl instruments
The Fund’s accounts receivables have been designated as available for sale due to the Fund’s accounts receivable securitization
program, while the Fund’s accounts payable, distributions and interest payable to Unitholders and debentureholders,
while revolving term bank credits and term loans and debentures have been designated as other liabilities. The carrying
value of the Fund’s cash, accounts receivable, accounts payable, and distributions and interest payable to Unitholders and
debentureholders approximates their fair value due to the short-term nature of these amounts. The carrying value and the
fair value of the Fund’s revolving term bank credits and term loans, and debentures, is provided in Notes 9 and 10 of the
consolidated Financial Statements.
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
63
finAnciAl instruments – risk mAnAgement
derivative and non-financial derivatives are used by the Fund to manage its exposure to fluctuations in foreign currency
exchange rates, interest rates and commodity prices. The Fund’s policy is not to use derivative or non-financial derivative
instruments for speculative purposes. The Fund does not formally designate its derivatives as hedges, as a result, the Fund
does not apply hedge accounting and is required to designate its derivatives and non-financial derivatives as held for trading.
SEm enters into NYmEX and AEcO natural gas financial swaps with a variety of counterparties to manage the economic
exposure of providing fixed-price natural gas to its customers. SEm monitors its fixed-price natural gas positions on a daily
basis to monitor compliance with established risk management policies. SEm maintains a substantially balanced fixed-
price natural gas position in relation to its customer supply commitments.
SEm enters into electricity financial swaps with a single counterparty to manage the economic exposure of providing fixed-
price electricity to its customers. SEm monitors its fixed-price electricity positions on a daily basis to monitor compliance
with established risk management policies. SEm maintains a substantially balanced fixed-price electricity position in
relation to its customer supply commitments.
ERcO has entered into fixed-price electricity purchase agreements to manage the economic exposure of certain of its
chemical facilities to changes in the market price of electricity in deregulated markets.
Superior Propane enters into various propane forward purchase and sale agreements to manage the economic exposure
of its wholesale customer supply contracts. Superior Propane monitors its fixed-price propane positions on a daily basis
to monitor compliance with established risk management policies. Propane maintains a substantially balanced fixed-price
propane gas position in relation to its wholesale customer supply commitments.
Superior, on behalf of its operating divisions, enters into foreign currency forward contracts to manage the economic
exposure of Superior’s operations to movements in foreign currency exchange rates. SEm and Superior Propane contract
a portion of their fixed-price natural gas, and propane purchases and sales in US dollars and enter into forward US dollar
purchase contracts to create an effective canadian dollar fixed-price purchase cost. ERcO Worldwide enters into US dollar
forward sales contracts on an ongoing basis to mitigate the impact of foreign exchange fluctuations on sales margins on
production from its canadian plants that is sold in US dollars. interest expense on Superior’s US dollar debt is also used
to mitigate the impact of foreign exchange fluctuations.
Superior utilizes interest rate swaps to manage the interest rate mix of its total debt portfolio and related overall cost of
borrowing. Superior manages its overall liquidity risk in relation to its general funding requirements by utilizing a mix of
short-term and longer-term maturity debt instruments.
Superior utilizes a variety of counterparties in relation to its derivative and non-financial derivative instruments in order to
mitigate its counterparty risk. Superior assesses the credit worthiness of its significant counterparties at the inception and
throughout the term of a contract. Superior is also exposed to customer credit risk. Superior Propane and Winroc deal with
a large number of small customers, thereby reducing this risk. ERcO, due to the nature of its operations, sells its products
to a relatively small number of customers. ERcO mitigates its customer credit risk by actively monitoring the overall
credit worthiness of its customers. SEm has minimal exposure to customer credit risk as local natural gas and electricity
distribution utilities have been mandated to provide SEm with invoicing, collection and the assumption of bad debts risk for
residential and small commercial customers. SEm actively monitors the credit worthiness of its industrial customers.
2007 ANNUAL REPORT
64
Notes to the consolidated Financial Statements
13. Income Taxes of Superior
The Fund is a mutual Fund Trust for income tax purposes. in June 2007 the Government of canada enacted new legislation
imposing additional income taxes upon publicly traded income trusts, including Superior Plus income Fund, effective
January 1, 2011. Prior to the legislation, the Fund was only taxable on any taxable income not allocated to the Unitholders
and estimated its future income tax on certain temporary differences between amounts recorded on its balance sheet for
book and tax purposes at a nil effective tax rate. Under the legislation, the Fund estimates the effective tax rate on the post
2010 reversal of these temporary differences to be 29.5% in 2011 and 28.0% in years thereafter. Temporary differences
reversing before 2011 will still give rise to nil future income taxes. Accordingly, the Fund began recording a canadian
future income tax provision effective June 30, 2007. consistent with prior periods, the Fund recognizes a provision for
income taxes for its subsidiaries that are subject to current and future income taxes, including United States income tax,
United States non-resident withholding tax and chilean income tax.
The Fund expects it will be subject to current and future income taxes under the new legislation, however, the estimated
effective tax rate on temporary difference reversals after January 1, 2011 may change in future periods. As the legislation is
new, future technical interpretations of the legislation may occur and could materially affect management’s estimate of the
future income tax asset/liability. The amount and timing of reversals of temporary differences will also depend on the Fund’s
future operating results, acquisitions and dispositions of assets and liabilities, and distribution policy. A significant change in
any of the preceding assumptions could materially affect the Fund’s estimate of the future income tax asset/liability.
Total income taxes are different than the amount computed by applying the corporate canadian enacted statutory rate for
2007 of 31.5% (2006 – 32.5%). The reduction in statutory rates reflects previously enacted federal tax rate reductions. The
reasons for these differences are as follows:
Net earnings (loss) from continuing operations
Income of the Fund taxed directly in the hands of the Unitholders
Income tax recovery of Superior
Earnings (loss) of the Fund before taxes and after distribution
of income to Unitholders
Computed income tax expense (recovery) as a corporate entity
Establishment of future income tax due to taxation of trusts effective 2011
Higher effective foreign tax rates
Changes in future income tax rates
Federal and provincial capital taxes
Non-deductible costs and other
Canadian corporate income taxes
Income tax expense (recovery) of Superior
2007
119.4
(89.1)
(5.1)
25.2
7.9
(12.9)
1.7
0.3
–
(2.1)
–
(5.1)
The components of the future income tax asset (liability) as at december 31, 2007 and 2006 are as follows:
Tax values over carrying value of tangible assets
Accounting reserves, deductible when paid
Benefit of tax loss carry forwards
Unrealized gains/losses on financial instruments
Other
Future income tax asset
2007
18.0
1.3
4.9
(3.0)
(0.9)
20.3
2006
(55.6)
(83.8)
(100.0)
(239.4)
(77.8)
–
(2.8)
(4.2)
1.7
16.3
(33.2)
(100.0)
2006
7.0
0.2
1.0
–
1.6
9.8
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
65
14. Unitholders’ Equity
AuthorizeD
The Fund may issue an unlimited number of trust units. Each trust unit represents an equal undivided beneficial interest
in any distributions from the Fund and in the net assets in the event of termination or wind-up of the Fund. All trust units
are of the same class with equal rights and privileges.
Issued Number of
Trust Units (millions)
85.5
Unitholders’
Equity
828.8
Unitholders’ equity, December 31, 2005
Conversion of Debentures – (8% Series 1 – $0.8 million converted at $16 per
trust unit, 8% Series 2 – $0.1 million converted at $20 per trust unit)
Exercise of trust unit warrants
Trust unit incentive plan compensation recovery
Repayment of management internalization loans receivable
Other comprehensive income
Net earnings
Distributions to Unitholders
Unitholders’ equity, December 31, 2006
Trust unit distribution reinvestment program
Conversion of 8%, Series 1 Debentures ($0.7 million converted at $16 per trust unit)
Transitional adjustment to accumulated other comprehensive income (loss) upon
implementation of financial instruments
Cumulative impact of deficit upon implementation of financial instruments
Net earnings (loss)
Other comprehensive income (loss)
Distributions to Unitholders (1)
Unitholders’ equity, December 31, 2007
–
–
–
–
–
–
–
85.5
2.0
–
–
–
–
–
–
87.5
0.9
0.2
(1.2)
2.6
0.8
(80.8)
(155.7)
595.6
25.3
0.7
(18.1)
30.6
119.8
(2.3)
(134.9)
616.7
(1) Distributions to Unitholders are declared at the discretion of the Fund’s Trustee, in accordance with the Fund’s Declaration of Trust.
Unitholders’ capital, deficit and accumulated other comprehensive income (loss) as at december 31, 2007 and
december 31, 2006 consists of the following components:
Unitholders’ capital
Trust unit equity
Conversion feature on warrants and convertible debentures
Accumulated deficit
Retained earnings from operations
Cumulative impact to deficit upon implementation of financial instruments (Note 2(b))
Accumulated distributions on trust unit equity
Accumulated other comprehensive income (loss)
Balance at beginning of year
Transitional adjustment upon implementation of financial instruments (Note 2(b))
Unrealized foreign currency gains (losses) on translation of self-sustaining
foreign operations
Reclassification of derivative gains and losses previously deferred
2007
1,362.0
4.8
1,366.8
433.3
30.6
(1,193.7)
(729.8)
–
(18.0)
(13.5)
11.2
(20.3)
2006
1,336.0
4.8
1,340.8
313.5
–
(1,058.8)
(745.3)
–
(0.7)
0.8
–
0.1
At december 31, 2007, the Fund had 2.3 million trust unit warrants outstanding (december 31, 2006 – 2.3 million),
exercisable at $20 per trust unit warrant. The trust unit warrants expire may 8, 2008.
2007 ANNUAL REPORT
66
Notes to the consolidated Financial Statements
15. Net Earnings (Loss) per Trust Unit
Net earnings (loss) per trust unit computation, basic and diluted (1)
Net earnings (loss) from continuing operations
Net earnings (loss) from discontinued operations
Net earnings (loss)
Weighted average trust units outstanding
2007
119.4
0.4
119.8
86.5
Net earnings (loss) from continuing operations per trust unit, basic and diluted
Net earnings (loss) from discontinued operations per trust unit, basic and diluted
Net earnings (loss) per trust unit, basic and diluted
$ 1.38
$
–
$ 1.38
(1) All outstanding trust unit options and warrants were excluded from this calculation as they were anti-dilutive.
16. Trust Unit Based Compensation
(i) restricteD/performAnce trust units
2006
(55.6)
(25.2)
(80.8)
85.5
(0.65)
(0.29)
(0.94)
$
$
$
Under the terms of Superior’s long-term incentive program, restricted trust units (RTUs) and/or performance trust units
(PTUs) can be granted to directors, senior officers and employees of Superior. Both types of units entitle the holder to
receive cash compensation in relation to the value of a specified number of underlying notional trust units. This plan
replaces the trust unit incentive plan for 2006 and subsequent years. RTUs vest evenly over a period of three years
commencing from the date of grant, except for RTUs issued to directors which vest three years from the date of grant.
Payments are made on the anniversary of the RTU to the holders entitled to receive them on the basis of a cash payment
equal to the value of the underlying notional units. PTUs, vest three years from the date of grant and their notional
value is dependant on the Fund’s performance vis-à-vis other trusts’ performance based on certain benchmarks. As
at december 31, 2007 there were 741,969 RTUs outstanding (2006 – 493,107 RTUs) and 193,838 PTUs outstanding
(2006 – 149,487 PTUs). For the year ended december 31, 2007 total compensation expense related to RTUs and PTUs
was $4.7 million (2006 – $1.2 million).
(ii) trust unit incentive plAn (tuip)
Under the terms of the Fund’s TUiP, market growth options may be issued to directors, senior officers and employees
of Superior. The number of trust units issued is equal to the growth in value of the options at the time the options are
exercised, represented by the market price less the exercise price times the number of options exercised, divided by the
current market price of the trust units issued. Under the terms of the TUiP, options granted prior to 2003 were granted
for a four-year term and are exercisable as to one-third immediately and an additional one-third on the first and second
anniversary of the date of grant. Options granted subsequent to 2003 were granted for a five-year term and are exercisable
as to one-fifth immediately and an additional one-fifth on each anniversary date of the grant. during 2007 and 2006, no
options were issued and no trust units were issued as a result of the TUiP.
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
67
A summary of the status of the Fund’s TUiP as at december 31, 2007 and 2006 and changes during these years is
detailed below:
2007
2006
Options outstanding at beginning of year
Granted
Exercised
Forfeited
Options outstanding at end of year
Options exercisable at end of year
Options (000s)
1,086
–
–
(585)
501
432
Weighted
Average
Exercise
Price
$ 22.69
–
–
21.67
$ 23.87
$ 22.96
Weighted
Average
Exercise
Price
$ 22.82
–
19.13
25.55
$ 22.69
$ 21.51
Options (000s)
1,177
–
(16)
(75)
1,086
539
The following summarizes information about the trust unit options outstanding as at december 31, 2007:
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual Life
0.3
1.3
2.3
Weighted
Average
Exercise
Price
$
19.65
$ 25.17
30.68
$
(000s)
Outstanding
250
118
133
Weighted
Average
Exercise
Price
$
$
$
19.65
25.06
30.68
(000s)
Outstanding
250
102
80
Range of
Exercise Prices
$17.46 – $21.00
$22.80 – $28.76
$29.29 – $32.19
17. Supplemental Disclosure of Non-Cash Operating Working Capital Changes
As at December 31
Changes in non-cash working capital:
Accounts receivable and other
Inventories
Accounts payable and accrued liabilities
Distributions and interest payable to Unitholders and Debentureholders
Other
2007
(19.7)
37.6
(31.5)
(5.8)
(15.3)
(34.7)
2006
4.3
3.5
9.6
(6.7)
11.9
22.6
18. Commitments
(i) Lease and capital commitments for rail cars, vehicles, premises and other equipment for the next five years and
thereafter are as follows:
2008
2009
2010
2011
2012
2013 and thereafter
42.5
25.9
20.0
15.2
11.1
20.6
2007 ANNUAL REPORT
68
Notes to the consolidated Financial Statements
(ii) Purchase commitments under long-term natural gas and propane contracts for the next five years and thereafter are
as follows:
2008
2009
2010
2011
2012
2013 and thereafter
CDN$ (1)
US$ (1)
Natural Gas
Natural Gas
CDN$
Propane
64.2
31.1
15.6
3.0
0.4
–
134.3
130.3
58.1
2.8
–
–
6.6
–
–
–
–
–
US$
Propane
32.3
–
–
–
–
–
(1) Does not include the impact of financial derivatives. (See Note 12.)
Superior is similarly committed to long-term natural gas and propane sales contracts to supply customers.
(iii) ERcO Worldwide has entered into a fixed-price electricity purchase contract for its Alberta power requirements, for
10 years at an average cost of $45.00 to $52.00 per megawatt hour. commitments for the next five years and thereafter
are as follows:
2008
2009
2010
2011
2012
2013 and thereafter
17.7
17.7
17.7
17.7
17.7
88.5
19. Related Party Transactions and Agreements
(i) mAnAgement internAlizAtion trAnsAction
On may 8, 2003, Superior completed the internalization of its management and administration agreements. The
internalization process resulted in the elimination of management incentive and administration fees effective
January 1, 2003. The funds paid to the manager and Administrator to terminate the contracts were immediately
re-invested into trust units and warrants. As part of the internalization transaction, non-interest-bearing loans aggregating
$6.5 million were advanced to the executive officers and were used to fund the purchase of 0.325 million trust units at
$20.00 per trust unit. The loans are repayable over a four-year period in the form of annual retention bonuses of which
$0.5 million was repaid in 2007 (2006 – $2.1 million). As at december 31, 2007, the remaining loans receivable was $nil
(december 31, 2006 – $0.5 million).
(ii) mAnAgement trust unit purchAse plAn loAn guArAntee
in accordance with the term of the management Trust Unit Purchase Plan (the mTUPP), certain of Superior’s senior
employees were eligible to obtain guarantees from Superior related to the purchase of trust units of the Fund, whereby
participants may acquire trust units of the Fund through open market purchases in pledge accounts established by individual
participants with an investment dealer. Participants borrow directly from a chartered bank the entire cash amount required
to make the trust unit purchases with Superior guaranteeing up to 100% of the loan amount. during 2007, the mTUPP
was cancelled, and as a result, as at december 31, 2007 Superior had no associated obligation (december 31, 2006 – an
obligation of $2.8 million).
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
69
20. Business Segments
Superior operates four continuing distinct business segments; a propane distribution and related services business operating
under the Superior Propane trade name; a specialty chemicals manufacturer operating under the ERcO Worldwide trade
name (ERcO); a construction products distribution business operating under the Winroc trade name; and a fixed-price
energy services business operating under the Superior Energy management trade name (SEm). JW Aluminum company
(JWA or JW Aluminum), a manufacturer of specialty flat-rolled aluminum products, has been sold and classified as a
discontinued operation. (See Note 3.) Superior’s corporate office arranges intersegment foreign exchange contracts from
time to time between its business segments. intersegment revenues and cost of sales pertaining to intersegment foreign
exchange gains and losses are eliminated under the corporate cost column.
Year ended December 31, 2007
Revenues
Cost of products sold
Realized gains (losses) on
financial instruments
Gross profit
Expenses
Superior
Propane
1,075.7
(782.7)
ERCO
Winroc
SEM
Corporate
447.0
(260.5)
512.3
(382.5)
320.4
(256.1)
1.2
294.2
21.2
207.7
–
129.8
(34.2)
30.1
–
–
–
–
Operating and administrative
196.9
120.8
93.1
18.4
10.5
Amortization of property, plant
and equipment
Amortization of intangible assets
Interest on revolving term bank
credits and term loans
Interest on convertible unsecured
subordinated debentures
Accretion of convertible debenture
issue costs
Management internalization costs
Unrealized (gains) losses on
financial instruments
Net earnings (loss) before income taxes
from continuing operations
Income tax recovery (expense)
Net earnings from continuing operations
Net earnings from discontinued
operations (Note 3)
Net Earnings
38.0
4.6
3.9
0.3
15.7
–
–
–
–
–
–
–
–
–
(2.3)
210.3
5.5
168.9
83.9
19.9
103.8
38.8
(15.9)
22.9
–
–
–
–
–
97.3
32.5
0.8
33.3
–
–
–
–
–
–
(6.9)
11.5
18.6
(0.8)
17.8
–
–
25.2
19.5
2.8
0.5
1.0
59.5
(59.5)
1.1
(58.4)
Total
Consolidated
2,355.4
(1,681.8)
(11.8)
661.8
439.7
57.6
4.9
25.2
19.5
2.8
0.5
(2.7)
547.5
114.3
5.1
119.4
0.4
119.8
2007 ANNUAL REPORT
70
Notes to the consolidated Financial Statements
Year ended December 31, 2006
Revenues
Cost of products sold
Gross profit
Expenses
Superior
Propane
985.4
(712.5)
272.9
ERCO
437.2
(233.1)
204.1
Winroc
SEM
Corporate
Consolidated
518.7
(386.5)
132.2
325.6
(303.9)
21.7
(2.6)
2.6
–
2,264.3
(1,633.4)
630.9
Total
Operating and administrative
185.3
122.1
87.1
11.7
17.6
423.8
Amortization of property, plant
and equipment
Amortization of intangible assets
Interest on revolving term bank
credits and term loans
Interest on convertible unsecured
subordinated debentures
Accretion of convertible debenture
issue costs
Management internalization costs
Impairment of property, plant,
and equipment and goodwill
Net earnings (loss) before income taxes
from continuing operations
Income tax recovery (expense)
Net earnings (loss) from continuing
operations
Net loss from discontinued
operations (Note 3)
Net Loss
47.9
4.7
3.7
0.4
–
–
–
–
–
–
–
–
–
–
–
–
20.4
–
–
–
–
–
–
205.7
67.2
48.6
–
–
–
–
218.7
393.4
(189.3)
130.0
91.2
11.7
41.0
5.0
10.0
2.6
(84.5)
(86.2)
–
–
43.1
20.2
2.3
1.3
–
84.5
115.8
(59.3)
46.0
12.6
(170.7)
72.0
5.1
43.1
20.2
2.3
1.3
218.7
786.5
(155.6)
100.0
(55.6)
(25.2)
(80.8)
SUPERiOR PLUS iNcOmE FUNd
Notes to the consolidated Financial Statements
71
totAl Assets, net working cApitAl, Acquisitions AnD other cApitAl expenDitures
Superior
Total
Propane
ERCO
Winroc
SEM
Corporate
Consolidated
As at December 31, 2007
Net working capital
Total assets
As at December 31, 2006
Net working capital
Total assets
For the year ended December 31, 2007
Acquisitions
Other capital expenditures
For the year ended December 31, 2006
Acquisitions
Other capital expenditures
geogrAphic informAtion
73.9
663.0
60.8
679.5
–
0.4
–
–
19.0
533.1
32.0
566.4
–
6.0
–
51.4
65.7
195.2
69.7
202.8
4.3
0.9
–
1.6
8.8
115.2
(2.6)
46.7
–
1.5
–
–
5.6
36.3
19.0
41.5
–
–
–
–
173.0
1,542.8
178.9
1,536.9
4.3
8.8
–
53.0
Revenues for the year ended December 31, 2007
Property, plant and equipment as at December 31, 2007
Total assets as at December 31, 2007
Revenues for the year ended December 31, 2006
Property, plant and equipment as at December 31, 2006
Total assets as at December 31, 2006
Canada
1,934.0
428.1
1,360.2
1,824.0
468.1
1,305.4
United
States
346.4
28.8
117.8
392.5
33.2
148.5
Other
75.0
57.5
64.8
47.8
69.8
83.0
Total
Consolidated
Discontinued
Operations
(Note 3)
2,355.4
514.4
1,542.8
2,264.3
571.1
1,536.9
_
_
_
573.3
_
_
2007 ANNUAL REPORT
72
SELEcTEd HiSTORicAL iNFORmATiON
Superior Propane
(millions of dollars except
litres of propane and per litre amounts)
Litres of propane sold (millions)
Total sales margin (cents per litre)
Revenues
Cost of products sold
Gross profit (1)
Cash operating, administrative and tax costs
Cash generated from operations before changes
2007
1,429
20.6
1,075.7
781.5
294.2
194.8
2006
1,386
19.7
985.4
712.5
272.9
182.6
Years Ended December 31
2005
1,468
19.4
856.2
571.8
284.4
187.4
2004
1,546
18.6
720.2
433.5
286.7
175.1
2003
1,625
17.9
727.1
436.5
290.6
178.4
in net working capital
99.4
90.3
97.0
111.6
112.2
(1) Includes gross profit from other service revenues.
ERCO Worldwide
(millions of dollars except thousands of
metric tonnes (“MT”) and per MT amounts)
Total chemical sales (MT)
Average chemical selling price (dollars per MT)
Revenues
Cost of products sold
Gross profit
Cash operating, administrative and tax costs
Cash generated from operations before changes
2007
768
558
460.6
252.9
207.7
119.7
2006
756
540
437.2
233.1
204.1
120.9
Years Ended December 31
2005
742
550
431.6
224.7
206.9
105.7
2004
649
571
396.0
202.8
193.2
94.3
2003
574
573
356.3
183.3
173.0
89.2
in net working capital
88.0
83.2
101.2
98.9
83.8
Winroc
(millions of dollars)
Revenues
Cost of products sold
Gross profit
Cash operating, administrative and tax costs
Cash generated from operations before changes
in net working capital
2007
512.3
382.5
129.8
94.6
35.2
2006
518.7
386.5
132.2
91.0
Years Ended December 31
2005
2004 (1)
2003 (1)
486.6
368.8
117.8
82.0
384.3
300.0
84.3
56.4
310.9
245.6
65.3
47.4
41.2
35.8
27.9
17.9
(1) Winroc was acquired effective June 11, 2004. Prior year results are unaudited and provided for comparison purposes.
SUPERiOR PLUS iNcOmE FUNd
73
Years Ended December 31
2005
2004
2003
2006
40
54.3
325.6
303.9
21.7
11.4
37
39.2
288.4
273.9
14.5
9.2
28
47.7
211.3
197.9
13.4
5.7
10.3
5.3
7.7
21
38.8
152.2
144.1
8.1
3.6
4.5
Years Ended December 31
2006
2005
2004
2003
2,264.3
630.9
250.1
180.4
2,059.2(1)
623.6(1)
231.4
187.0
1,552.8
1,234.3
542.8
219.4
184.4
471.7
190.6
146.5
$ 2.11
$ 2.35
$ 2.54
$ 2.47
85.5
53.0
79.7
509.5(1)
72.7
126.3
59.4
129.8
1,536.9
2,373.6
1,579.7
1,475.3
441.7
744.7
546.2
417.8
Superior Energy Management
(millions of dollars except per gigajoule (“GJ”) and per GJ amounts)
Natural gas sold (millions of GJs)
Natural gas sales margin (cents per GJ)
Revenues
Cost of products sold
Gross profit
Cash operating, administrative and selling costs
Cash generated from operations before changes
in net working capital
Consolidated Financials
(millions of dollars except average number
of trust units and per trust unit amounts)
Revenues
Gross profit
Operating distributable cash flow
Distributable cash flow
Per trust unit
2007
37
81.3
320.4
290.3
30.1
18.0
12.1
2007
2,355.4
661.8
225.6
170.4
$ 1.97
Average number of trust units outstanding (millions)
86.5
Growth capital
Total assets
Total revolving term bank credit and term loans (2)
8.8
1,542.8
438.0
(1) Adjusted for discontinued operations.
(2) Includes accounts receivable securitization program.
2007 ANNUAL REPORT
74
Corporate Information
BOARD OF DIRECTORS
OFFICERS
SuPERiOR PluS
Grant D. Billing
chairman and cEO
calgary, Alberta
Catherine (Kay) M. Best (1)
calgary, Alberta
Robert J. Engbloom, Q.C. (2)
calgary, Alberta
Randall J. Findlay (2)
calgary, Alberta
Norman R. Gish (3)
calgary, Alberta
Peter A.W. Green (1) (2)
Lead director
campbellville, Ontario
James S.A. MacDonald (3)
Toronto, Ontario
Walentin (Val) Mirosh (3)
calgary, Alberta
David P. Smith (1)
Toronto, Ontario
Peter Valentine (1)
calgary, Alberta
(1) Member of Audit Committee
(2) Member of Governance and Nominating Committee
(3) Member of Compensation Committee
SuPERiOR PluS inC.
GEnERAl PARtnER Of SuPERiOR PluS lP
Grant D. Billing
chairman and cEO
Wayne M. Bingham
Executive Vice-President
and chief Financial Officer
John D. Gleason
President, Superior Propane
a division of Superior Plus LP
Greg L. McCamus
President, Superior Energy management
a division of Superior Plus LP
Paul S. Timmons
President, ERcO Worldwide
a division of Superior Plus LP
Paul J. Vanderberg
President, Winroc
a division of Superior Plus LP
Jay Bachman
corporate controller
A. Scott Daniel
Vice-President, Treasurer and
investor Relations
Craig S. Flint
Vice-President, Business Process
and compliance
Leanne E. Likness
corporate Secretary
DIVISIONS OF SUPERIOR PLUS LP
Superior Propane
1111–49 Avenue NE
Calgary, Alberta T2E 8V2
Telephone: (403) 730-7500
Facsimile: (403) 730-7512
Toll Free: 1-877-341-7500
Website: www.superiorpropane.com
ERCO Worldwide
302 The East Mall, Suite 200
Toronto, Ontario M9B 6C7
Telephone: (416) 239-7111
Facsimile: (416) 239-0235
Website: www.ercoworldwide.com
Winroc
4949–51 Street SE
Calgary, Alberta T2B 3S7
Telephone: (403) 236-5383
Facsimile: (403) 279-0372
Website: www.winroc.com
Superior Energy Management
6860 Century Avenue
East Tower, Suite 2001
Mississauga, Ontario L5N 2W5
Telephone: (866) 772-7727
Facsimile: (905) 542-7715
Website: www.superiorenergy.ca
SUPERiOR PLUS iNcOmE FUNd
Unitholder Information
superior plus income Fund
Suite 2820, 605–5 Avenue SW
Calgary, Alberta T2P 3H5
Telephone: (403) 218-2970
Facsimile: (403) 218-2973
Toll Free: 1-866-490-PLUS (7587)
E-mail: info@superiorplus.com
Website: www.superiorplus.com
trustee and transFer agent
Computershare Trust Company of Canada
Suite 710, 530–8 Avenue SW
Calgary, Alberta T2P 3S8
or:
9th Floor, 100 University Avenue
Toronto, Ontario M5J 2Y1
Telephone: 1-888-564-6253
Facsimile: 1-888-453-0330
E-mail inquiries: careregistryinfo@computershare.com
Website: www.computershare.com
auditors
Deloitte & Touche LLP
Chartered Accountants
3000 Scotia Centre
700–2nd Street SW
Calgary, Alberta T2P 0S7
annual general meeting
The Annual Meeting of Unitholders of the Fund will be held
in the Strand/Tivoli Room of The Metropolitan Centre,
333-4 Avenue SW, Calgary, on Tuesday,
May 6, 2008 at 2:00 p.m. (MST).
cash distributions
The Fund pays distributions on a monthly basis. The record
date for each distribution will be the last day of the month and
the payment will be made on or before the fifteenth day of the
following month. Effective April 15, 2008, the current
annualized distribution rate is $1.62 per trust unit.
toronto stock exchange (tsx)
listings
SPF.un: Superior Plus Income Fund
trust units
SPF.db.b: 5.75% Convertible Debentures
Convertible at $36.00 per trust unit
Maturity Date: December 31, 2012
SPF.db.c: 5.85% Convertible Debentures
Convertible at $31.25 per trust unit
Maturity Date: October 31, 2015
a
d
a
n
a
C
n
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D
spF.un unit price and Volumes – tsx
Quarterly high, low, close and volumes for 2007 and 2006.
The table below sets forth the high and low prices, as well as the volumes, for the Fund’s trust units as traded on the
TSX, on a quarterly basis.
High
2007
Low
Volume
High
2006
Low
Volume
First quarter
$ 12.93
$ 10.62
18,350,330
$ 24.40
$ 17.11
24,866,275
Second quarter
$ 15.80
$ 12.46
20,360,232
$ 17.65
$ 9.85
52,965,998
Third quarter
Fourth quarter
Year
$ 16.27
$ 12.50
14,856,184
$ 12.98
$ 10.60
20,300,593
$ 13.48
$ 10.99
10,183,631
$ 13.95
$ 9.26
22,601,020
$ 16.27
$ 10.62
63,750,377
$ 24.40
$ 9.26 120,733,886
2007 AnnuAl reporT
For more information about the Superior plus income Fund
send your inquiries to: info@superiorplus.com
Superior plus income Fund | Suite 2820, 605 – 5 Avenue SW, calgary, Alberta T2p 3H5
Tel: 403‑218‑2970 Fax: 403‑218‑2973 Toll Free: 1‑866‑490‑7587
www.superiorplus.com