Spectrum Brands Holdings, Inc. Annual Report 2009

FY2009 Annual Report · Spectrum Brands Holdings, Inc.

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Building staBle
foundation

ON A

2 0 0 9 a n n u a l r e p o r t

Performance
Highlights

finanCial Results
(millions of dollars)
Revenues
Gross profit
EBITDA from operations (1)
Adjusted operating cash flow (1)
Net earnings
Dividends

(dollar per basic share except shares outstanding)
EBITDA from operations (1)
Adjusted operating cash flow (1)
Net earnings
Dividends
Weighted average shares outstanding (millions)

finanCial position
(millions of dollars except debt ratios)
Total assets
Total liabilities
Net capital expenditures
Acquisitions
Senior debt (2) (3)
Total debt (2) (3)
Senior debt to Compliance EBITDA (4)
Total debt to Compliance EBITDA (4)

2009

2,246.7
653.4
213.4
163.9
68.3
148.2

2.35
1.80
0.75
1.62
91.0

2,274.0
1,689.5
134.5
322.0
743.2
1,059.9
2.8x
3.9x

2008

2,487.3
669.1
257.2
192.3
67.7
142.2

2.91
2.18
0.77
1.61
88.3

2,026.9
1,452.7
123.0
24.5
577.7
825.3
2.4x
3.4x

(1) Earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA from operations and adjusted operating cash flow are not recognized
financial measures under Canadian generally accepted accounting principles (GAAP). See Superior’s Management’s Discussion and Analysis, “Non-GAAP Financial
Measures” for additional details.

(2) Includes off-balance sheet accounts receivable securitization program.
(3) Senior debt and total debt are stated before deferred issue costs.
(4) See Superior’s Management’s Discussion and Analysis for additional details and Superior’s Consolidated Financial Statements for the calculation of

Compliance EBITDA.

C o n t e n t s

2009 Performance Highlights ifC Letter to Shareholders 4 Energy Services 8
Specialty Chemicals 12 Construction Products Distribution 14
Management’s Discussion and Analysis 16 Management’s Report 54
Auditors’ Report 55 Consolidated Financial Statements 56
Notes to Consolidated Financial Statements 59 Selected Historical Information 90
Management Team 91 Board of Directors 92 Corporate Information 93
Shareholder Information iBC

Superior Plus Corp.

t h r e e b u s i n e s s e s –
o n e i n v e s t m e n t

Energy
Services

Specialty
Chemicals

Construction
Products
Distribution

≥ Canadian Propane Distribution

≥ Sodium Chlorate

≥ Residential and Commercial

≥ U.S. Refined Fuels

≥ Chloralkali

≥ Supply Portfolio Management

≥ Technology and Related

≥ Fixed-Price Energy Services

Services

Walls and Ceilings
(Architectural)

≥ Commercial and

Industrial Insulation

Characteristics of Our Business

≥ Modest Capital Requirements

≥ Market-Leading Positions

≥ Organic Growth Opportunities

≥ Mature Industries

≥ Historically Stable Cash Flows

800

600

400

200

HISTORICAL GROSS PROFIT BY BUSINESS (1) (millions of dollars)

623.6

630.9

660.3

707.9

672.5

(1) See Superior’s Management’s Discussion and Analysis for additional details.

Energy Services
Specialty Chemicals
Construction Products Distribution

Superior pluS corp.

≤ 1

2009 Growth
Initiatives
Superior successfully
completed the following
significant growth initiatives
during 2009

≥ Acquisition of two significant refined
fuels assets located in the northeast
united States for consideration of
uS$167.4 million.

Energy
Services

Specialty
Chemicals

≥ completed the uS$138.0 million
expansion and conversion of its
port edwards, Wisconsin chloralkali
facility from mercury-based
technology to membrane technology.

Construction
Products
Distribution

≥ completed the uS$132.1 million
acquisition of Specialty products
& insulation co., a nationwide
united States distributor of insulation
and architectural products in the
commercial and industrial markets.

Benefits of 2009 Growth Initiatives
≥ Expansion within Superior’s
existing business segments

shareholders

≥ Further diversification of
Superior’s cash flows

≥ Accretive to Superior’s

2 ≥ AnnuAl report 2009

2010 Financial
outlook

b u i l d i n g o n 2 0 0 9

2010 outlook

140-150

105-115

40-50

$1.95-$2.15

2010 FINANCIAL OUTLOOk (1) (2)

(millions of dollars except per share amounts)

eBitDA from operations:

energy Services

Specialty chemicals

construction products Distribution

Adjusted operating cash flow per share

(1) the assumptions, definitions, and risk factors relating to the 2010 Financial outlook are discussed in Superior’s Management’s Discussion and Analysis.
(2) Superior’s 2010 Financial outlook is unchanged from the update provided in the press release “Superior plus announces a uS$125 million acquisition expanding

its u.S. refined Fuels business, preliminary unaudited 2009 year end results and an updated 2010 outlook” on January 20, 2010.

2009

2010 (1) (2)

EBITDA FROM OPERATIONS

11%

46%

15%

48%

43%

37%

Energy Services

Specialty Chemicals

Construction Products Distribution

(1) Based on mid-point of Superior’s 2010 Financial outlook.
(2) includes the uS$125 million acquisition of Griffith Holdings, inc.,

completed on January 20, 2010.

Superior pluS corp.

≤ 3

Letter to Shareholders

For Superior, 2009 was a year of significant achievements
accomplished within the framework of an extremely
challenging business environment.

the year was defined by the global financial turmoil that

Significant corporate achievements or highlights during

began in the latter half of 2008 and the recession that

2009 were:

continued through 2009 and included one of the most

uncertain economic environments of the last half-century.

≥ Superior began 2009 as a corporation, having

completed its conversion from an income trust

Superior’s businesses were not immune to the difficult

to a corporation on December 31, 2008.

operating environment, but despite these challenges, our

businesses continued to perform strongly. the relative

strength of Superior’s results in the worst economic

environments in recent times provides strong evidence

of the merits of Superior’s diversified business model and

the ongoing execution of our growth strategy.

≥ the conversion to a corporation benefited Superior’s

shareholders by eliminating the uncertainty of the

impending 2011 SiFt taxation rules and provided

increased canadian tax pools, in addition to the fact

that the dividends that are now being paid in place of

the previous trust distributions are considered to be

throughout 2009 Superior continued to execute the

eligible dividends for canadian income tax purposes.

growth strategy originally outlined in 2007. the ability of

Superior to implement its growth strategy and achieve

its objectives in a year of serious financial turmoil is a

testament to Superior’s strong financial and operational

foundation that was solidified in 2007 and 2008.

≥ Superior had well-supported access to the capital

markets throughout 2009, and was able to extend its

bank facility, issue $134.5 million of common equity,

issue $69.0 million of convertible debentures and issue

$150 million of senior unsecured debentures.

≥ Superior’s shareholders realized a total rate of return

(share appreciation plus dividends) of 49% for 2009

compared to the average return on the tSX of 31%.

49%

BILLION
TOTAL RATE
OF RETURN
REVENUE

Superior’s shareholders realized a total
rate of return (share appreciation plus
dividends) of 49% for 2009 compared to
the average return on the tSX of 31%.

4 ≥ AnnuAl report 2009

business unit
Achievements...

EnErgy SErviCES’ ACquiSition
of rEfinED fuEl ASSEtS

Superior’s Energy Services business
completed the acquisition of two
significant refined fuels assets located
in the northeast United States for
consideration of approximately
US$167.4 million; these acquisitions
are anticipated to be accretive for
our shareholders.

The aforementioned acquisitions are
an important component of Superior’s
overall growth strategy. The nature and
location of these assets represent a
complementary fit to Superior’s existing
propane distribution network and provide
the platform for expansion of our
propane business into the United States.

SPECiAlty ChEmiCAlS’
ComPlEtion of itS Port
EDwArDS, wiSConSin
fACility ExPAnSion

Superior’s Specialty Chemicals
business completed the US$138.0
million expansion and conversion
of its Port Edwards, Wisconsin
chloralkali facility from mercury-based
technology to membrane technology.

Completion of the project results
in increased diversification of the
Specialty Chemicals business, expands
the Port Edwards facility’s capacity
and increases its operating efficiency,
provides significant environmental
benefits, and extends the life of the
facility by 25 to 30 years.

... Advances
on All fronts

ConStruCtion ProDuCtS
DiStributionS’ ACquiSition
of SPECiAlty ProDuCtS &
inSulAtion Co. (SPi)

Superior expanded its Construction
Products Distribution business with
the US $132.1 million acquisition
of SPI, a leading U.S. nationwide
distributor of insulation and
architectural named brand products
that is focused on the commercial
and industrial insulation markets in
the United States.

The acquisition of SPI expanded
Superior’s geographical footprint in the
U.S. from four to 31 states, provided
increased diversification from residential
construction to commercial and
industrial construction, and will allow for
the integration of various product lines
with expected operating efficiencies
due to the complementary nature of SPI
and our existing Construction Products
Distribution business.

Superior pluS corp.

≤ 5

Superior understands the importance of our dividend to
our shareholders.

ADjUSTED OPERATING CASH FLOW
(millions of dollars)

250

200

150

100

224.0
.......

213.5 (1)
203.0

192.3

179.5

163.9

FInAnCIAL PERFORMAnCE

in 2009 Superior generated adjusted operating cash

flow of $163.9 million or $1.80 per share, compared

to $192.3 million or $2.18 per share in the prior year.

Although operating results were lower than in the prior

year, Superior was not disappointed with these results

when considered in the context of the global recession

as well as the three-month downtime required to

complete the port edwards project.

Range for 2010 is based upon Superior’s 2010 Financial Outlook.

(1) Based on mid-point of Superior’s 2010 Financial Outlook.

LOnG-TERM DIvIDEnD STAbILITy

Superior’s confidence in its operating businesses

allowed us to maintain our dividend throughout 2009

at a rate of $0.135 per share per month, which

amounted to $1.62 per share on an annualized basis.

Superior understands the importance of our dividend to

our shareholders and we continue to maintain the

strict management discipline of ensuring that our

short- and long-term decisions are made with the

purpose of providing our shareholders with a stable

long-term dividend.

ADjUSTED OPERATING CASH FLOW
($ per share)

2.50

2.00

1.50

1.00

0.50

2.18

2.05

2.15
.......

2.05 (1)
1.95

1.80

Range for 2010 is based upon Superior’s 2010 Financial Outlook.

(1) Based on mid-point of Superior’s 2010 Financial Outlook.

6 ≥ AnnuAl report 2009

We are confident that executing our strategy will provide us with
continued strong and stable cash flows.

OUR STRATEGy MOvInG FORWARD

Superior anticipates that the growth initiatives completed

the achievements of Superior in 2009 solidified the

throughout 2009 and a gradual continued improvement in

foundation for our future success and growth by

the overall economy will result in an improvement to our

increasing the size and scope of our three operating

operating results. As a result, Superior anticipates that

businesses: energy Services, Specialty chemicals and

its 2010 adjusted operating cash flow per share will be

construction products Distribution. As we move forward

between $1.95 and $2.15 per share.

in 2010 and beyond, we are optimistic that the recent

economic turmoil will subside and that we will soon

return to reasonable growth levels throughout the north

American and global economies. renewed economic

growth will allow us to profitably grow our businesses.

to ensure that Superior grows in a measured and

profitable manner, we anticipate taking advantage of

additional consolidation opportunities within our existing

businesses while conducting the integration and

refinement of acquisitions made throughout 2009 and

executing internal growth projects. We are confident that

executing our strategy will provide us with continued

strong and stable cash flows, providing the foundation

ACknOWLEDGEMEnTS

Superior continues to execute its growth strategy and

achieve success thanks to the hard work and dedication

of over 4,200 employees. i would like to thank all of our

employees for their commitment to their respective

businesses. i also welcome all of the new employees to

the Superior organization. in addition, i would like to thank

each of our directors for your guidance, stewardship and

efforts in ensuring the success of Superior. Finally, on

behalf of the entire organization, i would like to thank

our securityholders for your continued support and

confidence in Superior.

for the long-term stability of Superior’s dividend and total

on behalf of the Board of Directors,

return for our shareholders.

(signed) Grant D. Billing

Grant D. Billing
chairman and chief executive officer
March 1, 2010

Superior pluS corp.

≤ 7

energy Services

Superior’s energy Services business provides distribution, supply
portfolio management and related services in relation to propane,
heating oil and other refined fuels throughout canada and the
northeast united States. energy Services also provides fixed-price
natural gas supply services in ontario, Quebec and British columbia and
fixed-price electricity supply services in ontario.

Superior’s energy Services business’s eBitDA from operations for 2009 was $97.6 million compared to $103.3 million

in the prior year. the business’s eBitDA from operations is calculated as follows:

(millions of dollars)

Gross profit summary
canadian propane distribution
u.S. refined fuels (1)
other services
Supply portfolio management
Fixed-price energy services

operating expenses
EBITDA from operations

2009

236.4
15.3 –
29.0
27.9
31.6
340.2
(242.6)
97.6

2008

253.3

29.4
21.6
27.6
331.9
(228.6)
103.3

(1)

Superior’s northeast u.S. refined fuels business was acquired in the third and fourth quarters of 2009; as such, there is no contribution for 2008.

Superior’s 2009 energy Services results were impacted by the economic recession which reduced sales volumes and

sales margins within the canadian propane distribution business. this reduction was partially offset by the acquisition

of the u.S. refined fuels businesses in the fourth quarter of 2009 and improved results in the supply portfolio and

fixed-price energy services businesses.

the energy Services business continued to invest in its operations throughout 2009. the propane distribution business

completed its reorganization into two national operating centres, continued to roll-out its new business management

system as part of the ongoing business transformation project, and implemented a new logistical routing software

system to increase scheduling efficiencies. Additionally, the propane distribution business continued to invest in its

delivery fleet, with 36 new delivery vehicles with a capital equivalent of $8.2 million leased during 2009.

EnERGy SERvICES 2010 FInAnCIAL OUTLOOk

Superior energy Services’ 2010 eBitDA from operations is expected to increase to $140-$150 million compared

to $97.6 million in 2009. the expected increase is primarily due to the full-year benefits to be received from three

northeast united States refined fuels acquisitions completed by energy Services in the third and fourth quarters of

2009 and the first quarter of 2010, and an expected improvement in canadian propane volumes as a result of improved

economic conditions.

8 ≥ AnnuAl report 2009

benefits of
growth initiatives

the acquisition of three significant refined fuels and
propane distribution assets located in the northeast
united States, is a complementary addition to the
energy Services business’s existing canadian propane
distribution business, supply portfolio management and
fixed-price energy services business. the benefits of
the acquisitions:

≥ the northeast u.S. refined fuels and propane

assets are a strategic fit with the energy Services
business’s growth strategy.

≥ expand the energy service customer base in terms
of customer numbers and the geographic location.

≥ complementary product offerings amongst

Superior’s existing businesses:

≥ Ability to market and distribute propane across

the northeast united States.

Strategy
moving forward

Superior reshaped its energy Services business in
2009 and into the first quarter of 2010, providing the
foundation for future growth:

≥ Ability to cross-market energy Services’

≥ Acquired refined fuels assets for uS$90.0 million,

fixed-price energy offerings across a broader
and larger customer base.

located in pennsylvania and new York, on
September 30, 2009.

≥ increase the storage and delivery capacity for
propane and refined fuels which will provide
the supply portfolio management business with
increased market opportunities.

≥ operating efficiencies are anticipated as the

distribution network is rationalized and integrated.

≥ Acquired refined fuels assets for uS$77.4 million,

located in pennsylvania, connecticut and
rhode island, on December 10, 2009.

≥ Acquired a refined fuels and propane distribution
business for uS$125.0 million, located in upstate
new York, on January 20, 2010.

the expanded operations will provide the energy
Services business with opportunities to grow
organically, leveraging its customer base by providing
a full complement of propane and refined fuels
offerings, including the ability to provide fixed-cost
supply options.

Superior intends to continue to pursue additional
acquisition opportunities within its energy services
business. the refined fuels and propane distribution
business is highly fragmented throughout the
northeast united States and eastern canada, which
provides Superior with continued opportunities to
further consolidate its business.

Superior pluS corp.

≤ 9

EnERGy SERvICES AT A GLAnCE

the acquisition of the northeast united States refined fuels and propane assets has provided the energy Services

business with a significant, well diversified customer base.

customers (1)
propane sales volumes
(millions of litres) (1) (2)
refined fuels sales volumes
(millions of litres) (1) (2)

Fleet (number of vehicles) (1)
employees (1)

Canadian
Propane
Distribution
160,000

1,263

14
779
1,605

U.S. Refined
Fuels
244,400

Fixed-Price
Energy Services
91,935

184

1,584
978
1,355

–

–
–
56

Total
496,335

1,447

1,598
1,757
3,016

(1) includes the acquisition of propane and refined fuels assets on January 20, 2010.
(2) Volume amounts assume that all u.S. refined fuels acquisitions were completed on January 1, 2009.

CANADIAN PROPANE

Propane Distribution
Location

10 ≥ AnnuAl report 2009

Propane Distribution

NORTHEAST U.S. REFINED FUELS

Albany

Rochester

Buffalo

Syracuse

Binghamton

Scranton

State College

Harrisburg

Pittsburgh

New York

Philadelphia

Location
Terminal

Location

Terminal

Superior pluS corp.

≤ 11

Specialty Chemicals

Superior’s Specialty chemicals business is a leading
supplier of sodium chlorate and technology to the pulp
and paper industries, and a Midwest united States
regional supplier of potassium and chloralkali products.

Specialty chemicals’ eBitDA from operations for 2009 was $93.0 million compared to $116.5 million in the prior year.

the business’s eBitDA from operations is calculated as follows:

Gross profit summary
chemicals
technology

operating expenses

EBITDA from operations

Chemical sales volumes (thousands of metric tonnes)

2009

204.7
5.3

210.0
(117.0)

93.0

634

2008

227.8
7.5

235.3
(118.8)

116.5

727

Specialty chemicals’ 2009 operating results were impacted by the economic recession which reduced overall chemical

sales volumes and margins. Sodium chlorate gross profits were affected by lower sales volumes than in the prior year

due to reduced demand for pulp, as the economic recession resulted in temporary or permanent closures of various

north American pulp mills.

Although weaker than in the prior year, sodium chlorate sales volumes showed signs of stability throughout the latter

half of 2009. chloralkali gross profits were similarly impacted by the economic recession which reduced sales volumes

and margins. Additionally, sales volumes and margins were negatively impacted by down-time associated with the

start-up of the port edwards, Wisconsin conversion project in the third and fourth quarters of 2009.

SPECIALTy CHEMICALS 2010 FInAnCIAL OUTLOOk

Specialty chemicals’ 2010 eBitDA from operations is expected to increase to $105-$115 million compared to

$93.0 million in 2009. the expected increase is primarily due to the enhanced eBitDA resulting from completion of

the port edwards conversion project in the fourth quarter of 2009, as well as an expected increase in chemical sales

volumes as a result of improved economic conditions.

12 ≥ AnnuAl report 2009

Port Edwards, wisconsin
Conversion Project

Strategy
moving forward

During the last quarter of 2009, Superior completed
the uS$138 million conversion of its chloralkali
facility from mercury-based technology to membrane
technology. the facility, which is strategically located
in the Midwest united States, was fully commissioned
in 2009 and by the end of the year was operating
above pre-expansion levels.

Benefits of the Port Edwards Conversion Project:

≥ provides significant environmental benefits by

removing mercury from the manufacturing process.

≥ extends facility life for a further 25–30 years.

≥ Allows the facility to manufacture both sodium and

potassium products.

≥ increases the facility’s production capacity by

approximately 30%.

≥ enhances the facility’s electrical efficiency, reducing

costs and greenhouse gas admissions.

≥ long-term eBitDA of the facility is projected to

average uS$35 to $40 million.

other Efficiency Projects

in addition to converting its port edwards facility, the
Specialty chemicals business continued to invest in
ongoing capital efficiency projects in 2009. these
were focused on improving the electrical efficiency
of the chemical facilities and exploring uses for
hydrogen, a by-product of the chemical manufacturing
process. these projects reduced operating costs and
greenhouse gas emissions.

≥ optimize our existing chemical facilities’ operating
efficiency by continuing to invest in projects that
reduce our operating costs to ensure our facilities
remain competitive over the long term.

≥ continue to leverage our proprietary chlorine
dioxide technology by exploring international
expansion opportunities similar to that of our
chilean operations.

≥ explore opportunities over the long term to

expand into additional inorganic chemicals that
are a strategic fit to our existing business.

SPECIALTY CHEMICALS
MANUFACTURING FACILITIES

C A N A D A

Grande Prairie

Vancouver

Saskatoon

Hargrave

Thunder Bay

Buckingham

Port Edwards

Toronto

UNITED STATES

Valdosta

BRAZIL

Chloralkali Facility

Sodium Chlorate & Chloralkali Facility

Sodium Chlorite Facility

Sodium Chlorate Facility

CHILE

URUGUAY

ARGENTINA

Superior pluS corp.

≤ 13

Construction Products Distribution

Superior’s construction products Distribution business is a leading
distributor of commercial and industrial insulation in north America
and the largest distributor of specialty construction products to the
walls and ceilings industry in canada.

construction products Distribution’s eBitDA from operations for 2009 was $22.8 million compared to $37.4 million in

the prior year. the business’s eBitDA from operations is calculated as follows:

(millions of dollars)

Gross profit
operating expenses

EBITDA from operations

2009

122.3
(99.5)

22.8

2008

140.7
(103.3)

37.4

the 2009 operating results were affected by the economic recession which reduced overall sales volumes. the

economic recession negatively impacted new home residential housing starts and commercial building activity in most

of north America which in turn resulted in reduced demand for architectural products and commercial and industrial

insulation. the construction products Distribution business was able to reduce operating costs relative to the prior year

due to aggressive cost reduction programs. in addition, variable costs associated with reduced sales volumes were

lower.

ACqUISITIOn OF SPECIALTy PRODUCTS & InSULATIOn CO.

During the last quarter of 2009, Superior completed the uS$132.1 million acquisition of Specialty products & insulation

co. (Spi), a nationwide united States distributor of insulation and architectural products in the commercial and industrial

markets. the acquisition of Spi positively benefited construction products Distribution’s eBitDA from operations

throughout the fourth quarter of 2009.

COnSTRUCTIOn PRODUCTS DISTRIbUTIOn 2010 FInAnCIAL OUTLOOk

construction products Distribution’s 2010 eBitDA from operations is expected to be $40-$50 million compared to

$22.8 million in 2009. the expected increase is primarily due to the full-year benefit to be received from the acquisition

of Spi completed at the end of the third quarter of 2009, as well as an expected marginal improvement in sales

volumes throughout the year as a result of improved economic conditions.

14 ≥ AnnuAl report 2009

benefits of the
SPi Acquisition:

Strategy
moving forward

≥ Further diversifies the construction products

Distribution business through Spi’s leading market
position in 28 states and 71 operations centres,
including 11 primary fabrication centres.

≥ enhances the focus on commercial and industrial

insulation products.

≥ insulation is key to increasing energy efficiency

and reducing greenhouse gas emissions.

≥ creates operational efficiencies with Superior’s

existing construction products Distribution business.

≥ Spi’s fabrication facilities provide a value-added service
to its customers that enhances the value proposition.

≥ integrate the product offerings and operations of
Superior’s existing business with those of Spi to
provide a full-service complement of architectural
products and commercial and industrial insulation
across the businesses’ north American footprint.

≥ explore opportunities to continue to consolidate
the highly fragmented construction products
distribution market throughout north America.

CONSTRUCTION PRODUCTS DISTRIBUTION IN CANADA AND UNITED STATES

Winroc Location

SPI Location

Fabrication

Superior pluS corp.

≤ 15

Management’s Discussion and Analysis

the following Management’s Discussion and Analysis (MD&A) is a review of the financial performance and position of

Superior plus Corp. (Superior) for the years ended December 31, 2009 and 2008. the information in this MD&A is current

to February 22, 2010. this discussion should be read in conjunction with Superior’s audited Consolidated Financial

Statements and notes to those statements which have been prepared in accordance with Canadian generally accepted

accounting principles (GAAp) and are expressed in Canadian dollars, except where otherwise noted. tables throughout

this MD&A labelled “2009”, “2008” and “”2007” cover the full-year periods ending December 31 of each year, and

references in the text to “2009”, “2008” and “2007” refer to the same full years. references in the text to “2010” refer

to the full-year period ending December 31, 2010.

Overview Of SuperiOr
Superior is a diversified business corporation. Superior holds 100% of Superior lp, a limited partnership formed

between Superior General partner Inc. as general partner and Superior as limited partner. Superior owns 100% of the

shares of Superior General partner Inc. the cash flow of Superior is solely dependent on the results of Superior lp

and is derived from the allocation of Superior lp’s income to Superior by means of partnership allocations. Superior,

through its ownership of Superior lp, has three operating segments: the energy Services segment which includes

a Canadian propane distribution business, a u.S. refined fuels distribution business, a fixed-price energy services

business and a supply portfolio management business; the Specialty Chemicals segment; and the Construction products

Distribution segment.

Summary Of adjuSted Operating CaSh flOw
(millions of dollars except per share amounts)

eBItDA from operations: (1)
energy Services
Specialty Chemicals
Construction products Distribution

Interest
Cash taxes
Corporate costs

Adjusted operating cash flow

2009

97.6
93.0
22.8

213.4
(34.8)
(1.1)
(13.6)

163.9

2008

103.3
116.5
37.4

257.2
(36.5)
(13.8)
(14.6)

192.3

Adjusted operating cash flow per share, basic (2) and diluted (3)

$ 1.80

2.18

(1) eBItDA and adjusted operating cash flow are not GAAp measures. See “non-GAAp Financial Measures.”
(2) the weighted average number of shares outstanding for the year ended December 31, 2009 was 91.0 million (2008 – 88.3 million).
(3) For the years ended December 31, 2009 and 2008, there were no dilutive instruments.

Adjusted Operating Cash Flow Reconciled to Cash Flows From Operating Activities (1)

(millions of dollars)

Cash flows from operating activities
Add: Customer contract related costs capitalized

Corporate conversion costs

less: Decrease in non-cash working capital

Amortization of customer contract related costs

Adjusted operating cash flow

2009

191.3
4.0
–

(24.4)
(7.0)

163.9

2008

207.6
6.8
5.0

(20.6)
(6.5)

192.3

(1) See the Consolidated Financial Statements for cash flows from operating activities, customer contract related costs, corporate conversion costs and changes in

non-cash working capital.

16 ≥ AnnuAl report 2009

Adjusted operating cash flow for the year ended December 31, 2009 was $163.9 million, a decrease of $28.4 million

or 15% from the prior year, as reduced operating results at energy Services, Specialty Chemicals and Construction

products Distribution were offset in part by lower cash taxes and corporate costs. Adjusted operating cash flow was

$1.80 per share, compared to $2.18 per share in the prior year due to a 15% decrease in the adjusted operating cash flow

and a 2% increase in the weighted average number of shares outstanding. the average number of shares outstanding

increased in 2009 as a result of shares issued to partially finance the acquisition of Specialty products and Insulation Co.

(SpI) on September 24, 2009, the acquisition of certain assets that comprise a u.S. heating oil and propane distribution

business from Sunoco Inc. (Sunoco u.S. refined fuels assets) on September 30, 2009 and the acquisition of certain

assets that comprise a retail heating oil, propane and motor fuels distribution business from Griffith energy Services Inc.

(Griffith CH u.S. refined fuels assets) on December 11, 2009 (the Sunoco u.S. refined fuels assets and the Griffith CH

u.S. refined fuels assets, collectively referred to as the “u.S. refined fuels assets”).

As demonstrated in the following chart, Superior is well diversified with energy Services, Specialty Chemicals, and

Construction products Distribution contributing 46%, 43%, and 11% of eBItDA from operations in 2009, respectively.

eBitda frOm OperatiOnS

EBITDA From Operations (millions of dollars)

300

250

200

150

100

$282.6

$257.6

$257.2

$240.0

$213.4

JW Aluminum (1)

Construction Products Distribution

Specialty Chemicals

Energy Services

(1) JW Aluminum was sold on December 7, 2006.

Superior had net earnings of $68.3 million for 2009, compared to net earnings of $67.7 million for 2008. Consolidated

revenues of $2,246.7 million in 2009 were $240.6 million lower than in the prior year due principally to a decrease in

the selling price of propane as a result of a reduction in the wholesale cost of propane and reduced volumes, in addition

to reduced sales volumes and selling prices within Construction products Distribution offset in part by the contribution

from the acquisition of SpI and from the acquisition of the u.S. refined fuels assets. Gross profit of $653.4 million was

$15.7 million lower than the prior year, primarily due to reduced sales volumes across all businesses, offset in part

by the contribution from the acquisition of SpI and from the acquisition of the u.S. refined fuels assets. operating

expenses of $476.1 million in 2009 were $5.3 million higher than in the prior year, the increase in operating costs

due to the acquisitions completed during the year offset in part by lower operating costs due to lower sales volumes

across Superior’s businesses. Amortization was higher than in the prior year primarily due to increased amortization at

energy Services due to the acquisitions completed in the third and fourth quarters of 2009. total interest expense of

$43.8 million was $5.3 million higher than the prior year due principally to higher debt levels related to the completion of

SuperIor pluS Corp.

≤ 17

MAnAgeMent’s DisCussion AnD AnAlysis

acquisitions noted above and capital expenditures related to the completion of the port edwards conversion. unrealized

losses on financial instruments were $20.6 million in 2009 compared to losses of $61.2 million in the prior year. the

decrease from the prior year is primarily due to lower unrealized losses in the current year on Superior’s natural gas

derivative contracts due to changes in the spot price of natural gas as compared to the prior year, offset in part by

increased unrealized losses on Specialty Chemicals fixed-price electricity contracts. Gains or losses on Superior’s various

financial instruments are without consideration of the fair value of the underlying customer or supplier commitment.

total income tax expense was $12.7 million for 2009 compared to an expense of $9.9 million for 2008. Income taxes

were impacted by lower u.S. cash income taxes due to the tax basis associated with commissioning the port edwards

conversion, while future income taxes were primarily impacted by the acquisitions completed during 2009.

A more detailed discussion and analysis of the annual financial and operating results of Superior’s operating segments is

provided on the following pages.

energy ServiCeS

energy Services’ condensed operating results for 2009 and 2008 are provided in the following table.

(millions of dollars)

revenue (1)
Cost of sales (2)

Gross profit
less: Cash operating and administration costs

eBItDA from operations

2009

1,312.1
(971.9)

340.2
(242.6)

97.6

2008

1,491.2
(1,159.3)

331.9
(228.6)

103.3

(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 11 and 18 to the Consolidated Financial Statements). In order to better reflect the results of
its operations, Superior has reclassified these amounts for purposes of this financial discussion to present its results as if it had accounted for these transactions
as accounting hedges. As such, included in revenue for 2009 is $0.1 million in realized foreign currency forward contract gains, and included in revenue for 2008 is
$2.8 million in realized foreign currency forward contract losses. For 2009 for purposes of the financial discussion, Superior has reclassified $0.1 million of foreign
currency translation losses related to u.S.-denominated working capital from operating and administrative expense to revenue, and for 2008 has reclassified
$0.8 million of foreign currency translation losses related to u.S.-denominated working capital from operating and administrative expense to revenue. reclassification
of the translation gains or losses provides improved matching to the income statement recognition of the underlying working capital item that resulted in the
translation gains or losses.

(2) For 2009 for purposes of the MD&A, Superior has reclassified $1.0 million of foreign currency translation gains related to u.S.-denominated working capital from
operating and administrative expense to cost of sales, and for 2008 reclassified $4.0 million of foreign currency translation losses related to u.S.-denominated
working capital from operating and administrative expense to cost of sales. reclassification of the translation gains or losses provides improved matching to the
income statement recognition of the underlying working capital item that resulted in the translation gains or losses. Included in cost of sales for 2009 is $6.6 million
in realized foreign currency forward contract losses and $102.6 million related to natural gas commodity realized fixed price losses. Included in cost of sales for 2008
is $(17.6) million in realized foreign currency forward contract gains (losses) and $34.3 million related to natural gas commodity realized fixed price gains (losses).

revenues were $1,312.1 million in 2009, a decrease of $179.1 million from revenues of $1,491.2 million in 2008. the

decrease in revenues is primarily due to the impact of lower propane prices and sales volumes, offset in part by the

contribution from the acquisition of the Sunoco u.S. refined fuels assets on September 30, 2009 and acquisition of the

Griffith CH u.S. refined fuels assets on December 11, 2009 (the Sunoco u.S. refined fuels assets and the Griffith CH

u.S. refined fuels assets, collectively referred to as the “u.S. refined fuels assets”). total gross profit for 2009 was

$340.2 million, an increase of $8.3 million over the prior year due to the contribution from the acquisition of u.S. refined

fuels assets, offset in part by reduced Canadian propane distribution gross profit from lower volumes and gross margin.

A summary and detailed review of gross profit is provided below.

18 ≥ AnnuAl report 2009

gross profit detail
(millions of dollars)

Canadian propane distribution
u.S. refined fuels
other services
Supply portfolio management
Fixed-price energy services

total gross profit

2009

236.4
15.3
29.0
27.9
31.6

340.2

2008

253.3
–
29.4
21.6
27.6

331.9

Canadian propane distribution gross profit for 2009 was $236.4 million, a decrease of $16.9 million or 7% from 2008,

primarily due to a 100 million litre (7%) reduction in sales volumes. residential and commercial sales volumes in 2009

decreased by 21 million litres or 5% from the prior year and were negatively impacted by a weaker overall economic

environment throughout most of Canada and the ongoing impact of a customer conservation trend which began in 2008.

ongoing marketing efforts have been successful in acquiring new customers, partially offsetting the impact of reduced

volumes due to the weaker economic environment. Average weather across Canada, as measured by degree days,

for the year was 1% warmer than the prior year and 5% warmer than the five-year average, contributing to the decline

in heating related volumes. Industrial volumes decreased by 68 million litres or 9%, due principally to the impact of a

weaker economic environment as noted above. In particular, volumes were negatively impacted by customer cutbacks

and closures in the manufacturing and mining sectors throughout eastern Canada and western Canada in addition to the

impact of reduced activity levels in the oil and natural gas sector. Automotive propane volumes declined by 11 million

litres or 10%, which was modestly below the historical decline trend in this end-use market due to a favourable pricing

differential between propane and retail gasoline.

annual Canadian propane distribution Sales volumes:

Volumes by end-use Application
(millions of litres)

2009

residential
Commercial
Agricultural
Industrial
Automotive

151
286
86
651
103
1,277

2008

159
299
86
719
114
1,377

Volumes by Region (1)

Western Canada
eastern Canada
Atlantic Canada

2009

2008

699
480
98

772
510
95

1,277

1,377

(1) 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; and Atlantic Canada consists of new Brunswick, newfoundland & labrador, nova
Scotia and prince edward Island.

Superior continues to actively manage propane sales margins, resulting in average propane sales margins of 18.5 cents

per litre in 2009, consistent with the prior year sales margins of 18.4 cents per litre. Average margins compared to the

prior year were positively impacted by margin management offset in part by the volatility and high cost of wholesale

propane and competitive pressures.

u.S. refined fuels gross profit for 2009 was $15.3 million and represents the contribution from the previously announced

acquisitions of the u.S. refined fuels assets. the gross profit was generated by the sale of heating oil, propane and

other refined fuels throughout the northeast united States. Volume contribution from the u.S. refined fuels assets was

153 million litres from october 1, 2009 through December 31, 2009. u.S. refined fuels also offers a broad range of

services including heating, ventilation and air conditioning repair, and other related services which contributed

$3.0 million in gross profits included within the other services segment.

SuperIor pluS Corp.

≤ 19

MAnAgeMent’s DisCussion AnD AnAlysis

annual u.S. refined fuels Sales volumes:

Volumes by end-use Application (1)
(millions of litres)

2009

2008

residential
Commercial
Automotive

61
74
18
153

–
–
–
–

Volumes by Region (2)

2009

2008

northeast united States

153 –

(1) Volume: Volume of heating oil, propane, diesel and gasoline sold.
(2) Regions: northeast united States region consists of pennsylvania, Connecticut, new York, and rhode Island.

other services gross profit was $29.0 million in 2009, a decrease of $0.4 million or 1% from the prior year. the decrease

is due to lower demand for service and installations offset in part by increased rental gross profits and the contribution

from the acquisitions of the u.S. refined fuels assets.

Supply portfolio management gross profits were $27.9 million in 2009, an increase of $6.3 million or 29% from the prior

year due to volatility in the wholesale cost of propane and market related opportunities during 2009.

Fixed-price energy services gross profit was $31.6 million in 2009, an increase of $4.0 million (14%) from

$27.6 million in 2008. natural gas gross profit was $29.6 million, an increase of $2.9 million from the prior year due to

higher margins offset in part by lower volumes. Gross profit per unit was 90.2 cents per gigajoules (GJ), an increase of

9.7 cents per GJ (12%) from the prior year. the increase in gross margins is primarily due to foreign currency translation

gains on u.S.-denominated working capital compared to losses in 2008 and the impact of a one-time, $2.4 million

adjustment for utility transportation charges which reduced the prior year’s gross margin. Sales volumes of natural gas

were 32.8 million GJ, 0.4 million GJ (1%) lower than the prior year as reduced residential volumes were partially offset

by higher commercial volumes. the mix between commercial and residential volumes was impacted by Superior’s

determination during the first quarter of 2009 that it would refocus its efforts away from direct residential natural gas

and electricity marketing in ontario and focus on commercial natural gas and electricity marketing. Superior made this

determination based on the challenges in the ontario residential market in the acquisition of new customers and the

retention of existing customers as a result of the regulatory framework for consumer energy marketing in the province.

Superior has continued to grow its British Columbia residential business where marketing rules are more favourable.

electricity gross profit in 2009 was $2.0 million, an increase of $1.1 million from the prior year due to the aggregation of

additional commercial customers over the past year.

fixed-price energy Services gross profit
(millions of dollars except volume and per unit amounts)
gross
Profit

natural gas (1)
electricity (2)

total

29.6
2.0

31.6

2009

2008

Volume

Per unit

32.8 gJ
193.0 kWh

90.2¢/gJ
1.04¢/kWh

Gross
profit

26.7
0.9

27.6

Volume

per unit

33.2 GJ
69.9 kWh

80.5¢/GJ
1.23¢/kWh

(1) natural gas volumes are expressed in millions of gigajoules (GJ), while per unit amounts are expressed in gigajoules.
(2) electricity volumes are expressed in millions of kilowatt hours (KWh), while per unit amounts are expressed in kWh.

Cash operating and administrative costs were $242.6 million in 2009, an increase of $14.0 million or 6% from 2008. the

increase in expenses was primarily due to contribution from the acquisition of the u.S. refined fuels assets and to higher

Canadian propane distribution operating costs offset in part by reduced fixed-price energy services operating costs.

20 ≥ AnnuAl report 2009

the increase in Canadian propane distribution operating costs is due to increased selling and marketing costs related to

ongoing new customer marketing efforts, offset in part by lower wages and benefits and fuel costs. the decrease in

fixed-price energy services operating costs was due to lower operating and selling costs as result of exiting the ontario

residential market.

overall energy Services’ operations benefit from leading market share in the Canadian propane distribution market

and considerable operational and customer diversification throughout Canada and the northeast united States through

Superior’s u.S. refined fuels assets. Superior’s energy Services customer base is well diversified geographically and

across end-use applications and its largest customer contributed approximately 3% of gross profits in 2009.

As shown in the chart below, wholesale propane and heating oil prices fluctuated throughout 2009. Approximately

50% of Superior’s fuel distribution sales volumes are due to heating-related applications and 50% to general economic

activity levels.

Relative Change in WTI Crude Oil, Natural Gas and Heating Oil Prices vs. Sarnia Propane Price

Relative Change in WTI Crude Oil and Natural Gas Prices vs. Sarnia Propane Price

)
e
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a
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a
e
R
(

175

150

125

100

JMAMF

2008

2009

Sarnia Propane

WTI Crude Oil

Average Monthly
Empress Natural Gas

NYMEX
Heating Oil

acquisition of u.S. refined fuels assets

on September 30, 2009, Superior acquired certain assets which make up a u.S. retail heating oil and propane distribution

business (Sunoco u.S. refined fuels assets) from Sunoco, Inc. (r&M), and Sunoco, Inc., both of which are pennsylvania

corporations, for an aggregate purchase price of $96.5 million (uS$90.0 million), inclusive of transaction related costs.

the Sunoco u.S. refined fuels assets distribute a broad range of liquid fuels and propane gas and related services, serving

markets in pennsylvania and new York.

on December 11, 2009, Superior acquired certain assets which make up a retail heating oil, propane and motor

fuels distributions business (Griffith CH u.S. refined fuels assets) from Griffith energy Services Inc., for an aggregate

purchase price, including working capital for $82.0 million (uS$77.4 million), inclusive of transaction related costs.

the Griffith CH u.S. refined fuels assets distribute a broad range of liquid fuels and propane gas, serving markets in

Connecticut, pennsylvania and rhode Island.

SuperIor pluS Corp.

≤ 21

MAnAgeMent’s DisCussion AnD AnAlysis

on January 20, 2010, Superior completed its acquisition of the shares of Griffith Holdings, Inc. (Griffith) for an aggregate

purchase price of uS$125.0 million before adjustments for working capital. Griffith is a retail and wholesale distributor of

retail propane, heating oil and motor fuels in upstate new York.

together, the above acquisitions form the foundation for Superior’s u.S. refined fuels distribution platform. the acquisitions

are complementary to Superior’s existing energy Services business and will expand energy Services’ customer base and

product diversification.

Outlook

energy Services expects eBItDA from operations for 2010 to be between $140 million and $150 million, consistent with

the previous outlook provided in Superior’s press release dated January 20, 2010. Significant assumptions underlying its

current outlook are:

• Average temperatures across Canada and the northeast United States are expected to be consistent with the most

recent five-year average;

• Total propane and refined fuels related sales volumes are anticipated to increase over 2009 due to increased economic

activity and resulting demand;

• Wholesale propane and refined fuels related prices will not significantly impact demand for propane, refined fuels and

related services;

• Supply portfolio management and fixed-price energy services gross profit will be consistent with 2009 assuming

normal volatility in the wholesale markets;

• Fixed-price energy services will be able to access sales channel agents on acceptable contract terms;

• Natural gas markets in Ontario, Quebec and British Columbia will provide growth opportunities for fixed-priced energy

services; and

• The commercial electricity market in Ontario and the retail electricity market in the northeastern U.S. are expected to

provide additional growth opportunities for fixed-price energy services.

energy Services’ eBItDA from operations of $97.6 million for 2009 was lower than the outlook provided in Superior’s

2009 third quarter MD&A of $104 million to $117 million due to reduced Canadian propane distribution gross profits and

volumes throughout the fourth quarter as a result of lower than expected heating degree days and the continued general

economic slowdown.

In addition to energy Services significant assumptions detailed above, refer to the section “risk Factors to Superior” for

a detailed review of energy Services’ significant business risks.

22 ≥ AnnuAl report 2009

SpeCialty ChemiCalS

Specialty Chemicals’ condensed operating results for 2009 and 2008 are provided in the following table.

(millions of dollars except per metric tonne (MT) amounts)

2009

2008

revenue
Chemicals (1) (3)
technology

Cost of sales
Chemicals (2)
technology

Gross profit
less: cash operating and administration costs

eBItDA from operations

448.6
8.2

(243.9)
(2.9)

210.0
(117.0)

93.0

$/Mt
708
13

(385)
(5)

331
(184)

147

460.1
19.5

(232.3)
(12.0)

235.3
(118.8)

116.5

$/Mt
633
27

(319)
(17)

324
(164)

160

Chemical volumes sold (thousands of Mt)

634

727

(2) effective January 1, 2008, Superior adopted a revised Canadian Institute of Chartered Accountants (CICA) Handbook section related to Inventory. this section
impacts the calculation of the cost of inventory at Specialty Chemicals due to the requirement to inventory the cost of certain fixed overhead items, principally
the amortization of property, plant and equipment. Additionally, this section requires that the amortization that is inventoried be classified as a component of cost
of products sold once sold. As such, for 2009, for purposes of the MD&A Superior has excluded $37.5 million in non-cash amortization from cost of sales in the
calculation of Specialty Chemicals’ eBItDA from operations, and for 2008 Superior has excluded $38.9 million.

(3) For 2009 for purposes of the MD&A Superior has reclassified $2.6 million of foreign currency translation losses related to u.S.-denominated working capital from
operating and administrative expense to revenue and for 2008 has reclassified $5.9 million of foreign currency translation gains related to u.S.-denominated
working capital from operating and administrative expense to revenue. reclassification of the translation gains or losses provides improved matching to the income
statement recognition of the underlying working capital item that resulted in the translation gains or losses.

Chemicals and technology revenues were $456.8 million in 2009, $22.8 million or 5% lower than in the prior year, as

reduced sales volumes more than offset an improvement to the average chemical sales price. technology revenues

were lower than the prior year due to lower project activity. Gross profit of $210.0 million in 2009 decreased by

$25.3 million or 11% from 2008 due to lower chemical and technology gross profits.

Chemicals gross profits of $204.7 million decreased by $23.1 million or 10% due to a decrease in sodium chlorate and

chloralkali/potassium gross profits. Sodium chlorate gross profit decreased by $12.5 million or 9%, as a decrease in

volumes more than offset the impact of higher average selling prices. Sodium chlorate sales volumes decreased by

68,200 tonnes (14%) due principally to reduced sales volumes in north America as a result of reduced demand for

pulp. Weaker demand for pulp and therefore sodium chlorate in north America in the first half of the year was due to

the general economic slowdown. During the second half of the year pulp market fundamentals improved, supporting

increased sodium chlorate demand.

Average selling prices for sodium chlorate were 9% higher than the prior year due principally to the appreciation of the

uS dollar relative to the Canadian dollar on u.S.-denominated sales and higher international sales at improved price

levels which more than offset hedging losses. the average Canadian dollar equivalent selling price trended higher in

the first half of 2009, offset in part by reduced selling prices in the second half of 2009 as contract renewals occurred

at reduced average price levels and the Canadian dollar strengthened relative to the uS dollar. Average pricing was

also negatively affected by lower average hedge rates from the Specialty Chemicals currency hedging program. See

“Financial Instruments – risk Management” for a discussion of hedge positions.

SuperIor pluS Corp.

≤ 23

MAnAgeMent’s DisCussion AnD AnAlysis

Cost of sales for sodium chlorate was modestly higher than in the prior year as the impact of reduced sales volumes was

offset by higher electrical input costs and increased transportation costs. electrical costs, which represent approximately

70% to 85% of the variable costs of the production of sodium chlorate, were higher than the prior year as upward

pressure on overall electricity pricing more than offset production management activities at facilities where the cost of

electricity is subject to market fluctuations.

Chloralkali/potassium gross profits decreased by $10.6 million or 11%, as a decrease in sales volumes and higher

input costs more than offset higher selling prices of potassium based products. Chloralkali/potassium sales volumes

decreased by 25,000 tonnes (11%) due principally to the general economic slowdown and production capacity curtailment

during the port edwards conversion. Cost of sales was negatively impacted by higher potash costs, the primary input

cost in the production of potassium products, and finished products purchases made to supply customers during the

port edwards conversion.

technology gross profits of $5.3 million were $2.2 million lower than in the prior year due to reduced project activity.

total chemical sales volumes were 634,000 tonnes in 2009, a decrease of 93,000 tonnes or 13% from the prior year, due

to reduced sales volumes of sodium chlorate and chloralkali/potassium as noted above. Average chemical revenue was

$708 per metric tonne (Mt) in 2009 compared to $633 per Mt in 2008, an increase of 12%, reflecting improved overall

pricing on sodium chlorate and chloralkali/potassium. Sodium chlorate and chloralkali/potassium production capacity

utilization averaged 85% (2008 – 96%) and 82% (2008 – 96%), respectively.

Cash operating and administration costs were $117.0 million in 2009, a decrease of $1.8 million or 2% from the prior

year. operating expenses were impacted by reduced operating costs at the Valdosta, Georgia facility due to production

curtailments, lower employee-related costs and provisions for bad debts, partially offset by the impact of the appreciation

of the uS dollar on u.S.-denominated expenses.

Chloralkali/potassium sales in 2009 contributed 37% of eBItDA from operations, a decrease of 6% from the

43% contribution in 2008. Sodium chlorate sales in 2009 represented 63% of Specialty Chemicals’ eBItDA from

operations, an increase of 6% from the 57% contribution in 2008, primarily due to the port edwards conversion. 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 following chart). Specialty Chemicals’ top 10 customers comprised approximately 44% of its revenues

in 2009, with its largest customer representing 6% of its revenues.

Pulp Prices Compared to Sodium Chlorate Prices and Sales Volumes

)
e
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S
U

(

950
900
850
800
750
700
650
600
550
500
450
400

2002

2003

2004

2005

2006

2007

2008

2009

Sodium Chlorate
(Source: Market Wire)

NBSK
(Source: Paper Loop)

Sodium Chlorate Sales Volumes
(Specialty Chemicals)

24 ≥ AnnuAl report 2009

)
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900
850
800
750
700
650
600
550
500
450
400

port edwards Conversion project Completion

Superior’s project to convert its port edwards, Wisconsin chloralkali facility from mercury based technology to membrane

technology was completed and fully commissioned in the fourth quarter of 2009. production was curtailed during most

of the fourth quarter while final equipment installation, testing and commissioning were completed. production was

restarted in november 2009 and the facility was operating at full load production levels in December.

the conversion project maintains the facility’s ability to produce sodium and potassium products, increases the

production capacity by approximately 30%, provides a significant extension of the plant life and enhances the efficiency

of electrical energy use. the total costs to complete the conversion were uS$138.0 million, slightly above the estimate of

uS$130 million included in Superior’s 2009 third quarter MD&A due to scope changes identified and addressed during

the final stages of construction. See “Consolidated Capital expenditure Summary” for additional details on costs incurred

related to the port edwards conversion.

Outlook

Superior expects 2010 eBItDA from operations from Specialty Chemicals to be between $105 million and

$115 million, consistent with the previous outlook provided in Superior’s press release dated January 20, 2010. Significant

assumptions underlying the current outlook are:

• Supply and demand fundamentals for sodium chlorate will be stronger than in 2009, resulting in increased sale volumes

for 2010;

• Chloralkali/potassium revenues will be higher than 2009 due to the expansion of the Port Edwards conversion in late

2009 and increased economic activity resulting in increased sales volumes for 2010; and

• Average plant utilization for 2010 will be approximately 85-90%.

Specialty Chemicals’ eBItDA from operations of $93.0 million for 2009 was modestly lower than the outlook provided

in Superior’s 2009 third quarter MD&A of $95 million to $105 million due principally to the delayed start-up of the

port edwards conversion which negatively impacted chloralkali/potassium product gross profit in the fourth quarter.

In addition to Specialty Chemicals’ significant assumptions detailed above, refer to the section “risk Factors to Superior”

for a detailed review of Specialty Chemicals’ significant business risks.

COnStruCtiOn prOduCtS diStriButiOn

Construction products Distribution’s condensed operating results for 2009 and 2008 are provided in the following table.

(millions of dollars)

Distribution and direct sales revenue (1)
Distribution and direct sales cost of sales

Distribution and direct sales gross profit
less: cash operating and administrative costs

eBItDA from operations

2009

469.5
(347.2)

122.3
(99.5)

22.8

2008

523.6
(382.9)

140.7
(103.3)

37.4

SuperIor pluS Corp.

≤ 25

MAnAgeMent’s DisCussion AnD AnAlysis

Distribution and direct sales revenues of $469.5 million were $54.1 million (10%) lower than in the prior year due to

reduced sales volumes and lower overall average selling prices, offset in part by the contribution from the acquisition

of SpI on September 24, 2009. Distribution and direct sales gross profit was $122.3 million in 2009, a decrease of

$18.4 million or 13% from 2008, due principally to the impact of reduced sales volumes and lower percentage sales

margins offset in part by the contribution from the acquisition of SpI. Distribution drywall sales volumes, an indicator of

overall distribution sales volumes, decreased by 26% from the prior year. the decrease in distribution sales volumes was

largely due to the ongoing slowdown in the new home residential housing starts and commercial building activity which

negatively impacted volumes in all operating regions, particularly British Columbia and the u.S. Sales volumes were also

negatively impacted by the general economic slowdown throughout north America. percentage sales margins were

modestly lower than the prior year as a result of lower average selling prices and lower margin product mix due to the

contribution from SpI, offset in part by margin management initiatives. Sales margins and average selling prices continue

to be challenged as a result of ongoing competitive pressures.

Cash operating and administration costs were $99.5 million for 2009, a decrease of $3.8 million or 4% from 2008 due to

the impact of aggressive cost reduction programs, and lower warehouse wages and fleet cost due to reduced volumes,

offset in part by the operating cost contribution from the acquisition of SpI. Construction products Distribution continues

to actively manage its cost structure in response to the ongoing economic slowdown.

acquisition of Specialty products & insulation Co. (Spi)

on September 24, 2009, Superior completed its acquisition of the shares of SpI for consideration of approximately

$142.1 million (uS$132.1 million), inclusive of transaction related costs. SpI is a u.S. national distributor of insulation

and architectural products in the commercial and industrial markets. the acquisition of SpI further diversifies Superior’s

Construction products Distribution segment through SpI’s leading market position in 28 states, served by its 71 operation

centres and 11 primary fabrication facilities.

Construction products Distribution enjoys considerable geographical and customer diversification, servicing over 18,000

customers from 113 distribution branches. (See “Distribution revenues by region” pie chart, below.) Construction

products Distribution’s 10 largest customers represent approximately 11% of its annual distribution sales with the largest

customer representing approximately 2% of annual distribution sales. Construction products Distribution enjoys a strong

position in the distribution markets where it operates, supported by its complete walls, ceilings, residential insulation,

commercial and industrial insulation product lines, and by its procurement capabilities. (See “Distribution revenues by

product” pie chart, below.)

Distribution Revenues by Region – 2009
24% CENTRAL / EASTERN CANADA
15% BRITISH COLUMBIA

Distribution Revenues by Product – 2009

13% STUCCO, TOOLS & MISC.

15% COMMERCIAL / INDUSTRIAL

INSULATION

37% UNITED STATES

30% DRYWALL & COMPONENTS

15% CEILINGS

24% PRAIRIES

26 ≥ AnnuAl report 2009

14% ARCHITECTURAL CEILINGS

INSULATION

13% STEEL FRAMING

Sales to commercial and industrial builders and contractors are comprised of Construction products Distribution’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 57% of sales from servicing commercial new construction and remodelling activity,

28% from servicing residential new construction and remodeling activity, and 15% of sales from servicing industrial

activity. new commercial construction and industrial demand trends have historically lagged new residential construction.

(See “u.S. and Canadian end-use Construction Segments” charts below.)

Canadian End-Use Construction Segments (Index 1984=100)

Canadian End-Use Construction Segments

)
e
g
n
a
h
C
t
n
e
c
r
e
P
(

200

175

150

125

100

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010*

Canadian Non-Residential Construction
Footage Put In Place (mmsf)

Canadian Housing Starts
(thousands of units)

*Estimate

U.S. End-Use Construction Segments (Index 1984=100)

U.S. End Use Construction Segments

)
e
g
n
a
h
c
t
n
e
c
r
e
P

(

225

200

175

150

125

100

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010*

U.S. Non-Residential Construction Footage Put in Place (mmsf)

*Estimate

U.S. Residential Additions and Alterations (billions of dollars)
U.S. Housing Starts (thousands of units)

U.S. Industrial Construction Footage Put in Place (mmsf)

SuperIor pluS Corp.

≤ 27

MAnAgeMent’s DisCussion AnD AnAlysis

Outlook

Superior expects Construction products Distribution’s eBItDA from operations for 2010 to be between $40 million and

$50 million, consistent with the previous outlook provided in Superior’s press release dated January 20, 2010. Significant

assumptions underlying its current outlook are:

• Sales volumes in 2010 compared to 2009 are expected to modestly improve as suggested by positive leading indicators

in new home residential activity in Canada and the united States; and

• Sales volumes for industrial insulation products in 2010 will be consistent with the prior year while commercial volumes

in 2010 will be lower due to reduced commercial economic activity compared to the prior year.

Construction products Distribution’s eBItDA from operations of $22.8 million for 2009 was consistent with the outlook

provided in Superior’s 2009 third quarter MD&A of $20 million to $25 million.

In addition to the Construction products Distribution segment’s significant assumptions detailed above, refer to

the section “risk Factors to Superior” for a detailed review of Construction products Distribution’s significant

business risks.

COnSOlidated Capital expenditure Summary
(millions of dollars)

efficiency, process improvement and growth related
other capital
port edwards conversion project

Acquisition of SpI (1)
Acquisition of u.S. refined fuels assets
other acquisitions
earn-out payment on prior acquisition
transaction with Ballard power Systems Inc. (Ballard)
proceeds on disposition of capital

total net capital expenditures
Capital-equivalent of operating leases (2)

total capital including operating leases

2009

22.9
9.9
106.5

139.3
142.1 –
178.5 –
0.8
0.6
–
(4.8)

456.5
8.2

464.7

2008

26.3
7.6
49.8

83.7

24.5
0.5
46.3
(7.5)

147.5
27.4

174.9

(1) Includes the issuance of $32.6 million of common shares that were issued by way of private placement at a deemed price of $11.63 per share.
(2) Capital-equivalent of operating leases reflects the total dollar value of capital items that have been acquired through operating leases.

efficiency, process improvement and growth related expenditures were $22.9 million in 2009 compared to

$26.3 million in 2008. efficiency, process improvement and growth related expenditures were principally incurred

in relation to Specialty Chemicals’ electrical cell replacement program, hydrogen capture and utilization projects and

energy Services’ business transformation project. other capital expenditures were $9.9 million in 2009 compared to

$7.6 million in the prior year, consisting primarily of required maintenance and general capital at Specialty Chemicals

and energy Services. Specialty Chemicals incurred $106.5 million (uS$93.3 million) in 2009 related to its port edwards

conversion project. upon completion of the conversion in the fourth quarter, Specialty Chemicals had incurred

uS$138.0 million cumulatively on the project which is $8.0 million higher than the previously estimated cost of

uS$130.0 million in aggregate. the increase was due to scope changes identified and addressed during the final stages

of construction.

28 ≥ AnnuAl report 2009

Acquisition costs for 2009 totalled $320.6 million and were comprised of the acquisition of SpI for total consideration of

$142.1 million, as previously discussed in the review of Construction products Distribution, the acquisition of Sunoco

u.S. refined fuels assets for $96.5 million and the acquisition of Griffith u.S. refined fuels assets for $82.0 million, as

previously discussed in the review of energy Services.

Acquisition costs for 2008 totalled $24.5 million and were comprised of the acquisition of Fackoury’s for $21.1 million and

the acquisition of certain propane assets in Atlantic Canada for $3.4 million.

proceeds on the disposal of capital were $4.8 million in 2009 compared to $7.5 million in the prior year. proceeds

consisted principally of energy Services surplus tanks and cylinders.

Capital expenditures were funded from a combination of operating cash flow, the issuance of common shares, the

issuance of convertible unsecured subordinated debentures (“Debentures” includes all series of convertible unsecured

subordinated debentures) and revolving term bank credit facilities.

COrpOrate and intereSt COStS

Cash corporate and administrative costs were $13.6 million in 2009, a decrease of $1.0 million from 2008. the prior

year’s corporate costs included foreign currency translation losses of $3.2 million on the revaluation of uS dollar cash

transactions and uS dollar-denominated interest payables compared to a gain of $0.2 million in 2009. When this item

is excluded, corporate costs increased by $2.4 million. excluding the impact of foreign currency translation losses, the

increase in corporate costs was due to higher long-term incentive plan costs, due to the year-over-year price appreciation

of Superior’s shares, and higher professional and consulting costs due principally to corporate development activities that

are not eligible to be capitalized, offset in part by lower short term incentive bonuses.

Interest expense on Superior’s revolving term bank credits and term loans was $18.0 million for 2009, net of $2.9 million

in realized gains on interest rate swaps and $6.1 million in realized gains due to the early termination of Superior’s interest

rate swaps, resulting in a decrease of $3.7 million from $21.7 million incurred in the prior year. excluding the impact of

gains from the early termination of interest rate swaps, the increase in interest expense was due to higher debt levels

as a result of port edwards conversion related expenditures and the net debt associated with the acquisition of SpI and

u.S. refined fuels assets as previously discussed.

Interest on Superior’s Debentures was $16.8 million for 2009, an increase of $2.0 million from 2008. the increase in

Debenture interest is due to the issuance of $69.0 million, 7.5% convertible debentures on August 28, 2009, due in part

to the acquisition of SpI as previously discussed.

COrpOrate COnverSiOn and Other StrategiC COStS

Superior did not incur any corporate conversion or strategic plan costs during 2009. Corporate conversion costs in the

prior year totalled $5.0 million and consisted primarily of professional fees related to the planning and execution of the

transaction with Ballard.

During 2008, Specialty Chemicals completed the sale of its Bruderheim, Alberta facility for proceeds of $4.0 million,

which have been treated as a recovery of strategic plan costs previously expensed. Specialty Chemicals has retained

130 acres of the surrounding property.

SuperIor pluS Corp.

≤ 29

MAnAgeMent’s DisCussion AnD AnAlysis

inCOme taxeS

Consistent with prior periods, Superior 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.

total income tax expense for 2009 was $12.7 million, comprised of $1.1 million in cash income taxes and a

$11.6 million future income expense, compared to a total income tax expense of $9.9 million in the prior year, comprised of

$13.8 million in cash income taxes and a $3.9 million future income tax recovery.

Cash income, withholding and capital taxes for the year ended 2009 were $1.1 million, consisting of cash recoveries in

the united States of $0.5 million, withholding taxes of $0.5 million and capital taxes of $1.1 million (2008 – $12.3 million in

current taxes and $1.5 million in withholding taxes). the decrease in united States cash income taxes was primarily due

to the tax amortization resulting from the commissioning of the port edwards conversion in the fourth quarter of 2009.

Future income tax expense for the year ended 2009 was $11.6 million (2008 – $3.9 million future income tax recovery),

resulting in a corresponding net future income tax asset of $202.6 million as at December 31, 2009 and a net deferred

credit of $270.9 million. the change in future income taxes and the deferred credit is principally the result of Superior

utilizing capital and non-capital losses during 2009 and the normal amortization of the deferred credit.

As at December 31, 2009, Superior had the following tax pools available to be used in future years:

Canada

tax basis
non-capital losses
Capital losses
Canadian scientific research expenditures

Investment tax credits

united states

tax basis
Capital loss carry-forwards
non-capital losses

Chile

tax basis
non-capital loss carry-forwards

(millions of dollars)

450.7
97.6
598.3
585.9
177.9

294.9
48.5
50.0

27.7
22.9

See the audited Consolidated Financial Statements for the year ended December 31, 2009 for a summary of the expiration

of the non-capital loss carry-forwards and investment tax credits. Capital loss carry-forwards, Canadian scientific research

expenditures and Chilean non-capital losses are eligible to be carried forward indefinitely.

30 ≥ AnnuAl report 2009

COnSOlidated OutlOOk

Superior expects adjusted cash flow from operations for 2010 to be between $1.95 and $2.15 per share. Superior’s previous

outlook for 2010 as provided in the 2009 third quarter MD&A was between $2.05 and $2.25 per share. Superior’s consolidated

adjusted operating cash flow outlook is dependent on the operating results of its three operating segments. See the discussion

of operating results by segment for additional details on Superior’s 2010 guidance. In addition to the operating results of

Superior’s three operating segments, significant assumptions underlying Superior’s current 2010 outlook are:

• The economic conditions in Canada and the United States are expected to improve in 2010 compared to 2009;

• Superior continues to attract capital and obtain financing on acceptable terms;

• The foreign currency exchange rate between the Canadian and uS dollar is expected to average 1.05 in 2010 on all

unhedged foreign currency transactions;

• Financial and physical counterparties continue to fulfill their obligations to Superior;

• Regulatory authorities do not impose any new regulations impacting Superior;

• The 2010 average floating interest rates and floating debt are expected to increase modestly over 2009; and

• U.S. based cash taxes for 2010 are expected to be minimal in 2010 as a result of the tax basis associated with the

completion of the port edwards conversion.

Consolidated adjusted operating cash flow for 2009 of $1.80 per share was below Superior’s outlook provided in

its 2009 third quarter MD&A of $1.90 to $2.05. the shortfall was due principally to lower than expected operating

results from energy Services due to reduced propane margins and volumes, lower operating results from Specialty

Chemicals due primarily to lower gross margin on chloralkali/potassium products and the continued impact of the

recession on customers. refer to the energy Services and Specialty Chemicals sections for a detailed review of their

operating results.

In addition to Superior’s significant assumptions detailed above, refer to the section “risk Factors to Superior” for a

detailed review of Superior’s significant business risks.

liquidity

Superior’s total and available sources of credit are detailed in the chart below:

Available Credit Facilities

As at December 31, 2009

(millions of dollars)

revolving term bank credit facilities (1)
term loans (1)
Accounts receivable sales program

total

letters of
Amount Borrowings Credit Issued

Amount
Available

570.0 (2)
318.4
92.7

981.1

327.0
318.4
92.7

738.1

19.4
–
–

19.4

223.6
–
–

223.6

(1) revolving term bank credit facilities and term loan balances are presented before deferred financing fees.
(2) on January 27, 2010 Superior expanded the secured revolving syndicated bank credit facility to $600 million; see “expansion of Superior’s Credit Facility”.

As at December 31, 2009 Superior had a secured revolving syndicated bank facility (Credit Facility) of $570.0 million with

a syndicate of 11 banks. the Credit Facility matures on June 28, 2011 and can be expanded to $600.0 million.

SuperIor pluS Corp.

≤ 31

MAnAgeMent’s DisCussion AnD AnAlysis

Superior’s revolving term bank credit and term loans before deferred financing fees, including $92.7 million related

to the accounts receivable securitization program totalled $738.1 million as at December 31, 2009, an increase of

$160.4 million from the prior year. the increase in revolving term bank credits and term loans is predominately due to

Superior’s acquisition of SpI, Sunoco u.S. refined fuels assets, and the Griffith u.S. refined fuels assets, in addition to

capital expenditures related to the port edwards conversion, offset in part by the non-cash impact of the depreciation

of the uS dollar relative to the Canadian dollar on uS dollar-denominated debt (approximately a $40 million impact), the

issuance of equity during the year, the issuance of $69.0 million in convertible unsecured subordinated debentures and

by operating cash flow in excess of dividends. See “Summary of Cash Flows” for a complete summary of Superior’s

sources and uses of cash.

As at December 31, 2009, Debentures before deferred issue costs issued by Superior totalled $316.7 million,

$69.1 million higher than the balance at December 31, 2008. the increase in Debentures is due to the issuance of

$69.0 million in 7.50% convertible unsecured subordinated debentures on August 28, 2009, to finance a portion of the

acquisition of the u.S. refined fuels assets as previously discussed and the accretion of the original discount to interest

expense during 2009.

As at December 31, 2009, $223.6 million was available under the Credit Facility and accounts receivable sales program,

which is considered sufficient to meet Superior’s net working capital funding requirements and expected capital

expenditures. principal covenants are described in “Contractual obligations and other Commitments”.

Consolidated net working capital was $183.8 million as at December 31, 2009, an increase of $37.1 million from

December 31, 2008 ($146.7 million). the increase in net working capital from the prior year is due to higher net working

capital at energy Services as a result of the acquisition of the u.S. refined fuels assets offset in part by a year over

year reduction in the retail cost of propane and lower sales volumes. Higher net working capital levels at Construction

products Distribution are due primarily to the impact of the acquisition of SpI offset in part by reduced sales activity

and inventory management initiatives, while net working capital at Specialty Chemicals was impacted by reduced sales

volumes. 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.

As at December 31, 2009, Superior’s senior debt and total debt to compliance eBItDA ratios are 2.7 and 3.8 times,

respectively, (December 31, 2008 – 2.3 and 3.4 times, respectively), after taking into account the impact of the off-balance

sheet receivable sales program amounts and the impact of cash on hand. these ratios are within the requirements

contained in Superior’s debt covenants, which restrict its ability to pay dividends. In accordance with Superior’s credit

facilities, Superior must maintain a consolidated debt to compliance eBItDA ratio of not more than 5.0 to 1.0. In addition,

Superior must maintain a consolidated senior debt to compliance eBItDA ratio of not more than 3.0 to 1.0 and not

more than 3.5 to 1.0 as a result of acquisitions. Distributions (including payments to debenture holders) cannot exceed

compliance eBItDA, less cash income taxes and certain capital expenditures, plus $25.0 million on a trailing twelve month

rolling basis. At December 31, 2009, the senior debt ratio when calculated in accordance with Superior’s senior banking

agreements was 2.8 times (December 31, 2008 – 2.4 times) and the total debt ratio when calculated in accordance with

Superior’s senior bank agreements was 2.8 times (December 31, 2008 – 2.4 times). the total debt to compliance eBItDA

for purposes of senior credit agreements does not include the Debentures.

32 ≥ AnnuAl report 2009

proceeds received from Superior’s dividend/distribution reinvestment plan (DrIp) were $nil for 2009 (2008 – $8.9 million).

the reduction is a result of Superior announcing on February 28, 2008 that it would suspend the DrIp after the February

2008 distribution. In February 2009, Superior adopted a dividend reinvestment plan (also called DrIp) in relation to its

conversion to a corporation. the current DrIp can be implemented at Superior’s request, subject to meeting certain

regulatory requirements.

Superior has entered into an agreement to sell, with limited recourse, certain accounts receivable on a 30-day revolving

basis to an entity sponsored by a Canadian chartered bank to finance a portion of its working capital requirements, which

represents an off-balance-sheet obligation. the receivables are sold at a discount to face value based on prevailing

money market rates. As at December 31, 2009, proceeds of $92.7 million (December 31, 2008 – $100.0 million) had

been raised from this program and were used to repay revolving term bank credits (see note 4 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. effective April 30, 2009, Superior extended the maturity of its accounts receivable securitization

program until June 29, 2010.

on october 16, 2009, DBrS confirmed Superior plus lp’s senior secured notes rating at BBB(low) and issued a new rating

on Superior plus lp’s senior unsecured debentures of BB(high). on october 19, 2009, Standard and poor’s confirmed

Superior plus lp’s senior secured long-term debt credit rating at BBB- and a corporate credit rating of BB+ with a negative

outlook. Standard and poor’s issued a new rating on Superior plus lp’s senior unsecured debentures of BB-.

on January 20, 2010, DBrS confirmed Superior plus lp’s senior secured notes and senior unsecured debenture ratings

at BBB(low) and BB(high), respectively, both with stable trends. on January 21, 2010, Standard and poor’s confirmed

Superior plus lp’s credit ratings were unaffected upon the announcement by Superior to acquire Griffith Holdings Inc.

on January 20, 2010.

expansion of Superior’s Credit facility

on January 27, 2010, Superior expanded the Credit Facility from $570 million to $600 million and certain amendments

were made to Superior’s financial covenant ratios. In particular, the previous consolidated senior debt coverage ratio

requirement was replaced with a consolidated secured debt coverage ratio of not more than 3.0 to 1.0. under the new

test, senior unsecured debt, such as the senior unsecured debentures are excluded from the calculation but remain

part of the total debt to compliance eBItDA calculation. Superior is permitted, as a result of acquisitions, to increase

its consolidated secured debt to compliance eBItDA ratio to 3.5 to 1.0 for a period of 90 days. Superior’s total debt to

compliance eBItDA coverage ratio requirement remains unchanged at not more than 5.0 to 1.0.

SuperIor pluS Corp.

≤ 33

MAnAgeMent’s DisCussion AnD AnAlysis

COntraCtual OBligatiOnS and Other COmmitmentS

(millions of dollars)

notes (1)

total

2010

payments Due In
2011-2012

2013-2014

thereafter

revolving term bank credits
and term loans
Debentures
operating lease and capital
commitments (2)
Cdn$ equivalent of uS$ foreign
currency forward purchase
contracts
uS$ foreign currency forward
sales contracts (uS$)
euro foreign currency forward
sales contracts (uS$)
Fixed-price electricity purchase
commitments
natural gas, propane, butane,
heating oil, and electricity purchase
commitments (3) (4)
Future employee benefits (5)

total contractual obligations

11
10

7
8

645.4
318.9

5.1
–

394.0
174.9

17(i)

150.1

36.8

56.7

64.9
69.0

35.9

181.4
75.0

20.7

61.3

55.3

6.0

–

472.4

162.4

229.0

81.0

5.4

141.6

156.8
20.3

1,972.2

5.1

17.7

131.0
5.6

419.0

0.3

35.4

18.9
12.4

927.6

–

35.4

53.1

6.9
2.3

–
–

295.4

330.2

–

(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 customer sales commitments.
(4) Does not include the impact of financial derivatives. See note 11 to the Consolidated Financial Statements.
(5) Does not include the energy Services 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, 2009, Superior’s senior debt to bank compliance eBItDA ratio (see Bank Compliance

eBItDA in “non-GAAp Financial Measures”) was 2.7 times after taking into account the impact of the off-balance sheet

receivable sales program and the impact of cash on hand (December 31, 2008 – 2.3 times).

Debentures are obligations of Superior and consist of $174.9 million in Series I, 5.75% Debentures maturing on

December 31, 2012, $75.0 million in Series 1, 5.85% Debentures maturing on october 31, 2015 and $69.0 million,

7.50% Debentures maturing on December 31, 2014. the 5.75% Series I, 5.85% Series I and 7.50% Debentures are

convertible at the option of the holder into common shares at $36.00, $31.25 and $13.10 per common share, respectively.

Superior may elect to satisfy interest and principal Debenture obligations by the issuance of common shares.

As at December 31, 2009, approximately 22% of Superior’s revolving term bank credits and term loans and Debenture

obligations were not repayable for at least five years and approximately 60% 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, 2009 comprised 19% (2008 – 22%) of total operating lease commitments and are used to

transport Specialty Chemicals’ finished product to its customer locations and by energy Services to transport propane

from supply sources to its branch distribution locations. Distribution/delivery operating leases at December 31, 2009

comprised 28% (2008 – 31%) of total operating lease commitments and are used by energy Services and Construction

products Distribution to deliver product to customers.

34 ≥ AnnuAl report 2009

natural gas and propane fixed-price supply commitments are used to resource similar volume and term fixed-price sales

commitments to customers of energy Services. Specialty Chemicals has entered into fixed-price electricity contracts for

a term of up to eight 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 common share equity.

At December 31, 2009 Superior had an estimated defined benefit pension solvency deficiency of approximately

$24 million. Funding requirements required by applicable pension legislation are based upon solvency actuarial

assumptions. these assumptions differ from the going concern actuarial assumptions used in Superior’s financial

statements. Superior has sufficient liquidity through existing revolving term bank credits and anticipated future operating

cash flows to fund this deficiency over the prescribed funding period.

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.

SharehOlderS’ Capital

the weighted average number of common shares outstanding was 91.0 million in 2009 compared to 88.3 million

in 2008, an increase of 3% due to the issuance of 11,535,302 common shares issued during the year. Superior

issued 2,803,135 common shares for gross consideration of $32,607,000 or $11.63 per common share on

September 24, 2009, issued 3,970,000 common shares for gross consideration of $45,059,500 or $11.35 per common

share on September 23, 2009, issued 595,500 common shares for gross consideration of $6,758,925 or $11.35 per

common share on october 8, 2009, and issued 4,166,667 common shares for gross consideration of $50,000,004 or

$12.00 per common share on november 26, 2009. the common shares were issued in order to partially finance the

acquisitions completed during the year. the quoted market value of Superior’s share capital and debentures was

$1,463.7 million and $329.9 million, respectively, based on closing prices on December 31, 2009 on the toronto

Stock exchange.

As at February 22, 2010, December 31, 2009 and December 31, 2008, the following common shares and securities

convertible into common shares were outstanding:

(millions)

February 22, 2010

December 31, 2009

December 31, 2008

Convertible
securities

Convertible
Securities

Common shares outstanding (1)
5.75% Debentures (2)
5.85% Debentures (3)
7.50% Debentures (4)

Shares outstanding and issuable
upon conversion of Debentures

$ 174.9
$ 75.0
$ 69.0

104.9
4.9
2.4
5.3

117.5

$ 174.9
$ 75.0
$ 69.0

99.9
4.9
2.4
5.3

112.5

$ 174.9
$ 75.0
–

88.4
4.9
2.4
–

95.7

(1) Common shares outstanding as at February 22, 2010, includes 5,002,500 common shares issued subsequent to December 31, 2009, in relation to the acquisition

of Griffith energy Holdings Inc.
(2) Convertible at $36.00 per share.
(3) Convertible at $31.25 per share.
(4) Convertible at $13.10 per share.

SuperIor pluS Corp.

≤ 35

MAnAgeMent’s DisCussion AnD AnAlysis

dividendS/diStriButiOnS paid tO SharehOlderS/unithOlderS

Superior’s dividends/distributions to its shareholders/unitholders are dependent on its cash flow from operating activities

with consideration for changes in working capital requirements, investing activities and financing activities of Superior.

See “Summary of Adjusted operating Cash Flow” and “Summary of Cash Flows” for additional details on the sources

and uses of Superior’s cash flow.

Dividends paid to shareholders for 2009 were $148.2 million or $1.62 per share compared to distributions of

$142.2 million or $1.61 per trust unit in 2008. the increase in dividends paid to shareholders over the prior year resulted

from the issuance of approximately 11.5 million shares over the course of the year to partially finance the three acquisitions

completed during the year.

For income tax purposes, distributions paid in 2009 of $1.62 per share are classified as eligible dividends for Canadian

income tax purposes. A summary of cash dividends since inception and related tax information is posted under the

“Investor Information” section of Superior’s website at www.superiorplus.com.

Superior’s primary sources and uses of cash are detailed below:

summary of Cash Flows (1) (millions of dollars)

Cash flows from operating activities
Investing activities:
purchase of property, plant and equipment (2)
proceeds on disposal of property, plant and equipment (2)
Gain on sale of facility
Acquisition of SpI (1)
Acquisition of u.S. refined fuels assets (1)
other acquisitions
transaction with Ballard
earn-out payment on prior acquisition

Cash flows used in investing activities

Financing activities:
Dividends/distributions to shareholders/unitholders
revolving term bank credits and term loans

Issuance of 8.25% senior unsecured debentures
Issuance of 7.50% convertible debentures
Issuance of common shares

net proceeds from the accounts receivable securitization program
realized gain on financial instruments
other
proceeds from distribution reinvestment plan

Cash flows from financing activities

net increase in cash
Cash, beginning of period

Cash, end of period

(1) See the “Consolidated Statements of Cash Flows” for additional details.
(2) See “Consolidated Capital expenditure Summary” for additional details.

36 ≥ AnnuAl report 2009

2009

191.3

(139.3)
4.8
–

(109.5) –
(178.5) –
(0.8)
–
(0.6)

(423.9)

(148.2)
63.1
147.0 –
65.8 –
97.8 –
(7.3) –
7.7 –
14.9
–

240.8

8.2
16.1

24.3

2008

207.6

(84.2)
7.5
4.0

(24.0)
(46.3)
(0.5)

(143.5)

(142.2)
82.6

(11.4)
8.9

(62.1)

2.0
14.1

16.1

finanCial inStrumentS – riSk management

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 assesses the inherent risks of these instruments by

grouping derivative and non-financial derivatives related to the exposures these instruments mitigate. 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.

effective 2008, energy Services enters into natural gas financial swaps primarily with Macquarie Cook energy Canada

ltd. (formerly, Constellation energy Commodities Group Inc.) for distributor billed natural gas business in Canada to

manage its economic exposure of providing fixed-price natural gas to its customers. energy Services also maintains

natural gas swap positions with seven additional counterparties. energy Services monitors its fixed-price natural gas

positions on a daily basis to evaluate compliance with established risk management policies. energy Services maintains

a substantially balanced fixed-price natural gas position in relation to its customer supply commitments.

energy Services enters into electricity financial swaps with counterparties to manage the economic exposure of providing

fixed-price electricity to its customers. energy Services monitors its fixed-price electricity positions on a daily basis to

evaluate compliance with established risk management policies. energy Services maintains a substantially balanced

fixed-price electricity position in relation to its customer supply commitments.

energy Services enters into various propane forward purchase and sale agreements with more than 20 counterparties

to manage the economic exposure of its wholesale customer supply contracts. Superior monitors its fixed-price propane

positions on a daily basis to monitor compliance with established risk management policies. Superior maintains a

substantially balanced fixed-price propane gas position in relation to its wholesale customer supply commitments.

Specialty Chemicals 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 markets where the price of electricity is

not fixed. Substantially all of the fair value with respect to these agreements is with a single counterparty.

Superior, on behalf of its operating divisions, enters into foreign currency forward contracts with ten counterparties

to manage the economic exposure of Superior’s operations to movements in foreign currency exchange rates.

energy Services contracts a portion of its fixed-price natural gas, propane and heating oil purchases and sales in

uS dollars and enters into forward uS dollar purchase contracts to create an effective Canadian dollar fixed-price purchase

cost. Specialty Chemicals 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.

As at December 31, 2009, energy Services had hedged approximately 100% of its estimated uS dollar natural gas

and propane purchase (sales) obligations and Specialty Chemicals had hedged 94% and 61% of its estimated uS

dollar exposure for the remainder of 2010 and 2011, respectively. energy Services had hedged approximately 45%

of its estimated uS dollar exposure for the remainder of 2010 and 2011. Construction products Distribution had

hedged approximately 95% and 62% of its estimated uS dollar exposure for the remainder of 2010 and 2011. the

estimated adjusted operating cash flow sensitivity for Superior including segmented u.S. exposures and the impact on

u.S.-denominated debt with respect to a $0.01 change in the Canadian to uS dollar exchange rate for 2010 is $0.2 million,

after giving effect to united States forward contracts for 2010, as shown in the table below. Superior’s sensitivities and

guidance are based on an anticipated Canadian to uS dollar exchange rate of 1.05 for 2010.

SuperIor pluS Corp.

≤ 37

MAnAgeMent’s DisCussion AnD AnAlysis

(US$ millions)

2010

2011

2012

2013 2014

2015 and
thereafter

total

energy Services – uS$ forward purchases (1)
energy Services – uS$ forward purchases (sales)
Construction products Distribution – uS$ forward sales
Specialty Chemicals – uS$ forward sales

(54.8)
28.9
23.5
117.4

(5.4)
24.6
18.0
82.5

–
24.0
24.0
56.5

net uS$ forward sales

115.0

119.7

104.5

energy Services – Average uS$ forward purchase rate (1) 1.16
1.09
energy Services – Average uS$ forward sales
Construction products Distribution
– Average uS$ forward sales
Specialty Chemicals – uS$ forward sales

1.08
1.08

net average external uS$/Cdn$ exchange rate

1.10

1.11
1.06

1.06
1.17

1.13

Specialty Chemicals – euro forward sales

5.1

0.3

Specialty Chemicals – Average euro forward sales rate

1.58

–
1.06

1.06
1.10

1.08

–

–
24.0
24.0
33.0

81.0

–
1.06

1.07
1.08

1.07

–

–
–
–
–

–

–
–

–

–
(60.2)
– 101.5
–
89.5
– 289.4

– 420.2

–
–

–

1.15
1.07

1.07
1.11

1.10

5.4

1.58

(1) Fixed-price energy services is now sourcing its fixed-price natural gas requirements in Canadian dollars; as such, fixed-price energy services will no longer be

required to use uS dollar forward contracts to fix its Canadian dollar exposure.

Superior manages its overall liquidity risk in relation to its general funding requirements by utilizing a mix of short-term

and longer-term debt instruments. Superior reviews it mix of short-term and longer-term debt instruments on an ongoing

basis to ensure it is able to meet its liquidity requirements.

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. energy Services and Construction

products Distribution deal with a large number of small customers, thereby reducing this risk. Specialty Chemicals, due

to the nature of its operations, sells its products to a relatively small number of customers. Specialty Chemicals mitigates

its customer credit risk by actively monitoring the overall credit worthiness of its customers. energy Services has minimal

exposure to customer credit risk as local natural gas and electricity distribution utilities have been mandated, for a

nominal fee, to provide energy Services with invoicing, collection and the assumption of bad debts risk for residential and

small commercial customers. energy Services actively monitors the credit worthiness of its industrial customers.

For additional details on Superior’s financial instruments, including the amount and classification of gains and losses

recorded in Superior’s Consolidated Financial Statements, and significant assumptions used in the calculation of the fair

value of Superior’s financial instruments, see note 11 to the Consolidated Financial Statements.

38 ≥ AnnuAl report 2009

SenSitivity analySiS

Superior’s estimated cash flow sensitivity in 2009 to the following changes is provided below:

Impact on
Adjusted
operating
Cash Flow per Share

Change Change

$0.005/litre
50 million litres
$0.005/litre
7.7 million litres
$0.02/GJ
2 million GJ

3% $ 6.4 million
4% $ 8.6 million
5% $ 0.8 million
5% $ 0.6 million
2% $ 0.7 million
6% $ 1.6 million

$ 0.07
$ 0.09
$ 0.01
$ 0.01
$ 0.01
$ 0.02

$10.00/tonne
15,000 metric tonnes

1% $ 6.3 million
2% $ 4.8 million

$ 0.07
$ 0.05

energy services
Change in propane sales margin
Change in propane sales volume
Change in u.S. refined fuels sales margin
Change in u.S. refined fuels sales volume
Change in natural gas sales margin
Change in natural gas sales volume
specialty Chemicals
Change in sales price
Change in sales volume
Construction Products Distribution
Change in distribution sales margin
Change in sales volume
Corporate
Change in Cdn$/uS$ exchange rate (1)
Corporate change in interest rates

1% point change in average gross margin
5% change in sales volume

3% $ 4.2 million
5% $ 3.4 million

$ 0.05
$ 0.04

$0.01
0.5%

1% $ 0.1 million
10% $ 1.7 million

–
$ 0.02

(1) After giving effect to uS$ forward sales contracts for 2009. See “Financial Instruments – risk Management”.

CritiCal aCCOunting eStimateS

Superior’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 Superior 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. Superior constantly evaluates

these estimates and assumptions.

allowance for doubtful accounts

Superior 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 Superior’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 Superior’s expectations, Superior will adjust its allowance for doubtful accounts and

its bad debts expense accordingly.

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 Superior’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.

SuperIor pluS Corp.

≤ 39

MAnAgeMent’s DisCussion AnD AnAlysis

asset impairment

Superior 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 assigned 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 less than the carrying value,

goodwill is considered to be impaired and an impairment charge would be recognized immediately.

valuation of derivatives and non-financial derivatives

the valuation of derivatives and non-financial derivatives is determined by reference to quoted bid or asking prices, as

appropriate, in the most advantageous active market for that instrument to which Superior has immediate access. Where

bid and ask prices are unavailable, Superior uses the closing price of the most recent transaction of the instrument. In

the absence of an active market, Superior determines fair value 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 these assumptions, Superior looks primarily to external

readily observable market inputs including interest rate yield curves, currency rates, and price and rate volatilities as

applicable. With respect to the valuation of Specialty Chemicals’ fixed-price electricity agreements, Superior makes

assumptions about the long-term price of electricity in electricity markets for which active market information is not

available. this assumption 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 are measured at fair value and are recognized in

net income.

asset retirement Obligations

Certain of Specialty Chemicals’ assets may be subject to what is commonly referred to as asset retirement obligations

as the segment is required to remove or remedy the effect of its activities on the environment at its operating sites

by dismantling and removing production facilities at the end of a respective plant’s operating life. Specialty Chemicals

potential asset retirement obligations could also be impacted by interpretation and changes to environmental laws and

regulations in the countries in which Specialty Chemicals operates. In certain instances, Specialty Chemicals does not

view the potential asset retirement obligations to be significant based on a combination of past experience related to

the prior remediation of similar facilities and/or the existence of indemnification agreements related to environmental

liabilities. Additionally, at some facilities, Specialty Chemicals is currently unable to accurately estimate its potential asset

retirement obligations, as these facilities currently have an indeterminate life. 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

obligations are known. Accordingly, Specialty Chemicals has not recorded a provision for asset retirement obligations.

40 ≥ AnnuAl report 2009

ChangeS in aCCOunting pOliCieS

financial assets and financial liabilities

on January 1, 2009, Superior adopted the requirements of guidance provided by the Canadian Institute of Chartered

Accountants (CICA) related to the application of credit risk and the determination of the fair value of financial assets

and liabilities. Superior adopted the guidance retrospectively, but did not restate prior periods. Accordingly, Superior

decreased the carrying value of its net financial instrument assets and liabilities as at January 1, 2009 by $0.4 million,

with a corresponding increase of $0.1 million to Superior’s future income tax asset and an increase of $0.3 million to

Superior’s opening accumulated deficit; comparative earnings and financial assets and liabilities for prior periods have

not been restated.

financial instruments – disclosure

the CICA has amended Handbook Section 3862 Financial Instruments – Disclosure. these amendments require

enhanced disclosure on the fair value of certain financial instruments. the amendments were effective for annual financial

statements on or after September 30, 2009. these amendments to Section 3862 are to enhance the disclosures about

the fair value measurements including the relative reliability of the inputs used in those measurements, and about the

liquidity of financial instruments. Superior adopted these amendments in the fourth quarter of 2009.

goodwill and intangible assets

on January 1, 2009, Superior adopted CICA Handbook Section 3064 Goodwill and Intangible Assets. this standard

provides more specific guidance on the recognition of internally developed intangible assets and requires that research

and development expenditures be evaluated against the same criteria as expenditures for intangible assets. the section

harmonizes GAAp with International Financial reporting Standards (IFrS). Adoption of this standard did not have an

impact on Superior.

future aCCOunting ChangeS

Business Combinations

In January 2009, the CICA issued Handbook Section 1582 Business Combinations, which will replace CICA Handbook

Section 1581 of the same name. under this guidance, the purchase price used in a business combination is based on

the fair value of shares exchanged at their market price at the date of the exchange. Currently the purchase price used

is based on the market price of the shares for a reasonable period before and after the date the acquisition is agreed

upon and announced. this new guidance generally requires all acquisition costs to be expensed, which currently are

capitalized as part of the purchase price. Contingent liabilities are to be recognized at fair value at the acquisition date

and re-measured at fair value through earnings each period until settled. Currently only contingent liabilities that are

resolved and payable are included in the cost to acquire the business. In addition, negative goodwill is required to be

recognized immediately in earnings, unlike the current requirement to eliminate it by deducting it from non current assets

in the purchase price allocation. Handbook Section 1582 is effective for Superior on January 1, 2011 with prospective

application and early adoption permitted. the adoption of this standard will impact the accounting treatment of future

business combinations.

Consolidated financial Statements

In January 2009, the CICA issued section 1601 Consolidated Financial Statements, which will replace CICA Handbook

Section 1600 of the same name. this guidance requires uniform accounting policies to be consistent throughout all

consolidated entities, which is not explicitly required under the current standard. Handbook Section 1601 is effective

for Superior on January 1, 2011 with early adoption permitted. the adoption of this standard should not have a material

impact on Superior’s Consolidated Financial Statements.

SuperIor pluS Corp.

≤ 41

MAnAgeMent’s DisCussion AnD AnAlysis

non-Controlling interests

In January 2009, the CICA issued Handbook Section 1602, non-controlling Interests, which will replace CICA Handbook

Section 1600, Consolidated Financial Statements. Minority interest is now referred to as non-controlling interest (“nCI”),

and is presented within equity. under this new guidance, when there is a loss or gain of control the Company’s previously

held interest is revalued at fair value. Currently an increase in an investment is accounted for using the purchase method

and a decrease in an investment is accounted for as a sale resulting in a gain or loss in earnings. In addition, nCI may

be reported at fair value or at the proportionate share of the fair value of the acquired net assets and allocation of

the net income to the nCI will be on this basis. Currently, nCI is recorded at the carrying amount and can only be in

a deficit position if the nCI has an obligation to fund the losses. Handbook Section 1602 is effective for Superior on

January 1, 2011 with early adoption permitted. the adoption of this standard should not have a material impact on

Superior’s Consolidated Financial Statements.

international financial reporting Standards

the Accounting Standards Board of Canada (AcSB) has announced plans that will require the convergence of GAAp with

IFrS for publicly accountable enterprises, including Superior plus Corp. the changeover date from GAAp to IFrS is for

annual and interim financial statements relating to fiscal years beginning on or after January 1, 2011.

During 2008, Superior formed an IFrS project team to develop an IFrS transition plan. Superior’s approach was to

assess and coordinate ongoing training requirements in conjunction with the development of a comprehensive

diagnostic/planning document throughout the first and second quarters of 2009. Superior’s diagnostic plan included the

assessment of differences between GAAp and IFrS, options available under IFrS, potential system requirements as a

result of the adoption of IFrS, and the impact on internal controls and other business activities. During the fourth quarter

of 2009, Superior completed the majority of its comprehensive diagnostic, and began the development and execution of

a detailed IFrS transition plan.

At this time, Superior is not able to reasonably estimate the impact that the adoption of IFrS may have on its future

operating results and financial position. Superior’s assessment of areas that will have a significant impact upon adoption

of IFrS consists of, but may not be limited to:

• Property, plant and equipment may be impacted by the requirement to record and amortize on the basis of

material components;

• Employee future benefit obligations will be impacted as IFRS does not allow the deferral of certain actuarial gains and

losses which are currently deferred under GAAp;

• Asset impairments recorded in prior years, under certain circumstances, are eligible to be reversed under IFRS;

• The classification of a lease arrangement as either an operating lease or a finance/capital lease may differ under IFRS;

• The assessment and accounting treatment of off-balance sheet arrangements such as Superior’s accounts receivable

securitization program may differ under IFrS;

• The classification of financial statement items may differ under IFRS;

• Financial statement disclosures under IFRS tend to be more comprehensive than those under GAAP; and

• The impact on various credit agreements, if any.

Superior will continue to assess the impact of IFrS throughout 2010, including the impact on its Consolidated Financial

Statements, financial reporting systems and internal control systems, and Superior is expected to disclose the quantitative

impact of IFrS during 2010.

42 ≥ AnnuAl report 2009

SeleCted finanCial infOrmatiOn
(millions of dollars except per share amounts)

total assets (as at December 31)
total revenues
Gross profit
net earnings from continuing operations
net earnings
per share from continuing operations, basic and diluted
per share, basic and diluted
Cash flow from continuing operating activities
Adjusted operating cash flow
per share, basic and diluted
Cash dividends per share (1)
Current and long-term debt (2) (as at December 31)

2009

2008

2007

$
$

2,274.0
2,246.7
653.4
68.3
68.3
0.75
0.75
191.3
163.9
1.80
1.62
645.4

$
$

2,026.9
2,487.3
669.1
67.7
67.7
0.77
0.77
207.6
192.3
2.18
1.61
477.7

$
$

1,542.8
2,350.5
661.8
119.4
119.8
1.38
1.38
134.3
179.5
2.08
1.56
340.5

$
$

(1) Cash dividends per share paid in fiscal 2009 and distributions per share paid in fiscal 2008 and 2007.
(2) Current and long-term debt before deferred financing fees and convertible unsecured subordinated debentures.

fOurth quarter reSultS

Fourth quarter 2009 adjusted operating cash flow was $64.4 million, a decrease of $0.6 million or 1% compared to the

prior year quarter. the decrease in adjusted operating cash flow was due to reduced eBItDA from operations at Specialty

Chemicals and Construction products Distribution, offset in part by improved eBItDA from energy Services, lower

interest costs, cash income taxes and corporate costs. Adjusted operating cash flow per share was $0.65 per share in

the fourth quarter, a decrease of 12% from $0.74 per share in the prior year’s quarter due to an increase of the weighted

average number of shares outstanding of 10.1 million related to the issuance of common shares to partially finance the

acquisition of SpI, and the acquisition of u.S. refined fuels assets.

net earnings for the fourth quarter were $17.4 million, compared to a net loss of $19.9 million in the prior year’s

quarter. net earnings were impacted by $0.2 million in unrealized losses on financial instruments in the current quarter,

compared to unrealized losses of $83.6 million in the prior year’s quarter. the change in the unrealized gains and losses

on financial instruments was due principally to gains in the current quarter on Superior’s natural gas financial derivatives

compared to losses in the prior year as a result of fluctuations in the spot and forward price for natural gas. revenues of

$747.5 million were $89.0 million higher than the prior year’s quarter due principally to higher energy Services revenue

from the acquisitions of the u.S. refined fuels assets and higher Construction products Distribution revenue due to the

acquisition of SpI, offset set in part by reduced propane and chemical sales volumes. Gross profit of $203.3 million was

$10.2 million higher than the prior year’s quarter due principally to contribution of the acquisitions completed in 2009,

offset in part by reduced sales volumes at energy Services and Construction products Distribution, and lower Specialty

Chemicals gross margin. total income tax for the fourth quarter was an expense of $21.0 million compared to an income

tax recovery of $15.8 million in the prior year’s quarter. Income taxes were impacted by the commissioning of the

port edwards expansion and acquisitions completed in 2009. the prior year recovery was primarily due to Superior’s

conversion to a corporation on December 31, 2008, the reversal of Superior’s deferred tax credit and financial instrument

losses. Further discussion of the 2009 fourth quarter results is provided in Superior’s Fourth Quarter and 2009 earnings

release, dated February 18, 2010.

SuperIor pluS Corp.

≤ 43

MAnAgeMent’s DisCussion AnD AnAlysis

quarterly finanCial and Operating infOrmatiOn

Quarterly financial and operating information for 2009 and 2008 is provided in the table below. Superior’s overall

adjusted operating cash flow and working capital funding requirements are modestly seasonal. Approximately 80% of

energy Services’ fuel distribution related 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-uses. 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 Construction products Distribution’s operating cash flow and working capital funding

requirements is modestly complementary to energy Services’ seasonality as new construction and remodelling activity

typically peaks during the second and third quarters of each year. Specialty Chemicals and fixed-price energy services

operating cash flow and net working capital requirements do not have significant seasonal fluctuations.

Canadian propane sales volumes

(millions of litres)

u.S. refined fuels sales volumes

(millions of litres)

natural gas sales volumes (millions of GJ)
electricity sales volumes (millions of kWh)
Chemical sales volumes
(thousands of Mt)

Gross profit (millions of dollars)
net earnings (loss) (millions of dollars)
per share, basic
per share, diluted
Adjusted operating cash flow

(millions of dollars)

per share, basic
per share, diluted
net working capital (1) (millions of dollars)

2009
Quarter

2008
Quarter

Fourth third second

First Fourth

third Second

First

373 224 249 431 390

244

274

469

153
8
68

–
8
56

–
8
38

–
8
31

–
8
28

–
8
18

–
8
14

–
9
10

191
160 163 155 155 160
169.9
203.3 126.9 134.9 188.3 193.1
127.2
17.4 33.0 23.4
$ 0.18 $ 0.37 $ 0.26 $ (0.06) $ (0.23) $ (2.31) $ 1.86 $ 1.44
$ 0.18 $ 0.37 $ 0.26 $ (0.06) $ (0.23) $ (2.31) $ 1.86 $ 1.44

188
153.3
(5.5) (19.9) (203.9) 164.3

188
152.8

64.4 19.3 18.9 61.3 65.0
55.7
$ 0.65 $ 0.22 $ 0.21 $ 0.69 $ 0.74 $ 0.38 $ 0.43 $ 0.63
$ 0.65 $ 0.22 $ 0.21 $ 0.69 $ 0.74 $ 0.38 $ 0.43 $ 0.63
273.9
183.8 132.0 72.0 83.7 168.9

252.2

231.4

33.5

38.1

(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.

reCOnCiliatiOn Of net earningS tO eBitda frOm OperatiOnS (1) (2)

2009 (millions of dollars)

net earnings
Add: Amortization of property, plant and equipment, intangible assets

and accretion of convertible debenture issue costs

Amortization included in cost of sales
energy Services non-cash pension expense
unrealized losses on financial instruments

eBitDA from operations

energy
services

Construction
specialty
Products
Chemicals Distribution

53.1

19.9
–
1.7
22.9

97.6

19.6

4.8
37.5
–
31.1

93.0

17.0

5.8
–
–
–

22.8

44 ≥ AnnuAl report 2009

2008 (millions of dollars)

net earnings
Add: Amortization of property, plant and equipment, intangible assets

and accretion of convertible debenture issue costs

Amortization included in cost of sales
energy Services non-cash pension expense
unrealized (gains) losses on financial instruments
Gain on disposal of facility

energy
Services

Construction
products
Chemicals Distribution

Specialty

14.2

12.7
–
2.4
74.0
_

90.3

33.0

6.5
38.9
–
(15.2)
(4.0)

4.4
–
–
–
–

eBItDA from operations

103.3

116.5

37.4

(1) See the Consolidated Financial Statements for net earnings (loss), amortization of property, plant and equipment, intangible assets and accretion of convertible

debenture issue costs, tax expense (recovery), non-cash pension expense and unrealized (gains) losses on financial instruments.

(2) See “non-GAAp Financial Measures” for additional details.

reCOnCiliatiOn Of net earningS tO Bank COmplianCe eBitda (1) (2)

(millions of dollars)

net earnings
Adjusted for:

Interest on revolving term bank credits and term loans
Interest on convertible unsecured subordinated debentures

Accretion of convertible debenture issue costs
Amortization of property, plant and equipment
Amortization included in cost of sales
Amortization of intangible assets

Income tax expense

unrealized losses on financial instruments
Gain on sale of facility
non-cash pension expense
proforma impact of acquisitions

Bank compliance eBItDA

(1) See the Consolidated Financial Statements for additional details.
(2) See “non-GAAp Financial Measures” for additional details.

2009

68.3

27.0
16.8
1.4
22.6
37.5
7.9
12.7
20.6
–
1.7
51.4

267.9

2008

67.7

23.7
14.8
1.4
18.3
38.9
5.3
9.9
61.2
(4.0)
2.4
2.5

242.1

diSClOSure COntrOlS and prOCedureS and internal COntrOlS Over
finanCial repOrting

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) in order 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 and regulation. In essence, these types of controls are related to the quality and timeliness of financial

and non-financial information in securities filings. the Ceo and CFo are assisted in this responsibility by a 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 releases. An evaluation of the effectiveness of the design and operation of

SuperIor pluS Corp.

≤ 45

MAnAgeMent’s DisCussion AnD AnAlysis

Superior’s disclosure controls and procedures was conducted as at December 31, 2009 by and under the supervision of

Superior’s management, including the Ceo and CFo. Based on this evaluation, the Ceo and CFo have concluded that

Superior’s disclosure controls and procedures, as defined in national 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 and regulation is recorded, processed, summarized and reported

within the times specified in those rules and forms.

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 GAAp.

the evaluation of the design of Superior’s internal controls over financial reporting was conducted as at

December 31, 2009 by and under the supervision of Superior’s management, including the Ceo and CFo. Based on

this evaluation, the Ceo and CFo have concluded that the design of Superior’s internal controls over financial reporting,

as defined in national Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, provides

reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance

with GAAp.

the evaluation of effectiveness of Superior’s internal controls over financial reporting was conducted as at

December 31, 2009 by and under the supervision of Superior’s management, including the Ceo and CFo. Based on

this evaluation, the Ceo and CFo have concluded that Superior’s internal controls over financial reporting, as defined in

national Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, were effective at December

31, 2009.

no changes have been made in Superior’s internal controls over financial reporting that have materially affected,

or are reasonably likely to materially affect, Superior’s internal controls over financial reporting in the quarter ended

December 31, 2009.

the certifying officers have limited the scope of their certification in accordance with national Instrument 52-109 for the

design and effectiveness of disclosure controls and procedures and internal controls over financial reporting to exclude

controls, policies and procedures resulting from the acquisition of SpI on September 24, 2009 and the acquisition of u.S.

refined fuel assets on September 30, 2009 and December 11, 2009. the businesses are described in the MD&A under

Construction products Distribution and energy Services – u.S. refined fuel assets.

Superior’s consolidated results include revenues and net income of $88.8 million and $3.5 million, respectively, related

to the SpI business. Superior’s consolidated balance sheet at December 31, 2009 includes $180.8 million in total assets

related to the SpI business, of which 51% are current, and total liabilities of $42.0 million, of which 67% are current.

Superior’s consolidated results include revenues and net income of $104.4 million and $4.4 million, respectively, related

to the u.S. refined fuel assets acquired on September 30, 2009 and December 11, 2009. Superior’s consolidated balance

sheet at December 31, 2009 includes $249.9 million in total assets related to the u.S. refined fuel assets, of which 31%

are current and total liabilities of $65.2 million, of which 93% are current. the financial information for the u.S. refined

fuel assets has been combined to reflect the consistent management and operating control structures, the similarity in

the risks in business operations and to be consistent with how the businesses are managed and disclosed to investors.

With respect to the acquisitions of SpI and the u.S. refined fuel assets where the scope of the Ceo and CFo’s certification

has been limited in accordance with national Instrument 52-109, Superior’s management, under the supervision of the

Ceo and the CFo, has evaluated the overall risk, reviewed the results of operations with operating management, and

46 ≥ AnnuAl report 2009

confirmed that consistent controls have operated since Superior’s acquisitions and continued to operate at year end.

Management is confident in the reliability of financial reporting and the preparation of financial statements included in

Superior’s consolidated results. In 2010, Superior will certify that the internal controls over financial reporting and the

disclosure controls and procedures are designed and effective under national Instrument 52-109.

fOrward-lOOking infOrmatiOn

Certain information included or incorporated by reference herein is forward-looking, within the meaning 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, adjusted

operating cash flow, eBItDA from operations, taxes, and plans and objectives of or involving Superior plus Corp. (Superior)

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 MD&A includes but is not limited to consolidated and business segment

outlooks, expected eBItDA from operations, expected adjusted operating cash flow, expected adjusted operating

cash flow per share, future capital expenditures, business strategy and objectives, dividend strategy, expected senior

debt and total debt to eBItDA ratios, future cash flows, anticipated taxes, expected impact of proposed productivity

improvement initiatives and statements regarding the future financial position of Superior and Superior lp. Specifically,

under the heading “outlook” for each operating business and corporate, Superior has disclosed certain forward-looking

information. Superior believes 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 statements should not

be unduly relied upon.

Forward-looking information is based on various assumptions. those assumptions are based on information currently

available to Superior, including information obtained from third party industry analysts and other third party sources

and include the historic performance of Superior’s businesses, current business and economic trends, availability and

utilization of tax basis, currency, exchange and interest rates, trading data, cost estimates and the other assumptions set

forth under the “outlook” sections contained in this MD&A. readers are cautioned that the preceding list of assumptions

is not exhaustive.

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 Superior’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 referred to under the section entitled

“risk Factors to Superior”, and the risks identified in Superior’s 2009 Annual Information Form under the heading

“risk Factors”. Any forward-looking information is made as of the date hereof and, except as required by law, Superior

does not undertake any obligation to publicly update or revise such information to reflect new information, subsequent

or otherwise.

SuperIor pluS Corp.

≤ 47

MAnAgeMent’s DisCussion AnD AnAlysis

nOn-gaap finanCial meaSureS

adjusted Operating Cash flow

Adjusted operating cash flow is equal to cash flow from operating activities as defined by GAAp, adjusted for changes

in non-cash working capital and customer contract related costs. Superior may deduct or include additional items

in its calculation of adjusted operating cash flow; these items would generally, but not necessarily, be items of a

non-recurring nature. Adjusted operating cash flow is the main performance measure used by management and investors

to evaluate the performance of Superior. readers are cautioned that adjusted operating cash flow is not a defined

performance measure under GAAp and that adjusted operating cash flow cannot be assured. Superior’s calculation of

adjusted operating cash flow may differ from similar calculations used by comparable entities. Adjusted operating cash

flow represents cash flow generated by Superior that is available for, but not necessarily limited to, changes in working

capital requirements, investing activities and financing activities of Superior.

the seasonality of Superior’s individual quarterly results must be assessed in the context of annualized adjusted operating

cash flow. Adjustments recorded by Superior as part of its calculation of adjusted operating cash flow include, but are

not limited to, the impact of the seasonality of Superior’s businesses, principally the energy Services segment, 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 expense, which can differ significantly from quarter to quarter. Adjustments

are also made to reclassify the cash flows related to natural gas and electricity customer contract related costs in a

manner consistent with the income statement recognition of these costs. Adjusted operating cash flow is reconciled to

cash flow from operating activities on page 16.

eBitda

eBItDA represents earnings before interest, taxes, depreciation, amortization and other non-cash expenses, and is

used by Superior to assess its consolidated results and the results of its operating segments. eBItDA is not a defined

performance measure under GAAp. Superior’s calculation of eBItDA may differ from similar calculations used by

comparable entities. eBItDA of Superior’s operating segments may be referred to as eBItDA from operations.

Compliance eBitda

Compliance eBItDA represents earnings before interest, taxes, depreciation, amortization and other non-cash

expenses 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. Compliance eBItDA is not a defined performance

measure under GAAp. Superior’s calculation of compliance eBItDA may differ from similar calculations used by

comparable entities.

distributable Cash flow

Distributable cash flow was a financial measure previously reported by Superior. In the fourth quarter of 2008, as a

result of Superior’s conversion to a corporation, management discontinued the use of this financial measure to evaluate

the performance of Superior; the measure is now only used to calculate Superior’s debt covenants. Management now

focuses on the financial measure of adjusted operating cash flow. the primary difference between these measures is

the focus and disclosure of capital expenditures. Superior has provided disclosure of adjusted operating cash flow on a

comparative basis. Distributable cash flow is not a defined performance measure under GAAp. Superior’s calculation of

distributable cash flow may differ from similar calculations used by comparable entities.

48 ≥ AnnuAl report 2009

risk factors to Superior

the risk factors and uncertainties detailed below are a summary of Superior’s assessment of its material risk factors as

identified in Superior’s 2009 Annual Information Form under the heading “risk Factors”. For a detailed discussion of

these risks along with additional information related to Superior, see Superior’s 2009 Annual Information Form, filed on

the Canadian Securities Administrators’ website, www.sedar.com and Superior’s website, www.superiorplus.com.

risks to Superior

Superior is entirely dependent upon the operations and assets of Superior lp. Superior’s ability to make dividend

payments to shareholders is dependent upon the ability of Superior lp to make distributions on its outstanding limited

partnership units as well as the operations and business of Superior lp.

Although Superior intends to distribute the income allocated from Superior lp, less the amount of its expenses,

indebtedness and other obligations and less amounts, if any, Superior pays in connection with the redemption of common

shares, there is no assurance regarding the amounts of cash to be distributed by Superior lp or generated by Superior

lp and therefore funds available for dividends to shareholders. the actual amount distributed in respect of the limited

partnership units will depend on a variety of factors including, without limitation, the performance of Superior lp’s

operating businesses, the effect of acquisitions or dispositions on Superior lp, and other factors that may be beyond the

control of Superior lp or Superior. In the event significant sustaining capital expenditures are required by Superior lp

or the profitability of Superior lp declines, there would be a decrease in the amount of cash available for dividends to

shareholders and such decrease could be material.

Superior’s dividend policy and the distribution policy of Superior lp are subject to change at the discretion of the board

of directors of Superior or the board of directors of Superior General partner Inc., as applicable. Superior’s dividend policy

and the distribution policy of Superior lp are also limited by contractual agreements including agreements with lenders

to Superior and its affiliates and by restrictions under corporate law.

the credit facilities of Superior lp contain covenants that require Superior lp to meet certain financial tests

and that restrict, among other things, the ability of Superior lp to incur additional debt, dispose of assets or pay

dividends/distributions in certain circumstances. these restrictions may preclude Superior lp from returning capital or

making distributions on the limited partnership units.

the payout by Superior lp of substantially all of its available cash flow means that capital expenditures to fund growth

opportunities can only be made in the event that other sources of financing are available. lack of access to such additional

financing could limit the future growth of the business of Superior lp and, over time, have a material adverse effect on

the amount of cash available for dividends to shareholders.

to the extent that external sources of capital, including public and private markets, become limited or unavailable, Superior’s

and Superior lp’s ability to make the necessary capital investments to maintain or expand the current business and to

make necessary principal payments, uncertainties and assumptions under its term credit facilities may be impaired.

Superior maintains a substantial floating interest rate exposure through a combination of floating interest rate borrowings

and the use of derivative instruments. Demand levels for approximately half of energy Services’ sales and substantially all

of Specialty Chemicals’ and Construction products Distribution’s sales are affected by general economic trends. Generally

speaking, when the economy is strong, interest rates increase as does sales demand from Superior’s customers, thereby

increasing Superior’s ability to pay higher interest costs and vice versa. In this way, there is a common relationship

between economic activity levels, interest rates and Superior’s ability to pay higher or lower rates.

SuperIor pluS Corp.

≤ 49

MAnAgeMent’s DisCussion AnD AnAlysis

A portion of Superior’s net cash flows is denominated in uS dollars. Accordingly, fluctuations in the Canadian/uS dollar

exchange rate can impact profitability. Superior attempts to mitigate this risk by hedging.

the timing and amount of capital expenditures incurred by Superior lp or by its subsidiaries will directly affect the

amount of cash available to Superior for dividends to shareholders. Dividends may be reduced, or even eliminated, at

times when significant capital expenditures are incurred or other unusual expenditures are made.

If the board of directors of Superior decides to issue additional common shares, preferred shares or securities convertible

into common shares, existing shareholders may suffer significant dilution.

Superior has, through the contractual provisions in the Arrangement Agreement, the Indemnity Agreement and the

Divestiture Agreement, and through securing certain insurance coverage, attempted to ensure that the liabilities and

obligations relating to the business of Ballard are transferred to and assumed by new Ballard, that Superior is released

from any such obligations and, even where such transfer or release is not effective or is not obtained, Superior is

indemnified by new Ballard for all such obligations. However, in the event new Ballard fails or is unable to meet such

contractual obligations to Superior, Superior could be exposed to liabilities and risks associated with the operations of

Ballard which include, without limitation, risks relating to claims with respect to intellectual property matters, product

liability or environmental damages.

there can be no assurances that income tax laws in the numerous jurisdictions in which Superior operates will not be

changed in a manner which adversely affects Superior and its shareholders. In addition, there can be no assurance that

the Canada revenue Agency (or provincial tax agency), u.S. Internal revenue Service (or a state or local tax agency),

or the Chilean Internal revenue Service (collectively the “tax Agencies”) will agree with how Superior calculates its

income for tax purposes or that the various tax Agencies will not change their administrative practices to the detriment

of Superior or its shareholders. In particular, there is the possibility that the Canada revenue Agency could challenge the

tax consequences of the plan of Arrangement or prior Ballard transactions, which could potentially affect the availability

or amount of the tax basis or other tax accounts of Superior.

risks to Superior’s Segments

energy Services
Canadian Propane Distribution and U.S. Refined Fuels

propane is sold in competition with other energy sources such as fuel oil, electricity and natural gas, along with alternative

energy sources that are currently under development. In addition to competition from other energy sources, Superior

competes with other retail marketers. Superior’s ability to remain an industry leader depends on its ability to provide

reliable service at competitive selling prices.

Competition in the u.S. refined fuels business markets generally occurs on a local basis between large full service,

multi-state marketers and smaller local independent marketers. Although the industry has seen a continued trend of

consolidation over the past several years, the top ten multi-state marketers still generate only one-third of total retail

sales in the united States. Marketers primarily compete based upon price and service and tend to operate in close

proximity to customers, typically within a 35-mile marketing radius from a central depot, to lower delivery costs and

provide prompt service.

Weather and general economic conditions affect propane and refined fuels market volumes. Weather influences the

demand for propane and heating oil used primarily for space heating uses and also for agricultural applications.

50 ≥ AnnuAl report 2009

the trend towards increased conservation measures and technological advances in energy efficiency may have

a detrimental effect on propane demand and Superior’s sales. Further, increases in the cost of propane encourage

customers to conserve fuel and to invest in more energy-efficient equipment, reducing demand. Changes in propane

supply costs are normally passed through to customers, but timing lags (the time between when Superior purchases the

propane and when the customer purchases the propane) may result in positive or negative gross margin fluctuations.

Superior offers its customers various fixed-price propane and heating oil programs. In order to mitigate the price risk

from offering these services, Superior uses its physical inventory position, supplemented by forward commodity

transactions with various third parties having terms and volumes substantially the same as its customers’ contracts. In

periods of high propane price volatility the fixed-price programs create exposure to over or under supply positions as the

demand from customers may significantly exceed or fall short of supply procured. In addition, if propane prices decline

significantly subsequent to customers signing up for a fixed-price program there is a risk that customers will default on

their commitments.

Superior’s operations are subject to the risks associated with handling, storing and transporting propane in bulk. Slight

quantities of propane may also be released during transfer operations. to mitigate risks, Superior has established

a comprehensive program directed at environmental, health and safety protection. this program consists of an

environmental policy, codes of practice, periodic self-audits, employee training, quarterly and annual reporting and

emergency prevention and response.

the u.S. refined fuels business, through a centralized safety and environment management system, ensures that safety

practices and regulatory compliance are an important part of its business. the storage and delivery of refined fuels poses

the potential for spills which impact the soils and water of storage facilities and customer properties.

Superior’s fuel distribution businesses are based and operate in Canada and the united States, and, as a result, such

operations could be affected by changes to laws, rules or policies which may either be more favourable to competing

energy sources or increase costs or otherwise negatively affect the operations of energy Services in comparison to such

competing energy sources. Any such changes could have an adverse effect on the operations of energy Services.

Approximately 18% of Superior’s propane and u.S. refined fuels distribution business employees are unionized. Collective

bargaining agreements are renegotiated in the normal course of business.

Fixed-Price Energy Services Business

new entrants in the energy retailing business may enter the market and compete directly for the customer base that

Superior targets, slowing or reducing its market share.

Fixed-price energy services purchases natural gas to meet its estimated commitments to its customers based upon their

historical consumption. Depending on a number of factors, including weather, customer attrition and poor economic

conditions affecting commercial customers’ production levels, customers’ combined natural gas consumption may vary

from the volume purchased. this variance must be reconciled and settled at least annually and may require Superior

to purchase or sell natural gas at market prices, which may have an adverse impact on the results of this business.

to mitigate balancing risk, Superior closely monitors its balancing position and takes measures such as adjusting gas

deliveries and transferring gas between pools of customers, so that imbalances are minimized. In addition, Superior

maintains a reserve for potential balancing costs. the reserve is reviewed on a monthly basis to ensure that it is sufficient

to absorb any losses that might arise from balancing.

SuperIor pluS Corp.

≤ 51

MAnAgeMent’s DisCussion AnD AnAlysis

Fixed-price energy services matches its customers’ estimated electricity requirements by entering into electricity swaps

in advance of acquiring customers. Depending on several factors, including weather, customer energy consumption may

vary from the volumes purchased by Superior. Superior is able to invoice existing commercial electricity customers for

balancing charges when the amount of energy used is greater than or less than the tolerance levels set initially. In certain

circumstances, there can be balancing issues for which Superior is responsible when customer aggregation forecasts

are not realized.

Fixed-price energy services resources its fixed-price term natural gas sales commitments by entering into various physical

natural gas and uS dollar foreign exchange purchase contracts for similar terms and volumes to create an effective

Canadian dollar fixed-price cost of supply. Superior transacts with nine financial and physical natural gas counterparties.

there can be no assurance that any of these counterparties will not default on any of their obligations to Superior. However,

the financial condition of each counterparty is evaluated and credit limits are established to minimize Superior’s exposure

to this risk. there is also a risk that supply commitments and foreign exchange positions may become unmatched;

however, this is monitored daily in compliance with Superior’s risk management policy.

Fixed-price energy services must retain qualified sales agents in order to properly execute its business strategy. the

continued growth of fixed-price energy services is reliant on the services of agents to sign up new customers. there

can be no assurance that competitive conditions will allow these agents to achieve these customer additions. lack of

success in the marketing programs of fixed-price energy services would limit future growth of cash flow.

Fixed-price energy services operates in the highly regulated energy industry in ontario, British Columbia and Quebec.

Changes to existing legislation could impact this business operations. As part of the current regulatory framework, local

delivery companies are mandated to perform certain services on behalf of fixed-price energy services, including invoicing,

collection, assuming specific bad debt risks and storage and distribution of natural gas. Any elimination or changes to

these rules could have a significant adverse effect on the results of this business.

In november 2009 the ontario government introduced a new piece of legislation (Bill 235) to address energy consumer

protection. Bill 235 proposes a new energy Consumer protection Act (eCpA) that, if passed, would affect how fixed-price

energy services maintains its existing ontario residential and small commercial base and acquires new small commercial

customers that fall within the low volume definition of the oeB Codes of Conduct for Gas Marketers and electricity

retailers (less than 50,000m3 annually for natural gas and less than 150,000 kWh annually for electricity). the new eCpA

could also influence any potential plans for fixed-price energy services to re-enter the ontario residential energy market

in the future.

the Bill passed first reading on December 8, 2009. the second reading and comment period is anticipated early in 2010

and, if passed, will likely take effect toward the middle of 2010. the bill includes limitations on renewals; increased

marketer accountability, including licensing of individual sales agents; the elimination of telemarketing; increased

cancellation alternatives for residential consumers; rules regarding smart sub-metering, and a requirement for retailers

to offer time-of-use products.

52 ≥ AnnuAl report 2009

Specialty Chemicals

Specialty Chemicals competes with sodium chlorate, chloralkali and potassium producers on a worldwide basis. Key

competitive factors include price, product quality, logistics capability, reliability of supply, technical capability and service.

the end-use markets for products are correlated to the general economic environment and the competitiveness of

customers, all of which are outside of its control.

Specialty Chemicals has long-term electricity contracts or electricity contracts that renew automatically with power

producers in each of the jurisdictions where its plants are located. there is no assurance that Specialty Chemicals will

continue to be able to secure adequate supplies of electricity at reasonable prices or on acceptable terms.

potassium chloride (KCl) is a major raw material used in the production of potassium hydroxide at the port edwards,

Wisconsin facility. Substantially all of Specialty Chemicals KCl is received from potash Corporation of Saskatchewan

(potash). Specialty Chemicals currently has a limited ability to source KCl from additional suppliers.

Specialty Chemicals is exposed to fluctuations in the uS dollar and the euro versus the Canadian dollar.

Specialty Chemicals’ operations involve the handling, production, transportation, treatment and disposal of materials that

are classified as hazardous and are regulated by environmental and health and safety laws, regulations and requirements.

the potential exists for the release of highly toxic and lethal substances, including chlorine. equipment failure could result

in damage to facilities, death or injury and liabilities to third parties. If at any time the appropriate regulatory authorities

deem any of the facilities unsafe, they may order that such facilities be shut down.

Specialty Chemicals’ operations and activities in various jurisdictions require regulatory approvals for the handling,

production, transportation and disposal of chemical products and waste substances. the failure to obtain or comply fully

with such applicable regulatory approvals may materially adversely affect Specialty Chemicals.

Approximately 25% of Specialty Chemicals’ employees are unionized. Collective bargaining agreements are renegotiated

in the normal course of business.

Construction products distribution

Construction products Distribution competes with other specialty construction distributors servicing the builder/contractor

market, in addition to big-box home centres and independent lumber yards. the ability to remain competitive depends on

its ability to provide reliable service at competitive prices.

Demand for walls and ceilings building materials is affected by changes in general and local economic factors including

demographic trends, employment levels, interest rates, consumer confidence and overall economic growth. these

factors in turn impact the level of existing housing sales, new home construction, new non-residential construction,

and office/commercial space turnover, all of which are significant factors in the determination of demand for products

and services.

the commercial & industrial (C&I) market is driven largely by C&I construction spending and economic growth. Sectors

within the C&I market that are particularly influential to demand include commercial construction and renovation,

construction or expansion of industrial process facilities, such as oil refineries and petrochemical plants, as well as

institutional facilities (e.g., government, health care and schools).

Approximately 4% of Construction products Distribution’s employees are unionized. Collective bargaining agreements

are renegotiated in the normal course of business.

SuperIor pluS Corp.

≤ 53

Management’s Report

MAnAgeMent’s ResPonsiBility FoR FinAnCiAl RePoRting
the accompanying Consolidated Financial Statements of Superior plus Corp. (Superior) and all of the information in this

annual report are the responsibility of management and have been approved by the Board of Directors.

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 Superior’s

assets are safeguarded, transactions are accurately recorded, and the financial statements report Superior’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 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 Superior’s 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 shareholders. the Committee also considers, for review by the Board and approval by the shareholders,

the engagement or re-appointment of the external auditors.

Deloitte & touche llp, an independent firm of chartered accountants, was appointed at Superior’s last annual meeting to

audit Superior’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

grant D. Billing
Chairman and Chief executive officer
Superior plus Corp.

Wayne M. Bingham
executive Vice-president and Chief Financial officer
Superior plus Corp.

Calgary, Alberta
February 15, 2010

54 ≥ AnnuAl report 2009

Auditors’ Report

to tHe sHAReHolDeRs oF suPeRioR Plus CoRP.
We have audited the consolidated balance sheets of Superior plus Corp. (Superior) as at December 31, 2009 and 2008

and the consolidated statements of net earnings, comprehensive income and deficit and cash flows for the years then

ended. these financial statements are the responsibility of Superior’s management. our responsibility is to express an

opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. those standards require

that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements. An audit also includes assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of

Superior as at December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended

in accordance with Canadian generally accepted accounting principles.

(signed) Deloitte & touche llp

Calgary, Alberta

February 15, 2010

Deloitte & touche llP

Chartered Accountants

SuperIor pluS Corp.

≤ 55

Consolidated Balance Sheets

As at December 31
(millions of dollars)

ASSETS
Current assets
Cash and cash equivalents
Accounts receivable and other (notes 4 and 11)

Inventories (note 5)

Future income tax asset (note 12)
Current portion of unrealized gains on financial instruments (note 11)

property, plant and equipment (note 6)
Customer contract related costs (note 6)
Intangible assets (note 6)
Goodwill
Accrued pension asset (note 10)
Future income tax asset (note 12)
Investment tax credits (note 12)
long-term portion of unrealized gains on financial instruments (note 11)

LIABILITIES AND SHAREHOLDERS’ EqUITy
Current liabilities
Accounts payable and accrued liabilities
unearned revenue
Current portion of term loans (note 7)
Distributions and interest payable to shareholders and debenture holders
Current portion of deferred credit (note 12)
Current portion of unrealized losses on financial instruments (note 11)

revolving term bank credits and term loans (note 7)
Convertible unsecured subordinated debentures (note 8)
employee future benefits (note 10)
Asset retirement obligation (note 9)
Future income tax liability (note 12)
Deferred credit (note 12)
long-term portion of unrealized losses on financial instruments (note 11)
total liabilities

shareholders’ equity
Shareholders’ capital (note 13)
Contributed surplus (note 13)
Accumulated deficit
Accumulated other comprehensive income (loss) (note 13)

total shareholders’ equity

(See notes to Consolidated Financial Statements)
Approved by the Board of Directors of Superior plus inc.

(signed) Grant D. Billing

(signed) peter Valentine

Grant D. Billing
Director

56 ≥ AnnuAl report 2009

peter Valentine
Director

2009

24.3
313.8
145.7
59.0
22.2
565.0

668.0
14.7
165.3
528.4
18.2
165.7
120.2
28.5
2,274.0

280.7
5.8 –
5.1
14.2
24.5
77.8
408.1

633.2
309.0
17.2
0.9 –
22.1 –
246.4
52.6
1,689.5

1,502.0
5.3
(883.3)
(39.5)
(922.8)
584.5
2,274.0

2008

16.1
246.8
128.0
65.9
42.0

498.8

562.3
17.7
28.8
472.7
19.5
185.9
133.1
108.1

2,026.9

230.5

13.0
0.7
37.9
87.8

369.9

462.8
241.7
18.0

269.8
90.5

1,452.7

1,370.9
4.8
(803.1)
1.6

(801.5)

574.2

2,026.9

Consolidated Statements of
Net Earnings, Comprehensive
Income and Deficit

Years ended December 31
(millions of dollars except per share amounts)

Revenues
Cost of products sold
realized gains (losses) on financial instruments (note 11)

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
Gain on disposal of facility
unrealized losses on financial instruments (note 11)

net earnings before income taxes
Income tax expense (note 12)

net earnings

net earnings
other comprehensive income (loss):
unrealized foreign currency gains (losses) on translation of self-

sustaining foreign operations

reclassification of derivative gains and (losses) previously deferred

Comprehensive income

Deficit, beginning of year
Cumulative impact of adopting new guidance on the valuation of financial

instrument assets and liabilities (note 2(b))

net earnings
Dividends to shareholders (note 2(a))

Deficit, end of year

2009

2,246.7
(1,495.3)
(98.0)

653.4

476.1
22.6
7.9
27.0
16.8
1.4
–
20.6

572.4

81.0
(12.7)

68.3

(39.4)
(1.7)

27.2

(803.1)

(0.3) −
68.3
(148.2)

(883.3)

2008

2,487.3
(1,860.1)
41.9

669.1

470.8
18.3
5.3
23.7
14.8
1.4
(4.0)
61.2

591.5

77.6
(9.9)

67.7

30.1
(8.2)

89.6

(728.6)

67.7
(142.2)

(803.1)

net earnings per share, basic and diluted (note 14)

$ 0.75

$ 0.77

(See notes to Consolidated Financial Statements)

SuperIor pluS Corp.

≤ 57

Consolidated Statements of
Cash Flows

Years ended December 31
(millions of dollars)

operating activities
net earnings

Items not affecting cash:
Amortization of property, plant and equipment and intangible
assets and accretion of convertible debenture issue costs

Amortization of customer contract related costs
Amortization included in cost of sales
pension expense
unrealized losses on financial instruments
Future income tax expense (recovery)
Customer contract related costs
realized gains on financial instruments
proceeds on disposal of facility
Decrease in non-cash operating working capital items (note 16)

Cash flows from operating activities

investing activities
purchase of property, plant and equipment
proceeds on disposal of property, plant and equipment
Acquisition of SpI (note 3)
Acquisition of u.S. refined fuels assets (note 3)
other acquisitions (note 3)
earn-out payment on prior acquisition
proceeds on disposal of facility
transaction with Ballard power Systems Inc.

Cash flows used in investing activities

Financing activities
revolving term bank credits and term loans

Issuance of common shares (note 13)
Issuance of 8.25% senior unsecured debentures (note 7)
Issuance of 7.50% convertible debentures (note 8)
net repayment of accounts receivable sales program
proceeds from distribution reinvestment plan
Dividends to shareholders
realized gains on financial instruments

Increase (decrease) in non-cash operating working capital

Cash flows from (used in) financing activities

net increase in cash
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 Consolidated Financial Statements)

58 ≥ AnnuAl report 2009

2009

68.3

31.9
7.0
37.5
1.7
20.6
11.6
(4.0)
(7.7) −
−
24.4

191.3

(139.3)
4.8
(109.5) −
(178.5) −
(0.8)
(0.6) −
–
–

(423.9)

63.1
97.8 −
147.0 −
65.8 −
(7.3) −
–
(148.2)
7.7 −

14.9

240.8

8.2
16.1

24.3

1.1
40.8

2008

67.7

25.0
6.5
38.9
2.4
61.2
(3.9)
(6.8)

(4.0)
20.6

207.6

(84.2)
7.5

(24.5)

4.0
(46.3)

(143.5)

82.6

8.9
(142.2)

(11.4)

(62.1)

2.0
14.1

16.1

14.1
37.8

Notes to
Consolidated Financial Statements

(tabular amounts are in Canadian millions of dollars, unless noted otherwise, except per share amounts. tables labelled

“2009” and “2008” are for the full years ended December 31.)

1. OrganizatiOn

Superior plus Corp. (Superior) is a diversified business corporation, incorporated under the Canada Business Corporations

Act. Superior holds 100% of Superior plus lp (Superior lp), a limited partnership formed between Superior General

partner Inc., as general partner and Superior as limited partner. Superior holds 100% of the shares of Superior General

partner Inc. Superior does not conduct active business operations but rather distributes to shareholders the income

it receives from Superior plus lp in the form of partnership allocations, net of expenses and interest payable on the

convertible unsecured subordinated debentures (the debentures). Superior’s investments in Superior plus lp are financed

by share capital and debentures.

on December 31, 2008, Superior plus Income Fund (the Fund) completed a transaction with Ballard power Systems Inc.

(Ballard) which resulted in Superior converting from a publicly traded income trust to a publicly traded corporation. the

transaction resulted in the unitholders of the Fund becoming Shareholders of Superior with no substantive changes to

the underlying business operations.

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 Superior and its

wholly owned subsidiaries. Superior plus Corp. is considered a continuation of Superior plus Income Fund; as

such, these consolidated financial statements follow the continuity of interests method of accounting. under the

continuity of interests method of accounting, Superior’s transfer of the assets, liabilities and equity from the Fund to

Superior upon the completion of its transaction with Ballard were recorded at their net book values. As a result of

the application of the continuity of interests method of accounting, certain terms such as shareholder/unitholder and

dividend/distribution may be used interchangeably throughout these Consolidated Financial Statements. For the period

ended December 31, 2009, payments to shareholders were in the form of dividends, whereas for the period ended

December 31, 2008, payments to unitholders were in the form of trust unit distributions. the accounting

principles applied are consistent with those as set out in Superior’s annual financial statements for the year ended

December 31, 2008, except as noted in note 2(b). All significant transactions and balances between Superior and

Superior’s subsidiaries have been eliminated on consolidation.

(b) Changes in accounting policies
financial assets and financial liabilities

on January 1, 2009, Superior adopted the requirements of guidance provided by the Canadian Institute of Chartered

Accountants (CICA) related to the application of credit risk and the determination of the fair value of financial assets

and liabilities. Superior adopted the guidance retrospectively, but did not restate prior periods. Accordingly, Superior

decreased the carrying value of its net financial instrument assets and liabilities as at January 1, 2009 by $0.4 million,

with a corresponding increase of $0.1 million to Superior’s future income tax asset and an increase of $0.3 million to

Superior’s opening accumulated deficit; comparative earnings and financial assets and liabilities for prior periods have

not been restated.

SuperIor pluS Corp.

≤ 59

notes to ConsoliDAteD FinAnCiAl stAteMents

financial instruments – disclosure

the CICA has amended Handbook Section 3862 Financial Instruments – Disclosure. these amendments require

enhanced disclosure on the fair value of certain financial instruments. the amendments were effective for annual

financial statements on or after September 30, 2009. these amendments to Section 3862 are to enhance the disclosures

about the fair value measurements including the relative reliability of the inputs used in those measurements, and about

the liquidity of financial instruments. Superior adopted these amendments in the fourth quarter of 2009. the required

disclosures are incorporated in note 11.

goodwill and intangible assets

on January 1, 2009, Superior adopted CICA Handbook Section 3064 Goodwill and Intangible Assets. this standard

provides more specific guidance on the recognition of internally developed intangible assets and requires that research

and development expenditures be evaluated against the same criteria as expenditures for intangible assets. the section

harmonizes Canadian GAAp with International Financial reporting Standards (IFrS). Adoption of this standard did not

have an impact on Superior.

the Accounting Standards Board of Canada (AcSB) has announced plans that will require the convergence of Canadian

GAAp with IFrS for publicly accountable enterprises, including Superior. the changeover date from Canadian GAAp to

IFrS is for annual and interim financial statements relating to fiscal years beginning on or after January 1, 2011. Superior

is currently assessing the future impact of these new standards on its Consolidated Financial Statements.

Business Combinations

In January 2009, the CICA issued Handbook Section 1582, Business Combinations, which will replace CICA Handbook