Annual Report 2011
Performance Highlights
Financial Results
(millions of dollars)
Revenues
Gross profit
EBITDA from operations (1)
Adjusted operating cash flow (1)
Net loss
Dividends
(dollar per basic share except shares outstanding)
EBITDA from operations
Adjusted operating cash flow
(1)
(1)
Net loss
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/Compliance EBITDA (4)
Total debt/Compliance EBITDA (4)
2011
2010
3,925.6
3,537.4
827.5
273.0
180.4
(302.6)
127.7
2.50
1.65
(2.77)
1.17
109.2
2011
2,193.4
1,843.8
35.0
15.1
612.1
1,353.5
2.3x
5.1x
780.6
243.0
162.9
(75.8)
171.2
2.30
1.54
(0.72)
1.62
105.6
2010
2,696.9
1,942.5
38.0
166.2
590.0
1,381.4
2.6x
6.0x
(1) Earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA from operations and adjusted operating cash flow (AOCF)
are not recognized financial measures under International Financial Reporting Standards (IFRS). See Superior’s Management’s Discussion and
Analysis, “Non-IFRS 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.
Contents
Performance Highlights
President’s Message
Energy Services
Specialty Chemicals
IFC
Management’s Discussion and Analysis
1
Management’s Report
3
Independent Auditors’ Report
6
Consolidated Financial Statements
14
63
64
65
Construction Products Distribution
8
Notes to the Consolidated Financial Statements 69
Management Team
Board of Directors
Corporate Governance
10
Selected Historical Information
11
Corporate Information
12
Businesses
Shareholder Information
158
159
160
IBC
President’s Message
Since commencing the role of
President and Chief Executive Officer
on November 14, 2011, I have been
intently focused on obtaining a ground
floor or grass roots understanding of
Superior’s businesses and its people.
Luc Desjardins
President and
Chief Executive Officer
Based on my past experiences, it is vitally
important to understand a business and its
people in order to effectively manage and direct
that business. Based on the limited time I have
spent interacting with Superior’s businesses and
people, I am extremely encouraged by what I
have experienced to date. Superior’s businesses
are well positioned in their respective markets,
have excellent opportunities looking forward
and have a dedicated and talented group of
employees who are committed to ensuring the
long-term success of Superior. All of which, in my
view, are necessary to create long-term success
for all of Superior’s stakeholders.
its monthly dividend from $0.135 per share to
$0.05 per share. These decisions were not made
lightly and not without careful consideration of
the impact on Superior’s shareholders and other
stakeholders, but ultimately were viewed as a
necessary step to ensure the long-term success
of Superior. Superior understands the impact
this had on our shareholders, and while it was
a difficult decision, it was necessary to ensure
Superior maintained the financial flexibility
to execute its long-term strategy. Superior
will continue to work hard with the goal that
all of our stakeholders are rewarded for their
commitment to Superior.
Economy and Business in 2011
Although my time with Superior in 2011 was
brief, 2011 proved to be a difficult year for
many companies, Superior included. Ongoing
uncertainty in the global economy, the European
sovereign debt crisis and concerns regarding
the U.S. economy and U.S. sovereign debt
have created continued volatility in world and
North American capital markets, making the
management of any business more difficult than
ever. In 2011, due to a combination of business
performance and volatility in capital markets,
Superior made the difficult decision to reduce
Creating a Best in Class Organization
My primary goal and vision for Superior is to
build best in class businesses throughout the
entire organization. As a result of the current
economic environment, it is extremely important
we continue to improve and review all aspects
of our business for improvements on an ongoing
basis. I am a strong believer in continuous
improvement, as it is the corner stone to build
and maintain a best in class organization.
Building a best in class organization and realizing
the full benefits of, is a long-term objective,
but one that we have already begun. As part
2011 Annual Report
1
I am a strong believer in continuous
improvement, as it is the corner stone
to build and maintain a best in class
organization.
of transforming Superior into a best in class
organization, the President of each business
and their respective teams have identified a
number of significant business and process
improvement opportunities which are currently
being assessed in detail. Although I am confident
that these process improvement opportunities
will result in significant improvements in the
medium and long-term, it is not yet possible
to provide an estimate of the impact and the
timing of completion for these opportunities.
The transformation to a best in class organization
will be a difficult and challenging process but
I want to assure our shareholders that it is an
undertaking Superior is committed to seeing
to completion. The potential benefits are
too great to ignore. Superior must and will
remain committed to becoming a best in class
organization across all of its businesses.
Acknowledgements
Superior’s success will ultimately be due to the
hard work and dedication of our more than
4,600 employees. I would like to thank each of
our employees for your commitment to your
respective businesses. I also welcome every new
2
Superior Plus Corp.
employee to the Superior organization. I would
also like to thank each of our directors for the
opportunity to lead Superior. I look forward to
working with each of you in the coming year. On
behalf of the entire organization, I would like
to thank our securityholders for your continued
support and confidence in Superior.
I would also like to thank Grant Billing for his
contributions and dedication to Superior in the
role of Chief Executive Officer of Superior. I look
forward to working with Mr. Billing in his current
role of Chairman of the Board. I would also like
to thank Peter Valentine for his contributions to
Superior’s Board of Directors. Mr. Valentine has
decided to not stand for re-election in 2012.
Mr. Valentine has been a member of Superior’s
Board of Directors since 2004.
On behalf of the Board of Directors,
Luc Desjardins
President and Chief Executive Officer
February 16, 2012
Energy Services
Superior’s Energy Services business provides distribution, supply portfolio management and related
services covering 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.
Energy Services’ EBITDA from operations for 2011 was $133.6 million compared to $114.7 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
Other services
Supply portfolio management
Fixed-price energy services
Operating expenses
EBITDA from operations
2011
2010
223.0
137.7
42.3
15.1
37.1
(321.6)
133.6
216.7
130.1
43.1
15.9
29.1
(320.2)
114.7
Energy Services’ results in 2011 were significantly
improved compared to 2010. Improvements
in gross profits at the Canadian Propane
Distribution business were due to increased
industrial sales volumes as a result of strong
oil and gas related sales volumes which
more than offset the reduction in residential
sales volumes due to warmer than average
temperatures experienced in 2011 relative to
2010. The U.S. Refined Fuels business also had
improved operating results in 2011 relative
to 2010, as improved sales margins due to
margin management initiatives and improved
sales volumes due to sales and marketing
efforts, more than offset the impact of warmer
than average temperatures. The fixed-price
energy services business had a strong year
due to the extension of existing customer
contracts at favourable margins. Operating
costs were consistent with the prior year as cost
reduction initiatives, reductions in the fixed-
price energy risk reserves and the absence
of integration costs incurred in the prior year
offset general inflationary increases. The Energy
Services business continues to actively explore
opportunities to manage its expenses in relation
to changes in volumes.
Market Fundamentals
The Energy Services business anticipates that
the market in 2012 will be similar to 2011. A
summary is as follows:
• Industrial/oilfield propane demand will
continue to be strong in Canada;
• U.S. Northeast heating oil demand will
continue to decline but propane and
commercial fuel volumes will increase; and
2011 Annual Report
3
• Customer conservation will continue to be
prevalent due to economic uncertainty, high
commodity prices and energy efficiency.
• Continued investment in new technologies and
optimization of the technologies introduced
over the last several years;
• Continued focus on sales and marketing
programs by becoming more customer centric;
• Cross-selling of complementary product
offerings amongst Superior’s existing customer
base; and
• Optimization of storage and delivery capacity
for propane and refined fuels, which will
provide the supply portfolio management
business with increased market opportunities.
Strategy Moving Forward
Superior will continue to position its Energy
Services business to allow it to grow in a
profitable and sustainable manner. The
Energy Services business will strive to provide
sustainable, long-term cash flow through the
following measures:
• Improve customer service levels;
• Continue to focus on reducing cost structure
and improving operational efficiencies;
• All aspects of the business to be
reviewed including working capital
management, capital expenditure
assessment and overall logistics;
Energy Services at a Glance
The Energy Services business has a large diversified customer base.
Canadian Propane
Distribution
U.S. Refined
Fuels
Fixed-Price
Energy Services
Customers
Sales volumes (millions of litres)
Fleet (number of vehicles)
Employees
160,000
1,305
772
1,345
224,000
1,741
904
1,131
58,789
n/a
n/a
50
Total
442,789
3,046
1,676
2,526
4
Superior Plus Corp.
Canadian Propane Footprint
Northeast U.S. Refined Fuels Footprint
Location
Terminal
Propane Distribution
Rochester
Syracuse
Albany
Buffalo
Binghamton
Scranton
State College
New York
Harrisburg
Philadelphia
Pittsburgh
2011 Annual Report
5
Location
Terminal
Specialty Chemicals
Superior’s Specialty Chemicals business is a leading supplier of sodium chlorate and technology to
the pulp and paper industries, and a regional supplier in the Midwest United States of potassium and
chloralkali products.
Specialty Chemicals’ EBITDA from operations for 2011 was $115.2 million compared to $101.5 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
Chemical sales volumes (thousands of metric tonnes)
2011
2010
238.7
(123.5)
115.2
772
220.2
(118.7)
101.5
735
Specialty Chemicals’ 2011 operating results were
a significant improvement over the prior year
due to the increased chemical sales volumes and
improved overall pricing.
Market Fundamentals
• Demand for sodium chlorate will continue to
be strong due to the relative strength in pulp
markets;
The expansion of the Port Edwards facility in
2009 provided the foundation for new sales
channels throughout 2010, of which the full year
impact was realized in the 2011 results, resulting
in improved chloralkali sales volumes. Selling
prices of chloralkali products in 2011 were
stronger than in 2010 due to ongoing general
economic improvements and improvement in
supply demand fundamentals, particularly related
to hydrochloric acid. Demand for hydrochloric
acid was very strong due principally to oil and
gas drilling activity throughout North America,
allowing for improved pricing throughout 2011.
Gross profits from sodium chlorate sales volumes
were modestly higher in 2011 over the prior year
due to strong demand for pulp which resulted
in strong demand for sodium chlorate. The
North American and international markets for
sodium chlorate were strong in 2011, supporting
modestly higher selling prices. Although pulp
demand and pricing moderated in the second
half of 2011, the overall market continues to be
strong, providing relative demand and pricing
stability for sodium chlorate.
6
Superior Plus Corp.
• Strong demand for chlorate will result in
improved U.S. dollar pricing which will be
partially offset by reduced hedging gains
relative to the prior year;
• Pulp markets have softened from 2011
highs but continue to be strong relative to
historical levels with excellent long-term
fundamentals;
• Demand for chloralkali products remains
strong;
• North American markets will remain
stable, Superior’s chloralkali facilities
are strategically positioned providing a
competitive advantage;
• Global demand remains steady, the North
American export market is benefitting from
low natural gas prices and a historically
weaker U.S. dollar; and
• Demand for hydrochloric acid is particularly
robust due to oil and gas drilling activity.
Specialty Chemicals at a Glance
C A N A D A
Grande Prairie
Saskatoon
Hargrave
Thunder Bay
Vancouver
Buckingham
Port Edwards
UNITED STATES
Valdosta
BRAZIL
Chloralkali Facility
Sodium Chlorate
& Chloralkali Facility
Sodium Chlorite Facility
Sodium Chlorate Facility
CHILE
Mininco
Strategy Moving Forward
The strategy of the Specialty
Chemical’s business for 2012 is
a continuation of the strategy
implemented over the last
several years:
• Increase the operating capacity
and efficiency at existing chemical
facilities through strategic
capital investment;
• Organic growth opportunities
will allow for strategic capacity
expansion to take advantage
of existing market conditions,
for example strong demand for
hydrochloric acid;
• Reduced operating costs will
help to ensure the business’s
facilities remain competitive
over the long-term;
• Continue to leverage proprietary
chlorine dioxide technology
and strategic partnerships by
exploring international expansion
opportunities, particularly in
South America, similar to that of
the business’s Chilean operations;
• Explore opportunities over the
long-term to expand into additional
inorganic chemicals that are a
strategic fit to the existing business;
and
• Explore opportunities to attract
new customers with adjacent land
at the Port Edwards facility.
2011 Annual Report
7
Construction Products Distribution
Superior’s Construction Products Distribution business is one of North America’s leading distributors of
commercial and industrial insulation and specialty walls and ceiling products. It is the largest distributor
of specialty construction products to the walls and ceilings industry in Canada.
Construction Products Distribution’s EBITDA from operations for 2011 was $24.2 million compared to
$26.8 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
The 2011 operating results, including gross
profit, were generally consistent with prior year
but relative to historical levels, continue to be
negatively affected by the ongoing weakness
in the U.S. economy. In particular, the U.S.
housing and construction markets are very
weak, reducing average selling prices and gross
margins. The ongoing economic weakness,
particularly in the U.S., impacted new home
residential housing starts and commercial
building activity across most of North America,
which in turn resulted in reduced demand and
selling prices for architectural products and
commercial and industrial insulation. Gross
profits benefitted from successfully expanding
the gypsum product line into select U.S.
branches; future expansions will be assessed
on a market-by-market basis, the product line
expansion will positively impact future year
results, particularly as end-use markets return
to normalized levels. Construction activities in
Canada were generally consistent with the prior
year in terms of housing starts and commercial
construction activity, but there was a shift to
multi-family and smaller single family dwellings,
both of which require less gypsum than large
single family homes, thereby reducing overall
demand for gypsum and related products.
8
Superior Plus Corp.
2011
174.7
(150.5)
24.2
2010
172.3
(145.5)
26.8
Operating expenses were higher than the prior
year due general inflationary wage increases,
costs associated with expansion of the gypsum
supply business into select U.S. markets and the
full-year impact of the acquisition of Burnaby
Insulation in June 2010. The Construction
Products Distribution business continues to
actively assess opportunities to reduce its cost
structure in light of ongoing difficult market
conditions.
Market Fundamentals
The Construction Products Distribution
anticipates that the operating environment for
2012 will be very similar to 2011. A summary of
the market fundamentals is as follows:
• Ongoing U.S. economic weakness, particulary
in the housing and construction sectors will
continue to challenge the business;
• Low gypsum and insulation capacity
utilization has resulted in reduced pricing
leverage;
• U.S. housing starts appear to be stabilized
although continued headwinds persist
suggesting that improvements in the
housing markets are not anticipated for
several years;
• Industrial business spending continues to be
stable supporting insulation related purchasing;
and
• Housing starts in Canada remain relatively
stable supported by demographic demand and
low interest rates.
Strategy Moving Forward
Superior will continue to carefully manage its
Construction Products Distribution business
to ensure it remains a leading distributor of
specialty building products that is well positioned
to take advantage of future improvements in the
North American specialty construction markets
by undertaking the following actions:
• Continue to focus on reducing cost structure
and improving operational efficiencies;
• All aspects of the business to be
reviewed including procurement,
working capital management and capital
expenditure assessment;
• A review of the overall delivery and service
platform to determine if the existing
operations model is driving ongoing
efficiencies;
• Continue to integrate walls and ceilings
product offerings with commercial and
industrial insulation product offerings across
the business’s North American footprint on a
market-by-market basis to take advantage of
supplier relationships and provide customers
with a full-service product offering; and
• Restructuring existing business operations.
Construction Products Distribution at a Glance
Gypsum Specialty
Distributor (GSD)
Commercial and
Industrial Insulation
(C&I)
GSD/C&I
Fabrication
2011 Annual Report
9
Management Team
Luc Desjardins
President and
Chief Executive Officer
Wayne M. Bingham
Executive Vice-President and
Chief Financial Officer
Douglas Elliott
President,
Superior Propane
Mr. Bingham joined Superior in
2006. He previously was Chief
Financial Officer at Finning
International Inc. and Ontario
Power Generation. He has extensive
experience in financial reporting,
strategy, compliance, risk
management, treasury and supply
chain operations. Mr. Bingham
holds a B. Comm. (Honours) and
is a Chartered Accountant.
President of Superior Propane
since January 1, 2011 and various
positions with Superior and its
predecessor since November, 2006.
Prior thereto, Mr. Elliott held a
number of leadership positions
in sales & marketing, supply, and
enterprise development with
Labatt Breweries. Mr. Elliott holds a
B.A. from the University of Waterloo.
Mr. Desjardins joined Superior Plus
as President and CEO in 2011.
Prior to joining Superior Plus,
Mr. Desjardins was a partner of
the Sterling Group, a private equity
firm. Mr. Desjardins also served as
CEO at Transcontinental Inc. from
2004 to 2008 and President and
COO from 2000 to 2004.
Mr. Desjardins holds a Masters of
Business Administration degree
from the University of Quebec and
has taken the Harvard Business
School Management
Development Program.
Greg L. McCamus
President,
U.S. Refined Fuels and
Superior Energy Management
Mr. McCamus was appointed as
President of the U.S. Refined Fuels
business in late 2009. He joined
Superior in 2005 as President of
Superior Energy Management. He
previously was President of Sprint
Canada Business Solutions and
held various executive positions
within the deregulated telecom
industry over a 20-year period.
Mr. McCamus holds B.A. and
M.B.A. degrees.
Eric McFadden
Executive Vice-President,
Business Development
Mr. McFadden joined Superior in
2008. Prior to joining Superior,
he was CEO of a company which
developed, constructed, and
operated a number of wind power
projects. He also spent 14 years
in investment banking at a major
Canadian bank developing expertise
in capital markets and acquisitions.
Mr. McFadden holds B.A. and
M.B.A. degrees.
Dave Tims
Senior Vice President,
Commodity Portfolio
Management
Mr. Tims joined Superior in 2009.
Prior to joining Superior Plus he
was CEO of a natural gas storage
development company. He has
extensive energy marketing, trading
and risk management experience
as a Managing Director with BMO
Nesbitt Burns and prior to that as
Director of Supply Services with
TransCanada. Mr. Tims holds a
B.A. from the University of Calgary
and an M.B.A. in Finance from the
Simon School of Business at the
University of Rochester.
Paul S. Timmons
President,
Specialty Chemicals
Mr. Timmons has been with the
Specialty Chemicals business or its
predecessor organization, ERCO
Worldwide, for 30 years, and was
appointed as President in 2001.
Mr. Timmons holds an Engineering
Diploma from St. Francis Xavier
University and a degree in
Metallurgical Engineering from
Technical University of Nova Scotia.
Paul J. Vanderberg
President,
Construction Products
Distribution
Mr. Vanderberg has been
President of the Building Products
Distribution business or its
predecessor organization, Winroc,
since 2000. He previously held
various executive positions in
general management and business
development at USG Corporation,
a leading building products
manufacturer. Mr. Vanderberg holds
B.A. and M.B.A. degrees.
10
Superior Plus Corp.
Board of Directors
Luc Desjardins
Grant D. Billing
Catherine (Kay)
Best (1)
Robert J. Engbloom,
Q.C. (2)
Randall J.
Findlay (2)
President and Chief
Executive Officer
of Superior since
November 14, 2011;
Previously, Mr.
Desjardins was a
partner of the Sterling
Group, a private equity
firm; Mr. Desjardins
also served as CEO at
Transcontinental Inc.
from 2004 to 2008
and President and
COO from 2000 to
2004; Mr. Desjardins
is also a director of
CIBC, a Canadian
chartered bank.
Chairman and Chief
Executive Officer of
Superior since July
2006; On November
14, 2011, Mr. Billing
retired as Chief
Executive Officer and
continues to serve
as non-executive
Chairman; prior to
he was executive
Chairman since 1998;
previously, President
and CEO of Norcen
Energy Resources
Limited; Director of
Provident Energy Ltd.
Director since 2007;
Corporate Director
and Consultant;
former Executive
Vice-President, Risk
Management and Chief
Financial Officer of the
Calgary Health Region;
previous partner
with Ernst & Young;
Director of Canadian
Natural Resources
Limited, Enbridge
Income Fund Holdings
and AltaGas Ltd.
Director since 1996;
Deputy Chair and
Partner of Norton
Rose Canada LLP,
formerly Macleod
Dixon LLP; Director of
Parex Resources Inc.;
Corporate Secretary of
Vermillion Energy Inc.
and CE Franklin Ltd.
Director since 2007;
Corporate Director;
Past President of
Provident Energy from
2001 through 2006;
Director of Provident
Energy Ltd., Canadian
Helicopters Group
Inc., Pembina Pipelines
Corporation,
Compton Petroleum
Corporation and
Charger Energy Inc.
Norman R. Gish (3)
Director since 2003;
Corporate Director
and Independent
Businessman; Previous
Chairman, President
and CEO of Alliance
Pipeline Ltd. and Aux
Sable Liquid Products
Inc.; Chairman of
ICG Propane Inc.,
from 1998 to 2000;
Director of Provident
Energy Ltd. Chair of
the Compensation
Committee.
James S.A.
MacDonald (3)
Director in 1998 and
since 2000; Corporate
Director and Chairman
of Cormark Securities
Inc.; former Chairman
and Managing Partner
of Enterprise Capital
Management Inc.;
Director of ICG
Propane Inc. from
1998 to 2000; Director
of Cymbria Inc.
Walentin (Val)
Mirosh (3)
Director since 2007;
Corporate Director and
President of Mircan
Resources Ltd.; former
Vice-President and
Special Advisor to the
President and COO
of Nova Chemicals
Corp.; former Partner
at Macleod Dixon LLP;
Director of TC Pipelines
LP and Murphy Oil
Corporation.
David P. Smith (1)
Peter Valentine (1)
Director since 1998;
Corporate Director;
former Managing
Partner of Enterprise
Capital Management
Inc.; Director of
Xinergy Ltd.; Chair of
the Audit Committee.
Director since 2004;
Corporate Director and
Consultant; past Senior
Advisor to the President
and CEO of the Calgary
Health Region and to
the Dean of Medicine
of the University of
Calgary; past Auditor
General of Alberta.
Peter A.W.
Green (1) (2)
Lead Director since
2003; Director since
1996; Corporate
Director and Business
Advisor; Chairman of
Frog Hollow Group
Inc., international
business advisors;
Director of Gore
Mutual Insurance
Company; Chair of
the Governance and
Nominating Committee.
Committee
(1) Audit Committee
(2) Governance and
Nominating Committee
(3) Compensation Committee
2011 Annual Report
11
Corporate Governance
The Board of Directors (“Board”) and senior
management of Superior Plus Corp. (“Superior”)
consider good corporate governance to be
central to the effective and efficient operation
of Superior.
Superior strives to conduct its business ethically
and in conformance with applicable laws and
regulations. As such, Superior has earned a
well-deserved reputation for honesty, integrity
and maintaining a high standard of business
conduct. To preserve and build upon that
reputation, Superior continues to strengthen
its governance processes, and foster a good
governance culture throughout the organisation.
The Board has general authority over Superior’s
business and affairs. Superior owns all of the
Class A limited partnership units of Superior Plus
LP (“Superior LP”) and all of the common shares
of Superior General Partner Inc. (“Superior GP”),
the general partner of Superior LP. Superior LP
is a diversified limited partnership with three
operating segments comprised of the following
businesses: Energy Services, Specialty Chemicals,
and Construction Products Distribution.
The Board’s fundamental objectives are to
enhance the Superior’s investments and
ensure that Superior and Superior GP meet
their obligations and operate the underlying
businesses of Superior LP in a responsible,
reliable and safe manner. The Board works
with management of the businesses to identify
business risks and to oversee the appropriate
strategies to maximize shareholder value, while
seeking to reduce the environmental impacts of
our operations and products.
The Board is comprised of 11 members,
nine of whom are considered independent.
Grant Billing, Chairman, is not considered
to be independent as he was recently an
executive officer of Superior. Luc Desjardins is
not considered to be independent as he is the
President and Chief Executive Officer. Since
2003, Peter Green has served as Lead Director
to strengthen the independence of the Board
from management. The responsibilities of the
Board are set forth in a written mandate of the
Board which the Board reviews annually and
changes as appropriate. Superior is governed by
a Code of Business Conduct and Ethics, along
12
Superior Plus Corp.
with well defined policies and procedures such
as the Communication and Disclosure, Insider
Trading and Whistleblower policies, all designed
to promote honesty and integrity throughout
Superior.
standards pertaining to quality, health and safety,
while being committed to environmental and
social responsibility and support for their local
communities. These and other programs are also
monitored through the Advisory Committees.
To assist the Board with its fiduciary
responsibilities, the Board is supported by an
Audit Committee, a Compensation Committee
and by a Governance and Nominating
Committee. Only independent directors
serve on board committees. Each committee
has a mandate that sets out its duties and
responsibilities. Each committee makes regular
reports to the Board. The Board reviews
Superior’s policies upon the recommendation
of the Corporate Governance Committee. As
we move forward, the Board will continue to
be committed to a high standard in corporate
governance and corporate conduct.
In further keeping with our commitment to
high standards of corporate governance,
Superior has Advisory Committees for each
of Superior LP’s businesses. The Advisory
Committees are composed of three independent
directors, senior corporate management and
one President from Superior’s other businesses.
The Advisory Committees were formed with the
intent of allowing for more detailed operational
reviews at the different business levels which
would result in a more focused strategic review
at the Board level. In addition, each of Superior’s
businesses maintains appropriate programs and
Although not formal Board committees, the
Advisory Committee structure provides the
directors with additional time to address
social, environmental and regulatory matters,
business opportunities, risks, strategies and
challenges and allows the members of the
Advisory Committee to provide advice where
appropriate and act as the sounding board prior
to bringing strategic matters and initiatives to
the Board. Membership rotation for the Advisory
Committees occurs from time to time in order
to provide each Board member with maximum
exposure to each of the businesses of
Superior LP.
For complete information on our corporate
governance practices, please read our 2011
Information Circular. All Committee mandates,
including those for the Audit, Compensation and
Governance and Nominating Committees, our
Code of Business Conduct and Ethics and our
corporate governance policies and categorical
standards are available at www.superiorplus.com.
2011 Annual Report
13
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) as at December 31, 2011 and for the years ended December
31, 2011 and 2010. The information in this MD&A is current to February 16, 2012. This MD&A should
be read in conjunction with Superior’s audited consolidated financial statements and notes to those
statements as at December 31, 2011 and for the year ended December 31, 2011.
On January 1, 2011, Superior adopted International Financial Reporting Standards (IFRS) for Canadian
publicly accountable enterprises. Prior to the adoption of IFRS, Superior followed Canadian Generally
Accepted Accounting Principles (GAAP). While IFRS has many similarities to GAAP, some of our
accounting policies have changed as a result of our transition to IFRS. The most significant accounting
policy changes that have had an impact on the results of our operations are discussed within the
applicable sections of this MD&A, and in more detail in the Adoption of IFRS section of this MD&A.
The accompanying audited consolidated financial statements of Superior have been prepared by and
are the responsibility of Superior’s management. Superior’s audited consolidated financial statements
as at December 31, 2011 and the years ended December 31, 2011 and 2010 have been prepared in
accordance with IFRS as issued by the International Accounting Standards Board (IASB). Dollar amounts
in this MD&A are expressed in Canadian dollars and millions except where otherwise noted.
Overview of Superior
Superior is a diversified business corporation. Superior holds 99.9% of Superior Plus LP (Superior LP), a
limited partnership formed between Superior General Partner Inc. (Superior GP) as general partner and
Superior as limited partner. Superior owns 100% of the shares of Superior GP and Superior GP holds
0.1% of Superior LP. 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 and Superior GP, 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.
14
Superior Plus Corp.
Management’s Discussion and Analysis Summary of Adjusted Operating Cash Flow (1)
(millions of dollars except per share amounts)
2011
2010
EBITDA from operations: (2)
Energy Services
Specialty Chemicals
Construction Products Distribution
Interest
Cash income tax (expense) recovery
Corporate costs
Adjusted operating cash flow (2)
133.6
115.2
24.2
273.0
(79.2)
(1.5)
(11.9)
180.4
114.7
101.5
26.8
243.0
(68.9)
(0.8)
(10.4)
162.9
Adjusted operating cash flow per share (2), basic (3) and diluted (4)
$1.65
$1.54
(1) Superior has restated its 2010 results in accordance with IFRS, see “Adoption of IFRS” for the impact of IFRS on Superior’s 2010 results.
(2) Earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted operating cash flow are not IFRS measures. See “Non-
IFRS Financial Measures”.
(3) The weighted average number of shares outstanding for the year ended December 31, 2011, is 109.2 million (2010 – 105.6 million).
(4) For the years ended December 31, 2011 and 2010, there were no dilutive instruments.
Adjusted Operating Cash Flow Reconciled to Cash Flow from Operating Activities (1)
(millions of dollars)
Net cash flow from operating activities
Add: Increase (decrease) in non-cash working capital
Other expenses
Non cash interest expense
Less: Income taxes (expense) recovery
Finance costs recognized in net earnings
Gain on debenture redemption
Adjusted operating cash flow
2011
291.2
(30.1)
−
8.0
(1.5)
(85.5)
(1.7)
180.4
2010
82.4
143.3
6.6
6.6
(0.8)
(75.2)
−
162.9
(1) See the Condensed Consolidated Financial Statements for net cash flows from operating activities and changes in non-cash working capital.
Adjusted operating cash flow for the year ended December 31, 2011 was $180.4 million, an increase
of $17.5 million or 11% compared to the prior year. The increase in adjusted operating cash flow was
due to increased EBITDA from operations of Energy Services and Specialty Chemicals offset in part by
higher interest and corporate costs. Adjusted operating cash flow per share was $1.65 per share for the
year ended December 31, 2011, an increase of $0.11 per share or 7% due to the increase in adjusted
operating cash flow as noted above offset in part by a 3% increase in the weighted average number of
shares outstanding. The average number of shares outstanding increased in 2011 as a result of shares
issued from Superior’s Dividend Reinvestment Program and Optional Share Purchase Plan (DRIP).
As demonstrated in the following chart, Superior is well diversified with Energy Services, Specialty
Chemicals and Construction Products Distribution contributing 49%, 42%, and 9% of EBITDA from
operations in 2011, respectively.
2011 Annual Report
15
EBITDA from Operations
Construction Products Distribution
Specialty Chemicals
Energy Services
s
n
o
i
l
l
i
M
$
300
250
200
150
100
50
0
$257.2
$240.0
$213.4
$273.0
$243.0
2007
08
09
10
11
Superior had a net loss of $302.6 million for 2011, compared to a net loss of $75.8 million for 2010.
The net loss was impacted by higher operating costs, impairment of intangible assets and goodwill
and higher finance costs offset in part by higher gross profits. The net loss was primarily impacted by
$78.0 million in intangible assets and goodwill impairment charges due to continued weakness in
Superior’s Construction Products Distribution segment (see Note 13 to the Consolidated Financial
Statements), a $300.6 million intangible assets and goodwill impairment charge to the Energy Services’
segment (see Note 13 to the Consolidated Financial Statements) and an asset write off of $3.4 million
at U.S refined fuels due to flooding damage and a fire at one of its branches. Consolidated revenues of
$3,925.6 million in 2011 were $388.2 million higher than the prior year due principally to higher Energy
Services revenue as a result of the full period contribution of the acquisition of Griffith Holdings Inc.
(Griffith), higher commodity prices and increased sales volumes and higher Specialty Chemicals revenue
due to increased sales volumes and pricing. Gross profit of $827.5 million was $46.9 million higher than
the prior year due to improved gross profit at Energy Services due to higher sales volumes and the
contribution from the acquisition of Griffith along with higher Specialty Chemicals gross profits.
Operating expenses of $706.7 million in 2011 were $30.3 million higher than in the prior year, due
to the full year contribution of Griffith, increased depreciation expense and corporate costs. The
increase in depreciation expense was primarily due to increased amortization at Energy Services as
a result of acquisitions completed during 2010 and 2011. Total interest expense of $85.5 million was
$10.3 million higher than in the prior year due principally to higher average interest rates on debentures
and average debt levels throughout the year due to higher working capital requirements. Unrealized
losses on financial instruments were $9.7 million in 2011 compared to unrealized losses of $2.2 million in
the prior year. The increase in unrealized losses from the prior year is primarily due to higher unrealized
losses in the current year on foreign currency forward contracts due to fluctuations in the spot prices
of the U.S. dollar. 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 recovery was
$50.4 million for 2011 compared to an expense of $6.5 million for 2010. Income taxes were impacted
by a future income tax recovery associated with the impairment charges recorded to intangible assets
and goodwill during 2011.
16
Superior Plus Corp.
Management’s Discussion and Analysis
Annual Financial Results of Superior’s Operating Segments
Energy Services
Energy Services’ condensed operating results for 2011 and 2010 are provided in the following table.
(millions of dollars)
Revenue (1)
Cost of sales (1)
Gross profit
Less: Cash operating and administration costs (1)
EBITDA from operations
2011
2010 (2)
2,686.1
(2,230.9)
455.2
(321.6)
133.6
2,339.1
(1,904.2)
434.9
(320.2)
114.7
(1) In order to better reflect the results of its operations, Superior has reclassified certain amounts for purposes of this MD&A to present its
results as if it had accounted for various transactions as accounting hedges. See “Reconciliation of Divisional Segmented Revenue and Cost of
Sales to EBITDA” for detailed amounts.
(2) Superior has restated its 2010 results in accordance with IFRS. See “Adoption of IFRS” for the impact of IFRS on Superior’s 2010 results.
Revenues were $2,686.1 million in 2011, an increase of $347.0 million from revenues of
$2,339.1 million in 2010. The increase in revenues is primarily due to higher commodity prices and
increased sales volumes. Total gross profit for 2011 was $455.2 million, an increase of $20.3 million or
5% over the prior year. The increase in gross profit is due to higher sales volumes and higher gross margins
within Canadian Propane Distribution, U.S. Refined Fuels and fixed-price energy services businesses.
A summary and detailed review of gross profit is provided below.
Gross Profit Detail
(millions of dollars)
Canadian Propane Distribution
U.S. Refined Fuels distribution
Other services
Supply portfolio management
Fixed-price energy services
Total gross profit
2011
223.0
137.7
42.3
15.1
37.1
455.2
2010
216.7
130.1
43.1
15.9
29.1
434.9
Canadian Propane Distribution
Canadian Propane Distribution gross profit for 2011 was $223.0 million, an increase of $6.3 million or
3% from 2010, due to higher sales volumes and interest charges on past due customer balances offset
in part by lower gross margins. Residential and commercial sales volumes in 2011 were 3 million litres or
1% lower than the prior year due to customer conservation efforts and warmer weather primarily during
the fourth quarter. Average weather across Canada for the year, as measured by degree days, was 7%
colder than the prior year and 2% colder than the five-year average. Industrial volumes increased by
91 million litres or 13%, primarily due to an increased oilfield services demand, industrial demand and
favourable contribution from sales initiatives in the wholesale segment. Automotive propane volumes
declined by 14 million litres or 15%, due to the continued structural decline in this end-use market.
2011 Annual Report
17
Average propane sales margins for 2011 decreased slightly to 17.1 cents per litre from 17.5 cents per
litre in the prior year. The decrease in average margins compared to the prior year quarter is principally
due to sales mix as the current year includes a higher proportion of lower margins sales volume.
Canadian Propane Distribution Sales Volumes
Volumes by End-Use Application (1)
Volumes by Region (2)
(millions of litres)
2011
2010
(millions of litres)
2011
2010
Residential
Commercial
Agricultural
Industrial
Automotive
Western Canada
Eastern Canada
Atlantic Canada
128
262
67
769
79
135
258
71
678
93
1,305
1,235
738
460
107
670
467
98
1,305
1,235
(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.
U.S. Refined Fuels Distribution
U.S. Refined Fuels gross profit for 2011 was $137.7 million, an increase of $7.6 million from the prior
year. The increase in gross profit is due to higher sales volumes, higher gross margins and full year
contribution from the acquisition of Griffith. Sales volumes of 1,741 million litres, increased by 39 million
litres or 2% as compared to the prior year. The increase in sales volumes was primarily due to cold
weather during the first quarter and sales initiatives, partially offset by warm weather during the fourth
quarter. Weather as measured by heating degree days for the year was 5% warmer than the prior year.
Average U.S. Refined Fuels sales margins of 7.9 cents per litre increased from the 7.6 cents per litre in
the prior year. The increase in sales margins is due to margin management efforts and a reduction in
lower margin sales volumes.
U.S. Refined Fuels Distribution Sales Volumes
Volumes by End-Use Application (1)
Volumes by Region (2)
(millions of litres)
2011
2010
(millions of litres)
2011
2010
Residential
Commercial
Wholesale
336
892
513
1,741
340
907
455
1,702
Northeast United States
1,741
1,702
1,741
1,702
(1) Volume: Volume of heating oil, propane, diesel and gasoline sold (millions of litres).
(2) Regions: Northeast United States region consists of Pennsylvania, Connecticut, New York, and Rhode Island.
Other Services
Other services gross profit was $42.3 million in 2011, a decrease of $0.8 million or 2% from the prior
year. The decrease in other services gross profit is due to lower customer demand.
18
Superior Plus Corp.
Management’s Discussion and Analysis
Supply Portfolio Management
Supply portfolio management gross profits was $15.1 million in 2011, a decrease of $0.8 million from the
prior year due to reduced market related opportunities and lower sales volume due to warm weather.
Fixed-Price Energy Services Gross Profit
2011
2010
(millions of dollars except volume and
per unit amounts)
Gross
Profit
Volume
Per Unit
Gross
Profit
Volume
Per Unit
Natural gas (1)
Electricity (2)
Total
31.0
21.1 GJ
146.9 ¢/GJ
25.0
27.4 GJ
91.2 ¢/GJ
6.1
606.3 KWh 1.01 ¢/KWh
4.1 366.6 KWh
1.12 ¢/KWh
37.1
29.1
(1) Natural gas volumes and per unit amounts are expressed in millions of gigajoules (GJ).
(2) Electricity volumes and per unit amounts are expressed in millions of kilowatt hours (KWh).
Fixed-price energy services gross profit was $37.1 million in 2011, an increase of $8.0 million (27%) from
$29.1 million in the prior year. Natural gas gross profit was $31.0 million, an increase of $6.0 million from
the prior year due to higher margins offset in part by lower volumes. Gross profit per unit was 146.9 cents
per gigajoule (GJ), an increase of 55.7 cents per GJ (61%) from the prior year. The increase in natural gas
gross margin was due to increased residential renewal margins, higher transportation revenue, lower
charges associated with load balancing and lower risk reserve funding requirements. Sales volumes
of natural gas were 21.1 million GJ, 6.3 million GJ (23%) lower than the prior year due to a continued
decline in residential volumes as a result of focusing marketing efforts towards the commercial segment
and continued low natural gas prices. Electricity gross profit in 2011 was $6.1 million, an increase of
$2.0 million or 49% from the prior year due to the aggregation of additional commercial customers in
the Ontario market and higher customer demand. Fixed-price energy services continues to grow in the
newly entered Pennsylvania electricity market due to the launch of a residential electricity offering that
is being sold to existing heating oil and propane customers.
Operating Costs
Cash operating and administrative costs were $321.6 million in 2011, a decrease of $1.4 million or nil%
from the prior year. Operating costs were lower than the prior year due to a $5.2 million reduction in
fixed-price energy services risk reserve allowance due to current market exposure offset in part by a
$3.5 million increase in bad debt expense provision associated with Canadian Propane Distribution’s
system upgrade (see “System Upgrade”), higher truck maintenance, higher fuel costs and an inventory
write down of $1.5 million.
System Upgrade
During the second quarter of 2010, Superior’s Canadian Propane Distribution business upgraded its JD
Edwards enterprise system to the most recent version in order to enhance efficiencies and core business
functions. As a result of the system upgrade, Superior experienced complications with processing
certain sales transactions and producing accurate invoices which delayed customer collections. The
delay in customer collections has resulted in increased past due receivables which Superior has provided
2011 Annual Report
19
for through an increase to the allowance for doubtful accounts during 2011 of $6.6 million (2010 –
$4.3 million). Early in the second quarter of 2011 Superior resolved the remaining technical issues
associated with the system upgrade and the system is now fully operational. Superior will continue to
focus on collecting the remaining past due receivable balances associated with the system upgrade.
U.S. Refined Fuels Impairments
During the third quarter, U.S. Refined Fuels incurred asset impairments of $3.4 million due to flooding
in Montoursville, Pennsylvania, which caused damage to buildings, tanks and equipment, and due to a
fire at one of its locations in Mumford, New York, which also damaged buildings, tanks and equipment.
These interruptions will not impact U.S. Refined Fuels operations and management is working with our
insurance providers in order to get the facilities repaired.
During the fourth quarter of 2011, Energy Services performed a detailed impairment review of its
intangible assets and goodwill. This calculation was performed as part of the annual impairment test
and resulted in indications of impairment with the Canadian Propane Distribution and U.S. Refined
Fuels segments within Energy Services. As a result of a detailed cash flow evaluation, Energy Services
recorded an impairment charge of $100.6 million to the intangible assets and goodwill of U.S. Refined
Fuels and $200.0 million to the goodwill of Canadian Propane Distribution.
Overall, Energy Services’ operations benefit from its 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. Energy Services’ customer base
is well diversified geographically and across end-use applications, and its largest customer contributed
approximately 3% of gross profits in 2011. Energy Services’ top 10 customers comprised approximately
10% of its revenues in 2011, with its largest customer representing approximately 12% of its revenues.
As shown in the chart below, wholesale propane and heating oil prices fluctuated throughout 2011.
Approximately 27% of Superior’s fuel distribution sales volumes are due to heating-related applications
and 73% to general economic activity levels.
20
Superior Plus Corp.
Management’s Discussion and Analysis Relative Change in WTI Crude Oil, Natural Gas,
NYMEX Heating Oil vs Sarnia Propane
275
250
225
200
175
150
125
100
75
50
25
0
)
e
g
n
a
h
C
e
c
i
r
P
e
v
i
t
a
l
e
R
(
Jan
2010
Feb
10
Mar
10
Apr
10
May
10
Jun
10
Jul
10
Aug
10
Sep
10
Oct
10
Nov
10
Dec
10
Jan
2011
Feb
11
Mar
11
Apr
11
May
11
Jun
11
Jul
11
Aug
11
Sep
11
Oct
11
Nov
11
Dec
11
NYMEX Heating Oil Future
Sarnia Propane
WTI Crude Oil
AECO Natural Gas
*estimate
Acquisitions
During 2011, Canadian Propane Distribution and U.S. Refined Fuels completed several tuck-in
acquisitions which totaled $14.9 million. These acquisitions were completed in order to expand Energy
Services’ geographic footprint and customer base.
On January 20, 2010, Superior completed its acquisition of the shares of Griffith Holdings, Inc. (Griffith)
for consideration of approximately $147.4 million (U.S.$140.6 million), inclusive of working capital
adjustments and transaction costs. Griffith is a retail and wholesale distributor of retail propane, heating
oil and motor fuels in upstate New York. The completion of this acquisition, along with the U.S. Refined
Fuels assets acquired during the prior year, form the foundation for Superior’s U.S. Refined Fuels
distribution platform.
On October 26, 2010, Superior acquired certain assets which make up a U.S. retail heating oil and
propane distribution business (KW heating oil assets) from KW Oil & Propane (KW), for an aggregate
purchase price of approximately $4.9 million including adjustments for working capital. The KW heating
oil assets distribute a broad range of liquid fuels and propane gas and related services, serving markets
in Pennsylvania. The acquisition was partially financed by deferred consideration of approximately
$0.5 million and the remaining acquisition cost has been financed through borrowings from Superior’s
existing revolving term bank credits and term loans.
The acquisitions are complementary to Superior’s existing Energy Services segment and will expand
Energy Services’ customer base and product diversification.
2011 Annual Report
21
Outlook
Superior’s expects business conditions in 2012 for its Energy Services segment to be similar to
2011, with the exception of a reduced contribution from its fixed-price energy services business. The
fixed-price energy services business profitability will moderate as it is expected that there will be fewer
renewals of residential customers at favourable margins. Additionally, weather, is anticipated to be
consistent with the 5-year average with the exception of the unseasonably warm weather experienced
in January 2012.
In addition to the significant assumptions detailed above, refer to “Risk Factors to Superior” for a
detailed review of significant business risks affecting the Energy Services’ businesses.
Specialty Chemicals
Specialty Chemicals’ condensed operating results for 2011 and 2010 are provided in the following table.
(millions of dollars except per metric tonne (MT) amounts)
2011
2010 (2)
Chemical revenue (1)
Chemical cost of sales (1)
Chemical gross profit
Less: Cash operating and administrative costs (1)
EBITDA from operations
Chemical volumes sold (thousands of MTs)
$ per MT
$ per MT
529.1
685
481.1
655
(290.4)
(376)
(260.9)
(355)
238.7
309
220.2
300
(123.5)
(160)
(118.7)
(162)
115.2
149
101.5
138
772
735
(1) In order to better reflect the results of its operations, Superior has reclassified certain amounts for purposes of this MD&A related to derivative
financial instruments, non-cash amortization and foreign currency translation losses/gains related to U.S.-denominated working capital. See
“Reconciliation of Divisional Segmented Revenue and Cost of Sales to EBITDA” for detailed amounts.
(2) Superior has restated its 2010 results in accordance with IFRS. See “Adoption of IFRS” for the impact of IFRS on Superior’s 2010 results.
Chemical revenue was $529.1 million in 2011, $48.0 million or 10% higher than the prior year, primarily
as a result of increased sodium chlorate and chloralkali/potassium sales volumes and higher sodium
chlorate and chloralkali/potassium pricing.
Gross profit of $238.7 million in 2011 was $18.5 million higher than the prior year due to increased
sodium chlorate and chloralkali/potassium gross profits. Sodium chlorate gross profit increased by
$0.6 million or 1%, due to higher sales volumes and realized pricing offset in part by lower technology
gross profits. Sodium chlorate gross profits included the recognition of a $3.2 million gain from the
receipt of a $3.7 million insurance settlement in connection with the Buckingham, Quebec insurance claim
(See Note 8 to the Consolidated Financial Statements for further details) which offset higher inventory
purchase costs incurred earlier in the year the remaining $0.5 million was allocated to operating costs.
Sodium chlorate sales volumes increased by 10,400 tonnes or 2% compared to the prior year
due to higher demand from North America as a result of increased demand for pulp and increased
Chilean sale volumes.
22
Superior Plus Corp.
Management’s Discussion and Analysis
Average selling prices for sodium chlorate were 2% higher than the prior year due to contract renewals
and the favourable impact of U.S. dollar forward exchange contract settlements on U.S. dollar-
denominated sales. See “Financial Instruments – Risk Management” for a discussion of hedge positions.
Cost of sales for sodium chlorate was higher than in the prior year due to higher sales volumes and
electrical input costs. Electrical costs, which represent approximately 70% to 85% of the variable costs
of the production of sodium chlorate, were higher than in 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 increased by $15.9 million or 19%, due to an increase in sales
volumes, higher gross margins and improved sales mix. Chloralkali/potassium sales volumes increased
by 24,300 tonnes (9%) due to increased demand across all product lines, especially for caustic and
hydrochloric acid. Overall average selling prices were higher than in 2010 due to the implementation of
price increases and strong demand.
Total chemical sales volumes were 772,000 tonnes in 2011, an increase of 37,000 tonnes or 5% from the
prior year, due to higher sales volumes of sodium chlorate and chloralkali/potassium as noted above.
Average chemical revenue was $685 per MT in 2011 compared to $655 per MT in 2010, an increase of
5%, reflecting higher realized sodium chlorate pricing and higher overall average pricing on chloralkali/
potassium products. Sodium chlorate and chloralkali/potassium production capacity utilization averaged
95% (2010 – 94%) and 94% (2010 – 92%), respectively.
Cash operating and administration costs were $123.5 million in 2011, an increase of $4.8 million or
4% from the prior year. Operating expenses were impacted by higher maintenance and employee
compensation costs.
Sodium chlorate sales in 2011 represented 57% of Specialty Chemicals EBITDA from operations, a
decrease of 4% from the 61% contribution in 2010. 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).
2011 Annual Report
23
Pulp Prices Compared to Sodium Chlorate Price and Sales Volumes
1,200
1,000
800
600
400
200
0
2004
2005
2006
2007
2008
2009
2010
2011
NBSK (USD/ADMT)
Sodium Chlorate Price (USD/MT)
(Source: Brian McClay and Associates)
N Hardwood (USD/ADMT)
Sodium Chlorate Volumes (USD/MT)
Chloralkali/potassium sales in 2011 contributed 43% of EBITDA from operations, an increase of
4% from the 39% contribution in 2010. Operating rates of the North American chloralkali segment
has remained relatively stable while ECU pricing levels have continued to improve.
Chloralkali ECU Pricing Compared to Operating Rates
1,500
T
S
/
D
S
U
1,000
500
0
100%
75%
50%
25%
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
ECU Contract-Market Value after Discounts (USD/ST)
ECU Operating Rate (%)
(Source: CMAI)
Specialty Chemicals’ top 10 customers comprised approximately 40% of its revenues in 2011, with its
largest customer representing 6% of its revenues.
24
Superior Plus Corp.
Management’s Discussion and Analysis Outlook
Superior expects business conditions in 2012 for its Specialty Chemicals segment will be similar to 2011.
Superior continues to see a stable market for sodium chlorate as a result of the current market for pulp.
Superior also expects continued strength in chloralkali sales volumes and pricing due to strong North
American supply demand fundamentals.
In addition to the significant assumptions detailed above, refer to “Risk Factors to Superior” for a
detailed review of the significant business risks affecting Superior’s Specialty Chemicals’ segment.
Construction Products Distribution
Construction Products Distribution’s condensed operating results for 2011 and 2010 are provided in the
following table.
(millions of dollars)
2011
2010 (3)
Revenue
Gypsum Specialty Distribution (GSD) revenue (1) (2)
Commercial and Industrial Insulation (C&I) revenue (2)
Cost of sales
GSD cost of sales (2)
C&I cost of sales (2)
Gross profit
Less: Cash operating and administrative costs
EBITDA from operations
479.9
231.9
(367.7)
(169.4)
174.7
(150.5)
24.2
485.3
232.3
(374.9)
(170.4)
172.3
(145.5)
26.8
(1) In order to better reflect the results of its operations, Superior has reclassified certain amounts for purposes of this MD&A to present its
results as if it had accounted for various transactions as accounting hedges. See “Reconciliation of Divisional Segmented Revenue and Cost of
Sales to EBITDA” for detailed amounts.
(2) Certain reclassifications of 2010 amounts have been made to conform to current presentation. Specifically, for the year ended December 31,
2010, $485.3 million has been reclassified to GSD revenue from distribution and direct sales revenue to provide comparative presentation of
Construction Products Distribution’s revenue. For the year ended December 31, 2010, $232.3 million has been reclassified to C&I revenue
from distribution and direct sales revenue to provide comparative presentation of Construction Products Distribution revenue. For the year
ended December 31, 2010, $374.9 million has been reclassified to GSD cost of sales from distribution and direct cost of sales to provide
comparative presentation of Construction Products Distribution’s cost of sales. For the year ended December 31, 2010, $170.4 million has
been reclassified to C&I cost of sales from distribution and direct cost of sales to provide comparative presentation of Construction Products
Distribution’s cost of sales.
(3) Superior has restated its 2010 results in accordance with IFRS. See “Adoption of IFRS” for the impact of IFRS on Superior’s 2010 results.
GSD and C&I revenues were $711.8 million for 2011, $5.8 million or 1% lower than the prior year. The
slight decrease in revenue was due to lower demand for GSD products in Canada and continued pricing
pressure offset in part by higher GSD revenue from the expansion of the GSD product line into some
existing U.S. based branches.
Gross profits were $174.7 million in 2011, $2.4 million or 1% higher than the prior year due to sales
mix, higher gross margins due to contribution from the U.S. GSD expansion and ongoing impact of
the implementation of a strategic procurement strategy. Sales margins and average selling prices
continue to be challenged as a result of ongoing competitive pressures, supplier price increases and
slow economic activity.
2011 Annual Report
25
Cash operating and administration costs were $150.5 million in 2011, an increase of $5.0 million or 3%
from the prior year. The increase in expenses was primarily due to higher employee wages, additional
costs associated with expanding the GSD product line into some existing U.S. based branches and the
full year impact of the acquisition of the Burnaby Assets on June 28, 2010.
During the fourth quarter of 2011, restructuring charges were incurred in order to close two branches in
Canada which were no longer economically viable. Construction Products Distribution will continue to
assess the profitability of its branches going forward given the current operating environment.
Intangible and Goodwill Impairments
During the third quarter of 2011, Construction Products Distribution performed a detailed impairment
review of its intangible assets and goodwill. This calculation was performed due to a reduction in the
near term and medium term forecast for the segment which resulted in indications of impairment. As
a result of a detailed cash flow evaluation, Construction Products Distribution recorded an impairment
charge of $78.0 million to intangible assets and goodwill.
Construction Products Distribution enjoys considerable geographical and customer diversification,
servicing over 18,000 customers from 121 distribution branches (see “Total Revenues by Region” pie
chart). Construction Products Distribution’s 10 largest customers represent approximately 8% of its
annual distribution sales with the largest customer representing approximately 1% 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 “Total Revenues by Product” pie chart).
Total Revenues by Region – 2011
Total Revenues by Product – 2011
14% Prairies
16% Central/Eastern Canada
9% Residential insulation
10% Steel framing and accessories
5% Stucco, tools and miscellaneous
60% U.S.
35% Commercial and
industrial insulation
10% British Columbia
23% Drywall and components
18% Ceilings
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
26
Superior Plus Corp.
Management’s Discussion and Analysis construction products is influenced by overall economic conditions with approximately 56% of sales
from servicing commercial new construction and remodelling activity, 28% from servicing residential new
construction and remodelling activity and 16% 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
200
175
150
125
100
75
50
25
84 85 86
87 88 89 90
91 92 93 94 95 96 97 98
99 00 01 02 03 04 05
06 84 07 09 10 11*
CDN Housing Starts (thousands of units)
*estimate
CDN Non-Residential Construction Footage Put in Place (mmsf)
USA End Use Construction Segments
Index 1984 = 100
200
175
150
125
100
75
50
25
0
84 85 86
87 88 89 90
91 92 93 94 95 96 97 98
99 00 01 02 03 04 05
06 84 07 09 10 11*
USA Non-Residential Construction Footage Put In Place (mmsf)
USA Residential Additions and Alterations (billions $)
USA Housing Starts (thousands of units)
USA Industrial Construction Footage Put In Place (mmsf)
*estimate
2011 Annual Report
27
Outlook
Superior expects business conditions in 2012 for its Construction Products Distribution business to be
similar to 2011. EBITDA from operations is anticipated to be lower than in 2011 due to anticipated
costs associated with further restructuring activities and ongoing tough market conditions in both
the residential and commercial segments in both the U.S. and Canada. Superior does not anticipate
significant improvements in the end-use markets for some time.
In addition to the Construction Products Distribution segment’s significant assumptions detailed above,
refer to “Risk Factors to Superior” for a detailed review of the significant business risks affecting
Superior’s Construction Products Distribution segment.
Consolidated Capital Expenditure Summary
(millions of dollars)
Efficiency, process improvement and growth related
Other capital
Acquisition of Griffith
Acquisition of Burnaby Assets (Burnaby)
Other acquisitions
Investment in finance leases
Proceeds on disposition of capital
Total net capital expenditures
Investment in finance leases
Total expenditures
2011
16.3
21.9
38.2
−
−
15.1
−
(3.2)
50.1
15.7
65.8
2010
23.9
16.9
40.8
142.4
17.7
6.1
10.3
(2.8)
214.5
13.9
228.4
Efficiency, process improvement and growth related expenditures were $16.3 million in 2011 compared
to $23.9 million in the prior year. These expenditures are primarily in relation to Energy Services’ purchases
of rental assets and truck related expenditures and Specialty Chemicals related capital projects.
Other capital expenditures were $21.9 million in 2011 compared to $16.9 million in the prior year,
consisting primarily of required maintenance and general capital across all of Superior’s segments
including a Specialty Chemical cell replacement project which increased the amount of 2011 expenditures.
During 2011, U.S. Refined Fuels completed the acquisition of eight heating oil and propane distributors
for total consideration of $10.4 million and Canadian Propane Distribution completed the acquisition
of a small propane distributor for total consideration of $4.5 million. Construction Products Distribution
also completed an acquisition of a small branch for $0.2 million.
Proceeds on the disposal of capital were $3.2 million in 2011 and consisted of Superior’s disposition of
surplus tanks, cylinders and other assets.
28
Superior Plus Corp.
Management’s Discussion and Analysis
During 2011, Superior entered into new leases with capital equivalent value of $15.7 million primarily
related to delivery vehicles for the Energy Services and Construction Products Distribution segments.
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
Corporate costs were $11.9 million in 2011, an increase of $1.5 million in the prior year. The increase
in corporate costs was primarily due to $2.8 million in gains from the one-time unwind of some of
Superior’s foreign currency forward contracts in the prior year. Corporate costs excluding the currency
forward contract unwind were $1.3 million higher than the prior year due to the recognition of chief
executive officer transition costs, recruiting fees and higher professional costs offset in part by lower
employee short term incentive costs and lower long term incentive costs.
Interest expense on borrowings were $42.7 million in 2011, a decrease of $1.4 million from the
$44.1 million incurred in the prior year. The decrease in interest costs was primarily due to lower average
debt levels during the majority of 2011 offset in part by the redemption of $75.0 million on November
7, 2011 and $50.0 million on December 12, 2011 of Superior’s previously issued 5.75% debentures due
December 31, 2012. See “Liquidity and Capital Resources” discussion for further details on the change
in average debt levels.
Interest on Superior’s convertible unsecured subordinated debentures (“Debentures” which includes
all series of convertible unsecured subordinated debentures) was $36.6 million for 2011, an increase of
$11.8 million from the $24.8 million incurred in the prior year. The increase in debenture interest is
primarily due to full year impact of the issuance of $150.0 million, 6.00% convertible debentures on
December 23, 2010 for general corporate purposes and the issuance of $75.0 million, 7.50% convertible
debentures on October 4, 2011. The above noted debenture issuances were offset in part by the
redemption of $75.0 million on November 7, 2011 and $50.0 million on December 12, 2011 of Superior’s
previously issued 5.75% debentures due December 31, 2012.
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 U.S. income tax, U.S. non-resident
withholding tax and Chilean income tax.
Total income tax recoveries for 2011 were $50.4 million, comprised of $1.5 million in cash income tax
expense and $51.9 million in deferred income tax recovery. This compares to a total income tax expense
of $6.5 million in the prior year, which consisted of $0.8 million in cash income tax expense and a
$5.7 million deferred income tax expense.
2011 Annual Report
29
Cash income taxes for 2011 were $1.5 million, consisting of income taxes in the U.S. of $1.5 million
(2010 – $0.8 million of U.S. cash tax expense). Deferred income tax recoveries for 2011 were
$51.9 million (2010 – $5.7 million deferred income tax expense), resulting in a corresponding net
deferred income tax asset of $309.6 million as at December 31, 2011. Deferred income taxes in 2011
were impacted by the impairment charges recorded in both Canada and the U.S.
As at December 31, 2011, 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)
412.0
52.8
611.5
602.2
164.9
231.9
–
81.4
21.2
28.0
See the audited consolidated financial statements for the year ended December 31, 2011 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
Superior Plus Corp.
Management’s Discussion and Analysis
2012 Financial Outlook
Superior outlook for cash flow from operations for 2012 has been reduced to between $1.45 and
$1.80 per share, a slight decrease from Superior’s previous financial outlook as provided in the 2011
third quarter MD&A of $1.55 to $1.90. The decrease in Superior’s outlook is due to lower 2011 actual
results and a weaker than anticipated start to the 2012 heating season due to unseasonably warm
temperatures throughout Canada and the Northeast U.S. Superior’s consolidated adjusted operating
cash flow outlook is dependent on the operating results of its three operating segments.
In addition to the operating results of Superior’s three operating segments, significant assumptions
underlying Superior’s current 2012 outlook are:
• Economic growth in Canada and the U.S. is expected to be similar or modestly lower than 2011;
• Superior is expected to continue to attract capital and obtain financing on acceptable terms;
• The foreign currency exchange rate between the Canadian and U.S. dollar is expected to average par
in 2012 on all unhedged foreign currency transactions;
• Financial and physical counterparties are expected to continue fulfilling their obligations to Superior;
• Regulatory authorities are not expected to impose any new regulations impacting Superior;
• Superior’s average interest rate on floating-rate debt is expected to remain consistent with 2011
levels; and
• Canadian and U.S. based cash taxes are expected to be minimal in 2012 and have been based on
existing statutory income tax rates.
Energy Services
• Average temperatures across Canada and the Northeast U.S. are expected to be consistent with the
recent five-year average except for January 2012;
• Total propane and U.S. Refined Fuels-related sales volumes in 2012 compared to 2011 are anticipated
to increase due to economic improvement and sales and marketing initiatives;
• Wholesale propane, and U.S. Refined Fuels-related prices are not anticipated to significantly impact
demand for propane, refined fuels and related services;
• Supply portfolio management market opportunities are expected to improve as compared to 2011
although growth is expected to be moderate; and
• Fixed price energy services is expected to be able to access sales channel agents on acceptable
contract terms and expects gross profit to decrease as compared to 2011. The decrease in gross
profit is primarily related to lower natural gas gross margins as transportation related gross profits and
contribution from customer renewals begins to decrease. Total customer aggregation estimates are
expected to be consistent with 2011.
2011 Annual Report
31
Specialty Chemicals
• Supply and demand fundamentals for sodium chlorate are expected to remain strong in 2012, resulting
in increased sales volumes as compared to 2011. Pricing is expected to remain consistent or slightly
improved as compared to 2011 levels;
• Chloralkali revenues and gross profits are expected to increase in 2012 due to higher sales volumes for
caustic and hydrochloric acid product lines combined with improved pricing; and
• Average plant utilization will approximate 95% in 2012.
Construction Products Distribution
• GSD sales revenue from Canada is expected to increase slightly from 2011 levels due to the full
year contribution from greenfield operations in the Maritimes. GSD sales revenue from the United
States is expected to increase from 2011 due to continued expansion of existing product lines into
U.S. branches. C&I sales revenue is expected to increase from 2011 due to a focus on increasing the
fabrication and export business;
• Sales margins for both GSD and C&I as compared to 2011 are expected to decrease slightly due to
competitive pressures; and
• Construction Products Distribution has performed a detailed review of its existing operations and has
announced the closure of two branches in early 2012 as part of its restructuring efforts.
Debt Management Update
Superior remains committed to reducing its total debt and its total debt leverage ratios. An update
to the anticipated total debt and total debt leverage ratios as at December 31, 2011 based on the
updated 2012 Outlook, is detailed in the chart below. The mid-point of Superior’s 2012 Outlook has
been reduced since the third quarter MD&A, as detailed above, and the impact has been adjusted in
the table below.
Debt Management Summary (1)
(Per Share)
(Millions of Dollars)
2012 financial outlook AOCF per share – mid-point (2)
Maintenance capital expenditures
Capital lease obligation repayments
$1.62
(0.21)
(0.16)
Cash flow available for dividends and debt repayment before growth capital
$1.25
One-time environmental expenditures at Port Edward’s
Other growth capital expenditures
Proceeds from dividend reinvestment program
Estimated 2012 free cash flow available for dividend and debt repayment
Dividends (annualized)
Cash flow available for debt repayment
(0.10)
(0.09)
0.12
$1.18
$(0.60)
0.58
181.4
23.5
17.9
140.0
11.2
10.1
13.4
132.1
(67.2)
64.9
Estimated total debt to EBITDA as at December 31, 2012
4.6X – 4.8X
4.6X – 4.8X
Dividends (annualized)
Calculated payout ratio after all capital expenditures
$0.60
52%
67.2
52%
(1) All amounts per share unless otherwise indicated.
(2) See “2012 Financial Outlook” for additional details including assumptions, definitions and risk factors.
32
Superior Plus Corp.
Management’s Discussion and Analysis 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 and Capital Resources
Superior’s total and available sources of credit are detailed in the chart below:
Available Credit Facilities
As at December 31, 2011
(millions of dollars)
Revolving term bank credit facilities (1)
Term loans (1)
Finance lease obligations
Total
Total
Amount
Borrowings
Letters of
Amount
Credit Issued Available
615.0
280.1
71.7
966.8
410.3
280.1
71.7
762.1
35.0
169.7
–
–
–
–
35.0
169.7
(1) Revolving term bank credit facilities and term loan balances are presented before deferred financing fees.
Superior’s revolving syndicated bank facility
lease
obligations (collectively “Borrowings”) before deferred financing fees totaled $762.1 million as at
December 31, 2011, an increase of $22.1 million from December 31, 2010. Overall Borrowings increased
as compared to the prior year due to funding requirements in order to finance the redemption of
$125.0 million in Debenture, finance lease repayments, dividend payments and net capital expenditures
offset in part by higher cash flows and the issuance of $75.0 million in Debentures.
(Credit Facility), term
loans and finance
On June 20, 2011, Superior completed an extension of its Credit Facility with ten lenders and increased
the size of the facility from $450 million to $615 million. The secured revolving credit facility matures
on June 27, 2014 and can be expanded up to $750 million. Financial covenant ratios were unchanged
with Consolidated Secured Debt to Consolidated EBITDA ratio and Consolidated Debt to Consolidated
EBITDA ratio of 3.0x and 5.0x, respectively. Additionally, in conjunction with the extension of the Credit
Facility, Superior has terminated its accounts receivable securitization program which provided up to
$130 million of additional credit on a seasonally adjusted basis. See “Summary of Cash Flows” for
details on Superior’s sources and uses of cash.
As at December 31, 2011, Debentures (before deferred issue costs) issued by Superior totaled
$591.4 million, $50.0 million lower than the balance of $641.4 million outstanding as at
December 31, 2010. The decrease in Debentures was due to the redemption of $75.0 million on
November 7, 2011 and $50 million on December 12, 2011 of Superior’s previously issued 5.75%
debentures due December 31, 2012 offset in part by the issuance of $75.0 million, 7.50% convertible
debentures on October 4, 2011. See Note 19 to the audited Consolidated Financial Statements for
additional details on Superior’s Debentures.
As at December 31, 2011, approximately $169.7 million was available under the Credit Facility which
Superior considers sufficient to meet its net working capital funding requirements, expected capital
expenditures and refinancing requirements.
2011 Annual Report
33
Consolidated net working capital was $377.3 million as at December 31, 2011, a decrease of
$23.6 million from net working capital of $400.9 million as at December 31, 2010. The decrease
in net working capital was primarily due to significant collections of past due accounts receivable
related to the System Upgrade (refer to “System Upgrade” for additional details) at Canadian Propane
Distribution offset in part by higher commodity prices. Lower net working capital levels at Specialty
Chemicals were due to a prepayment of approximately $10.8 million from a large customer. The above
decreases were offset in part by increased working capital levels at Supply Portfolio Management
due to high inventory levels associated with warmer than anticipated weather and lower net working
capital levels at corporate due to reduced dividends and interest payable. Superior’s net working capital
requirements are financed from revolving term bank credit facilities.
In May 2010, Superior reestablished its DRIP, commencing with the payment of the May 2010 dividend.
The DRIP provides shareholders with the opportunity to reinvest their cash dividends at a 5% discount
to the market price of Superior’s shares. Proceeds received from the DRIP for 2011 were $28.9 million
as compared to $17.2 million in 2010.
As at December 31, 2011, when calculated in accordance with the Credit Facility, the Consolidated
Secured Debt to Compliance EBITDA ratio was 2.3 to 1.0 (December 31, 2010 – 2.6 to 1.0) and the
Consolidated Debt to Compliance EBITDA ratio was 2.9 to 1.0 (December 31, 2010 – 3.2 to 1.0). For
both of these covenants all outstanding Debentures are not considered. These ratios are within the
requirements contained in Superior’s debt covenants. In accordance with the Credit Facility, Superior
must maintain a Consolidated Secured 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. In addition, Superior must maintain a Consolidated
Debt to Compliance EBITDA ratio of not more than 5.0 to 1.0, excluding Debentures. Distributions
(including payments to Debenture holders) cannot exceed Compliance EBITDA less cash income taxes,
plus $35.0 million on a trailing twelve month rolling basis.
As at December 31, 2011 proceeds of $nil million (December 31, 2010 – $90.1 million) had been raised
under the accounts receivable securitization program. During the month of June of 2011, Superior
terminated the accounts receivable securitization program. (See Note 17 to the audited Consolidated
Financial Statements).
On March 8, 2011, Standard and Poor’s lowered both Superior and Superior LP’s long-term corporate
credit rating to BB- from BB and reduced the secured debt rating to BB+ from BBB-. The outlook rating
for both Superior and Superior LP remains stable and the credit rating on Superior’s unsecured debt is
unchanged at BB-. On September 12, 2011, DBRS lowered Superior LP’s senior secured rating to BB
(high) from BBB (low) and lowered Superior LP’s senior unsecured rating to BB (low) from BB (high). The
trend for both ratings has been changed to stable from negative.
As at December 31, 2011, Superior had an estimated defined benefit pension solvency deficiency
of approximately $36.3 million (December 31, 2010 – $23.7 million) and a going concern solvency
deficiency of approximately $16.6 million (December 31, 2010 – $17.7 million). Funding requirements
34
Superior Plus Corp.
Management’s Discussion and Analysis required by applicable pension legislation are based upon going concern and solvency actuarial
assumptions. These assumptions differ from the going concern actuarial assumptions used in
Superior’s financial statements. Superior has sufficient liquidity through existing revolving term
bank credits and anticipated future operating cash flow to fund this deficiency over the prescribed
funding period.
In the normal course of business, Superior is subject to lawsuits and claims. Superior believes the
resolution of these matters will not have a material adverse effect, individually or in the aggregate, on
Superior’s liquidity, consolidated financial position or results of operations. Superior records costs as
they are incurred or when they become determinable.
Contractual Obligations and Other Commitments
(millions of dollars)
Notes (1)
Total
2012
2013-2014
2015-2016
Thereafter
Payments Due In
4.6
309.7
27.1
–
–
24.8
366.2
Borrowings
(including capital leases)
Debentures
Operating leases (2)
US$ foreign currency forward
sales contracts (US$)
Natural gas, propane, butane,
heating oil, and electricity
purchase commitments (3)
Future employee benefits (4)
17
19
18
21
21
20
762.1
571.0
111.1
54.3
49.3
26.8
505.8
66.6
28.6
197.4
145.4
28.6
706.9
206.9
356.0
144.0
Total contractual obligations
2,296.5
413.1
76.6
68.8
67.0
8.8
9.8
17.6
984.4
(0.2)
17.6
532.8
(1) Notes to the Consolidated Financial Statements.
(2) Operating leases comprise Superior’s off balance sheet obligations.
(3) Does not include the impact of financial derivatives. See Note 21 to the Consolidated Financial Statements.
(4) Does not include Energy Services’ or Specialty Chemicals’ defined benefit pension asset.
Shareholders’ Capital
The weighted average number of shares outstanding was 109.2 million in 2011 compared to
105.6 million in 2010, an increase of 3.6 million shares compared to the prior year due to the issuance of
3,109,694 common shares over the past twelve months and the resulting impact on weighted average
number of shares outstanding. The following table provides a detailed breakdown of the common
shares issued over the last twelve months:
Closing
Date
Average
Issuance
Price per
Share
Issued
Number of
Common Shares
(Millions)
As at December 31, 2010
Issuance of common shares under
Superior’s DRIP
As at December 31, 2011
January 15, 2011
through December
15, 2011
$9.40
107.7
3.1
110.8
2011 Annual Report
35
As at February 16, 2012, December 31, 2011 and December 31, 2010, the following common shares and
securities convertible into common shares were outstanding:
February 16, 2012
December 31, 2011
December 31, 2010
(millions)
Convertible
Securities
Common shares outstanding (1)
5.75% Debentures (2)
5.85% Debentures (3)
7.50% Debentures (4)
5.75% Debentures (5)
6.00% Debentures (6)
7.50% Debentures (7)
Shares outstanding and issuable
upon conversion of Debentures
$49.9
$75.0
$69.0
$172.5
$150.0
$75.0
Shares
111.0
1.4
2.4
5.3
9.1
9.9
6.6
Convertible
Securities
$49.9
$75.0
$69.0
$172.5
$150.0
$75.0
Shares
110.8
1.4
2.4
5.3
9.1
9.9
6.6
Convertible
Securities
$174.9
$75.0
$69.0
$172.5
$150.0
Shares
107.7
4.9
2.4
5.3
9.1
9.9
145.7
145.5
139.3
(1) Common shares outstanding as at February 16, 2012, includes 207,402 common shares issued under Superior’s DRIP program during the
month of January.
(2) Convertible at $36.00 per share.
(3) Convertible at $31.25 per share.
(4) Convertible at $13.10 per share.
(5) Convertible at $19.00 per share.
(6) Convertible at $15.10 per share.
(7) Convertible at $11.35 per share.
Dividends Paid to Shareholders
Dividends paid to Superior’s shareholders 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 2011 were $136.7 million (before DRIP proceeds of $28.9 million) or
$1.26 per share compared to $156.8 million or $1.62 per share in 2010. The decrease of $43.5 million in
dividends paid to shareholders over the prior year was due to the two revisions to Superior’s dividend
rate. On February 17, 2011, Superior announced that the monthly dividend has been reduced to
$0.10 per share per month effective with the March 2011 dividend payment. On November 2, 2011,
Superior announced that the monthly dividend has been reduced to $0.05 per share or $0.60 per share
on an annualized basis; a decrease from the prior level of $0.10 per share per month or $1.20 per
share on an annualized basis effective with Superior’s March 2011 dividend. Superior has made the
determination that it is prudent to accelerate its debt reduction plan by reducing its monthly dividend.
See Superior’s “Debt Management and Dividend Payout Ratio” section for further details. Dividends to
shareholders are declared at the discretion of the board of directors of Superior.
36
Superior Plus Corp.
Management’s Discussion and Analysis
Superior’s primary sources and uses of cash are detailed below:
Summary of Cash Flows (1)
(millions of dollars)
Net cash flows from operating activities
Investing activities:
Purchase of property, plant and equipment (2)
Proceeds on disposal of property, plant and equipment
Investment in finance lease
Acquisition of Griffith
Other acquisitions
Cash flows used in investing activities
Financing activities:
Net proceeds (repayment) of revolving term bank credits and other debt
Repayment of senior secured notes
Repayment of finance lease obligation
Net proceeds (repayment) of accounts receivable
securitization program
Redemption of convertible debentures
Proceeds from the issuance of 5.75% convertible
debentures
Costs incurred for the issuance of 5.75% convertible
debentures
Proceeds from the issuance of 6.00% convertible
debentures
Costs incurred for the issuance of 6.00% convertible
debentures
Proceeds from the issuance of 7.50% convertible
debentures
Costs incurred for the issuance of 7.50% convertible
debentures
Issuance of common shares
Proceeds from the dividend reinvestment plan
Dividends paid to shareholders
Cash flows from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Effect of translation of foreign denominated cash and cash
equivalents
Cash and cash equivalents, end of period
(1) See the Consolidated Statements of Cash Flows for additional details.
(2) See “Consolidated Capital Expenditure Summary” for additional details.
2011
212.0
(38.2)
3.2
–
–
(14.8)
(49.8)
132.3
(32.5)
(14.2)
(90.1)
(125.0)
–
–
–
–
75.0
(3.4)
–
28.9
(136.7)
(165.7)
(3.5)
7.8
0.9
5.2
2010
9.9
(40.8)
2.8
(10.3)
(142.4)
(23.8)
(214.5)
47
(2.0)
(12.8)
(2.6)
–
172.5
(6.9)
150.0
(5.6)
–
–
82.2
17.2
(156.8)
188.2
(16.4)
24.3
(0.1)
7.8
2011 Annual Report
37
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 and, as a result,
Superior does not apply hedge accounting and is required to designate its derivatives and non-financial
derivatives as held for trading.
Energy Services enters into natural gas financial swaps primarily with Macquarie Cook Energy Canada
Ltd. for distributor billed natural gas business in Canada to manage its economic exposure of providing
fixed-price natural gas to its customers. Additionally, Energy Services maintains its natural gas swap
positions with six additional counterparties. Energy Services monitors its fixed-price natural gas positions
on a daily basis to evaluate compliance with established risk management policies. Superior maintains a
substantially balanced fixed-price natural gas position in relation to its customer supply commitments.
Energy Services entered into electricity financial swaps with four 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 entered into various propane forward purchase and sale agreements with more than
20 counterparties to manage the economic exposure of its wholesale customer supply contracts.
Energy Services monitors its fixed-price propane positions on a daily basis to monitor compliance with
established risk management policies. Energy Services maintains a substantially balanced fixed-price
propane gas position in relation to its wholesale customer supply commitments.
Superior, on behalf of its operating divisions, entered into foreign currency forward contracts with twelve
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 U.S. dollars and enters into forward U.S. dollar purchase contracts to
create an effective Canadian dollar fixed-price purchase cost. Specialty Chemicals enters into U.S. 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 U.S. dollars. Interest expense on
Superior’s U.S. dollar debt is also used to mitigate the impact of foreign exchange fluctuations.
As at December 31, 2011, Energy Services had hedged approximately 100% of its U.S. dollar natural
gas and propane purchase (sales) obligations for 2012. Overall Superior has hedged approximately
95% of its estimated U.S. dollar exposure for 2012 and approximately 89% for 2013. The estimated
sensitivity on adjusted operating cash flow for Superior, including divisional U.S. exposures and the
impact on U.S.-denominated debt with respect to a $0.01 change in the Canadian to United States
exchange rate for 2011 is $0.1 million, respectively after giving effect to United States forward
38
Superior Plus Corp.
Management’s Discussion and Analysis contracts for 2012, as shown in the table below. Superior’s sensitivities and guidance are based
on an anticipated average Canadian to U.S. dollar foreign currency exchange rate for 2012 at par
with the U.S. dollar.
(millions of U.S. dollars
except exchange rates)
2012
2013
2014
2015
2016
2017 and
Thereafter
Energy Services – US$ forward sales
48.4
44.0
26.0
26.0
Construction Products Distribution –
US$ forward sales
Specialty Chemicals – US$ forward
sales
Net US$ forward sales
24.0
24.0
12.0
–
134.5
206.9
132.0
200.0
118.0
156.0
106.0
144.0
Energy Services – Average US$
forward sales rate
Construction Products Distribution –
Average US$ forward sales rate
Specialty Chemicals – US$ forward
sales rate
Net average external US$/Cdn$
exchange rate
1.05
1.06
1.01
1.01
1.06
1.07
1.00
1.00
1.04
1.04
1.03
1.00
1.05
1.05
1.03
1.00
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
144.4
72.0
490.5
706.9
1.04
1.04
1.03
1.03
Superior has interest rate swaps with four counterparties to manage the interest rate mix of its total debt
portfolio and related overall cost of borrowing. Superior manages its overall liquidity risk in relation to its
general funding requirements by utilizing a mix of short-term and longer-term maturity debt instruments.
Superior reviews its 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 fixed-
price energy services business has minimal exposure to customer credit risk as local natural gas and
electricity distribution utilities have been mandated, for a nominal fee, to provide invoicing, collection
and the assumption of bad debts risk for residential and small commercial customers. Fixed-price energy
services actively monitor the credit worthiness of its direct bill industrial customers. All of Superior’s
business segments have credit risk policies in place in order to minimize credit exposures.
2011 Annual Report
39
For additional details on Superior’s financial instruments, including the amount and classification of gains
and losses recorded in Superior’s year end Consolidated Financial Statements, summary of fair values,
notional balances, effective rates and terms, and significant assumptions used in the calculation of the fair
value of Superior’s financial instruments, see Note 21 to the audited Consolidated Financial Statements.
Sensitivity Analysis
Superior’s estimated cash flow sensitivity in 2011 to the following changes is provided below:
Change
Change
Impact on
Adjusted
Operating
Cash Flow
Per Share
Energy Services
Change in propane sales margin
Change in propane sales volume
$0.005/litre
50 million litres
Change in U.S. Refined Fuels sales margin
$0.005/litre
Change in U.S. Refined Fuels sales volume
50 million litres
Change in natural gas sales margin
Change in natural gas sales volume
$0.02/GJ
2 million GJ
Specialty Chemicals
Change in sales price
Change in sales volume
$10.00/tonne
15,000 metric tonnes
Construction Products Distribution
Change in sales margin
1% point change in average
gross margin
Change in sales volume
5% change in sales volume
3%
4%
6%
3%
1%
9%
1%
2%
$6.5 million
$7.7 million
$8.7 million
$3.5 million
$0.4 million
$2.9 million
$7.7 million
$4.5 million
4%
5%
$6.6 million
$4.4 million
Corporate
Change in Cdn$/US$ exchange rate
Corporate change in interest rates
$0.01
0.5%
1%
14%
$0.1 million
$1.7 million
$0.06
$0.07
$0.08
$0.03
$nil
$0.03
$0.07
$0.04
$0.06
$0.04
$nil
$0.02
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
President 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 organization 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’s disclosure controls and procedures was
40
Superior Plus Corp.
Management’s Discussion and Analysis
conducted as at December 31, 2011 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 Canadian Generally Accepted Accounting Principles (GAAP).
The evaluation of the design of Superior’s internal controls over financial reporting was conducted as
at December 31, 2011 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
control 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, 2011 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, 2011.
No changes have been made in Superior’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, Superior’s internal control over financial reporting
in the quarter ended December 31, 2011.
Critical Accounting Policies and Estimates
Superior’s audited Consolidated Financial Statements have been prepared in accordance with IFRS.
The significant accounting policies are described in the audited Consolidated Financial Statements for
the period ended December 31, 2011. Certain of these accounting policies, as well as estimates made
by management in applying such policies, are recognized as critical because they require management
to make subjective or complex judgments about matters that are inherently uncertain. Our critical
accounting estimates relate to the allowance for doubtful accounts, employee future benefits, future
income tax assets and liabilities, the valuation of derivatives and non-financial derivatives and asset
impairments and the assessment of potential asset retirement obligations.
2011 Annual Report
41
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.
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.
42
Superior Plus Corp.
Management’s Discussion and Analysis 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.
Adoption of IFRS
The Accounting Standards Board of Canada (AcSB) announced plans in 2008 which require the convergence
of GAAP with IFRS for publicly accountable enterprises, including Superior. The changeover date from
GAAP to IFRS is for annual and quarterly financial statements relating to fiscal years beginning on or after
January 1, 2011. Superior adopted IFRS effective January 1, 2011 and has prepared its financial statements in
accordance with IFRS.
The initial adoption of IFRS has required Superior to review each of its accounting policies and determine whether
or not a change is required or permitted under IFRS and whether any amended policy is required to be applied on
a retrospective or prospective basis. This review was performed in accordance with IFRS 1 First-time Adoption of
International Financial Reporting Standards which provides guidance for initial adoption, policy choice option and
exemptions available.
IFRS accounting standards are similar to the conceptual framework of GAAP, although significant differences exist
in certain matters of recognition, measurement and disclosure. The adoption of IFRS has had a material impact on
Superior’s consolidated balance sheets and consolidated statement of net loss and comprehensive loss.
Transition to IFRS
Superior has restated previously reported audited financial figures for 2010 under GAAP to reflect the impact
of adopting IFRS. Superior’s financial information has been compiled from the underlying IFRS basis of financial
information included in the accompanying financial statements as at December 31, 2011 and for the year ended
December 31, 2011 and 2010. See Note 35 to Superior’s audited Consolidated Financial Statements for the details
on Superior’s transition to IFRS.
The actual adjustments recorded in Superior’s opening balance sheet as at January 1, 2010 for the year ending
December 31, 2011, may differ from those presented in the unaudited Condensed Consolidated Financial
Statements as at September 30, 2011 pending changes to IFRS accounting standards.
The following table highlights the significant impacts of adopting IFRS on Superior’s opening IFRS balance sheet.
2011 Annual Report
43
Comparison Between IFRS
and GAAP
Findings
Componentization
IFRS: Property, plant and
equipment have to be
recorded and amortized
based on material
components.
GAAP: Component
identification rules are less
stringent.
Major inspections and
overhauls
IFRS: Costs related to major
inspections and overhauls
required at regular intervals
over the life of an item
of property, plant and
equipment are capitalized if
the recognition criteria are
met.
GAAP: Only costs meeting
the criteria to be classified as
betterment are capitalized.
IFRS: Various criteria must be
met in order to derecognize
financial assets and financial
liabilities from the balance
sheet.
GAAP: Criteria for
derecognizing financial
assets and financial liabilities
from the balance sheet are
less stringent than IFRS.
Componentization
Superior has identified several
new material component
categories under IAS 16. This
will result in reclassification
of some property, plant and
equipment into the new
categories. This will result
in changes to the useful
lives of some components
of property, plant and
equipment.
Major inspections and
overhauls
Superior has identified
some major inspections and
overhauls which meet the
recognition criteria under
IFRS. Superior retroactively
applied IAS 16 to previously
expensed major inspection
and overhaul costs. This will
result in the capitalization of
previously expensed major
inspection and overhaul costs.
Based on an analysis of
IAS 39, Superior’s accounts
receivable securitization
program would not qualify for
derecognition. As such, the
related accounts receivable
balance and obligation would
also be recorded on the
balance sheet.
Financial Impact on
Superior’s January
1, 2010 Opening IFRS
Balance Sheet
Componentization
The impact upon
transition to IFRS is
a decrease in Energy
Services’ accumulated
amortization of
various property,
plant and equipment
components of
approximately
$37 million and
a decrease in
opening deficit of
approximately
$37 million.
Major inspections
and overhauls
The impact upon
transition to IFRS
is a net increase
in property, plant
and equipment of
Energy Services of
approximately
$32 million and
a decrease in
opening deficit of
approximately
$32 million.
The impact upon
transition to IFRS
is an increase of
approximately
$93 million to
accounts receivable
and an increase of
approximately
$93 million to
revolving term bank
credits and term loans.
Standards
International
Accounting Standards
(IAS) 16 Property, Plant
and Equipment
IAS 39 Derecognizing
Financial Assets and
Financial Liabilities
44
Superior Plus Corp.
Management’s Discussion and Analysis IAS 17 Leases
IAS 19 Employee
Benefits
IFRS: The criteria for
determining whether a lease
is considered to be a finance
(capital) or operating lease
are based on a number
of indicators; however,
quantitative thresholds are
not offered as an indicator as
under GAAP.
GAAP: The criteria for
determining whether a
lease is considered to be
a finance (capital) lease or
operating lease are based on
a number of indicators and
quantitative thresholds.
Measurement date
IFRS: Under IFRS, the plan
assets and the accrued
benefit obligation are
measured at the end of the
reporting period.
GAAP: The plan assets
and the accrued benefit
obligation can be measured
as of a date not more than
three months prior to the
reporting date, provided
the entity adopts this
practice consistently
from year to year.
Actuarial gains and losses
IFRS: Under IFRS, an entity
can elect to recognize
actuarial gains and losses
immediately in other
comprehensive income.
GAAP: Under GAAP, an
entity can elect to recognize
actuarial gains and losses
immediately and must put
them through income
for the period.
In applying IFRS, Superior has
developed internal indicators
for assessing the classification
of leases under IFRS. As a
result of these indicators,
Superior will be classifying
those leases meeting the
criteria set out in IAS 17
as finance (capital) leases
under IFRS. This will result
in an increase in property,
plant and equipment and
associated lease obligations.
The impact upon
transition to IFRS
is an increase to
property, plant and
equipment of both
Energy Services
and Construction
Products Distribution
of $73 million in total.
Also an increase to
lease obligations
of $58 million was
recognized upon
transition.
Under IFRS, Superior will
measure its employee benefit
obligation at the end of each
fiscal reporting period.
The impact upon
transition to IFRS is an
increase in employee
benefit liabilities
of approximately
$13 million and
an increase in
opening deficit of
approximately
$13 million.
Under IFRS, Superior will
recognize actuarial gains
and losses immediately
through other comprehensive
income. Currently under
GAAP, Superior defers and
amortizes actuarial gains and
losses through income using a
rational manner.
The impact upon
transition to IFRS
is a decrease
in employee
benefit assets of
approximately
$18 million and
an increase in
opening deficit of
approximately
$18 million.
2011 Annual Report
45
IAS 12 Income Taxes
IAS 36 Impairment of
Assets
Deferred credit
IFRS: Any amounts relating
to deferred credits are
recognized immediately in
net earnings.
GAAP: Recognition
of deferred credits on
the balance sheet are
specifically addressed under
Emerging Issues Committee
(EIC) – 110 Accounting
for Acquired Future Tax
Benefits in Certain Purchase
Transactions that are not
Business Combinations.
Under EIC – 110, any
deferred credits are
amortized into net
earnings as the related
assets are utilized.
Reversing Impairment
Losses
IFRS: An impairment loss
recognized in prior periods
for an asset other than
goodwill is reversed if
there has been a change
in the estimates used to
determine the asset’s
recoverable amount since
the last impairment loss
was recognized.
GAAP: Impairment losses
are not reversed.
Based on an analysis of IAS
12, Superior will adjust the
deferred credit liability to
zero upon transition to IFRS.
Superior has reviewed prior
impairment of assets and
determined that a reversal
should be recognized.
The impairment charge
recognized in 2005 on
Specialty Chemicals’ Valdosta
facility will be reversed based
on the estimated net book
value of the related assets as
at January 1, 2010.
The impact upon
transition to IFRS is
a decrease to the
deferred credit of
approximately
$271 million and
an increase to
opening deficit of
approximately
$271 million.
Superior’s net
deferred tax liability
was increased by
approximately
$35 million and
a decrease of
$35 million to
accumulated deficit
due to the application
of IAS 12.
The impact upon
transition to IFRS
is a net increase to
Specialty Chemicals’
property, plant
and equipment of
approximately
$64 million and
a decrease of
approximately
$64 million to
opening deficit.
See Note 35 to Superior’s audited Consolidated Financial Statements for the further details on Superior’s
transition to IFRS.
Reconciliation from GAAP to IFRS
The following table reconciles Superior’s audited financial information for the year ended December
31, 2010 under GAAP to that under IFRS. Superior has also provided additional analysis describing the
reconciling items affecting AOCF for the period.
46
Superior Plus Corp.
Management’s Discussion and Analysis Reconciliation of Net Earnings (Losses) for the Year Ended December 31, 2010
(millions of dollars)
GAAP Adjustments Reclassifications
IFRS
IFRS Accounts
Year ended December 31, 2010
Revenues
Cost of products sold
Realized gains (losses) on derivative
financial instruments
Gross profit
Operating and administrative costs
3,529.2
(2,661.3)
(80.3)
787.6
624.4
−
(1.3)
−
(1.3)
(23.4)
8.2 3,537.4
Revenues
(94.2) (2,756.8) Cost of sales
80.3
−
(5.7)
780.6
75.4
676.4
Selling,
distribution
and
administrative
costs
Other
expenses
Selling, distribution and administrative costs
−
5.4
1.2
6.6
Deprecation of property, plant and
equipment
Amortization of intangible assets
Interest on revolving term bank credits
and term loan
37.7
25.0
39.6
13.7
3.0
4.4
(51.4)
(28.0)
−
−
31.2
75.2
Finance
expense
Interest on convertible unsecured
subordinated debt
Accretion of convertible debenture and
borrowings issue costs
Impairment of intangible assets and
goodwill
Unrealized losses on derivative financial
instruments
27.6
−
(27.6)
6.7
(0.4)
(6.3)
−
−
89.5
2.2
−
−
−
89.5
−
2.2
Net loss before income taxes
(65.1)
(4.0)
(0.2)
(69.3)
852.7
2.7
(5.5)
849.9
Income tax recovery (expense)
18.1
(24.8)
0.2
(6.5)
Impairment
of intangible
assets and
goodwill
Unrealized
losses on
derivative
financial
instruments
Net loss
before income
taxes
Income tax
recovery
(expense)
Net loss
(47.0)
(28.8)
−
(75.8) Net loss
2011 Annual Report
47
In the above table, any amounts under IFRS adjustments represent changes made to GAAP information
due to the adoption of IFRS. See Note 35 to Superior’s audited Consolidated Financial Statements as at
and for the year ended December 31, 2011 for details of these changes.
Reconciliation from AOCF under GAAP to AOCF under IFRS
(millions of dollars)
AOCF as reported under GAAP
IFRS Adjustments:
Finance leases
Employee future benefits
Capitalization of major inspections and overhauls
Add back of non-recurring other expenses
Non-IFRS Adjustments:
Revenue recognition adjustment
AOCF as revised under IFRS
Year ended December 31,
2010
143.4 (1)
12.8
1.1
4.0
1.2
0.4
162.9
(1) In order to better reflect the results of its operations, Superior has revised the treatment of customer contract related costs and non-cash
interest expenses in the prior year AOCF.
Adjustments:
Finance leases: Under IFRS, Superior is required to capitalize leases which qualify as finance leases
based on the criteria set out in IAS 17 Leases. AOCF has increased by an amount equal to the principal
repayment of leases treated as finance under IFRS. Also Superior has increased borrowings by
$69.7 million as at December 31, 2010 due to the recognition of finance leases under IFRS.
Employee Future Benefits: Under IFRS, Superior was required to revalue its employee benefit obligation
as at January 1, 2010, which reduced the period expense for employee future benefits during 2010.
Capitalization of major inspections and overhauls: Under IFRS, Superior has capitalized various
expenditures for major inspections and overhauls which did not qualify for capitalization under GAAP.
As such AOCF has increased due to the capitalization of those types of costs.
Revenue Recognition Adjustment: Superior has adjusted the amount of previously recorded revenue
and cost of goods sold for the year ended December 31, 2010.
48
Superior Plus Corp.
Management’s Discussion and Analysis
Selected Financial Information
(millions of dollars except per share amounts)
Total assets (as at December 31)
Total revenues
Gross profit
Net earnings (losses)
Per share, basic and diluted
Cash flow from operating activities
Adjusted operating cash flow
Per share, basic and diluted
Cash dividends per share
Current and long-term debt (1) (as at December 31)
2011
2,193.4
3,925.6
827.5
(302.6)
$(2.77)
212.0
180.4
$1.65
$1.17
762.1
2010
2,696.9
3,537.4
780.6
(75.8)
$(0.72)
9.9
162.9
$1.54
$1.62
740.0
2009
2,274.0
2,246.7
653.4
68.3
$0.75
191.3
163.9
$1.80
$1.62
645.4
(1) Current and long-term debt before deferred financing fees, accounts receivable securitization and Debentures.
Fourth Quarter Results
Fourth quarter adjusted operating cash flow was $63.8 million, an increase of $1.3 million or 2%
from the prior year quarter. The increase in adjusted operating cash flow was due to higher operating
results at Energy Services and Specialty Chemicals offset in part by higher interest and corporate costs.
Adjusted operating cash flow of $0.58 per share was consistent with the prior year quarter due to a 3%
increase in adjusted operating cash flow offset in part by a 3% increase in the weighted average number
of shares outstanding. The average number of shares outstanding increased in 2011 as a result of shares
issued from Superior’s DRIP.
The net loss for the fourth quarter was $231.4 million, compared to net losses of $56.0 million in the
prior year quarter. Net losses were impacted by higher operating costs, interest costs, impairment of
intangible assets and goodwill, and lower unrealized gains on financial instruments in the current quarter.
The change in the unrealized gains on financial instruments was due principally to lower gains in the
current quarter on Superior’s foreign currency financial derivatives compared to the prior year quarter
as a result of fluctuations in the spot and forward price for U.S. dollars. The net loss for the quarter was
impacted by a $300.6 million intangible asset and goodwill impairment charge to the Energy Services’
segment and an asset write off of $3.4 million at U.S. Refined Fuels due to flooding damage and an
explosion at one of its branches. Revenues of $1,043.4 million were $32.2 million higher than the
prior year quarter due principally to higher Energy Services’ revenue as a result of higher commodity
prices along with higher Specialty Chemicals’ revenue due to increased pricing. Gross profit of $234.6
million was $9.9 million higher than the prior year quarter due principally to higher Specialty Chemicals’
gross profits on higher gross margins. Operating expenses of $188.7 million in the fourth quarter were
$11.1 million higher than in the prior year, due to the full year contribution of Griffith, increased
depreciation expense and higher corporate costs. Total income tax for the fourth quarter was a recovery
of $43.7 million compared to income tax expenses of $21.1 million in the prior year quarter. The income
tax recovery in 2011 was primarily impacted by the impairment charges recorded to intangible assets
and goodwill.
2011 Annual Report
49
Quarterly Financial and Operating Information
(millions of dollars except
per share amount)
Canadian propane sales volumes
2011 Quarters
2010 Quarters (2)
Fourth
Third
Second
First
Fourth
Third
Second
First
(millions of litres)
368
239
260
439
372
234
249
380
U.S. Refined Fuels sales volumes
(millions of litres)
440
344
405
552
499
363
371
469
Natural gas sales volumes
(millions of GJs)
Electricity sales volumes
(millions of KwH)
Chemical sales volumes
5
5
6
6
6
7
7
7
167
176
146
117
133
86
73
74
(thousands of metric tonnes)
187
Revenues (millions of dollars)
1,043.4
Gross profit
234.6
197
845.0
178.5
192
196
193
189
183
170
898.4 1,138.8 1,011.2
769.1
791.2
965.9
176.0
238.4
224.7
172.4
165.9
217.6
Net earnings (losses)
(231.4)
(113.4)
1.1
41.1
(56.0)
(13.8)
(5.5)
(0.5)
Per share, basic and diluted
$(2.10) $(1.04)
$0.01
$0.38
$(0.53) $(0.13)
$(0.05) $(0.00)
Adjusted operating cash flow
(millions of dollars)
Per share, basic and diluted
Net working capital (1)
(millions of dollars)
63.8
23.5
19.8
73.3
62.5
26.5
12.9
61.0
$0.58
$0.21
$0.18
$0.68
$0.58
$0.25
$0.12
$0.59
377.3
295.0
365.3
416.1
400.9
280.9
268.3
228.8
(1) Net working capital reflects amounts as at the quarter-end and is comprised of accounts receivable and inventories, less trade and other
payables and deferred revenue.
(2) All 2010 figures have been restated for the adoption of IFRS.
Forward-Looking Information
Certain information included herein is forward-looking, within the meaning of applicable Canadian
securities laws. Forward-looking information includes, without limitation, statements regarding the future
financial position and debt repayment, business strategy, market conditions, budgets, litigation, projected
costs, capital expenditures, financial results, adjusted operating cash flow, EBITDA from operations, taxes
and plans and objectives of or involving Superior and Superior Plus LP. Forward-looking information is
often, but not always, identified by the use of words such as “anticipate”, “believe”, “expect”, “plan”,
“intend”, “forecast”, “target”, “project”, “guidance”, “may”, “will”, “should”, “could”, “estimate”,
“predict” or similar words suggesting future outcomes or language suggesting an outlook. Forward-
looking information in this MD&A, includes but is not limited to, consolidated and business segment
outlooks, product production, expected EBITDA from operations, expected AOCF, expected AOCF
per share, expected leverage ratios and debt repayment, debt management summary, future capital
expenditures, future economic conditions, tax horizon, future income taxes, exchange rates, dividend
strategy, commodity prices and costs, development plans and programs, effects of operational and
technological improvements, impact of accounts receivable collection delays, sodium chlorate demand,
business strategy and objectives, payout ratio, future dividend payments, future cash flows, anticipated
taxes, benefits and synergies resulting from corporate and asset acquisitions, expected life of facilities
50
Superior Plus Corp.
Management’s Discussion and Analysis
and statements regarding the future financial position of Superior and Superior Plus LP. 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, the historic performance of Superior’s businesses, and such
assumptions include anticipated financial performance, current business and economic trends, the
amount of future dividends paid by Superior, business prospects, availability and utilization of tax basis,
regulatory developments, currency, exchange and interest rates, trading data, cost estimates, our ability
to obtain financing on acceptable terms, and the other assumptions set forth under the “2012 Financial
Outlook” section 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. By its very nature, forward-
looking information involves inherent risks and uncertainties, both general and specific, and risks that
predictions, forecasts, projections and other forward-looking information will not be achieved, some
of which are described herein and in this MD&A. Such risks and uncertainties may cause Superior’s or
Superior Plus 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.
We caution readers not to place undue reliance on this information as a number of important factors
could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and
anticipations, estimates and intentions expressed in such forward-looking information.
These risks and uncertainties include but are not limited to the risks referred to under “Risk Factors
to Superior”, and the risks identified in Superior’s 2011 Annual Information Form under “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. Any forward-looking information is expressly qualified by this
cautionary statement.
Non-IFRS Financial Measures
Adjusted Operating Cash Flow
Adjusted operating cash flow is equal to cash flow from operating activities as defined by IFRS, adjusted
for changes in non-cash working capital, other expenses, non-cash interest expense, current income
taxes and finance costs. Superior may deduct or include additional items to 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
2011 Annual Report
51
is not a defined performance measure under IFRS 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 net cash flow from operating activities on page 48.
EBITDA
EBITDA represents earnings before taxes, depreciation, amortization, finance expense 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 IFRS. 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. Net earnings are reconciled to EBITDA from
operations on page 53.
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 IFRS. Superior’s calculation of
Compliance EBITDA may differ from similar calculations used by comparable entities. See Note 23
to the audited Consolidated Financial Statements for a reconciliation of net earnings (losses) to
Compliance EBITDA.
Payout Ratio
Payout ratio represents dividends as a percentage of adjusted operating cash flow less other capital
expenditures and is used by Superior to assess its financial results and leverage. Payout ratio is not a
defined performance measure under IFRS. Superior’s calculation of payout ratio may differ from similar
calculations used by comparable entities.
52
Superior Plus Corp.
Management’s Discussion and Analysis Reconciliation of Net Earnings (Losses) to EBITDA from Operations (1) (2)
2011 (millions of dollars)
Net earnings (losses)
Add: Amortization of property, plant and equipment
and intangible assets
Amortization included in cost of sales
Amortization of customer contract costs
Customer contract related costs
Gain on bargain purchase
Impairment of property, plant and equipment
Impairment of intangible assets and goodwill
Finance costs
Unrealized losses on derivative financial instruments
EBITDA from operations
Energy
Services
(233.9)
73.5
−
4.2
(1.6)
(0.9)
3.4
300.6
3.9
(15.6)
133.6
Specialty
Chemicals
Construction
Products
Distribution
56.1
8.5
44.9
−
−
−
−
−
0.3
5.4
115.2
(63.3)
8.3
−
−
−
−
−
78.0
1.2
−
24.2
2010 (millions of dollars)
Net earnings (losses)
Add: Amortization of property, plant and
equipment, intangible assets and accretion
Amortization included in cost of sales
Amortization of customer contract costs
Customer contract related costs
Gain on bargain purchase
Impairment of intangible assets and goodwill
Finance costs
Other expenses
Unrealized gains on derivative financial instruments
EBITDA from operations
Energy
Services
Specialty
Chemicals
Construction
Products
Distribution
18.0
58.5
−
6.3
(2.8)
(1.2)
−
4.2
5.3
26.4
114.7
39.3
10.3
46.4
−
−
−
−
0.2
−
5.3
101.5
(73.8)
10.6
−
−
−
−
89.5
0.4
0.1
−
26.8
(1) See the audited Consolidated Financial Statements for net earnings (losses), depreciation of property, plant and equipment, intangible assets
and accretion of convertible debenture issue costs, amortization included in cost of sales, amortization of customer contract costs, customer
contract related costs and unrealized (gains) losses on derivative financial instruments.
(2) See “Non-IFRS Financial Measures” for additional details.
2011 Annual Report
53
Reconciliation of Divisional Segmented Revenue, Cost of Sales and Cash Operating
and Administrative Costs Included in this MD&A
2011
2010
Revenue per Financial Statements 2,686.1
Energy
Construction
Products
Services Chemicals Distribution
711.8
527.7
Specialty
Energy
Specialty
Services Chemicals
481.5
2,338.3
Construction
Products
Distribution
717.6
Foreign currency gains (losses)
related to working capital
−
1.4
−
0.8
Revenue per the MD&A
2,686.1
529.1
711.8
2,339.1
(0.4)
481.1
−
717.6
Cost of products sold per Financial
Statements
(2,225.7)
(335.3)
(537.1)
(1,904.2)
(307.3)
(545.3)
Risk reserve recovery
reclassification
Non-cash amortization
Cost of products sold
per the MD&A
(5.2)
−
−
44.9
−
−
−
−
−
46.4
−
−
(2,230.9)
(290.4)
(537.1)
(1,904.2)
(260.9)
(545.3)
Gross profit
455.2
238.7
174.7
434.9
220.2
172.3
Cash operating and administrative
Costs per Financial Statements
(405.4)
(130.6)
(158.8)
(380.4)
(129.4)
(156.1)
Amortization and depreciation
expenses
73.5
8.5
8.3
58.7
10.3
10.6
Amortization of customer contract
related costs
Customer contract related costs
Impairment of property, plant and
equipment, intangible assets and
goodwill
Gain on bargain purchase
4.2
(1.6)
3.4
(0.9)
Risk reserve recovery reclassification 5.2
Reclassification of foreign currency
(gains) and losses related to
−
−
−
−
−
working capital
−
(1.4)
−
−
−
−
−
−
6.3
(2.8)
−
(1.2)
−
−
−
−
−
−
(0.8)
0.4
−
−
−
−
−
−
Cash operating and administrative
costs per the MD&A
(321.6)
(123.5)
(150.5)
(320.2)
(118.7)
(145.5)
54
Superior Plus Corp.
Management’s Discussion and Analysis
Reconciliation of Net Earnings (Losses) to Compliance EBITDA (1) (2)
(millions of dollars)
Net loss
Adjusted for:
Finance expense
Realized gains on derivative financial instruments included in finance expense
Depreciation of property, plant and equipment
Depreciation included in cost of sales
Amortization of intangible assets
Impairment of intangible assets and goodwill
Impairment of property, plant and equipment
Income tax expense (recovery)
Unrealized (gains) losses on derivative financial instruments
Proforma impact of acquisitions
Compliance EBITDA
(1) See the Consolidated Financial Statements for additional details.
(2) See “Non-GAAP Financial Measures” for additional details.
2011
(302.6)
85.5
2.3
48.4
44.9
41.9
378.6
3.4
(50.4)
9.7
1.5
263.2
2010
(75.8)
75.2
2.9
49.0
46.4
30.4
89.5
–
6.5
2.2
4.8
231.1
Risk Factors to Superior
The risks factors and uncertainties detailed below are a summary of Superior’s assessment of its
material risk factors as identified in Superior’s 2011 Annual Information Form under the heading
“Risk Factors”. For a detailed discussion of these risks, see Superior’s 2011 Annual Information Form
filed on the Canadian Securities Administrator’s 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.
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.
2011 Annual Report
55
The credit facilities and U.S. Notes 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, to make necessary principal payments and debenture redemptions 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. However, increased
interest rates can affect Superior’s borrowing costs, which may have an adverse effect on Superior.
A portion of Superior’s net cash flows is denominated in U.S. dollars. Accordingly, fluctuations
in the Canadian/U.S. 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.
There can be no assurances that income tax laws in the numerous jurisdictions in which Superior operates
will not be changed, interpreted or administered in a manner which adversely affects Superior and its
shareholders. In addition, there can be no assurance that the Canada Revenue Agency (or a provincial
56
Superior Plus Corp.
Management’s Discussion and Analysis 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.
Without limiting the generality of the foregoing, since the beginning of 2010, the Canada Revenue
Agency has requested and reviewed information from Superior relating to the plan of arrangement
(Arrangement) involving the Fund and Ballard Power Systems Inc. and the conversion of the Fund to
a corporation (Conversion). While Superior is confident in the appropriateness of its tax filing position
and the expected tax consequences of the Arrangement and the Conversion transaction, there remains
a possibility that, if the Canada Revenue Agency elects to challenge Superior’s tax filing and such
challenge is successful, it could potentially affect the availability or quantum of the tax basis or other
tax accounts of Superior. Although it is difficult to quantify the potential impact of any such outcome, it
could be materially adverse to 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,
some of which are less costly on an energy equivalent basis. While propane is usually more cost effective
than electricity, electricity is a major competitor in most areas. Fuel oil is also used as a residential,
commercial and industrial source of heat and, in general, is less costly on an equivalent energy basis,
although operating efficiencies, environmental and air quality factors help make propane competitive
with fuel oil. Except for certain industrial and commercial applications, propane is generally not
competitive with natural gas in areas where natural gas already exists. Other alternative energy sources
such as compressed natural gas, methanol and ethanol are available or could be further developed
and could have an impact on the propane industry and Superior Propane in the future. The trend
towards increased conservation measures and technological advances in energy efficiency may have a
detrimental effect on propane demand and Superior Propane’s sales. Demand for automotive uses is
presently declining at a rate of approximately 10% to 15% per year due to the development of more
fuel efficient and complicated engines which increases the cost of converting engines to propane and
reduces the savings per kilometre driven. Propane commodity prices are affected by crude oil and
natural gas commodity 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.
2011 Annual Report
57
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.
The trend towards increased conservation measures and technological advances in energy efficiency
may have a detrimental effect on propane and heating oil 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 would 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.
58
Superior Plus Corp.
Management’s Discussion and Analysis Approximately 12% of Superior’s Canadian Propane Distribution and U.S. Refined Fuels distribution
businesses employees are unionized. Collective bargaining agreements are renegotiated in the normal
course of business. While labour disruptions are not expected, there is always risk associated with the
re-negotiation process that could have an adverse impact on Superior.
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.
SEM purchases natural gas to meet its estimated commitments to its customers based upon the historical
consumption of gas of its customers. Depending on a number of factors, including weather, customer
attrition and poor economic conditions affecting commercial customers’ production levels, customer
natural gas consumption may vary from the volume purchased. This variance must be reconciled and
settled at least annually and may require SEM to purchase or sell natural gas at market prices which may
have an adverse impact on the results of this business. To mitigate potential balancing risk, SEM 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. The reserve is reviewed on a monthly
basis to ensure that it is sufficient to absorb any losses that might arise from balancing.
SEM matches its customers’ estimated electricity requirements by entering into electricity swaps in
advance of acquiring customers. Depending on several factors, including weather, customers’ energy
consumption may vary from the volumes purchased by SEM. SEM 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 SEM 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 U.S. 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.
2011 Annual Report
59
Fixed-price energy services operates in the highly regulated energy industry in Ontario 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.
The Ontario Energy Board issued an update to the revised Codes of Conduct supporting the Energy
Consumer Protection Act. Although the industry had anticipated automatic renewal of natural gas
accounts on a month-to-month basis, the OEB has confirmed that the automatic renewal of natural
gas contracts will be allowed for a period of one year capped at the customers’ existing rate. Only one
automatic renewal will be allowed emphasizing the need to positively convert automatic renewals to
other products before the customer is returned to the utility at the end of the renewal term. Renewal
notifications will require a standard disclosure form and a price comparison between fixed-price energy
service’s renewal price and the utility default rate.
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
along with market pricing for pulp.
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 U.S. dollar and the euro versus the Canadian
dollar. Specialty Chemicals manages its exposure to fluctuations between the United States and
Canadian dollar by entering into hedge contracts with external third parties and internally with other
Superior businesses.
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
60
Superior Plus Corp.
Management’s Discussion and Analysis 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.
Specialty Chemicals’ production facilities maintain complex process and electrical equipment.The
facilities have existed for many years and undergone upgrades and improvements over time.Routine
maintenance is regularly completed to ensure equipment is operated within appropriate engineering
and technical requirements. Notwithstanding Specialty Chemicals’ operating standards and history of
limited downtime, breakdown of electrical transformer or rectifier equipment would temporarily reduce
production capacity at the affected facility.Although insurance coverage exists to mitigate substantial
loss due to equipment outage, Specialty Chemicals’ reputation and its ability to meet customer
requirements could be negatively affected due to a major electrical equipment failure.
Approximately 23% of Specialty Chemicals’ employees are unionized. Collective bargaining agreements
are renegotiated in the normal course of business. While labour disruptions are not expected, there is
always risk associated with the re-negotiation process that could have an adverse impact on Superior.
Construction Products Distribution
Activity in the Construction Products Distribution segment is subject to changes in the level of general
economic activity and in particular to the level of activity in residential and non-residential construction
subsectors. New construction in residential markets is subject to such factors as household income,
employment levels, customer confidence, population changes and the supply of residential units in any
local area. Residential renovation is not as sensitive to these factors and can provide some balance in
the demand for residential construction product distribution. Non-residential activity can be subdivided
into commercial, industrial and institutional. New construction activity in these sectors is subject to
many of the same general economic factors as for residential activity. In the industrial and institutional
subsectors, government and regulatory programs can also have a significant impact on the outlook
for product distribution, particularly as related to our insulation businesses. As a result, changes to
the level of general economic activity or any of the above mentioned factors that affect the amount of
construction or renovations in residential and non-residential markets can have an adverse affect on the
CPD business and Superior.
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.
2011 Annual Report
61
The GSD market is driven largely by residential and non-residential construction. Demand for wall
and ceiling 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 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,
the construction, maintenance and expansion of industrial process facilities (i.e. oil refineries and
petrochemical plants, power generation facilities) and institutional facilities (i.e. government, healthcare
and education).
The distribution of walls and ceilings and C&I products involves risks, including the failure or
substandard performance of equipment, human error, natural disasters, suspension of operations and
new governmental statutes, regulations, guidelines and policies. Operations are also subject to various
hazards incidental to the handling, processing, storage and transportation of certain hazardous materials,
including industrial chemicals. These hazards can result in personal injury including fatalities, damage
to and destruction of property and equipment and environmental damage. There can be no assurance
that as a result of past or future operations, there will not be claims of injury by employees or members
of the public due to exposure, or alleged exposure, to these materials. There can be no assurance as to
the actual amount of these liabilities or the timing of them, if any. The business maintains safe working
practices through proper procedures and direction and utilization of equipment such as forklifts, boom
trucks, fabrication equipment and carts/dollies. The business handles and stores a variety of construction
materials and maintains appropriate material handling compliance programs in accordance with local,
state/provincial and federal regulations.
Approximately 4% of Construction Products Distribution’s employees are unionized. Collective
bargaining agreements are renegotiated in the normal course of business. While labour disruptions are
not expected, there is always risk associated with the re-negotiation process that could have an adverse
impact on Superior.
62
Superior Plus Corp.
Management’s Discussion and Analysis
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
International Financial Reporting Standards 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 basis consistent 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. The firm’s auditors have provided an independent professional
opinion. Deloitte & Touche LLP has full and free access to the Audit Committee.
Luc Desjardins
President and Chief Executive Officer
Superior Plus Corp.
Calgary, Alberta
February 16, 2012
Wayne M. Bingham
Executive Vice-President and Chief Financial Officer
Superior Plus Corp.
2011 Annual Report
63
Independent Auditors’ Report
To the shareholders of
Superior Plus Corp.
We have audited the accompanying consolidated financial statements of Superior Plus Corp.,
which comprise the consolidated balance sheets as at December 31, 2011, December 31, 2010 and
January 1, 2010, consolidated statement of changes in equity, consolidated statement of net loss and
comprehensive loss and consolidated statement of cash flows for the years ended December 31, 2011
and December 31, 2010, and the notes to the consolidated financial statements.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Superior Plus Corp. as at December 31, 2011, December 31, 2010 and January 1, 2010, and
its financial performance and its cash flows for the years ended December 31, 2011 and December 31,
2010 in accordance with International Financial Reporting Standards.
Chartered Accountants
February 16, 2012
Calgary, Alberta
64
Superior Plus Corp.
Consolidated Balance Sheets
Superior Plus Corp.
(millions of Canadian dollars)
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Prepaid expenses
Inventories
5 & 21
6
7
Unrealized gains on derivative financial instruments
21
Total current assets
Non-Current Assets
Property, plant and equipment
Intangible assets
Goodwill
Notes and finance lease receivables
Deferred tax
Unrealized gains on derivative financial instruments
11
12
13
22
21
Notes
December 31,
2011
December 31,
January 1,
2010 (1)
2010 (1)
5.2
472.9
20.7
203.1
13.3
715.2
885.0
65.6
186.1
10.0
315.5
16.0
7.8
551.0
23.3
167.1
31.4
780.6
912.4
184.2
471.7
12.1
309.3
26.6
24.3
394.3
21.3
143.5
22.2
605.6
880.0
185.6
527.5
–
326.6
28.5
Total non-current assets
1,478.2
1,916.3
1,948.2
Total assets
2,193.4
2,696.9
2,553.8
LIABILITIES AND EQUITY
Current Liabilities
Trade and other payables
Deferred revenue
Borrowings
15
16
17 & 18
Convertible unsecured subordinated debentures
19
Dividends and interest payable
Unrealized losses on derivative financial instruments 21
Total current liabilities
Non-Current Liabilities
Borrowings
Convertible unsecured subordinated debentures
Provisions
Employee future benefits
Deferred tax
17 & 18
19
14
20
22
Unrealized losses on derivative financial instruments 21
297.6
14.2
54.3
49.3
7.6
61.7
484.7
701.4
521.7
17.2
65.3
5.9
47.6
318.2
6.8
136.2
–
15.5
78.6
555.3
596.7
619.1
13.2
45.5
54.9
57.8
295.4
5.8
108.9
–
14.2
77.8
502.1
680.1
308.4
6.9
30.1
38.5
52.6
Total non-current liabilities
1,359.1
1,387.2
1,116.6
Total liabilities
EQUITY
Capital
Deficit
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
(See Notes to the Consolidated Financial Statements)
(1) Refer to Note 35 for impact of adopting IFRS.
1,843.8
1,942.5
1,618.7
24
23
1,633.1
(1,228.2)
(55.3)
349.6
2,193.4
1,606.4
1,507.3
(797.9)
(54.1)
754.4
2,696.9
(551.1)
(21.1)
935.1
2,553.8
.
2011 Annual Report
65
Consolidated Statement of Changes in Equity
(millions of Canadian dollars)
January 1, 2010 (1)
Net loss
Net proceeds on issuance of
share capital
Option value associated with the
issuance of the convertible
debentures
Shares issued under the Dividend
Reinvestment Plan
Dividends declared to
shareholders (Note 23)
Unrealized foreign currency losses
on translation of foreign operations
Actuarial defined benefit losses
Reclassification of derivative gains and
losses previously deferred
Income tax on other
comprehensive income
Prior period adjustment
December 31, 2010 (1)
Net loss
Option value associated with redemption
of convertible debentures
Shares issued under the Dividend
Reinvestment Plan
Dividends declared to
shareholders (Note 23)
Unrealized foreign currency gains on
translation of foreign operations
Actuarial defined benefit losses
Reclassification of derivative gains and
losses previously deferred
Income tax on other
comprehensive income
17.2
–
–
–
–
–
–
1,600.9
–
–
28.9
–
–
–
–
–
Share Contributed
Capital
Surplus (2)
Total
Capital
Accumulated
other
comprehensive
Deficit
loss
Total
1,502.0
5.3
1,507.3
(551.1)
(21.1)
935.1
–
81.7
–
–
81.7
–
(75.8)
–
0.2
0.2
–
–
–
–
(75.8)
81.7
0.2
17.2
–
–
–
(171.2)
–
(171.2)
–
–
–
–
0.2
(27.4)
(27.4)
(19.9)
(19.9)
12.1
12.1
2.2
–
2.2
0.2
–
–
–
–
–
–
–
17.2
–
–
–
–
–
–
5.5
–
1,606.4
(797.9)
(54.1)
754.4
–
(302.6)
–
(302.6)
(2.2)
(2.2)
–
–
–
–
–
–
28.9
–
–
–
–
–
–
–
–
(2.2)
28.9
(127.7)
–
(127.7)
–
–
–
–
13.6
13.6
(25.5)
(25.5)
5.9
4.8
5.9
4.8
December 31, 2011
1,629.8
3.3
1,633.1
(1,228.2)
(55.3)
349.6
(See Notes to the Consolidated Financial Statements)
(1) Refer to Note 35 for impact of adopting IFRS.
(2) Contributed surplus represents Superior’s equity reserve for the option value associated with the issuance of convertible unsecured
subordinated debentures and warrants.
66
Superior Plus Corp.
Consolidated Statement of Net Loss and Comprehensive Loss
(millions of Canadian dollars except per share amounts)
Notes
REVENUES
Cost of sales
Gross profit
EXPENSES
Selling, distribution and administrative costs
Other expenses
Finance expense
25
25
25
25
Impairment of goodwill and intangible assets
Unrealized losses on derivative financial instruments
12 &13
21
Net loss before income taxes
Income tax recovery (expense)
Net loss
Net loss
Other comprehensive loss:
Unrealized foreign currency gains (losses) on
translation of foreign operations
Actuarial defined benefit losses
22
23
23
Reclassification of derivative gains and losses previously deferred 23
Income tax recovery on other comprehensive loss
22
Other comprehensive loss
Total Comprehensive loss
Net loss per share
From operations:
Basic and diluted
(See Notes to the Consolidated Financial Statements)
(1) Refer to Note 35 for impact of adopting IFRS.
Years Ended December 31
2011
2010 (1)
3,925.6
(3,098.1)
827.5
3,537.4
(2,756.8)
780.6
706.7
–
85.5
378.6
9.7
1,180.5
(353.0)
50.4
(302.6)
(302.6)
13.6
(25.5)
5.9
4.8
(1.2)
(303.8)
676.4
6.6
75.2
89.5
2.2
849.9
(69.3)
(6.5)
(75.8)
(75.8)
(27.4)
(19.9)
12.1
2.2
(33.0)
(108.8)
26
$(2.77)
$(0.72)
.
2011 Annual Report
67
Consolidated Statement of Cash Flows
(millions of Canadian dollars)
Notes
OPERATING ACTIVITIES
Net loss
Adjustments for:
Depreciation included in selling, distribution and
administrative costs
Amortization of intangible assets
Depreciation included in cost of sales
Amortization of customer related costs
Unrealized losses on derivative financial instruments
Gain on bargain purchase
Customer contract related costs
Impairment of intangible assets and goodwill
Impairment of property, plant and equipment
Finance costs recognized in net earnings (losses)
Income tax (recovery) expense recognized in net loss
Decrease (increase) in non-cash operating working capital items
Net cash flows from operating activities
Income taxes paid
Interest paid
Cash flows from operating activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Investment in finance lease
Acquisition of Griffith
Other acquisitions
Cash flows used in investing activities
11
12
11
21
4
28
11
11
4
4
FINANCING ACTIVITIES
Net proceeds (repayment) of revolving term bank credits and other debt
Repayment of senior secured notes
Repayment of finance lease obligations
Repayment of the accounts receivable sales program
Redemption of 5.75% convertible debentures
Proceeds from issuance of 5.75% convertible debentures
Issue costs incurred for the 5.75% convertible debentures
Proceeds from issuance of 6.00% convertible debentures
Issue costs incurred for the 6.00% convertible debentures
Proceeds from issuance of 7.50% convertible debentures
Issue costs incurred for the 7.50% convertible debentures
Proceeds from issuance of common shares
Proceeds from the dividend reinvestment program
Dividends paid to shareholders
Cash flows (used in) from financing activities
19
19
19
19
19
19
19
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Effect of translation of foreign denominated cash and cash equivalents
Cash and cash equivalents, end of year
(See Notes to the Consolidated Financial Statements)
(1) Refer to Note 35 for impact of adopting IFRS.
68
Superior Plus Corp.
Years Ended December 31
2010
2011
(302.6)
(75.8)
48.4
41.9
44.9
4.2
9.7
(0.9)
(1.6)
378.6
3.4
85.5
(50.4)
30.1
291.2
(1.3)
(77.9)
212.0
(38.2)
3.2
–
–
(14.8)
(49.8)
132.3
(32.5)
(14.2)
(90.1)
(125.0)
–
–
–
–
75.0
(3.4)
–
28.9
(136.7)
(165.7)
(3.5)
7.8
0.9
5.2
49.0
30.4
46.4
5.2
2.2
(1.2)
(1.7)
89.5
–
75.2
6.5
(143.3)
82.4
(0.7)
(71.8)
9.9
(40.8)
2.8
(10.3)
(142.4)
(23.8)
(214.5)
(47.0)
(2.0)
(12.8)
(2.6)
–
172.5
(6.9)
150.0
(5.6)
–
–
82.2
17.2
(156.8)
188.2
(16.4)
24.3
(0.1)
7.8
Notes to the Consolidated Financial Statements
(Tabular amounts millions of Canadian dollars, unless noted otherwise, except per share amounts.
Tables labeled “2011” and “2010” are for full years ended December 31.)
1. Organization
Superior Plus Corp. (Superior) is a diversified business corporation, incorporated under the Canada
Business Corporations Act. The address of the registered office is 840 – 7th Avenue SW, Calgary,
Alberta. 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.
The consolidated financial statements of Superior for the year ended December 31, 2011 were authorized
for issue by the Board of Directors on February 16, 2012.
Reportable Operating Segments
Superior operates three distinct reportable operating segments: Energy Services, Specialty
Chemicals and Construction Products Distribution. Superior’s Energy Services operating segment
provides distribution, wholesale procurement and related services in relation to propane, heating oil
and other refined fuels. Energy Services also provides fixed-price natural gas and electricity supply
services. Superior’s Specialty Chemicals operating segment is a leading supplier of sodium chlorate
and technology to the pulp and paper industries and a regional supplier of potassium and chloralkali
products to the U.S. Midwest. Superior’s Construction Products Distribution operating segment
is one of the largest distributors of commercial and industrial insulation in North America and the
largest distributor of specialty construction products to the walls and ceilings industry in Canada
(See Note 32).
2. Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance and comply
with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB) using the accounting policies Superior adopted in its annual consolidated
financial statements as at and for the year ended December 31, 2011. These financial statements have
been prepared on a going concern basis.
These financial statements incorporate IFRS applicable as at December 31, 2011. These are Superior’s
first financial statements prepared under IFRS. Certain disclosures that are required to be included
in annual financial statements prepared in accordance with IFRS that were not included in Superior’s
most recent annual financial statements as at and for the year ended December 31, 2010 prepared
in accordance with Canadian Generally Accepted Accounting Principles (GAAP) have been included
in these financial statements for the comparative annual period. Superior applied IFRS 1 First-time
Adoption of International Financial Reporting Standards as at January 1, 2010 (the Transition Date). An
explanation of the transition to IFRS is provided in Note 35.
.
2011 Annual Report
69
Notes to the Consolidated Financial Statements
These Consolidated Financial Statements are presented in Canadian dollars, which is Superior’s
functional currency. All financial information presented in Canadian dollars has been rounded to the
nearest hundred thousand.
The Consolidated Financial Statements have been prepared on the historical cost basis except for the
revaluation of certain financial instruments and incorporate the accounts of Superior and its subsidiaries.
Subsidiaries are all entities over which Superior has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the voting rights. The results
of subsidiaries are included in Superior’s statement of net loss from date of acquisition, or in the case
of disposals, up to the effective date of disposal. All transactions and balances between Superior and
Superior’s subsidiaries have been eliminated on consolidation. Superior’s subsidiaries are all wholly
owned directly or indirectly by Superior Plus Corp.
Significant Accounting Policies
(a) Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid short-term investments which, on acquisition,
have a term to maturity of three months or less.
(b) Accounts Receivable Sales Program
Superior terminated its revolving trade accounts receivable sales program in June 2011. Losses on sales
depend in part on the previous carrying amount of trade accounts receivable involved in the sales and
have been included in interest on revolving term bank credits and term loans. The carrying amount is
allocated between the assets sold and retained interests based on their relative fair value at the date of
the sale which is calculated by discounting expected cash flows at prevailing money market rates.
(c) Inventories
Energy Services
Energy Services inventories are valued at the lower of cost and net realizable value. Costs of inventories
are determined either on a weighted average cost or first-in, first-out basis. Appliances, materials,
supplies and other inventories are stated at the lower of cost and net realizable value, as appropriate.
The net realizable value of inventory is based on estimated selling price in the ordinary course of business
less the estimated costs necessary to complete the sale.
Specialty Chemicals
Inventories are valued at the lower of cost and net realizable value. The cost of chemical inventories
is determined on a first-in, first-out basis. Stores and supply inventories are costed on an average
basis. Transactions are entered into from time to time with other companies to exchange chemical
inventories in order to minimize working capital requirements and to facilitate distribution logistics. The
net realizable value of inventory is based on estimated selling price in the ordinary course of business
less the estimated costs necessary to complete the sale. In the case of manufactured inventories cost
includes an appropriate share of production overheads based on normal operating capacity.
70
Superior Plus Corp.
Construction Products Distribution
Inventories of building products are valued at the lower of cost and net realizable value. Cost is calculated
on a weighted average cost basis and any trade discounts and rebates are deducted from the cost. The
net realizable value of inventory is based on estimated selling price in the ordinary course of business
less the estimated costs necessary to complete the sale.
(d) Financial Instruments and Derivative Financial Instruments
Derivative Financial Instruments
Superior enters into a variety of derivatives to manage its exposure to certain financial risks. Further
details of derivative financial instruments are disclosed in Note 21.
Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is
recognized in net earnings. Realized gains and losses on derivatives are recognized as a component
of revenue, cost of sales or finance expense/revenue, the classification of which is dependent on the
underlying nature of the economic exposure being managed. Derivatives embedded in other financial
instruments or other host contracts are treated as separate derivatives when their risks and characteristics
are not closely related to those of the host contracts and the host contracts are not measured at fair
value with changes in fair value recognized in net earnings.
Superior does not formally designate and document economic hedges in accordance with the
requirements of applying hedge accounting under IFRS and, therefore, does not apply hedge accounting.
Financial Assets
A financial asset is classified at fair value through net earnings (losses) (FVTNL) if it is classified as held for
trading or is designated as such upon initial recognition. Upon initial recognition attributable transaction
costs are recognized in net earnings (losses) as incurred. Financial assets at FVTNL are measured at fair
value, and changes therein are recognized in net earnings (losses).
Loans and Receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an
active market. Such assets are recognized initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the
effective interest method, less any impairment losses.
Separable Embedded Derivatives
Changes in the fair value of separable embedded derivatives are recognized immediately in net
earnings (losses).
.
2011 Annual Report
71
Notes to the Consolidated Financial Statements
Effective Interest Method
The effective interest method is a method of calculating the amortized cost of a financial asset and of
recognizing interest income or expense over the relevant period. The effective interest rate is the rate
that discounts estimated future cash receipts (including all fees paid or received that form an integral part
of the effective interest rate, transaction costs and other premiums or discounts) through the expected
life of the financial asset or, where appropriate, a shorter period.
Impairment of Financial Assets
Financial assets measured at amortized cost are assessed for indicators of impairment at each reporting
date. Financial assets are impaired where there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial asset, the estimated future cash flows of
the investment have been negatively impacted.
For certain categories of financial assets, such as trade receivables, assets that are assessed not to
be impaired individually are subsequently assessed for impairment on a collective basis. Objective
evidence of impairment for a portfolio of receivables could include Superior’s past experience of
collecting payments, an increase in the number of delayed payments in the portfolio past the average
credit period, in addition to changes in economic conditions that correlate with defaults on receivables.
For financial assets carried at amortized cost, the amount of impairment recognized is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted
at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial
assets with the exception of trade receivables, where the carrying amount is reduced through the use
of an allowance account. When a trade receivable is considered uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts previously written off are credited to the
statement of net earnings (losses) and comprehensive income (loss). Changes in the carrying amount of
the allowance account are recognized in net earnings.
Classification as Debt or Equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangement.
Equity Instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by Superior are recorded at the proceeds
received, net of direct issue costs.
Compound Financial Instruments
The component parts of compound instruments issued by Superior are classified separately as financial
liabilities and equity in accordance with the substance of the contractual arrangement. At the date of
issue, the fair value of the liability component is estimated using the prevailing market interest rate for
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a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis
using the effective interest method until extinguished upon conversion or at the instrument’s maturity
date. The equity component is determined by deducting the amount of the liability component from
the fair value of the compound instrument as a whole. This is recognized and included in equity, net of
income tax, and is not subsequently re-measured.
Financial Liabilities
Financial liabilities are classified as either financial liabilities at FVTNL or other financial liabilities.
Financial Liabilities at FVTNL
Financial liabilities are classified as at FVTNL where the financial liability is held for trading or is designated
as FVTNL upon initial recognition. Financial liabilities at FVTNL are stated at fair value with any resulting
gain or loss recognized in net earnings. The net gain or loss recognized in net earnings incorporates any
interest expense relating to the financial liability. Upon initial recognition attributable transaction costs
are recognized in net earnings or loss as incurred. Fair value is determined in the manner described
in Note 21.
Other Financial Liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction
costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest
method, with interest expense recognized on an effective interest basis.
Derecognition of Financial Liabilities
Superior derecognizes financial liabilities when, and only when, Superior’s obligations are discharged,
cancelled or expire.
Financial Guarantees at FVTNL
Financial guarantees are classified as FVTNL where the financial liability is designated as FVTNL upon
initial recognition. Financial guarantees at FVTNL are stated at fair value with any resulting gain or loss
recognized in net earnings (losses). Fair value is determined in the manner described in Note 21.
(e) Property, Plant and Equipment
Cost
Property, plant and equipment is recorded at cost less accumulated depreciation and impairment
losses. Major renewals and improvements which provide future economic benefits and can be reliably
measured are capitalized, while repair and maintenance expenses are charged to operations as incurred.
Property, plant and equipment in the course of construction are carried at cost less any recognized
impairment losses. Cost includes directly attributable expenses, professional fees and, for qualifying
assets, borrowing costs capitalized in accordance with Superior’s accounting policy. Depreciation of
these assets, on the same basis as other property assets, commences when the assets are available for
their intended use. Disposals are derecognized at carrying costs less accumulated depreciation and
impairment losses with any resulting gain or loss reflected in net earnings (losses).
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Notes to the Consolidated Financial Statements
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use
or sale, are included in the cost of those assets, until such time as the assets are available for their
intended use. All other borrowing costs are recognized in net earnings (losses) in the period in which they
are incurred.
Depreciation
Depreciation is calculated using the straight-line method, based on the estimated useful life. Land is not
depreciated. Depreciation of property in the course of construction commences when the assets are
available for their intended use. In the majority of cases, residual value is estimated to be insignificant.
Depreciation by class of assets is as follows:
Buildings
Leasehold improvements
Energy Services tanks and cylinders
Energy Services truck tank bodies, chassis and other Construction Products
Distribution equipment
Manufacturing equipment
Furniture and fixtures
Computer equipment
15 to 40 years
over the lease term up to 10 years
30 years
5 to 15 years
5 to 40 years
10 years
3 years
Deprecation rates, residual values and depreciation methods are reviewed at the end of each
annual reporting period, with the effect of any changes in estimate being accounted for on a
prospective basis.
(f ) Intangible Assets
Intangible assets are reported at cost less accumulated amortization and accumulated impairment
losses. For intangible assets with a determinate life, amortization is charged on a straight-line basis over
their estimated useful lives.
Intangible assets acquired in a business combination are identified and recognized separately from
goodwill where they satisfy the recognition criteria. The initial cost of such intangible assets is their fair
value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business
combination are reported at cost less accumulated amortization and accumulated impairment losses, on
the same basis as intangible assets acquired separately.
Amortization rates, residual values and amortization methods are reviewed at least annually, with the
effect of any changes in estimate being accounted for on a prospective basis.
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Energy Services
Costs incurred by Energy Services to acquire natural gas and electricity customer contracts are capitalized
as deferred costs at the time the cost is incurred. The costs are recognized into net earnings (losses) as
an operating and administrative expense over the term of the underlying contracts. The contracts range
from one to five years with the average remaining life approximately three years.
A summary of Superior’s other intangible assets and related amortization rates is as follows:
Non-competition agreements
Royalty agreements
Software
Technology patents
Term of the agreements (1-5 years)
1-10 years
1-3 years
Approximately 10 years
Investment Properties
Property that is held for a currently undetermined future use, long-term rental yields, or for capital
appreciation, and that is not occupied by Superior is classified as investment property. Property
that is being constructed or developed for future use as investment property is also classified as
investment property.
Superior amortizes its investment property over a period of 40 years on the straight-line method.
Cost
Investment property is measured at cost, including related transaction costs and borrowing costs.
After initial recognition, investment property is carried at cost less accumulated depreciation and any
impairment losses.
Subsequent expenditure is capitalized to the investment property’s carrying amount only when it is
probable that future economic benefits associated with the expenditure will flow to Superior and
the cost of the item can be measured reliably. Repair and maintenance costs are expensed when
incurred. When part of an investment property is replaced, the carrying amount of the replaced
part is derecognized.
Borrowing Costs
Borrowing costs that are incurred for the purpose of acquiring, constructing or producing a qualifying
investment property are capitalized as part of its cost. Borrowing costs are capitalized while acquisition
or construction is actively underway and cease once the asset is substantially complete or suspended if
the development of the asset is suspended.
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Notes to the Consolidated Financial Statements
Depreciation
Depreciation is calculated using the straight-line method, based on the estimated useful life. Land is
not amortized. Depreciation of investment property in the course of construction commences when
the assets are ready for their intended use. In the majority of cases, residual value is estimated to be
insignificant. Investment properties are depreciated over 40 years. The estimated useful life, depreciation
method, and residual values are reviewed at least annually, with the effect of any changes in estimate
being accounted for on a prospective basis.
Disclosure of Fair Value
Fair value is based on active market prices, adjusted, if necessary for any difference in the nature,
location or condition of the specific asset. If this information is not available, Superior uses alternative
valuation methods, such as recent prices in less active markets, discounted cash flow projections, or
recent property tax assessments. Valuations performed by professional valuators can be used although
Superior has sufficient internal resources to determine reliable fair values.
The fair value of investment property reflects, among other things, rental income from current leases
and assumptions about rental income from future leases in the light of current market conditions.
The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect
of the property.
The fair value of investment property does not reflect future capital expenditure that will improve or
enhance the property and does not reflect the related future benefits from this future expenditure
other than those a rational market participant would take into account when determining the value
of the property.
(g) Impairment of Property, Plant and Equipment, Intangible Assets and Investment Properties
At each balance sheet date and when circumstances indicate that the carrying value may be impaired,
Superior reviews the carrying amounts of its tangible and intangible assets to determine whether there
is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss,
if any. Where it is not possible to estimate the recoverable amount of an individual asset, Superior
estimates the recoverable amount of the cash-generating unit (CGU) to which the asset belongs. For
the impairment testing, assets that cannot be tested individually are grouped together into the smallest
group of assets that generate cash inflows from continuing use that are largely independent of the cash
inflows of other assets or groups of assets.
Recoverable amount is the higher of fair value less costs to sell and value-in-use. In assessing value-in-
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset
for which the estimates of future cash flows have not been adjusted.
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If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the
carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is
recognized immediately in net earnings (losses). Where an impairment loss, other than an impairment
loss on goodwill, subsequently reverses, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, which cannot exceed the original carrying amount less
normal depreciation.
(h) Business Combinations
All business combinations are accounted for using the acquisition method. The consideration transferred
in a business combination is measured at fair values, at the acquisition date of the assets given up, the
liabilities incurred or assumed and equity instruments issued by Superior in exchange for control of the
acquiree. Transaction costs, other than those associated with the issue of debt or equity securities, that
Superior incurs in connection with a business combination are expensed as incurred. The acquiree’s
identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under
IFRS 3 Business Combinations are recognized at their fair values at the acquisition date, except for non-
current assets that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations, which are recognized at fair values less costs to sell, except that:
–
–
–
Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements
are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee
Benefits, respectively;
Liabilities or equity instruments related to the replacement by Superior of an acquiree’s share-
based payment awards are measured in accordance with IFRS 2 Share-based Payment; and
Assets (or disposals) that are classified as held for sale in accordance with IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.
Contingent liabilities acquired in a business combination are initially measured at fair value at the date
of acquisition. At subsequent reporting dates, such contingent liabilities are measured at the higher
of the amount that would be recognized in accordance with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets and the amount initially recognized less cumulative amortization recognized in
accordance with IAS 18 Revenue.
Intangible assets arising on acquisition are recognized at fair value at the date of acquisition. The fair
value is based on detailed cash flow models and other metrics depending on the type of intangible
asset being recognized.
Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess
of the cost of the business combination over Superior’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities recognized. If the net amounts assigned to the assets
acquired and liabilities assumed exceeds the cost of the purchase then Superior is required to reassess
the value of both the cost and net assets acquired and any excess remaining after this reassessment is
recognized immediately in net earnings (losses). Goodwill is initially recognized as an asset at cost and
is subsequently measured at cost less any accumulated impairment losses.
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Notes to the Consolidated Financial Statements
If the initial accounting for a business combination is incomplete by the end of the reporting period
in which the combination occurs, Superior will report provisional amounts for the items for which the
accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see
below), or additional assets or liabilities are recognized, to reflect new information obtained about facts
and circumstances that existed at the acquisition date that, if known, would have affected the amounts
recognized at that date.
The measurement period is the period from the date of acquisition to the date Superior obtains complete
information about facts and circumstances that existed as of the acquisition date and is subject to a
maximum of one year.
(i) Goodwill
Goodwill arising in a business combination is recognized as an asset at the date that control is acquired
(the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred,
the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously
held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable
assets acquired and the liabilities assumed.
If, after reassessment, Superior’s interest in the fair value of the acquiree’s identifiable net assets exceeds
the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree,
and the fair value of the previously held equity interest in the acquiree (if any), the excess is recognized
immediately in net earnings (losses) as a bargain purchase gain.
Goodwill is not amortized but is reviewed for impairment at least annually. For purposes of impairment
testing, goodwill is allocated to each of Superior’s CGUs expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are tested for impairment
annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable
amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other
assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment
loss recognized for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the
net earnings (losses) on disposal.
(j) Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced
for estimated customer returns, rebates and other similar allowances. Revenue from the sale of goods is
recognized when all the following conditions are satisfied:
–
Superior has transferred to the buyer the significant risks and rewards of ownership of the goods;
–
Superior retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
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–
The amount of revenue can be measured reliably;
–
It is probable that the economic benefits associated with the transaction will flow to Superior; and
–
The costs incurred or to be incurred in respect of the transaction can be measured reliably.
Energy Services
Revenues from sales are recognized at the time of delivery, or when related services are performed and
the above conditions related to revenue from sale of goods are satisfied.
Natural gas revenues are recognized as gas is delivered to local natural gas distribution companies and
when the above conditions related to revenue from sale of goods are satisfied. Costs associated with
balancing the amount of gas used by Energy Services customers with the volumes delivered by Energy
Services to the local distribution companies are recognized as period costs. Electricity revenues are
recognized as the electricity is consumed by the end-use customer or sold to third parties.
Rental revenues arising from operating leases are accounted for based on the terms contained in the
lease agreements as earned.
Specialty Chemicals
Revenues from chemical sales are recognized at the time of delivery and when the above conditions
related to revenue from sale of goods are satisfied.
Construction Contracts
Where the outcome of a construction contract for the construction of chlorine dioxide generators can
be estimated reliably, revenues and costs are recognized by reference to the percentage of completion
of the contract activity at the end of the reporting period, measured based on the proportion of contract
costs incurred for work performed to date relative to the estimated total contract costs. Engineer’s
reviews are used to determine the stage of completion of contracts in progress.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is
recognized to the extent it is probable that contract costs incurred will be recoverable. Contract costs
are recognized as expenses in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is
recognized as an expense immediately.
Construction Products Distribution
Revenue is recognized when products are delivered to the customer and when the above
conditions related to revenue from sale of goods are satisfied. Revenue is stated net of discounts
and rebates granted.
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Notes to the Consolidated Financial Statements
(k) Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all of the
risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognized as assets of Superior at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding
liability to Superior is included in the Balance Sheet as a finance lease obligation as part of borrowings.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so
as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are
recognized immediately in net earnings (losses), unless they are directly attributable to qualifying assets,
in which case they are capitalized in accordance with Superior’s general policy on borrowing costs (see
(e) above). Contingent rentals are recognized as expenses in the periods in which they are incurred.
Operating lease payments are recognized as an expense based on terms contained in the lease
agreements. Contingent rentals arising under operating leases are recognized as an expense in the
period in which they are incurred.
In the event lease incentives are received to enter into operating leases, such incentives are recognized
as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense and
amortized over the term of the lease.
(l) Rebates – Construction Products Distribution
Purchase rebates are recognized as a reduction of cost of goods sold when the related performance is
completed and the inventory is sold. Vendor rebates that are contingent upon completing a specified
level of purchases are recognized as a reduction of cost of goods sold based on a systematic and rational
allocation of the cash consideration to each of the underlying transactions that results in progress
toward earning that rebate or refund, assuming that the rebate can be reasonably estimated and it is
probable that the specified target will be obtained. Otherwise, the rebate is recognized as the milestone
is achieved and the inventory is sold.
(m) Provisions
Provisions are recognized when there is a present legal or constructive obligation as a result of past
events, for which it is probable that an outflow of economic benefit will be required to settle the
obligation, and where the amount of the obligation can be reliably estimated.
The amount recognized as a provision is the best estimate of the consideration required to settle the
present obligation at the reporting date, taking into account the risks and uncertainties surrounding
the obligation. Where a provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows.
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When some or all of the economic benefit required to settle a provision is expected to be recovered
from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will
be received and the amount of the receivable can be measured reliably.
Decommissioning Costs
Liabilities for decommissioning costs are recognized when Superior has an obligation to dismantle and
remove a facility or an item of plant and to restore the site on which it is located, and when a reliable
estimate of that liability can be made. Generally, the costs relate to Specialty Chemicals facilities and
Energy Services assets. Decommissioning costs are provided at the present value of expected costs
to settle the obligation using estimated cash flows. The cash flows are discounted at a current pre-tax
rate that reflects the risks specific to the decommissioning liability. The unwinding of the discount is
expensed as incurred and recognized in net earnings (losses) as a finance cost. The estimated future
costs of decommissioning are reviewed annually and adjusted as appropriate. A corresponding item of
property, plant and equipment of an amount equal to the provision is also created. This is subsequently
amortized as part of the asset. Changes in the estimated future costs or in the discount rate applied are
added to or deducted from the cost of the asset.
Environmental Expenditures and Liabilities
Environmental expenditures that relate to current or future revenues are expensed or capitalized as
appropriate. Expenditures that relate to an existing condition caused by past operations and do not
contribute to current or future earnings are expensed.
Liabilities for environmental costs are recognized when a clean-up is probable and the associated costs
can be reliably estimated. Generally, the timing of recognition of these provisions coincides with the
commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites.
The amount recognized is the best estimate of the expenditure required. Where the liability will
not be settled for a number of years, the amount recognized is the present value of the estimated
future expenditure.
Restructuring
A restructuring provision is recognized when Superior has developed a detailed formal plan for the
restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by
starting to implement the plan or announcing its main features to those affected by it. The measurement
of a restructuring provision includes only the direct expenditures arising from the restructuring, which
are those amounts that are both necessarily entailed by the restructuring and not associated with the
ongoing activities of the entity.
(o) Employee Future Benefits
Superior has a number of defined benefit and defined contribution plans providing pension and other
post-employment benefits to most of its employees. Superior accrues its obligations under the plans
and the related costs, net of plan assets.
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2011 Annual Report
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Notes to the Consolidated Financial Statements
Contributions to defined contribution plans are recognized as an expense when employees have
rendered service entitling them to the contributions.
For defined benefit plans, the cost of providing benefits is determined using the projected unit credit
method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and
losses arising from experience adjustments and changes in actuarial assumptions are recognized in other
comprehensive income in the period in which they occur. The net obligation for each defined benefit
plan is discounted to determine the present value using the yield at the reporting date on high quality
Canadian corporate bonds. Past service costs are recognized immediately to the extent that the benefits
are already vested, and otherwise are amortized on a straight-line basis over the average period until
the benefits become vested.
The defined benefit obligation recognized in the balance sheet represents the present value of the
defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized
past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation
is limited to unrecognized actuarial losses and past service cost, plus the present value of available
refunds and reductions in future contributions to the plan.
(p) Income Taxes
Income tax expense represents the sum of current income taxes payable and deferred income taxes.
Current Income Taxes
The income tax currently payable is based on taxable net earnings (losses) for the year. Taxable net
earnings (losses) differs from net earnings (losses) as reported in the consolidated statement of net loss
and comprehensive loss because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or deductible. Superior’s liability for
current income tax is calculated using tax rates that have been enacted or substantively enacted by the
balance sheet date.
Deferred Income Taxes
Deferred income tax is recognized on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax basis used in the computation of taxable net
earnings (losses). Deferred income tax assets are generally recognized for all deductible temporary
differences to the extent that it is probable that taxable net earnings (losses) will be available against
which those deductible temporary differences can be utilized. Deferred tax liabilities are recognized for
all taxable temporary differences, except for the following:
– When the deferred tax liability arises from the initial recognition of goodwill; or
–
When an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting net earnings (losses) nor taxable net earnings (losses);
and
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–
In respect of taxable temporary differences associated with investments in subsidiaries, associates
and interests in joint ventures, where the timing of the reversal of the temporary differences can
be controlled by Superior and it is probable that the temporary differences will not reverse in the
foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments
and interests are only recognized to the extent that they are expected to reverse in the foreseeable
future and it is probable that there will be sufficient taxable net earnings (losses) against which to utilize
the benefits of the temporary differences. A deferred tax asset may also be recognized for the benefit
expected from unused tax losses available for carryforward, to the extent that it is probable that future
taxable earnings will be available against which the tax losses can be applied.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realized, based on tax rates and tax laws that
have been enacted or substantively enacted by the balance sheet date. The measurement of
deferred tax liabilities and assets reflects the tax consequences that would follow from the manner
in which Superior expects, at the reporting date, to recover or settle the carrying amount of its
assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current liabilities and when they are related to income taxes levied by the same taxation
authority and Superior intends to settle its current tax assets and liabilities on a net basis. Also Superior
recognizes any benefit associated with investment tax credits as deferred tax assets to the extent they
are expected to be utilized in accordance with IAS 12 Income Taxes.
Uncertain Tax Positions
Superior is subject to taxation in numerous jurisdictions. There are many transactions and calculations
during the course of business for which the ultimate tax determination is uncertain. Superior maintains
provisions for uncertain tax positions that it believes appropriately reflect its risk. These provisions are
made using the best estimate of the amount expected to be paid based on a qualitative assessment
of all relevant factors. Superior reviews the adequacy of these provisions at the end of the reporting
period. However, it is possible that at some future date, liabilities in excess of Superior’s provisions could
result from audits by, or litigation with, tax authorities. Where the final outcome of these tax-related
matters is different from the amounts that were initially recorded, such differences will affect the tax
provisions in the period in which such determination is made.
Current and Deferred Tax for the Period
Current and deferred tax are recognized as an expense in net earnings (losses), except where they relate
to amounts recognized outside of net earnings (losses) (whether in other comprehensive income or
directly in equity), in which case the tax is also recognized outside net earnings (losses), or where they
arise from the initial accounting for a business combination. In the case of a business combination, the
tax effect is included in the accounting for the business combination.
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Notes to the Consolidated Financial Statements
(q) Foreign Currencies
The financial statements of each subsidiary of Superior are translated into the currency of the primary
economic environment in which the entity operates (its functional currency). For the purpose of the
consolidated financial statements, the results and balance sheets of each subsidiary are expressed in
Canadian dollars, the functional currency of Superior.
The accounts of the foreign operations of Energy Services, Specialty Chemicals and Construction
Products Distribution in the United States and Specialty Chemicals operations in Chile translate all assets
and liabilities at the exchange rate prevailing at the balance sheet date, and revenues and expenses at
average rates of exchange during the period. Exchange gains and losses arising from this translation
are recorded as a component of accumulated other comprehensive income. Other monetary assets
and liabilities held by Superior are converted at the exchange rate prevailing at the balance sheet date.
Gains and losses are recognized on monetary assets and liabilities when those items are settled.
Transactions denominated in a foreign currency are translated into the functional currency at rates in
effect at the date of the transaction. At the balance sheet date, monetary foreign currency assets and
liabilities are translated at exchange rates then in effect. The resulting translation gains or losses are
recognized in the determination of net earnings (losses).
(r) Share-based Payments
Superior has established share-based compensation plans whereby notional restricted shares
and/or notional performance shares may be granted to employees. The fair value of these notional
shares is estimated as the period end quoted market price and recorded as an expense with an offsetting
amount to accrued liabilities, re-measured at each balance sheet date. All share-based payments are
settled in cash.
(s) Government Grants
Government grants are not recognized until there is a reasonable assurance that Superior will comply
with the conditions attaching to them and that the grants will be received.
Government grants whose primary condition is that Superior should purchase, construct or otherwise
acquire non-current assets are recognized as a reduction of the carrying value of the related asset.
Other government grants are recognized as income over the periods necessary to match them with the
costs they are intended to compensate, on a systematic basis. Government grants that are receivable as
compensation for expenses or losses already incurred or for the purpose of giving immediate financial
support to Superior with no future related costs are recognized in net earnings (losses) in the period in
which they become receivable.
(t) Net Earnings (Losses) per Common Share
Basic net earnings (losses) per share is calculated by dividing the net earnings by the weighted average
number of shares outstanding during the period. The weighted average number of shares outstanding
during the year is calculated using the number of shares outstanding at the end of each month during
the year. Diluted net earnings (losses) per share is calculated by factoring in the dilutive impact of the
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dilutive instruments, including the conversion of debentures to shares using the if-converted method
to assess the impact of dilution. Superior uses the treasury stock method to determine the impact
of dilutive options, which assumes that the proceeds from in-the-money share options are used to
repurchase shares at the average market price during the period.
(u) Significant Accounting Judgments, Estimates and Assumptions
The preparation of Superior’s Consolidated Financial Statements in accordance with IFRS requires
management to make judgments, estimates and assumptions that affect the reported amounts of assets,
liabilities, net earnings (losses) and related disclosures. The estimates and associated assumptions are
based on historical experience and various other factors that are deemed to be reasonable under the
circumstances, the results of which form the basis of making the judgments about carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions
and estimates are significant to the financial statements are as follows:
Fair Value of Derivative and Non-Financial Derivative Instruments
Where the fair value of derivatives and non-financial derivatives cannot be derived from active markets,
they are determined using valuation techniques including a discounted cash flow model. This requires
the use of assumptions concerning the amount and timing of estimated future cash flows and discount
rates. Differences between actual values and assumed values will impact net earnings in the period
when the determination of the difference is made.
Allowance for Doubtful Accounts
Superior recognizes an allowance for doubtful accounts based on historical customer collection history,
general economic indicators and other customer-specific information, all of which require Superior
to make certain assumptions. Where the actual collectability of accounts receivable differs from
these estimates, such differences will have an impact on net earnings in the period such a determination
is made.
Property, Plant and Equipment and Intangible Assets
Capitalized assets, including property, plant and equipment and intangible assets, are amortized over
their respective estimated useful lives. All estimates of useful lives are set out in 2(e) and 2(f) above.
Provisions
Provisions have been estimated for decommissioning costs, restructuring and environmental
expenditures. These provisions are estimates and the actual costs and timing of future cash flows are
dependent on future events. Any differences between estimates and the actual future liability will be
accounted for in the period when such determination is made.
Employee Future Benefits
Superior has a number of defined-benefit pension plans and other benefit plans. The cost of defined
benefit pension plans and the present value of the pension obligation are determined using actuarial
valuations. An actuarial valuation involves making various assumptions. These include the determination
.
2011 Annual Report
85
Notes to the Consolidated Financial Statements
of the discount rate, future salary increases, mortality rates and future pension increases. Due to the
complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit
obligation is highly sensitive to changes in these assumptions.
Income Tax Assets and Liabilities
Superior recognizes expected tax assets and liabilities based on estimates of current and future taxable
net earnings, which may require significant judgment regarding the ultimate tax determination of certain
items. If taxable net earnings differ from the estimates it may have an impact on current and future
income tax provisions in the period when the determination of the difference is made.
Decommissioning Liabilities
The determination of decommissioning liabilities requires Superior to make estimates regarding the
useful life of certain operating facilities, the timing and dollar value of future remediation activities,
discount rates and the interpretation and changes to various environmental laws and regulations. Any
differences between estimates and actual results will impact Superior’s accrual for decommissioning
liabilities and will result in an impact to net earnings.
Asset Impairment
Financial and non-financial assets are subject to impairment reviews based on whether current or
future events and circumstances suggest that their recoverable amount may be less than their carrying
value. Recoverable amounts are based on a calculation of expected future cash flows which include
management assumptions and estimates of future performance.
Critical Judgments in Applying Accounting Policies
In the process of applying Superior’s accounting policies, which are described above, management
makes judgments that could significantly affect the amounts recognized in the consolidated financial
statements. The most critical of these judgments are:
Impairment of Property, Plant and Equipment
An evaluation of whether an asset is impaired involves consideration of whether indicators of impairment
exist. Factors which could indicate that impairment exists include: significant underperformance relative
to historical or projected operating results, significant changes in the manner in which an asset is used
or in Superior’s overall business strategy, or significant negative industry or economic trends. In some
cases, these events are clear. However, in many cases, a clearly identifiable event indicating possible
impairment does not occur. Instead, a series of individually insignificant events occur over a period of
time leading to an indication that an asset may be impaired. Events can occur in these situations that may
not be known until a date subsequent to their occurrence. Management continually monitors Superior’s
segments, the markets, and the business environment, and makes judgments and assessments about
conditions and events in order to conclude whether a possible impairment exists.
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Superior Plus Corp.
Income Taxes
Preparation of the Consolidated Financial Statements involves determining an estimate of, or provision
for, income taxes in each of the jurisdictions in which Superior operates. The process also involves
making an estimate of taxes currently payable and taxes expected to be payable or recoverable in
future periods, referred to as deferred income taxes. Deferred income taxes result from the effects
of temporary differences due to items that are treated differently for tax and accounting purposes.
The tax effects of these differences are reflected in the balance sheet as deferred income tax assets
and liabilities. An assessment must also be made to determine the likelihood that Superior’s future
taxable income will be sufficient to permit the recovery of deferred income tax assets. To the extent
that such recovery is not probable, recognized deferred income tax assets must be reduced. Judgment
is required in determining the provision for income taxes and recognition of deferred income tax assets
and liabilities. Management must also exercise judgment in its assessment of continually changing tax
interpretations, regulations and legislation, to ensure deferred income tax assets and liabilities are
complete and fairly presented. The effects of differing assessments and applications could be material.
Financial Instruments
The fair value of financial instruments is determined and classified within three categories, which are
outlined below and discussed in more detail in Note 21.
Level I
Fair values in Level I are determined using inputs that are unadjusted quoted prices in active markets for
identical assets or liabilities that Superior has the ability to access.
Level II
Fair values in Level II are determined, directly or indirectly, using inputs that are observable for the asset
or liability.
Level III
Fair values in Level III are determined using inputs for the asset or liability that are not readily observable.
The fair value measurement of a financial instrument is included in only one of the three levels, the
determination of which is based upon the lowest level input that is significant to the derivation of the fair
value. Classification of financial instruments requires management to use judgment in respect of both
the determination of fair value and the lowest level input of significance.
Recent Accounting Pronouncements
Certain new standards, interpretations, amendments and improvements to existing standards were
issued by the IASB or International Financial Reporting Interpretations Committee (IFRIC) that are
mandatory for accounting periods beginning on January 1, 2011 or later. The standards impacted that
are applicable to Superior are as follows:
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2011 Annual Report
87
Notes to the Consolidated Financial Statements
IFRS 7 – Financial Instruments: Disclosure, amendments regarding disclosures – Transfer of Financial
Assets
In October 2010, the IASB amended IFRS 7 – Financial Instruments: Disclosures to require quantitative and
qualitative disclosures for transfers of financial assets where the transferred assets are not derecognized
in their entirety or the transferor retains continuing managerial involvement. The amendment
also requires disclosure of supplementary information if a substantial portion of the total amount
of the transfer activity occurs in the closing days of a reporting period. The amendments to IFRS 7
must be applied for annual periods beginning on or after July 1, 2011, with early adoption permitted.
Superior is assessing the effect of IFRS 7 on its disclosures; however changes, if any, are not expected
to be material.
IFRS 9 – Financial Instruments: Classification and Measurement
IFRS 9, Financial Instruments, was issued in November 2009 and is intended to replace IAS 39, Financial
Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a
financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The
approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its
business model and the contractual cash flow characteristics of the financial assets. The new standard
also requires a single impairment method to be used, replacing the multiple impairment methods in
IAS 39. Requirements for financial liabilities were added in October 2010 and they largely carried
forward existing requirements in IAS 39, Financial Instruments – Recognition and Measurement, except
that fair value changes due to credit risk for liabilities designated at fair value through profit and loss
would generally be recorded in other comprehensive income. This standard is required to be applied for
accounting periods beginning on or after January 1, 2015, with earlier adoption permitted. Superior is
assessing the effect of IFRS 9 on its financial results and financial position; however changes, if any, are
not expected to be material.
IFRS 10 – Consolidated Financial Statements
IFRS 10, Consolidated Financial Statements, establishes principles for the presentation and preparation
of consolidated financial statements when an entity controls one or more other entities. IFRS 10
requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns through its power over
the investee. Under existing IFRS, consolidation is required when an entity has the power to govern
the financial and operating policies of an entity so as to obtain benefits from its activities. The revised
standard is effective for Superior on January 1, 2013, with earlier adoption permitted. Superior is
assessing the effect of the changes to IFRS 10 on its financial results and financial position.
IFRS 11 – Joint Arrangements
IFRS 11, Joint Arrangements, requires a venture to classify its interest in a joint arrangement as a joint
venture or joint operation. Joint ventures will be accounted for using the equity method of accounting,
whereas joint operations will require the venture to recognize its share of the assets, liabilities, revenue
and expenses. This standard is required to be applied for accounting periods beginning on or after
January 1, 2013, with earlier adoption permitted. Superior is assessing the effect of the changes to IFRS
11 on its financial results and financial position.
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Superior Plus Corp.
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 12, Disclosure of Interests in Other Entities, establishes disclosure requirements for interests in other
entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles.
The standard carries forward existing disclosures and also introduces significant additional disclosure
requirements that address the nature of, and risks associated with, an entity’s interests in other entities.
This standard is effective for Superior on January 1, 2013, with early adoption permitted. Superior has
not assessed the impact the adoption of this revised standard will have, nor has it determined if it will
early adopt the standard.
IFRS 13 – Fair Value Measurements
IFRS 13, Fair Value Measurements, defines fair value, sets out a single IFRS framework for measuring
fair value and requires disclosures about fair value measurements. IFRS 13 applies to IFRS that require
or permit fair value measurements or disclosures about fair value measurements (and measurements,
such as fair value less costs to sell, based on fair value or disclosures about those measurements),
except in specified circumstances. IFRS 13 is to be applied for annual periods beginning on or after
January 1, 2013. Earlier application is permitted. Superior is assessing the effect of the changes to
IFRS 13 on its financial results and financial position.
IAS 12 – Income Taxes, amendments regarding Deferred Tax: Recovery of Underlying Assets
IAS 12, Income taxes, was amended in December 2010 to remove subjectivity in determining on which
basis an entity measures the deferred tax relating to an asset. The amendment introduces a presumption
that an entity will assess whether the carrying amount of an asset will be recovered through the sale
of the asset. The amendment to IAS 12 is effective for reporting periods beginning on or after
January 1, 2012. Superior is assessing the effect of the changes to IAS 12 on its financial results and
financial position.
IAS 19 – Employee Benefits, amendments
IAS 19 amendments were issued in June 2011 that will change the accounting and disclosure for
defined benefit plans and termination benefits. This standard requires that the changes in defined
benefit obligations are recognized as they occur, eliminating the corridor approach and accelerating the
recognition of past service costs. The changes in defined benefit obligations and plan assets are to be
disaggregated into three components: service costs, net interest on the net defined benefit liabilities
(assets) and re-measurements of the net defined benefit liabilities (assets). This standard is required to
be applied for accounting periods beginning on or after January 1, 2013, with early adoption permitted.
Superior does not anticipate that any of these changes will have a material impact on its results of
operations or financial position.
3. Seasonality of Operations
Energy Services
Energy Services sales typically peak in the first quarter when approximately one-third of annual propane
and other refined fuels sales volumes and gross profits are generated due to the demand from heating
end-use customers. They then decline through the second and third quarters, rising seasonally again
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2011 Annual Report
89
Notes to the Consolidated Financial Statements
in the fourth quarter with heating demand. Similarly, net working capital is typically at seasonally high
levels during the first and fourth quarters, and normally declines to seasonally low levels in the second
and third quarters. Net working capital levels are also significantly influenced by wholesale propane
prices and other refined fuels.
Construction Products Distribution
Construction Products Distribution sales typically peak during the second and third quarters with the
seasonal increase in building and remodeling activities. They then decline through the first and fourth
quarters. Similarly, net working capital levels are typically at seasonally high levels during the second and
third quarters, and normally decline to seasonally low levels in the first and fourth quarters.
4. Acquisitions
On November 17, 2011, Superior completed the acquisition of certain assets which constitute an
insulation services business (Insulation Assets) for an aggregate purchase price of $0.2 million. Superior
elected to not disclose a purchase price equation for the acquisition as it was considered immaterial.
Superior cannot reasonably determine the net earnings amount attributable to the Insulation Assets had
the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated
into Superior’s existing operations.
On October 7, 2011, Superior completed the acquisition of certain assets which constitute a refined
fuels distribution business (Hamilton) for an aggregate purchase price of $0.4 million. Superior elected
to not disclose a purchase price equation for the acquisition as it was considered immaterial. Superior
cannot reasonably determine the net earnings amount attributable to Hamilton had the acquisition
closed on January 1, 2011 or from the date of acquisition as operations were integrated into Superior’s
existing operations.
On October 6, 2011, Superior completed the acquisition of certain assets which constitute a propane
distribution business (Walts) for an aggregate purchase price of $1.0 million. Superior elected to not
disclose a purchase price equation for the acquisition as it was considered immaterial. Superior cannot
reasonably determine the net earnings amount attributable to Walts had the acquisition closed on
January 1, 2011 or from the date of acquisition as operations were integrated into Superior’s existing
operations.
On September 8, 2011, Superior completed the acquisition of certain assets (Elkhorn) which constitute
a propane distribution business for an aggregate purchase price of $6.5 million including adjustments
for working capital. The primary purpose of the acquisition is to expand the Energy Services business
in Pennsylvania and benefit from synergies. The below noted fair values have been prepared on a
preliminary basis pending finalization of net working capital adjustments.
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Superior Plus Corp.
Elkhorn
Intangible assets
Property, plant and equipment
Trade and other payables
Net identifiable assets and liabilities
Gain on bargain purchase
Total consideration
The components of the purchase consideration are as follows:
Cash (paid on September 8, 2011)
Deferred consideration
Total purchase consideration
Fair Value Recognized on Acquisition
4.7
2.3
7.0
(0.1)
(0.1)
6.9
(0.4)
6.5
6.0
0.5
6.5
Subsequent to the acquisition date of September 8, 2011, revenues and net earnings contributed
by Elkhorn were not significant. Superior cannot reasonably determine the revenue and net earnings
amount attributable to Elkhorn had the acquisition closed on January 1, 2011 due to limited access to
the related financial information.
On August 4, 2011, Superior completed the acquisition of certain assets which constitute a refined fuel
and propane distribution business (Brennan) for an aggregate purchase price of $3.7 million including
adjustments for working capital. Superior elected to not disclose a purchase price equation for the
acquisition as it was considered immaterial. Superior cannot reasonably determine the net earnings
amount attributable to Brennan had the acquisition closed on January 1, 2011 or from the date of
acquisition as operations were integrated into Superior’s existing operations.
On April 29, 2011, Superior completed the acquisition of certain assets which constitute a refined fuel
and propane distribution business (Country Comfort) for an aggregate purchase price of $0.3 million
including adjustments for working capital. Superior elected to not disclose a purchase price equation for
the acquisition as it was considered immaterial. Superior cannot reasonably determine the net earnings
amount attributable to Country Comfort had the acquisition closed on January 1, 2011 or from the date
of acquisition as operations were integrated into Superior’s existing operations.
On March 9, 2011, Superior completed the acquisition of certain assets (Propane Acquisition) which
constitute a propane distribution business for an aggregate purchase price of $5.3 million including
adjustments for working capital. The primary purposes of the acquisition are to expand the Energy
Services business in Ontario and benefit from synergies.
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2011 Annual Report
91
Notes to the Consolidated Financial Statements
Propane Acquisition
Trade and other receivables (1)
Inventories
Property, plant and equipment
Trade and other payables
Net identifiable assets and liabilities
Goodwill arising on acquisition
Total consideration
Fair Value Recognized on Acquisition
1.3
0.2
1.1
2.6
(0.4)
(0.4)
2.2
3.1
5.3
4.3
1.0
5.3
The components of the purchase consideration are as follows:
Cash (paid on March 9, 2011)
Deferred consideration
Total purchase consideration
(1) The gross amount of trade receivables is $1.4 million, of which $0.1 is expected to be uncollectible.
Superior cannot reasonably determine the revenue and net earnings contributed since the acquisition
or the amounts attributable to the Propane Acquisition had the acquisition closed on January 1, 2011 as
operations were integrated into Superior’s existing operations.
On January 15, 2011, Superior completed the acquisition of certain assets which constitute a refined
fuel and propane distribution business (Butler) for an aggregate purchase price of $0.3 million including
adjustments for working capital. Superior elected to not disclose a purchase price equation for the
acquisition as it was considered immaterial. Superior cannot reasonably determine the net earnings
amount attributable to Butler had the acquisition closed on January 1, 2011 or from the date of
acquisition as operations were integrated into Superior’s existing operations.
On October 25, 2010, Superior completed the acquisition of certain assets which constitute a
U.S. retail heating oil and propane distribution business (KW Acquisition) for an aggregate purchase price of
$4.9 million including adjustments for working capital. The assets provide a broad range of services,
including heating, ventilation and air conditioning repair and other related services.
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Superior Plus Corp.
KW Acquisition
Inventories
Property, plant and equipment
Intangible assets
Trade and other payables
Deferred tax liability
Net identifiable assets and liabilities
Gain on bargain purchase
Total consideration
The components of the purchase consideration are as follows:
Cash (paid on October 25 and November 4, 2010)
Deferred consideration
Total purchase consideration
Fair Value Recognized on Acquisition
0.2
3.3
4.1
7.6
(0.7)
(0.8)
(1.5)
6.1
(1.2)
4.9
4.4
0.5
4.9
Superior cannot reasonably determine the net earnings amount attributable to the KW Acquisition had
the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated
into Superior’s existing operations.
On June 28, 2010, Superior completed the acquisition of certain assets of a Western Canadian
commercial and industrial insulation distributor (Burnaby) for an aggregate purchase price of
$17.7 million, inclusive of $0.1 million in transaction costs which have been expensed through other
expenses in the consolidated statement of net loss and comprehensive loss. The assets acquired
consist of three operating branches in Alberta and British Columbia and allow Construction Products
Distribution to expand its commercial and industrial distribution business in Canada.
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2011 Annual Report
93
Notes to the Consolidated Financial Statements
Burnaby
Trade and other receivables (1)
Inventories
Property, plant and equipment
Intangible assets (2)
Trade and other payables
Net identifiable assets and liabilities
Goodwill arising on acquisition
Total consideration
Fair Value Recognized on Acquisition
8.4
2.9
0.5
2.1
13.9
(3.0)
(3.0)
10.9
6.8
17.7
(1)
The gross amount of trade receivables is $8.6 million, of which $0.2 million is expected to be uncollectible.
(2) Superior has reclassified $2.1 million to separable identifiable intangible assets from goodwill as part of the finalization of the Burnaby
purchase allocation.
The components of the purchase consideration are as follows:
Cash (paid on June 28, 2010)
Common shares
Total purchase consideration
2.0
15.7
17.7
Superior completed the acquisition of Burnaby in order expand its commercial and industrial insulation
business in Canada.
Revenue and net loss for the year ended December 31, 2010 would have been $21.4 million and
$5.7 million, respectively, if the Burnaby acquisition had occurred on January 1, 2010. Subsequent
to the acquisition date of June 28, 2010, Burnaby contributed to Construction Products Distribution
revenue and net earnings of $17.5 million and $3.1 million, respectively for the year ended
December 31, 2010.
On January 20, 2010, Superior acquired 100% of the shares of Griffith Holdings Inc. (Griffith) for
consideration of $142.6 million, net of $2.5 million in cash assumed. Additionally, $1.6 million in
transaction costs were incurred during the course of this acquisition, which has been expensed through
other expenses in the consolidated statement of net loss and comprehensive loss. The fair value of the
identifiable assets and liabilities of Griffith as at the date of acquisition and the corresponding carrying
amounts immediately before the acquisition date was:
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Superior Plus Corp.
Griffith Acquisition
Trade and other receivables (1)
Inventories
Unrealized gains on derivative financial instruments
Property, plant and equipment
Intangible assets
Trade and other payables
Provisions
Assumed deferred consideration obligations
Deferred tax liability
Net identifiable assets and liabilities
Goodwill arising on acquisition (2)
Total consideration
Fair Value Recognized on Acquisition
41.1
23.2
1.2
83.2
54.4
203.1
(32.8)
(3.6)
(0.6)
(41.7)
(78.7)
124.4
18.0
142.4
142.4
142.4
The components of the purchase consideration are as follows:
Cash paid (paid on January 20, 2010)
Total purchase consideration
(1)
The gross amount of trade receivables is $34.7 million, of which $0.9 million is expected to be uncollectible.
(2) The amount of goodwill that is expected to be deductible for tax purposes is approximately $7.0 million.
Superior completed the acquisition of Griffith in order expand its refined fuels distribution business into
the north eastern U.S. The Company’s business is complementary to Superior’s other operations in New
York state.
Revenue and net earnings for the year ended December 31, 2010 for Energy Services would have
included $686.0 million and $11.7 million, respectively, if the Griffith acquisition had occurred on
January 1, 2010. Subsequent to the acquisition date of January 20, 2010, Griffith contributed to Energy
Services revenue and net earnings of $644.0 million and $10.7 million, respectively for the year ended
December 31, 2010.
Superior completed the acquisition of Griffith in order expand its refined fuels distribution business
into the north eastern U.S. For the 12 months ended June 2009, Griffith delivered approximately
294.4 million gallons of product to customers within New York state; gross profits were 42% from
propane sales, 13% from heating oil, 23% from other fuels, 18% from wholesale activities and 4% from
service work. The customer profile of the Company, based on gallons of product sold, is approximately
29% retail and 71% wholesale and dealer related. The Company supports its retail fuel distribution
business by providing heating related service work to its propane and heating oil customers.
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2011 Annual Report
95
Notes to the Consolidated Financial Statements
The Company has 27 branch locations, 26 bulk storage facilities and 3 storage terminals, providing
20 million gallons of storage capacity. It has a well-maintained fleet of approximately 400 delivery and
service vehicles and employs approximately 500 non-union employees. The Company’s business is
complementary to Superior’s other operations in New York state.
5. Trade and Other Receivables
A summary of trade and other receivables is as follows:
Notes
December 31,
2011
December 31,
2010
January 1,
2010
Trade receivables, net of allowances
21
Accounts receivable – other
Finance lease receivable
Trade and other receivables
427.1
45.1
0.7
472.9
499.73
50.7
0.6
551.0
330.3
64.0
–
394.3
Until the termination of the program in June 2011, Superior sold, with limited recourse, certain
trade accounts receivable on a revolving basis to an entity sponsored by a Canadian chartered bank.
The accounts receivable were sold at a discount to face value based on prevailing money market
rates. Superior has retained the servicing responsibility for the accounts receivable sold and has
therefore recognized a servicing liability. The level of accounts receivable sold under the program
fluctuates seasonally with the level of accounts receivable. As at December 31, 2011 proceeds of $nil
(December 31, 2010 – $90.1 million and January 1, 2010 – $21.4 million) had been received.
6. Prepaid expenses
Balance at the beginning of the year
Added to prepaid assets
Expensed to net earnings (losses)
Foreign exchange impact
Balance at the end of the year
7. Inventories
December 31,
2011
December 31,
2010
January 1,
2010
23.3
83.3
(85.5)
(0.4)
20.7
21.3
78.2
(74.4)
(1.8)
23.3
21.3
–
–
–
21.3
December 31,
2011
December 31,
2010
January 1,
2010
Propane, heating oil and other refined fuels
Propane retailing materials, supplies, appliances and other
Chemical finished goods and raw materials
Chemical stores, supplies and other
Walls, ceilings and insulation construction products
87.5
12.6
20.9
8.5
73.6
203.1
68.5
8.7
16.5
7.9
65.5
167.1
52.7
3.9
16.3
7.3
63.3
143.5
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Superior Plus Corp.
(December 31, 2010 – $2,356.6 million).
The cost of inventories recognized as an expense in the year ended December 31, 2011 was
$2,769.2 million
Inventories of $nil million
(December 31, 2010 – $nil million and January 1, 2010 – $nil million) are expected to be recovered after
more than twelve months. Inventory was written down during the year ended December 31, 2011 by
$2.6 million (December 31, 2010 – $1.6 million). No reversals of write downs were recorded during the
years ended December 31, 2011 and 2010.
Insurance Claim
8.
During the fourth quarter of 2010, Specialty Chemicals’ Buckingham, Quebec sodium chlorate plant
experienced an electrical transformer failure which caused one its production lines to cease operation.
The electrical equipment was repaired and the production line resumed operations in the second
quarter of 2011. During the outage, efforts were made to source product from other producers to
satisfy customer requirements. However, a portion of sodium chlorate sales were lost and additional
costs were incurred in order to purchase additional product and make repairs to the equipment. In
the fourth quarter of 2011, a partial payment of $3.7 million was received from Specialty Chemicals’
business interruption and property damage claim. The $3.7 million has been recorded as a reduction
to cost of sales ($3.2 million) and to operating expenses ($0.5 million) based on the respective business
interruption and property damage claim amounts net of the insurance deductible amount.
9. Finance Lease
In November 2010, Superior entered into a finance lease arrangement with a customer from the
Specialty Chemical segment. The finance lease arrangement is related to capital assets used to produce
electricity at a Specialty Chemicals sodium chlorate facility in Chile. The lease contract term is ten years
and contains an early termination option for the customer after five years.
Current portion
Long-term portion
Less unearned finance income
Present value of minimum lease payments
Minimum Lease Payments
Present Value of Minimum
Lease Payments
December 31,
2011
December 31,
2010
December 31,
2011
December 31,
2010
1.6
12.4
14.0
(4.6)
9.4
1.6
13.7
15.3
(5.5)
9.8
0.7
8.7
9.4
–
9.4
0.6
9.2
9.8
–
9.8
The interest rate inherent in the lease is fixed at a constant rate for the entire lease term. The effective
interest rate contracted is 10% per year.
There is no allowance for doubtful accounts, as the finance lease receivables are neither past due nor
impaired.
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2011 Annual Report
97
Notes to the Consolidated Financial Statements
10. Construction Contracts
Revenue relating to construction contracts is recognized based on the stage of completion of the contract
activity. The percentage of contract completion is based on engineering estimates of the proportion of
work completed to date.
Contracts in progress at the balance sheet date:
Construction costs incurred plus recognized profits less
recognized losses to date
Less: Progress billings to date
December 31,
2011
December 31,
2010
January 1,
2010
6.0
(8.2)
(2.2)
4.6
(5.3)
(0.7)
2.3
(3.5)
(1.2)
Recognized and included in the financial statements as amounts due:
Notes
December 31,
2011
December 31,
2010
January 1,
2010
Account payable to customers under
construction contracts
15
2.2
2.2
0.7
0.7
1.0
1.0
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Superior Plus Corp.
11. Property, Plant and Equipment
Specialty
Chemicals
Energy Construction
Products
Plant & Retailing Distribution
Equipment
Services
Land Buildings Equipment Equipment
Leasehold
Improvements
Total
Cost
Balance as at December 31, 2009
under GAAP
22.2
110.2
669.4
386.2
IFRS initial adoption adjustment
6.8
26.0
49.7
81.1
37.2
2.0
0.3 1,225.5
9.1
174.7
Restated at January 1, 2010
under IFRS
Additions
Disposals
Acquisitions through
business combinations
Net foreign currency exchange
differences
29.0
136.2
719.1
467.3
39.2
1.2
(0.2)
2.0
(0.2)
14.2
66.6
(5.6)
(18.2)
3.1
(4.2)
–
4.2
–
80.2
0.5
Balance at December 31, 2010
29.4
140.4
713.8
582.8
(0.6)
(1.8)
(13.9)
(13.1)
(0.8)
37.8
9.4 1,400.2
0.6
87.7
(0.8)
(29.2)
–
–
84.9
(30.2)
9.2 1,513.4
Accumulated Depreciation
Balance as at December 31,
2009 under GAAP
IFRS initial adoption adjustment
Restated at January 1, 2010
under IFRS
Depreciation expense
Eliminated on disposal of assets
Net foreign currency exchange
differences
Balance at December 31, 2010
–
–
–
–
–
–
–
35.1
229.7
275.3
(6.7)
1.1
(35.3)
17.4
2.7
–
557.5
6.3
(37.3)
28.4
230.8
240.0
14.7
5.5
–
45.4
(4.4)
40.6
(7.5)
(0.2)
(2.7)
(0.2)
33.7
269.1
272.9
6.6
(2.1)
(0.6)
18.6
6.3
0.8
520.2
98.9
(0.4)
(14.4)
–
(3.7)
6.7
601.0
.
2011 Annual Report
99
Notes to the Consolidated Financial Statements
Specialty
Chemicals
Plant &
Energy Construction
Services
Products
Retailing Distribution
Equipment
Land Buildings Equipment Equipment
Cost
Balance as at December 31, 2010
under GAAP
37.1
122.3
666.6
439.2
IFRS initial adoption adjustment
(7.7)
18.1
47.2
143.6
Restated at December 31, 2010
under IFRS
Additions
Disposals
Impairment losses charged to
net loss
Acquisitions through
business combinations
Net foreign currency exchange
differences
Balance at December 31, 2011
29.4
140.4
713.8
582.8
0.1
(0.1)
7.6
(1.7)
14.2
36.3
(5.3)
(24.6)
–
–
–
–
–
–
(3.8)
–
–
0.2
0.3
29.7
1.0
5.7
0.8
147.3
728.4
591.5
0.5
41.2
34.8
3.0
37.8
5.4
(2.7)
Leasehold
Improvements
Total
3.3 1,303.3
5.9
210.1
9.2 1,513.4
0.4
–
–
–
–
64.0
(34.4)
(3.8)
0.2
8.3
9.6 1,547.7
Accumulated Depreciation
Balance as at December 31, 2010
under GAAP
IFRS initial adoption adjustment
Restated at December 31, 2010
under IFRS
Depreciation expense
Eliminated on disposal of assets
Impairment losses charged to net loss
Net foreign currency exchange
differences
Balance at December 31, 2011
–
–
–
–
–
–
–
–
41.2
(7.5)
264.8
288.1
4.3
(15.2)
19.4
(0.8)
2.1 615.6
4.6
(14.6)
33.7
269.1
272.9
18.6
6.7 601.0
5.3
(0.1)
(0.2)
41.1
36.9
(3.6)
(20.8)
–
(0.5)
5.6
(1.9)
–
0.1
1.6
(2.7)
0.1
0.8
–
–
–
89.7
(26.4)
(0.7)
(0.9)
38.8
308.2
285.8
22.4
7.5 662.7
Carrying Value
As at January 1, 2010
As at December 31, 2010
As at December 31, 2011
29.0
29.4
29.7
107.8
106.7
108.5
488.3
444.7
227.3
309.9
420.2
305.7
24.5
19.2
18.8
3.1
2.5
880.0
912.4
2.1 885.0
The carrying value of Superior’s property, plant, and equipment includes $74.2 million as at December
31, 2011 (December 31, 2010 – $73.7 million and January 1, 2010 – $59.5 million) of leased assets.
During the third quarter of 2011, a fire occurred at U.S. Refined Fuel’s Mumford, New York fuel
location, and flooding occurred at the Mountoursville, Pennsylvania distribution
distribution
location, causing damage to both facilities. Superior recognized an
impairment charge of
$3.4 million associated with the damage. Currently, it is not possible to estimate the expected amount
100
Superior Plus Corp.
of recovery that Superior will receive under its business interruption insurance policies and therefore
as at December 31, 2011, no receivable for insurance recovery has been re corded. Insurance
recoveries are recorded when the amount of the recovery has been agreed with the insurer or when
payments are received.
Depreciation per cost category:
Cost of sales
Selling, distribution and administrative costs
Total
12.
Intangible Assets
December 31,
2011
December 31,
2010
44.9
48.4
93.3
46.4
49.0
95.4
Energy
Services
Specialty
Trademarks, Construction Chemicals
Customer
Contract Customer Base
Royalty
Related & Non-Compete Distribution Assets and
Patents
Agreements
Products
Assets
Costs
Investment
Property
Total
Cost
Balance as at December 31, 2009
under GAAP
IFRS initial adoption adjustment
36.5
–
Restated as at January 1, 2010 under IFRS
36.5
Additions from internal developments
1.7
Additions acquired separately
Acquisitions through business combinations
Impairment losses charged to net loss
Reclassification to goodwill
Net foreign currency exchange
differences
–
–
–
–
–
Balance at December 31, 2010
38.2
Accumulated Amortization and Impairment
Balance as at December 31, 2009
under GAAP
IFRS initial adoption adjustment
Restated as at January 1, 2010
under IFRS
Amortization expense
Impairments
Net foreign currency
exchange differences
Balance at December 31, 2010
21.8
–
21.8
5.2
–
–
27.0
108.3
0.5
108.8
3.5
1.2
58.5
–
–
(5.5)
166.5
2.0
–
2.0
21.6
–
1.5
25.1
45.6
1.1
46.7
–
–
–
(3.6)
(21.3)
(1.3)
20.5
2.0
1.0
3.0
2.3
(2.5)
–
2.8
51.1
14.3
65.4
– 241.5
1.0
16.9
1.0 258.4
–
–
–
–
–
–
–
–
–
–
–
–
5.2
1.2
58.5
(3.6)
(21.3)
(6.8)
65.4
1.0 291.6
35.7
10.3
46.0
6.5
–
–
–
–
–
–
–
–
61.5
11.3
72.8
35.6
(2.5)
1.5
52.5
– 107.4
.
2011 Annual Report
101
Notes to the Consolidated Financial Statements
Energy
Services
Specialty
Trademarks, Construction Chemicals
Customer
Contract Customer Base
Royalty
Related & Non-Compete Distribution Assets and
Patents
Agreements
Products
Assets
Costs
Investment
Property
Total
38.2
166.5
20.5
65.4
1.0 291.6
–
1.6
–
–
–
–
1.3
0.3
12.2
2.6
–
–
(107.3)
(22.8)
(1.3)
(2.0)
69.7
–
0.8
1.1
–
–
–
–
–
–
–
–
3.9
1.9
–
12.2
– (124.4)
–
–
(1.3)
(1.2)
65.4
1.0 177.0
Cost
Balance as at December 31, 2010
under IFRS
Additions from internal
developments
Additions acquired separately
Acquisitions through business
combinations
Impairment losses charged to
net loss
Disposals
Net foreign currency exchange
differences
Balance at December 31, 2011
39.8
Accumulated Amortization and Impairment
Balance as at December 31, 2010
under IFRS
Impairment losses charged to
net loss
Disposals
Net foreign currency exchange
differences
Amortization expense
Balance at December 31, 2011
Carrying value (1)
As at January 1, 2010
As at December 31, 2010
As at December 31, 2011
27.0
25.1
2.8
52.5
– 107.4
–
–
–
4.2
31.2
14.7
11.2
8.6
(35.1)
(1.3)
(0.5)
32.5
20.7
(5.3)
–
0.1
2.8
0.4
–
–
–
6.6
59.1
–
–
–
–
(40.4)
(1.3)
(0.4)
46.1
– 111.4
106.8
141.4
49.0
43.7
17.7
0.7
19.4
12.9
6.3
1.0 185.6
1.0 184.2
1.0 65.6
(1) Superior has pledged 100% of the property, plant and equipment balance as at December 31, 2011 excluding leased assets as security on
Superior’s borrowings.
An impairment charge was recorded to the intangible assets of Superior’s Construction Products
Distribution segment and Energy Services segment during the third and fourth quarters; see Note 13
for further details.
Amortization per cost category:
Selling, distribution and administrative costs
Total
102
Superior Plus Corp.
December 31, 2011 December 31, 2010
46.1
46.1
35.6
35.6
Investment Properties
At cost
Investment property
Accumulated depreciation beginning of the year
Depreciation expense
Accumulated depreciation end of the year
Carrying value
Rental income from investment properties
Net income from investment properties
December 31,
2011
December 31,
2010
1.1
–
(0.1)
(0.1)
1.0
1.0
–
–
–
1.0
January 1,
2010
1.0
–
–
–
1.0
December 31,
2011
December 31,
2010
0.1
0.1
0.4
0.4
All of Superior’s investment property is held under freehold interests.
December 31,
2011
December 31,
2010
January 1,
2010
Fair value of investment properties
1.0
1.1
1.1
13. Goodwill
December 31,
2011
December 31,
2010
January 1,
2010
Balance at beginning of year
Additional amounts recognized from business
combinations occurring during the year
Purchase price equation adjustments
Impairment of Energy Services
Impairment of Construction Products Distribution
Effect of foreign currency differences
Balance at end of year
471.7
3.6
(2.1)
(227.8)
(61.2)
1.9
186.1
527.5
527.5
38.3
–
–
(88.4)
5.7
471.7
–
–
–
–
–
527.5
Impairment of Goodwill and Intangible Assets
Goodwill acquired through business combinations and intangible assets has been allocated for impairment
testing to Superior’s CGUs that are expected to benefit from the synergies of the combination. On a
quarterly basis Superior assesses whether any indications of impairment have occurred which would
require testing goodwill for impairment using a two-step process, with the first step being to assess
whether the recoverable amount of a reporting unit to which 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
recoverable amount to its carrying value. Value in use calculations have been used to determine the
recoverable amount for the goodwill and intangible assets allocated to Superior’s cash generating units.
.
2011 Annual Report
103
Notes to the Consolidated Financial Statements
Construction Products Distribution
During the third quarter of 2011 it was determined that Superior’s Construction Products Distribution
segment had indications of impairment. As such Superior completed a detailed assessment of the business
segment’s operations; the recoverable amount of the Construction Products Distribution segment was
determined using a detailed cash flow model based on current market assumptions surrounding the
construction products industry which was negatively impacted by the continued economic slowdown
across North America, the reduction in new home residential housing starts and ongoing weakness in
commercial construction markets. Based on the calculated recoverable amount, it was determined that
the goodwill and intangible assets in the Construction Products Distribution segment were impaired
and a goodwill impairment charge of $61.2 million and an intangible assets impairment charge of
$17.5 million were recognized as reduction in the carrying value of the respective balances during the
third quarter of 2011.
Basis On Which Recoverable Amount Has Been Determined
The recoverable amount for the Construction Products Distribution segment was determined using a
detailed cash flow model which was based on evidence from the Board of Directors approved budget.
Management’s internal budgets are based on past experience and were adjusted to reflect market
trends and economic conditions. The resulting recoverable amount was then compared to the carrying
amount of the business segment which resulted in an impairment charge that was allocated to goodwill
and intangible assets of the Construction Products Distribution segment. The impairment charge was
recognized as an expense against Superior’s net loss for the year ended December 31, 2011.
Key Rates Used In Calculation Of Recoverable Amount
Growth Rate To Perpetuity
The first five years of cash flow projections used in the model were based on management’s internal
budgets and projections after five years were extrapolated using growth rates in line with historical long
term growth rates in the construction products industry. The long term growth rate used in determining
the recoverable amount for the Construction Products Distribution segment was 1.5%.
Discount Rates
Cash flows in the model were discounted using a discount rate specific to the Construction Products
Distribution segment. Discount rates reflect the current market assessments of the time value of money
and are derived from the business segment’s weighted average cost of capital. Risks specific to the
Construction Products Distribution segment were reflected within the cash flow model. The weighted
average cost of capital was then adjusted to reflect the impact of tax in order to calculate an equivalent
pre-tax discount rate. The after-tax discount rate used in determining the recoverable amount for the
Construction Products Distribution segment was 12.0%.
Inflation Rates
Inflation rates used in the cash flow model were based on a blend of publicly available inflation forecasts.
The inflation rate used in determining the recoverable amount for the Construction Products Distribution
segment was 2%.
104
Superior Plus Corp.
Key Assumptions
The model used to determine the recoverable amount of the Construction Products Distribution
segment is based on the assumption that sales revenue is expected to decline from 2010 levels due
to market conditions which are expected to continue to impact the financial results of the business
segment through to the end of 2012.
Energy Services
During the fourth quarter of 2011 it was determined that Superior’s Energy Services segment was
impaired. As such Superior completed a detailed assessment of the business segment’s operations;
the recoverable amount of the Energy Services segment was determined using a detailed cash flow
model based on current market assumptions surrounding the Canadian Propane Distribution and
U.S. Refined Fuels distribution industries which were negatively impacted by the continued economic
slowdown across North America, shift in sales mix from higher margin heating volumes to lower margin
non-heating volumes, and energy conservation efforts from Superior’s customers. Based on the
calculated recoverable amount, it was determined that the goodwill and intangible assets in the Energy
Services segment were impaired and a goodwill impairment charge of $227.8 million and an intangible
assets impairment charge of $72.2 million were recognized as reduction in the carrying value of the
respective balances during the fourth quarter of 2011.
Basis On Which Recoverable Amount Has Been Determined
The recoverable amount for the Energy Services segment was determined using a detailed cash flow
model which was based on evidence from the Board of Directors approved budget. Management’s
internal budgets are based on past experience and were adjusted to reflect market trends and economic
conditions. The resulting recoverable amount was then compared to the carrying amount of the business
segment which resulted in an impairment charge that was allocated to goodwill and intangible assets of
the Energy Services segment. The impairment charge was recognized as an expense against Superior’s
net loss for the year ended December 31, 2011.
Key Rates Used In Calculation Of Recoverable Amount
Growth Rate To Perpetuity
The first five years of cash flow projections used in the model were based on management’s internal
budgets and projections after five years were extrapolated using growth rates in line with historical
long term growth rates. The long term growth rate used in determining the recoverable amount for the
Energy Services’ segment was 0.5%.
Discount Rates
Cash flows in the model were discounted using a discount rate specific to the Energy Services segment.
Discount rates reflect the current market assessments of the time value of money and are derived from
the business segment’s weighted average cost of capital. Risks specific to the Energy Services segment
were reflected within the cash flow model. The weighted average cost of capital was then adjusted
to reflect the impact of tax in order to calculate an equivalent pre-tax discount rate. The after-tax
.
2011 Annual Report
105
Notes to the Consolidated Financial Statements
discount rate used in determining the recoverable amount for the Energy Services segment was 10.8%
for Canadian Propane Distribution and 11.5% for U.S. Refined Fuels.
Inflation Rates
Inflation rates used in the cash flow model were based on a blend of publicly available inflation forecasts.
The inflation rate used in determining the recoverable amount for the Energy Services’ segment was 2%.
Key Assumptions
The model used to determine the recoverable amount of the Energy Services segment is based on
the assumption that sales revenue is expected to decline from 2011 levels due to the items noted above
which are expected to continue to impact the operating results of the business segment through to the
end of 2012.
14. Provisions
Decommissioning
Costs
Environmental
Expenditures
Balance at January 1, 2010
Additional provisions recognized during the year
Utilization
Amounts reversed during the year
Unwinding of discount
Impact of change in discount rate
Net foreign currency exchange difference
Balance at December 31, 2010
Additional provisions recognized during the year
Amounts reversed during the year
Utilization
Unwinding of discount
Impact of change in discount rate
Net foreign currency exchange difference
Balance at December 31, 2011
6.9
0.8
–
–
0.3
2.2
–
10.2
3.4
–
–
0.4
1.7
(0.2)
15.5
–
7.1
(1.7)
(2.3)
–
–
(0.1)
3.0
–
(0.9)
(0.5)
–
–
0.1
1.7
Total
6.9
7.9
(1.7)
(2.3)
0.3
2.2
(0.1)
13.2
3.4
(0.9)
(0.5)
0.4
1.7
(0.1)
17.2
106
Superior Plus Corp.
Decommissioning Costs
Specialty Chemicals
Superior makes full provision for the future cost of decommissioning Specialty Chemicals’ chemical
facilities. The provision for decommissioning costs is on a discounted basis and is based on existing
technologies at current prices or long-term price assumptions, depending on the expected timing of the
activity. As at December 31, 2011, the discount rate used in Superior’s calculation was 2.5% (December
31, 2010 – 4.0% and January 1, 2010 – 4.0%). Superior estimates the total undiscounted amount of
expenditures required to settle its decommissioning liabilities is approximately $20.3 million (December
31, 2010 – $20.1 million) which will be paid over the next 20 to 28 years. While Superior’s provision
for decommissioning costs is based on the best estimate of future costs and the economic lives of the
chemical facilities, there is uncertainty regarding both the amount and timing of incurring these costs.
Energy Services
Superior makes full provision for the future costs of decommissioning certain assets associated
with Superior’s Energy Services operating segment. Superior estimates the total undiscounted
amount of expenditures required to settle its asset retirement obligations is approximately $9.2 million
(December 31, 2010 – $9.8 million) which will be paid over the next 20 to 25 years. The credit-adjusted
free-risk rate of 2.5% (December 31, 2010 – 4.0% and January 1, 2010 – 4.0%) was used to calculate the
present value of the estimated cash flows.
Environmental Expenditures
Provisions for environmental remediation are made when a clean-up is probable and the amount of
the obligation can be reliably estimated. Generally, this coincides with commitment to a formal plan
of action or, if earlier, on divestment or on closure of inactive sites. The provision for environmental
liabilities has been estimated using existing technology, at current prices and discounted using a real
discount rate of 2.5% (December 31, 2010 – 4.0% and January 1, 2010 – 4.0%). The majority of these
costs are expected to be incurred over the next 10 years. The extent and cost of future remediation
programs are inherently difficult to estimate. They depend on the scale of any possible contamination,
the timing and extent of corrective actions, and also Superior’s share of the liability.
15. Trade and Other Payables
A summary of trade and other payables is as follows:
Trade payables
Other payables
Amounts due to customers under
construction contracts (Note 10)
Share-based payments
Trade and other payable
December 31,
2011
December 31,
2010
January 1,
2010
243.9
47.8
2.2
3.7
297.6
271.9
36.8
0.7
8.8
318.2
226.7
58.6
1.0
9.1
295.4
.
2011 Annual Report
107
Notes to the Consolidated Financial Statements
The average credit period on purchases by Superior is 25 days. No interest is charged on the trade
payables for the first 15 days from the date of the invoice. Thereafter, interest is charged at 23% per
annum on the outstanding balance. Superior has financial risk management policies in place to ensure
that all payables are normally paid within the pre-agreed credit terms.
16. Deferred Revenue
Balance at beginning of the year
Deferred during the year
Released to the net loss
Foreign exchange impact
Balance at end of year
Current
Non-current
December 31,
2011
December 31,
2010
January 1,
2010
6.8
21.4
(14.5)
0.5
14.2
5.8
14.7
(14.0)
0.3
6.8
5.8
–
–
–
5.8
December 31,
2011
December 31,
2010
January 1,
2010
14.2
–
14.2
6.8
–
6.8
5.8
–
5.8
The deferred revenue relates to Energy Services unearned service revenue and Specialty Chemicals
unearned product related revenues.
108
Superior Plus Corp.
17. Revolving Term Bank Credits and Term Loans
Revolving Term Bank Credits (1)
Bankers’ Acceptances (BA)
Canadian Prime Rate Loan
LIBOR Loans
(US$138.9 million;
2010 – US$143.0 million)
US Base Rate Loan
(US$29.2 million; 2010 – US$31.0 million)
Year of
Maturity
2014
2014
Floating BA rate
plus applicable
credit spread
Prime rate plus
credit spread
Floating LIBOR
2014 rate plus applicable
credit spread
2014 US Prime rate plus
credit spread
Other Debt
Notes payable
Deferred consideration
2012-2016
Accounts receivable securitization (2)
Senior Secured Notes (3)
Senior secured notes subject to
fixed interest rates (US$124.0 million;
2012-
Prime
Non-interest
bearing
Effective December 31, December 31, January 1,
2010
2010
2011
Interest Rate
219.5
60.8
174.6
19.8
40.0
–
141.3
142.3
146.1
29.7
410.3
30.8
273.9
6.3
327.0
–
4.0
–
4.0
–
0.6
1.2
90.1
91.3
2.4
92.7
95.7
2010 – US$156.0 million)
2015
7.65%
126.1
155.1
165.4
Senior Unsecured Debentures
Senior unsecured debentures
2016
8.25%
150.0
150.0
150.0
Leasing Obligations
Leasing obligations (see Note 18)
Total borrowings before deferred financing fees
Deferred financing fees
Borrowings
Current maturities
Borrowings
71.7
69.7
58.0
762.1
(6.4)
755.7
(54.3)
701.4
740.0
796.1
(7.1)
(7.1)
732.9
789.0
(136.2)
(108.9)
596.7
680.1
(1) Superior and its wholly-owned subsidiaries, Superior Plus Financing Inc. and Commercial E Industrial (Chile) Limitada, expanded the revolving
term bank credit borrowing capacity to $615 million from $450 million on June 20, 2011. The credit facilities mature on June 27, 2014 and
are secured by a general charge over the assets of Superior and certain of its subsidiaries. As at December 31, 2011, Superior had $34.8 million
of outstanding letters of credit (December 31, 2010 – $28.6 million) and approximately $84.2 million of outstanding financial guarantees
(December 31, 2010 – $65.3 million). The fair value of Superior’s revolving term bank credits, other debt, letters of credit, and financial
guarantees approximates their carrying value as a result of the market based interest rates, the short-term nature of the underlying debt
instruments and other related factors.
(2) Superior sold, with limited recourse, certain trade accounts receivable on a revolving basis to an entity sponsored by a Canadian chartered
bank. The accounts receivable were sold at a discount to face value based on prevailing money market rates. The level of accounts receivable
sold under the program fluctuates seasonally with the level of accounts receivable. As at December 31, 2011 proceeds of $nil million
(December 31, 2010 – $90.1 million) had been received. Superior terminated the accounts receivable securitization program in June 2011.
(3) Senior secured notes (the Notes) totaling U.S.$124.0 million (Cdn$126.1 million at December 31, 2011 and Cdn$155.1 million at December
31, 2010) are secured by a general charge over the assets of Superior and certain of its subsidiaries. Principal repayments began in the fourth
quarter of 2009. Management has estimated the fair value of the Notes based on comparisons to treasury instruments with similar maturities,
interest rates and credit risk profiles. The estimated fair value of the Notes at December 31, 2011 was Cdn$121.0 million (December 31, 2010
– Cdn$156.6 million).
.
2011 Annual Report
109
Notes to the Consolidated Financial Statements
Repayment requirements of the revolving term bank credits and term loans before deferred financing
costs are as follows:
Current maturities
Due in 2013
Due in 2014
Due in 2015
Due in 2016
Due in 2017
Subsequent to 2017
Total
54.3
54.2
451.6
41.6
155.8
4.6
–
762.1
18. Leasing Arrangements
Operating Lease Commitments
Superior has entered into leases on certain vehicles, rail cars, premises and other equipment. These
leases have an average life of between three and five years with no renewal option included in the
contracts. There are no restrictions placed upon Superior by entering into these leases.
Future minimum lease payments under non-cancellable operating leases are as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
December 31,
2011
December 31,
2010
January 1,
2010
26.8
57.2
27.1
111.1
27.7
65.6
20.7
114.0
26.5
60.4
15.8
102.7
110
Superior Plus Corp.
Obligations Under Finance Lease
Finance leases relate to fuel distribution and construction products vehicles and equipment and office
space with lease terms of five to fifteen years. Superior has options to purchase the assets for a nominal
amount at the conclusion of the lease agreements. Superior’s obligations under finance leases are
secured by the lessors’ title to the leased assets.
Minimum Lease Payments
Present Value of Minimum
Lease Payments
December
31, 2011
December
31, 2010
January
1, 2010
December December January
1, 2010
31, 2010
31, 2011
Not later than one year
19.8
18.3
14.7
15.6
13.9
11.1
Later than one year and not later
than five years
Later than five years
Less: future finance charges
Present value of minimum
lease payments
57.9
5.8
56.2
7.3
46.6
9.4
(11.8)
(12.1)
(12.7)
51.5
4.6
–
48.8
38.0
7.0
–
8.9
–
71.7
69.7
58.0
71.7
69.7
58.0
Included in the Consolidated Financial Statements as:
Current portion of leasing obligations
Non-current portion of leasing obligations
December 31,
2011
December 31,
2010
January 1,
2010
15.6
56.1
71.7
13.9
55.8
69.7
11.1
46.9
58.0
.
2011 Annual Report
111
Notes to the Consolidated Financial Statements
19. Convertible Unsecured Subordinated Debentures
Superior’s debentures are as follows:
Maturity
Interest rate
Conversion price per share
December
2012
5.75%
$36.00
October December
2014
7.50%
$13.10
2015
5.85%
$31.25
June
2017 (1)
5.75%
$19.00
June October
2016 (3)
2018 (2)
Total
7.5% Carrying
6.0%
Value
$15.10
$11.35
Face value, December 31, 2010
174.9
75.0
69.0
172.5
150.0
–
641.4
Debentures issued
Debentures redeemed (4)
Face value, December 31, 2011
Issue costs, December 31, 2010
Issue costs incurred
Redemption adjustment
Accretion of issue costs
Issue costs, December 31, 2011
Discount value, December 31, 2010
Recognized discount value
Redemption adjustment
Accretion of discount value
–
(125.0)
49.9
(2.7)
–
1.2
1.0
(0.5)
(0.8)
–
0.3
0.4
Discount value, December 31, 2011
(0.1)
49.3
(49.3)
–
–
75.0
(1.2)
–
–
0.3
(0.9)
(0.3)
–
–
0.1
(0.2)
73.9
–
–
–
–
–
–
–
75.0
75.0
–
(125.0)
69.0
172.5
150.0
75.0
591.4
(2.7)
(6.5)
–
–
0.6
(2.1)
(0.4)
–
–
0.1
(0.3)
–
–
0.8
(5.7)
(0.2)
–
–
–
(0.2)
(5.7)
(0.2)
–
0.6
(5.3)
(1.8)
–
–
0.2
(1.6)
–
(3.2)
–
0.1
(18.8)
(3.4)
1.2
3.4
(3.1)
(17.6)
–
(0.4)
–
–
(3.5)
(0.4)
0.3
0.8
(0.4)
(2.8)
66.6
166.6
143.1
71.5
571.0
–
–
–
–
(49.3)
Debentures outstanding
as at December 31, 2011
Less current maturities
Debentures outstanding
as at December 31, 2011
Debentures outstanding
as at December 31, 2010
Debentures outstanding
as at January 1, 2010
Quoted market value
as at December 31, 2011
Quoted market value
as at December 31, 2010
Quoted market value
as at January 1, 2010
–
73.9
66.6
166.6
143.1
71.5
521.7
171.4
73.5
65.9
165.8
142.5
170.0
73.1
65.3
–
–
–
–
619.1
308.4
50.0
63.0
65.2
122.5
105.6
62.3
466.6
175.8
74.9
71.6
162.6
144.6
177.1
74.4
78.3
–
–
–
–
629.5
329.8
(1) Superior issued $172.5 million in 5.75% convertible unsecured subordinated debentures during the first quarter of 2010. In conjunction
with the issuance of these debentures, Superior swapped $150 million of the fixed rate obligation into a floating-rate obligation of floating
BA rate plus 2.65%.
(2) Superior issued $150.0 million in 6.0% convertible unsecured subordinated debentures during the fourth quarter of 2010.
(3) Superior issued $75.0 million in 7.5% convertible unsecured subordinated debentures during the fourth quarter of 2011.
(4) Superior redeemed $75.0 million and $50.0 million of the 5.75% December 2012 convertible unsecured subordinated debentures on
November 7, 2011 and December 12, 2011, respectively.
The debentures may be converted into shares at the option of the holder at any time prior to maturity
and may be redeemed by Superior in certain circumstances. Superior may elect to pay interest and
principal upon maturity or redemption by issuing shares to a trustee in the case of interest payments,
112
Superior Plus Corp.
and to the debenture holders in the case of payment of principal. The number of any shares issued
will be determined based on market prices for the shares at the time of issuance. Also Superior has
a cash conversion put option which allows Superior to settle any conversion of debentures in cash,
in lieu of delivering common shares to the debenture holders of the June 2018 and October 2016
convertible debentures. The cash conversion put option has been classified as an embedded derivative
and measured at FVTNL (see Note 21 for further details).
20. Employee Future Benefits
Energy Services and Specialty Chemicals have defined benefit (DB) and defined contribution (DC)
pension plans covering most employees. The benefits provided under DB pension plans are based
on the employees’ years of service and on the highest average earnings for a specified number of
consecutive years. Information about Superior’s DB and other post-retirement benefit plans as at
December 31, 2011, December 31, 2010 and January 1, 2010 in aggregate is as follows:
Recognized liability for defined benefit obligations
Balance as at January 1, 2010
Present value of obligations
Fair value of plan assets
Unamortized past service costs
Recognized liability
Balance as at December 31, 2010
Present value of obligations
Fair value of plan assets
Unamortized past service costs
Recognized liability
Balance as at December 31, 2011
Present value of obligations
Fair value of plan assets
Recognized liability
Energy Services
Pension
Benefit Plans
Specialty
Chemicals Pension
Benefit Plans
Other
Benefit Plans
44.1
(43.2)
–
0.9
46.2
(41.1)
–
5.1
48.6
(39.1)
9.5
65.8
(60.2)
(0.1)
5.5
80.8
(67.2)
–
13.6
6.3
(70.6)
25.7
27.1
–
(0.1)
27.0
30.3
–
(0.1)
30.2
33.6
–
33.6
.
2011 Annual Report
113
Notes to the Consolidated Financial Statements
Movement in present value of defined benefit obligations and plan assets
Energy Services Pension
Benefit Plans
2011
2010
Specialty Chemicals
Pension Benefit Plans Benefit Plans
2010
Other
2010
2011
2011
Movement in benefit obligations during the year:
Benefit obligation at January 1
Current service cost
Interest cost
Contributions by the employer
Actuarial losses
Past service cost
Benefits paid
Benefit obligation as at December 31
46.2
0.1
2.3
–
3.9
–
(3.9)
48.6
44.1
0.1
2.6
–
4.5
–
(5.1)
46.2
80.8
2.3
4.3
0.1
65.8
1.8
4.1
0.1
30.3
27.1
0.1
1.6
–
0.1
1.7
–
11.4
11.5
2.8
2.7
–
(2.6)
96.3
–
(2.5)
80.8
–
–
(1.2)
(1.3)
33.6
30.3
Movement in fair value of plan assets during the year:
Fair value of plan assets at January 1
41.1
43.2
67.2
60.2
Expected return on plan assets
Actuarial losses
Contributions by the employer
Benefits paid
Fair value of plan assets as at December 31
Funded status – plan deficit
Unamortized past service costs
2.9
(2.8)
1.8
(3.9)
39.1
(9.5)
–
2.9
(1.2)
1.3
(5.1)
41.1
(5.1)
–
4.8
(4.3)
5.5
(2.6)
70.6
4.3
(0.1)
5.3
(2.5)
67.2
–
–
–
–
–
–
1.2
1.3
(1.2)
(1.3)
–
–
(25.7)
(13.6)
(33.6) (30.3)
–
–
–
0.1
Net benefit obligation
(9.5)
(5.1)
(25.7)
(13.6)
(33.6) (30.2)
Current portion of net benefit obligation
recorded in accounts payable
and accrued liabilities
Non-current net benefit obligation
–
(1.1)
(3.1)
(2.3)
(0.4)
–
(2011 – $65.3 million; 2010 – $45.5 million)
(9.5)
(4.0)
(22.6)
(11.3)
(33.2)
(30.2)
The accrued net pension obligation related to the Energy Services pension benefit plan on December
31, 2011 was $9.5 million (December 31, 2010 – $5.1 million), and the recovery for the year ended
December 31, 2011 was $0.3 million (December 31, 2010 – recovery of $0.1 million). The accrued net
benefit obligation related to the Specialty Chemicals pension benefit plan in 2011 was $25.7 million
(December 31, 2010 – $13.6 million), and the expense for the year ended December 31, 2011 was
$1.8 million (December 31, 2010 – $1.6 million).
The accrued net benefit obligation related to the total other benefit plans of Energy Services and
Specialty Chemicals on December 31, 2011 was $33.6 million (December 31, 2010 – $30.2 million),
and the expense for the year ended December 31, 2011 was $1.7 million (December 31, 2010 –
$1.9 million).
114
Superior Plus Corp.
Amounts recognized in net loss in respect of these defined benefit plans are as follows for the years
ended December 31.
Current service cost
Interest on obligation
Defined contribution plan payments
Expected return on plan assets
Past service cost
2011
2.5
8.2
0.1
(7.6)
–
3.2
2010
2.0
8.4
0.1
(7.2)
0.1
3.4
The total expense for the year is included in the “Selling, Distribution and Administrative Costs” expense
in the income statement.
The amount recognized in accumulated other comprehensive loss is as follows:
Actuarial losses during the year (before income taxes)
Cumulative actuarial losses (before income taxes)
2011
(25.5)
(45.4)
2010
(19.9)
(19.9)
Superior’s DC pension plans are fully funded by their nature. The total cost of Superior’s DC plans for
the year ended December 31, 2011 was $5.9 million (December 31, 2010 – $6.4 million).
The significant actuarial assumptions adopted in measuring accrued benefit obligations are as follows:
DB Plans
2011
Discount rate
4.25%
Expected long-term rate-of-return on plan assets (1) 7.00%
Expected rate of compensation increase
3.25%
(1) Based on market-related values.
2010
5.25%
7.00%
3.25%
Other Benefit Plans
2010
2011
4.25%
–%
3.25%
5.25%
–%
3.25%
The weighted average annual assumed health care cost inflation trend used in the calculation of
accrued other benefit plan obligations is 10% initially, decreasing to 5% in 2020 and thereafter. A
1% change in the health care trend rate would result in a change to the accrued benefit obligation of
$3.0 million and a change to the current service expense of $0.2 million.
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation
were carried out on December 31, 2011 by Hewitt Associates LLC.
Major categories of plan assets as a percentage of the fair value of total defined benefit plan assets:
.
2011 Annual Report
115
Notes to the Consolidated Financial Statements
Equities
Bonds
Others assets
Energy Services Specialty Chemicals
Pension Benefit
Pension Benefit
Plans
Plans
63.2.%
35.1.%
1.7.%
57.3.%
40.9.%
1.8.%
The actual return on plan assets was nil% (December 31, 2010 – 4.1%).
Superior expects to make a contribution of $8.8 million (December 31, 2010 – $8.0 million) to the
defined benefit plans during the next financial year.
Below is a summary of the experience adjustments for the past two annual periods:
Experience adjustments on plan assets
Experienced adjustments on plan liabilities
Total experience adjustment
Future employee benefits per cost category:
Year ended December 31
Selling, distribution and administrative costs
Total
2011
(16.1)
(9.4)
(25.5)
2011
3.2
3.2
2010
(14.6)
(5.4)
(20.0)
2010
3.4
3.4
21. Financial Instruments
IFRS requires disclosure around fair value and specifies a hierarchy of valuation techniques based on
whether the inputs to those valuation techniques are observable or unobservable. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect Superior’s
market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 – Quoted prices in active markets for identical instruments.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant
inputs and significant value drivers are observable in active markets.
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or
significant value drivers are unobservable.
The fair value of a financial instrument is the amount of consideration that would be estimated to be
agreed upon in an arm’s-length transaction between knowledgeable, willing parties who are under no
compulsion to act. Fair values are determined by reference to quoted bid or asking prices, as appropriate,
in the most advantageous active market for that instrument to which Superior has immediate access.
116
Superior Plus Corp.
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 estimates fair values based on prevailing
market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and risk
profiles or internal or external valuation models, such as discounted cash flow analysis using, to the
extent possible, observable market-based inputs.
Natural gas financial swaps – NYMEX
Fair values determined using valuation models require the use of assumptions concerning the amount
and timing of estimated future cash flows and discount rates. In determining those assumptions,
Superior looks primarily to available readily observable external market inputs including factors such as
forecast commodity price curves, interest rate yield curves, currency rates, and price and rate volatilities
as applicable.
Asset (Liability)
Description
Notional (1)
Term
Effective
Rate
Fair
Value
Input December 31, December 31, January 1,
2010
Level
2010
2011
Natural gas financial
swaps−NYMEX
Natural gas financial
swaps−AECO
Foreign currency forward
contracts, net sale
Foreign currency forward
contracts, net purchase
Interest rate
swaps – CDN$
–
29.64 GJ (2)
US$ 706.9 (3)
–
2012-
2016
2012-
2015
–
Level 1
–
(101.1)
(22.2)
CDN
$4.84/GJ
Level 1
(78.9)
(2.9)
(69.3)
1.03
Level 1
5.7
33.8
12.5
–
–
–
Level 1
–
0.1
0.4
$150.0
2012-
Six month
2017 BA rate plus
2.65%
Level 2
10.9
(0.6)
1.6
(1.8)
–
–
Debenture embedded derivative $225.0
2012-
2018
–
Level 3
Energy Services Propane
wholesale purchase and
sale contracts, net sale
Energy Services Butane
wholesale purchase and
sale contracts, net sale
Energy Services
electricity swaps
4.08 USG (4)
2012
0.40 USG (4)
2012
1.73MWh (5)
2012-
2016
$1.62/
USG
$1.17/
USG
$45.91/
MWh
Energy Services swaps and
option purchase and
sale contracts
17.3 Gallons (4)
2012
US$2.70/
Gallon
Specialty Chemicals
fixed-price electricity
purchase agreement
12-45 MW (6)
2012-
2017 (7)
$37.59/
MWh
Level 2
(0.6)
(1.6)
(2.2)
Level 2
0.2
–
(0.2)
Level 2
(16.0)
(13.0)
(9.3)
Level 2
(0.7)
1.2
0.1
Level 3
–
5.3
10.5
(1) Notional values as at December 31, 2011.
(2) Millions of gigajoules purchased.
(3) Millions of dollars/EUROS purchased.
(4) Millions of United States gallons purchased.
(5) Millions of mega watt hours (MWh).
(6) Mega watts (MW) on a 24/7 continual basis per year purchased.
(7) Specialty Chemicals fixed-price electricity purchase agreement has been impacted by the TransAlta Corporate force majeure issued in
December 2010 and the value of the agreement is estimated as $nil million.
.
2011 Annual Report
117
Notes to the Consolidated Financial Statements
All financial and non-financial derivatives are designated as held-for-trading upon their initial recognition.
Description
As at January 1, 2010
Natural gas financial swaps – NYMEX and AECO
Energy Services electricity swaps
Foreign currency forward contracts, net
Interest rate swaps
Debenture embedded derivative
Energy Services propane wholesale
purchase and sale contracts
Energy Services butane wholesale
purchase and sale contracts
Energy Services heating oil purchase
and sale contracts
Specialty Chemicals’ fixed-price power
purchase agreements
As at December 31, 2010
Current
Assets
Long-term
Assets
Current
Liabilities
Long-term
Liabilities
22.2
8.3
0.1
17.7
2.2
–
1.5
0.3
1.3
–
31.4
28.5
2.1
0.1
16.8
1.8
–
–
–
–
5.8
26.6
77.8
68.3
5.7
0.6
–
–
3.1
0.3
0.1
0.5
78.6
52.6
46.1
7.5
–
2.4
1.8
–
–
–
–
57.8
Description
Natural gas financial swaps – NYMEX and AECO
Energy Services electricity swaps
Foreign currency forward contracts, net
Interest rate swaps
Debenture embedded derivative
Energy Services propane wholesale
purchase and sale contracts
Energy Services butane wholesale
purchase and sale contracts
Energy Services heating oil purchase
and sale contracts
As at December 31, 2011
Current
Assets
Long-term
Assets
Current
Liabilities
Long-term
Liabilities
–
–
7.1
2.6
–
3.1
0.2
0.3
13.3
–
–
7.7
8.3
–
–
–
–
16.0
46.7
8.6
1.7
–
–
3.7
–
1.0
61.7
32.2
7.4
7.4
–
0.6
–
–
–
47.6
118
Superior Plus Corp.
Description
2011
Realized
gain (loss)
2010
Unrealized
gain (loss)
Realized
gain (loss)
Unrealized
gain (loss)
Natural gas financial swaps – NYMEX and AECO
(63.9)
Energy Services electricity swaps
Foreign currency forward contracts, net
Interest rate swaps
Foreign currency forward contracts –
balance sheet related
Energy Services propane wholesale
purchase and sale contracts
Energy Services heating oil
purchase and sale contracts
Specialty Chemicals fixed-price
power purchase agreements
Total realized and unrealized (losses)
gains on financial and non-financial derivatives
(7.3)
15.7
2.5
(0.2)
–
1.7
(3.4)
(54.9)
Foreign currency translation of senior secured notes
Unrealized change in fair value of
debenture embedded derivative
–
–
Total realized and unrealized losses
(54.9)
19.4
(3.1)
(27.0)
9.3
–
–
(1.7)
(5.4)
8.5
(2.8)
1.6
(9.7)
(82.2)
(4.4)
5.2
2.9
–
–
(1.5)
(0.3)
(80.3)
–
–
(80.3)
(23.4)
(3.7)
19.7
1.6
0.5
0.4
(0.2)
(5.3)
(10.4)
8.2
–
(2.2)
Realized gains (losses) on financial and non-financial derivatives and foreign currency translation gains
(losses) on the revaluation of Canadian domiciled U.S.-denominated working capital have been classified
on the statement of net earnings (losses) based on the underlying nature of the financial statement line
item and/or the economic exposure being managed.
The following summarizes Superior’s classification and measurement of financial assets and liabilities:
Financial Assets
Cash and cash equivalents
Trade and other receivables
Derivative assets
Classification
Measurement
Loans and receivables
Amortized cost
Loans and receivables
Amortized cost
FVTNL
Fair Value
Notes and finance lease receivable
Loans and receivables
Amortized cost
Financial liabilities
Trade and other payables
Dividends and interest payable
Provisions
Borrowings
Convertible unsecured subordinated debentures (1)
Derivative liabilities
Other liabilities
Amortized cost
Other liabilities
Amortized cost
Other liabilities
Amortized cost
Other liabilities
Amortized cost
Other liabilities
Amortized cost
FVTNL
Fair Value
(1) Except for derivatives embedded in the related financial instruments that are classified as FVTNL and measured at fair value.
.
2011 Annual Report
119
Notes to the Consolidated Financial Statements
Non-Derivative Financial Instruments
The fair value of Superior’s cash and cash equivalents, trade and other receivables, notes and finance
lease receivables, trade and other payables, and dividends and interest payable approximates their
carrying value due to the short-term nature of these amounts. The carrying value and the fair value of
Superior’s borrowings and debentures, is provided in Notes 17 and 19.
Financial Instruments – Risk Management
Market Risk
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 and 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 entered into natural gas financial swaps primarily with Macquarie
Cook Energy Canada Ltd. for distributor billed natural gas business in Canada to manage its economic
exposure of providing fixed-price natural gas to its customers. Additionally, Energy Services continues to
maintain its historical natural gas swap positions with seven additional counterparties. Energy Services
monitors its fixed-price natural gas positions on a daily basis to monitor 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 three 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 monitor compliance with established risk management policies.
Energy Services maintains a substantially balanced fixed-price electricity position in relation to its
customer supply commitments.
Specialty Chemicals has entered into a fixed-price electricity purchase agreement to manage
the economic exposure of certain chemical facilities to changes in the market price of electricity, in a
market where the price of electricity is not fixed. The fair value with respect to this agreement is with a
single counterparty.
Energy Services enters into various propane forward purchase and sale agreements with more than
twenty counterparties to manage the economic exposure of its wholesale customer supply contracts.
Energy Services monitors its fixed-price propane positions on a daily basis to monitor compliance with
established risk management policies. Energy Services maintains a substantially balanced fixed-price
propane gas position in relation to its wholesale customer supply commitments.
120
Superior Plus Corp.
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, and propane
purchases and sales in U.S. dollars and enters into forward U.S. dollar purchase contracts to create an
effective Canadian dollar fixed-price purchase cost. Specialty Chemicals enters into U.S. 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 U.S. dollars. Interest expense on Superior’s
U.S. dollar debt is also used to mitigate the impact of foreign exchange fluctuations.
Superior has interest rate swaps with a single counterparty to manage the interest rate mix of its total
debt portfolio and related overall cost of borrowing. Superior manages its overall liquidity risk in relation
to its general funding requirements by utilizing a mix of short-term and longer-term maturity debt
instruments. Superior reviews its mix of short-term and longer-term debt instruments on an ongoing
basis to ensure it is able to meet its liquidity requirements.
Credit Risk
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 deals 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
customers. Energy Services actively monitors the credit worthiness of its commercial customers. Overall,
Superior’s credit quality is enhanced by its portfolio of customers which is diversified across both
geographic (primarily Canada and North America) and end-use (primarily commercial, residential and
industrial) markets.
Allowance for doubtful accounts and past due receivables is reviewed by Superior at each statement of
financial position reporting date. Superior updates its estimate of the allowance for doubtful accounts
based on the evaluation of the recoverability of trade receivable balances of each customer taking
into account historic collection trends of past due accounts and current economic conditions. Trade
receivables are written-off once it is determined they are not collectable.
.
2011 Annual Report
121
Notes to the Consolidated Financial Statements
Pursuant to their respective terms, trade receivables, before deducting an allowance for doubtful
accounts, are aged as follows:
Current
Past due less than 90 days
Past due over 90 days
Trade receivables
December 31, 2011
December 31, 2010
January 1, 2010
280.3
128.1
39.5
447.9
294.9
182.3
36.5
513.7
265.8
63.7
11.0
340.5
The current portion of Superior’s trade receivables is neither impaired nor past due and there are no
indications as of the reporting date that the debtors will not meet their obligations to pay.
Superior’s trade receivables are stated after deducting a provision of $20.8 million as at
December 31, 2011 (December 31, 2010 − $14.0 million). The movement in the provision for doubtful
accounts was as follows:
December 31,
Allowance for doubtful accounts, opening
Opening adjustment due to acquisitions
Impairment losses recognized on receivables
Amounts recovered
Amounts written off during the year as uncollectible
Allowance for doubtful accounts, ending
2011
(14.0)
0.3
(10.8)
3.7
–
(20.8)
2010
(10.2)
(1.0)
(6.3)
–
3.5
(14.0)
Liquidity Risk
Liquidity risk is the risk that Superior cannot meet a demand for cash or fund an obligation as it comes
due. Liquidity risk also includes the risk of not being able to liquidate assets in a timely manner at a
reasonable price.
To ensure Superior is able to react to contingencies and investment opportunities quickly, Superior
maintains sources of liquidity at the corporate and subsidiary level. The primary sources of liquidity
consist of cash and other financial assets, the undrawn committed revolving term bank credit facility,
equity markets and debenture markets.
Superior is subject to the risks associated with debt financing, including the ability to refinance indebtedness
at maturity. Superior believes these risks are mitigated through the use of long-term debt secured by high
quality assets, maintaining debt levels that in management’s opinion are appropriate, and by diversifying
maturities over an extended period of time. Superior also seeks to include in its agreements terms that
protect it from liquidity issues of counterparties that might otherwise impact liquidity.
122
Superior Plus Corp.
Superior’s contractual obligations associated with its financial liabilities are as follows:
2012
2013
2014
2015
2016
2017 and
Thereafter
Total
Borrowings
54.3
54.2
451.6
41.6
155.8
4.6
762.1
Convertible unsecured
subordinated debentures
US$ foreign currency forward
sales contracts (US$)
CDN$ natural gas purchases
US$ heating oil purchases (US$)
US$ propane purchases (US$)
49.3
–
66.6
73.9
71.5
309.7
571.0
206.9
200.0
156.0
144.0
16.0
44.3
6.7
9.1
–
–
0.7
(0.2)
–
–
–
–
–
–
–
–
–
–
–
–
706.9
25.6
44.3
6.7
Superior’s contractual obligations are considered to be normal course operating commitments and do
not include the impact of mark-to-market fair values on financial and non-financial derivatives. Superior
expects to fund these obligations through a combination of cash flow from operations, proceeds on
revolving term bank credits and proceeds on the issuance of share capital.
Superior’s financial instruments’ sensitivities to changes in foreign currency exchange rates, interest
rates and various commodity prices and the impact to net earnings are detailed below:
Increase (decrease) to net earnings (losses) of a $0.01 increase in the CDN$ to the US$
Increase (decrease) to net earnings (losses) of a 0.5% increase in interest rates
Increase (decrease) to net earnings (losses) of a $0.40/GJ increase in the price of natural gas
Increase (decrease) to net earnings (losses) of a $0.04/litre increase in the price of propane
Increase (decrease) to net earnings (losses) of a $0.10/gallon increase in the price of heating oil
Increase (decrease) to net earnings (losses) of a $1.00/KWH increase in the price of electricity
Increase (decrease) to net earnings of a $0.40/litre increase in the price of butane
2011
(7.0)
(0.7)
2.1
0.7
1.5
1.1
–
The calculation of Superior’s sensitivity to changes in foreign currency exchange rates, interest rates
and various commodity prices represents the change in fair value of the financial instrument without
consideration of the value of the underlying variable, for example, the underlying customer contracts.
The recognition of the sensitivities identified above would have impacted Superior’s unrealized gain (loss)
on financial instruments and would not have a material impact on Superior’s cash flow from operations.
Income Taxes
22.
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 taxes are different than the amount computed by applying the corporate Canadian enacted
statutory rate for 2011 of 27.6% (2010 – 29.6%). The reduction in statutory rates reflects previously
enacted federal tax rate reductions. The reasons for these differences are as follows:
.
2011 Annual Report
123
Notes to the Consolidated Financial Statements
Net loss
Income tax (recovery) expense of Superior
Net loss of Superior before taxes
Computed income tax recovery
Higher effective foreign tax rates
Changes in future income tax rates
Non-deductible costs and other
Prior period adjustment
Other
Income tax (recovery) expense of Superior
2011
(302.6)
(50.4)
(353.0)
(97.4)
(24.6)
1.7
70.5
(2.1)
1.5
(50.4)
2010
(75.8)
6.5
(69.3)
(20.5)
(4.7)
9.1
15.1
6.5
1.0
6.5
Income tax expense or recovery for the years ended December 31, 2011 and 2010 is comprised of the
following:
Current income tax expense (recovery)
Current income tax charge
Adjustments in respect of previous year
Other
Total current income tax expense
Deferred income tax expense (recovery)
Relating to origination and reversal of temporary difference
Relating to changes in tax rates or the imposition of new taxes
Adjustments in respect of previous year
Other
Total deferred income tax (recovery) expense
Total income tax (recovery) expense
Income tax recognized directly in equity
Deferred tax
Adoption of IFRS
Total income tax recognized directly in equity
Income tax recognized in other comprehensive loss
Deferred tax
Reclassification of derivative gains and losses previously deferred
Amortization of actuarial gains and losses
Total income tax recognized in other comprehensive loss
124
Superior Plus Corp.
2011
0.8
0.3
0.3
1.4
(51.5)
3.1
(2.3)
(1.1)
(51.8)
(50.4)
2011
–
–
2011
(1.7)
6.5
4.8
4.8
2010
1.0
(0.2)
–
0.8
(9.3)
7.9
6.7
0.4
5.7
6.5
2010
34.7
34.7
2010
(2.9)
5.1
2.2
2.2
2011
Provisions
Finance leases
Borrowings
Financing fees
Investment tax credits
Non-operating losses
Other
Property, plant and
equipment
Reserves & employee
benefits
Scientific research and
development
Unrealized foreign exchange
gains (losses)
Total
2010
Provisions
Finance leases
Borrowings
Financing fees
Investment tax credits
Non-operating losses
Other
Property, plant and equipment
Reserves & employee benefits
Scientific research and
development
Unrealized foreign exchange
gains (losses)
Total
(Credited)
(Credited)
Charged Charged to Other
to Net Comprehensive
Income
Earnings
Aquisition
of
Exchange
Subsidiary Differences
Opening
Balance
2.0
18.5
(4.4)
5.8
117.4
41.6
(2.9)
1.8
(4.4)
0.8
(2.0)
–
2.3
0.2
(124.1)
50.2
29.0
1.9
151.7
(2.0)
19.8
254.4
2.1
50.9
Opening
Balance
1.7
15.6
(1.7)
3.2
120.2
54.4
(6.1)
(93.1)
19.3
0.3
(3.8)
2.3
(1.7)
(2.8)
(11.7)
3.0
6.1
3.3
152.5
(0.8)
22.1
288.1
1.7
(4.1)
Other
Closing
Balance
2.0
3.3
(1.7)
1.3
5.8
17.5
(5.3)
5.1
(4.1) 113.3
–
–
44.7
(2.7)
–
0.1
–
–
–
0.8
–
(2.3)
(4.2)
(80.4)
0.2
–
37.6
–
–
4.1
153.8
–
20.2
(1.2)
0.7
309.6
Closing
Balance
Other
–
6.7
(5.0)
4.3
–
–
(0.1)
2.0
18.5
(4.4)
5.8
117.4
41.6
(2.9)
(7.9)
(124.1)
–
–
–
–
–
(1.1)
0.3
2.9
(0.2)
1.5
29.0
–
–
–
151.7
(1.1)
19.8
–
–
–
–
–
–
–
–
6.5
–
(1.7)
4.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(32.1)
–
–
–
–
–
–
–
–
–
–
–
5.1
–
(2.9)
2.2
(32.1)
1.9
(1.6) 254.4
(Credited)
(Credited)
Charged Charged to Other Acquisition
of
Comprehensive
Income
to Net
Earnings
Exchange
Subsidiary Differences
Deferred taxes reported in the two preceding tables are presented on a functional basis while deferred
taxes reported on the balance sheet are on a legal entity basis.
.
2011 Annual Report
125
Notes to the Consolidated Financial Statements
The deferred income tax asset relates to the following tax jurisdictions as at December 31, 2011
and 2010:
Canada
United States
Chile
Total deferred income tax asset
2011
315.3
(4.6)
(1.1)
309.6
Superior has available to carry forward the following as at December 31, 2011 and 2010:
Canadian non-capital losses
Canadian scientific research expenditures
Canadian capital losses
United States non capital losses – federal
United States non capital losses – state
United States capital losses
Chilean non-capital losses
Canadian federal and provincial investment tax credits
2011
52.8
602.2
611.5
81.4
101.9
–
28.0
164.9
2010
309.3
(54.6)
(0.3)
254.4
2010
39.4
586.0
617.9
76.7
99.0
46.1
27.9
177.9
As at December 31, 2011, Superior had non-capital loss carry forwards available to reduce future years’
taxable income, which expire as follows:
2011
2012
2013
2014
2015
Thereafter
US
CDN
–
–
–
–
–
81.4
–
–
–
24.6
26.1
2.1
The Canadian scientific research expenditures, Canadian capital losses and the Chilean non-capital
losses may be carried forward indefinitely. Management believes there will be sufficient taxable profits
in the future to offset these losses.
In Chile, the local tax laws provide that any profits distributed outside of Chile would be subject to a 35%
tax. Superior controls whether the profits will be distributed and is satisfied that there will be no liability
in the foreseeable future as there is no plan to repatriate funds from Chile.
As at December 31, 2011, Superior had Canadian federal and provincial investment tax credits available
to reduce future years’ taxable income, which expire as follows:
126
Superior Plus Corp.
2012
2013
2014
2015
2016
Thereafter
6.1
7.6
5.6
4.3
4.6
136.7
164.9
As at December 31 Superior has the following balances in respect of which no deferred tax asset was
recognized:
Canadian non-capital losses
United States non-capital losses – state
Canadian capital losses
United States capital losses
Total unrecognized deferred income tax assets
2011
25.2
20.4
611.5
–
657.1
2010
27.6
22.3
617.9
46.1
713.9
Deferred tax assets have not been recognized for the above temporary differences as it is not probable
that the respective entities to which they relate will generate future taxable income against which to
utilize the temporary differences.
23. Total Equity
Superior is authorized to issue an unlimited number of common shares and an unlimited number of
preferred shares. The holders of common shares are entitled to dividends if, as and when declared by
the Board of Directors; to one vote per share at meetings of the holders of common shares; and upon
liquidation, dissolution or winding up of Superior to receive pro rata the remaining property and assets
of Superior, subject to the rights of any shares having priority over the common shares, of which none
are outstanding.
Preferred shares are issuable in series with each class of preferred share having such rights as the
Board of Directors may determine. Holders of preferred shares are entitled, in priority of holders of
common shares, to be paid ratably with holders of each other series of preferred shares the amount of
accumulated dividends, if any, specified to be payable preferentially to the holders of such series upon
liquidation, dissolution or winding up of Superior to be paid ratably with holders of each other series of
preferred shares the amount, if any, specified as being payable preferentially to holders of such series.
Superior does not have any preferred shares outstanding.
.
2011 Annual Report
127
Notes to the Consolidated Financial Statements
Issued Number
of Common Shares
(millions)
Total equity, January 1, 2010
Net proceeds on the issuance of share capital
Net loss
Other comprehensive loss
Option value associated with the issuance
of the convertible debentures
Issuance of common shares for the dividend reinvestment plan
Dividends declared to shareholders (1)
Prior period adjustments
Total equity, December 31, 2010
Net loss
Other comprehensive loss
Option value associated with the issuance of the convertible debentures
Issuance of common shares for the dividend reinvestment plan
Dividends declared to shareholders (1)
Total equity, December 31, 2011
99.9
–
–
–
6.2
1.6
–
–
107.7
–
–
–
3.1
–
110.8
Total
Equity
935.1
81.7
(75.8)
(33.0)
0.2
17.2
(171.2)
0.2
754.4
(302.6)
(1.2)
(2.2)
28.9
(127.7)
349.6
(1) Dividends to shareholders are declared at the discretion of Superior. During the year ended December 31, 2011, Superior paid dividends of
$136.7 million or $1.25 per share (December 31, 2010 – $156.8 million or $1.48 per share).
Accumulated other comprehensive loss as at December 31, 2011 and 2010 consisted of the following
components:
December 31,
2011
December 31,
2010
January 1,
2010
Currency translation adjustment
Balance at beginning of year
Unrealized foreign currency gains and
losses on translation of foreign operations
Balance at end of year
Actuarial defined benefits
Balance at beginning of year
Actuarial defined benefit losses
Income tax recovery
Balance at end of year
Accumulated derivative gains (losses)
Balance at beginning of year
Reclassification of derivative gains previously deferred
Income tax recovery (expense)
Balance at end of year
Accumulated other comprehensive loss at end of year
(27.4)
13.6
(13.8)
(14.8)
(25.5)
4.8
(35.5)
(11.9)
5.9
–
(6.0)
(55.3)
128
Superior Plus Corp.
–
(27.4)
(27.4)
–
(19.9)
5.1
(14.8)
(21.1)
12.1
(2.9)
(11.9)
(54.1)
(22.8)
22.8
–
–
–
–
–
(21.1)
–
–
(21.1)
(21.1)
Other Capital Disclosures
Additional Capital Disclosures
Superior’s objectives when managing capital are: (i) to maintain a flexible capital structure to preserve
its ability to meet its financial obligations, including potential obligations from acquisitions; and (ii) to
safeguard Superior’s assets while at the same time maximizing the growth of its businesses and returns
to its shareholders.
In the management of capital, Superior includes shareholders’ equity (excluding accumulated
other comprehensive income), (AOCI) current and long-term debt, convertible debentures and cash and
cash equivalents.
Superior manages its capital structure and makes adjustments in light of changes in economic conditions
and nature of the underlying assets. In order to maintain or adjust the capital structure, Superior may
adjust the amount of dividends to shareholders, issue additional share capital, issue new debt or
convertible debentures and issue new debt or convertible debentures with different characteristics.
Superior monitors its capital based on the ratio of senior debt outstanding to net earnings before
interest, taxes, depreciation, amortization and other non-cash expenses (EBITDA), as defined by its
revolving term credit facility, and the ratio of total debt outstanding to EBITDA. Superior’s reference to
EBITDA as defined by its revolving term credit facility may be referred to as compliance EBITDA in other
public reports of Superior.
.
2011 Annual Report
129
Notes to the Consolidated Financial Statements
Superior is subject to various financial covenants in its credit facility agreements, including senior debt
and total debt to EBITDA ratios, which are measured on a quarterly basis. As at December 31, 2011,
December 31, 2010 and January 1, 2010 Superior was in compliance with all of its financial covenants.
Superior’s financial objectives and strategy related to managing its capital as described above have
remained unchanged from the prior fiscal year. Superior believes that its debt to EBITDA ratios are within
reasonable limits, in light of Superior’s size, the nature of its businesses and its capital management
objectives.
Non-IFRS Financial Measures Utilized For Bank Covenant Purposes
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
divisions. EBITDA is not a defined performance measure under IFRS. Superior’s calculation of EBITDA
may differ from similar calculations used by comparable entities. EBITDA of Superior’s operating
businesses 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 IFRS. Superior’s calculation of
compliance EBITDA may differ from similar calculations used by comparable entities.
The capital structure of Superior and the calculation of its key capital ratios are as follows:
As at December 31,
Total shareholders’ equity
Exclude accumulated other comprehensive loss
Shareholders’ equity (excluding AOCI)
Current borrowings (1)
Borrowings (1)
Less: Senior unsecured debentures
Consolidated secured debt
Add: Senior unsecured debentures
Consolidated debt
Current portion of convertible unsecured subordinated debentures (1)
Convertible unsecured subordinated debentures (1)
Total debt
Total capital
2011
349.6
55.3
404.9
54.3
707.8
(150.0)
612.1
150.0
762.1
49.9
541.5
1,353.5
2010
754.4
54.1
808.5
136.2
603.8
(150.0)
590.0
150.0
740.0
–
641.4
1,381.4
1,758.4
2,189.9
(1) Borrowings and convertible unsecured subordinated debentures are before deferred issue costs and discounts.
130
Superior Plus Corp.
Twelve Months Ended December 31,
Net loss
Adjusted for:
Finance expense
Realized gains on derivative financial instruments included in finance expense
Depreciation of property, plant and equipment
Depreciation and amortization included in cost of sales
Amortization of intangible assets
Impairment of goodwill and intangible assets
Impairment of property, plant and equipment
Income tax expense (recovery)
Unrealized losses on derivative financial instruments
Proforma impact of acquisitions
Compliance EBITDA (1)
2011
(302.6)
85.5
2.3
48.4
44.9
41.9
378.6
3.4
(50.4)
9.7
1.5
263.2
2010
(75.8)
75.2
2.9
49.0
46.4
30.4
89.5
–
6.5
2.2
4.8
231.1
(1) EBITDA, as defined by Superior’s revolving term credit facility, is calculated on a trailing 12-month basis taking into consideration the pro
forma impact of acquisitions and dispositions in accordance with the requirements of Superior’s credit facility. Superior’s calculation of
EBITDA and debt to EBITDA ratios may differ from those of similar entities.
The capital structure of Superior and the calculation of its key capital ratios are as follows:
December 31,
Consolidated debt to Compliance EBITDA
Total debt to Compliance EBITDA
24. Deficit and Dividends
Balance at beginning of the year
Net loss
Dividends declared
Prior period adjustment
Balance at end of the year
2011
2.9:1
5.1:1
2010
3.2:1
6.0:1
December 31,
2011
December 31,
2010
(797.9)
(302.6)
(127.7)
–
(1,228.2)
(551.1)
(75.8)
(171.2)
0.2
(797.9)
As at December 31, 2011, Superior declared dividends of $5.5 million or $0.05 per share payable on
January 15, 2012 to shareholders of record on December 31, 2011.
.
2011 Annual Report
131
Notes to the Consolidated Financial Statements
25.
Supplemental Disclosure of Consolidated Statement of Net Loss and
Comprehensive Loss
Revenue is recognized at the fair value of consideration received or receivable when the significant risks
and rewards of ownership have been transferred.
2011
2010
3,823.9
3,448.5
53.7
29.6
2.0
16.4
56.8
28.5
2.3
1.3
3,925.6
3,537.4
(2,979.7)
(2,623.1)
(44.9)
(73.5)
(46.4)
(87.3)
(3,098.1)
(2,756.8)
268.0
3.2
339.3
(0.9)
48.4
46.1
3.4
(0.8)
706.7
37.4
39.1
5.0
(1.7)
8.0
(2.3)
85.5
254.2
1.9
337.2
(1.2)
49.0
35.6
–
(0.3)
676.4
39.6
27.6
4.5
–
6.4
(2.9)
75.2
Revenues
Revenue from products
Revenue from the rendering of services
Rental revenue
Construction contract revenue
Realized gains on derivative financial instruments
Cost of sales (includes products and services)
Cost of products and services
Depreciation of property, plant and equipment
Realized losses on derivative financial instruments
Selling, distribution and administrative costs
Other selling, distribution and administrative costs
Employee future benefit expense
Employee costs
Gain on bargain purchase
Depreciation of property, plant and equipment
Amortization of intangible assets
Impairment of property, plant, and equipment
Realized gains on the translation of U.S. denominated net working capital
Finance expense
Interest on borrowings
Interest on convertible unsecured subordinated debentures
Interest on obligations under finance leases
Gain on debenture redemption
Unwind of discount on debentures, borrowing and decommissioning liabilities
Realized gains on derivative financial instruments
132
Superior Plus Corp.
26. Net Loss Per Share
Net loss per share computation, basic and diluted (1)
Net loss
Weighted average shares outstanding (millions)
Net loss per share, basic and diluted
2011
2010
(302.6)
109.2
$(2.77)
(75.8)
105.6
$(0.72)
(1) All outstanding convertible debentures have been excluded from this calculation as they were anti-dilutive.
The following potential ordinary shares are anti-dilutive and are therefore excluded from the weighted
average number of ordinary shares for the purposes of diluted earnings per share.
(millions)
Convertible Debentures
5.75%
5.85%
7.50%
5.75%
6.00%
7.50%
Total anti-dilutive instruments
Notes
19
19
19
19
19
19
2011
1.4
2.4
5.3
9.1
9.9
6.6
34.7
2010
4.9
2.4
5.3
9.1
9.9
–
31.6
27. Share Based Compensation
Restricted/Performance Shares
Under the terms of Superior’s long-term incentive program, restricted shares (RSs), performance shares
(PSs) and/or director shares (DSs) can be granted to directors, senior officers and employees of Superior.
All three types of shares entitle the holder to receive cash compensation in relation to the value of a
specified number of underlying notional shares. RSs vest evenly over a period of three years commencing
from the date of grant, except for RSs issued to directors which vest three years from the date of grant.
Payments are made on the anniversary dates of the RS to the holders entitled to receive them on the
basis of a cash payment equal to the value of the underlying notional shares. PSs vest three years from
the date of grant and their notional value is dependent on Superior’s performance as compared to
established benchmarks. DSs vest immediately on the date of grant and payments are made to directors
once they retire based on the number of notional shares outstanding and the value of the shares on that
date. Employee compensation expense for these plans is charged against net earnings (losses) over the
vesting period of the RSs, PSs, amd DSs. The amount payable by Superior in respect of RSs, PSs and DSs
changes as a result of dividends and share price movements. The fair value of all the RSs, PSs, and DSs
is equal to Superior’s common share market price and the divisional notional share price if related to a
divisional plan. In the event of an employee termination, any unvested shares are forfeited on that date.
.
2011 Annual Report
133
Notes to the Consolidated Financial Statements
For the year ended December 31, 2011 total compensation expense related to RSs, PSs and DSs was
$3.9 million (December 31, 2010 – $7.7 million). Payouts during the year ended December 31, 2011
under the long term incentive plan were completed at a weighted average price of $8.43 per share
(December 31, 2010 – $9.99 per share) for RSs and $14.65 per share (December 31, 2010 – $11.52 per
share) for PSs. For the year ended December 31, 2011 the total carrying amount of the liability related
to RSs, PSs and DSs was $3.7 million (December 31, 2010 – $8.8 million).
The movement in the number of units under the long term incentive program was as follows:
Year Ended December 31, 2011
DSs
PSs
RSs
Year Ended December 31, 2010
PSs
RSs
DSs
Opening number of shares
962,193 1,008,945
–
1,020,357
Granted
715,093
386,881
187,655
Dividends reinvested
175,583
77,401
Forfeited
Payouts
(168,575)
(232,785)
(428,915)
(288,691)
–
–
–
447,328
61,559
(147,707)
(419,345)
674,577
320,381
99,272
(48,045)
(37,240)
Ending number of shares
1,255,379
951,752
187,655
962,193
1,008,945
–
–
–
–
–
–
28.
Supplemental Disclosure of Non-Cash Operating Working Capital Changes
December 31
2011
2010
Changes in non-cash working capital
Trade receivable and other
Inventories
Trade payable and other payables
Purchased working capital
Other
82.8
(36.0)
(13.1)
0.7
(4.3)
30.1
(170.8)
(23.6)
23.8
39.0
(11.7)
(143.3)
29. Commitments
Purchase commitments under long-term natural gas and propane contracts for the next five years and
thereafter are as follows:
2012
2013
2014
2015
2016
2017 and thereafter
(1) Does not include the impact of financial derivatives. (See Note 21)
CDN$ (1)
Natural Gas
US$
Propane
US$
Heating Oil
16.0
9.1
0.7
(0.2)
−
−
6.7
−
−
−
−
−
44.3
−
−
−
−
−
Superior is similarly committed to long-term natural gas and propane sales contracts to supply customers.
134
Superior Plus Corp.
30. Related-Party Transactions and Agreements
Transactions between Superior and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
For the year ended December 31, 2011, Superior incurred $1.7 million (December 2010 – $0.9 million)
in legal fees, with Norton Rose Canada LLP. Norton Rose Canada LLP is a related party with Superior as
a board member is a Partner at the law firm.
Remuneration Of Directors And Other Key Management Personnel
The key management personnel of Superior are comprised of members of the Superior Plus Board of
Directors, executives of Superior and presidents of Superior’s business segments.
The remuneration of directors and other members of key management personnel during the twelve
months ended December 31 was as follows:
Twelve Months Ended December 31,
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
2011
4.6
0.2
1.8
4.4
2010
4.9
0.2
0.2
2.8
(1) Short-term employee benefits paid to directors and other members of key management personnel includes salaries and bonuses.
.
2011 Annual Report
135
Notes to the Consolidated Financial Statements
31. Group Entities
Significant Subsidiaries
Superior Plus LP
619220 Saskatchewan Ltd.
Superior International Inc.
Superior General Partner Inc.
Superior Plus Canada Financing Inc.
Superior Energy Management Operations Inc.
Superior Energy Management Holdings LP
Superior Energy Management Electricity Inc.
Superior Energy Management Electricity LP
Superior Energy Management Gas Holdings LP
6751261 Canada Inc.
Superior Energy Management Gas Inc.
Superior Energy Management Gas LP
Superior Plus US Holdings Inc.
Superior Plus US Financing Inc.
ERCO Worldwide Inc.
ERCO Worldwide (U.S.A) Inc.
Superior Plus Construction Products Corp.
The Winroc Corporation (Midwest)
Superior Plus US Energy Services Inc.
Burnwell Gas of Canada
Commercial E Industrial ERCO (Chile) Limitada
Country of
Incorporation
Ownership Interest
From January 1,
2010 Through To
December 31, 2011
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
U.S.A
U.S.A
U.S.A
U.S.A
U.S.A
U.S.A
U.S.A
Canada
Chile
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
32. Segment Information
Superior has adopted IFRS 8 Operating Segments, which requires operating segments to be identified
on the basis of internal reports about components of the Company that are regularly reviewed by
the chief operating decision maker in order to allocate resources to the segments and to assess
their performance.
Superior operates three distinct reportable operating segments: Energy Services, Specialty Chemicals and
Construction Products Distribution. Superior’s Energy Services operating segment provides distribution,
wholesale procurement and related services in relation to propane, heating oil and other refined fuels.
Energy Services also provides fixed-price natural gas and electricity supply services. Superior’s Specialty
Chemicals operating segment is a leading supplier of sodium chlorate and technology to the pulp and
paper industries and is a regional supplier of potassium and chloralkali products to the U.S. Midwest.
Superior’s Construction Products Distribution operating segment is one of the largest distributors of
commercial and industrial insulation in North America and the largest distributor of specialty construction
products to the walls and ceilings industry in Canada. Superior’s corporate office arranges intersegment
136
Superior Plus Corp.
foreign exchange contracts from time to time between its operating segments. Realized gains and
losses pertaining to intersegment foreign exchange gains and losses are eliminated under the corporate
cost column. All of Superior’s operating segments conduct business with customers of various sizes and
do not rely extensively on any single customer for revenue streams.
For the year ended December 31, 2011
Revenues
Energy
Specialty
Services Chemicals
2,686.1
527.7
Cost of sales (includes product & services)
(2,225.7)
(335.3)
Gross Profit
Expenses
460.4
192.4
Selling, distribution and administrative costs 141.2
Depreciation of property, plant and
equipment
Amortization of intangible assets
Employee costs
Finance expense
Impairment of intangible assets
and goodwill
Unrealized losses (gains) on derivative
financial instruments
41.0
36.7
186.5
3.9
300.6
(15.6)
Net earnings (losses) before income taxes
(233.9)
Income tax recovery
Net earnings (losses)
–
(233.9)
59.9
1.8
6.7
62.2
0.3
–
5.4
56.1
–
56.1
Construction
Products
Distribution
711.8
(537.1)
174.7
63.9
5.6
2.7
86.6
1.2
78.0
Total
Corporate Consolidated
–
–
–
3,925.6
(3,098.1)
827.5
7.9
272.9
–
–
4.0
80.1
48.4
46.1
339.3
85.5
–
378.6
–
19.9
9.7
(63.3)
(111.9)
–
(63.3)
50.4
(61.5)
(353.0)
(50.4)
(302.6)
.
2011 Annual Report
137
Notes to the Consolidated Financial Statements
For the year ended December 31, 2010
Energy
Specialty
Services Chemicals
Construction
Products
Distribution
Total
Corporate Consolidated
Revenues
2,338.3
481.5
Cost of sales (includes products & services)
(1,904.2)
(307.3)
Gross Profit
Expenses
434.1
174.2
Selling, distribution and administrative costs 129.5
59.4
Depreciation of property, plant
and equipment
Amortization of intangible assets
Employee costs
Other expenses
Finance expense
Impairment of intangible assets and goodwill
Unrealized losses (gains) on derivative
financial instruments
Net earnings (losses) before income taxes
Income tax expense
Net earnings (losses)
37.4
26.3
187.2
5.3
4.0
–
26.4
18.0
–
18.0
3.8
6.5
59.7
–
0.2
–
5.3
39.3
–
39.3
717.6
(545.3)
172.3
61.9
7.8
2.8
83.6
0.1
0.4
89.5
–
–
–
3,537.4
(2,756.8)
780.6
3.8
254.6
–
–
6.7
1.2
70.6
–
49.0
35.6
337.2
6.6
75.2
89.5
–
(29.5)
2.2
(73.8)
–
(73.8)
(52.8)
6.5
(59.3)
(69.3)
6.5
(75.8)
138
Superior Plus Corp.
Net Working Capital, Total Assets, Total Liabilities, Acquisitions and Purchase of Property,
Plant and Equipment
Energy
Specialty
Services Chemicals
Construction
Products
Distribution
Total
Corporate Consolidated
As at December 31, 2011
Net working capital (1)
Total assets
Total liabilities
As at December 31, 2010
Net working capital (1)
Total assets
Total liabilities
As at January 1, 2010
Net working capital (1)
Total assets
Total liabilities
239.8
1,008.6
369.2
290.2
1,410.9
449.4
145.4
1,112.5
414.7
25.7
618.8
208.3
33.5
653.1
177.3
17.6
688.8
177.5
For the year ended December 31, 2011
Acquisitions
Purchase of property, plant
and equipment
14.8
–
19.9
16.1
For the year ended December 31, 2010
Acquisitions
Purchase of property, plant and equipment
148.0
20.9
0.3
15.6
129.8
218.8
68.8
108.3
278.3
74.0
111.0
392.2
92.0
–
2.1
17.7
2.8
(18.0)
347.5
1,197.5
(31.1)
354.6
1,241.8
(30.3)
360.3
934.5
–
0.1
–
1.5
377.3
2,193.4
1,843.8
400.9
2,696.9
1,942.5
243.7
2,553.8
1,618.7
14.8
38.2
166.2
40.8
(1) Net working capital reflects amounts as at year end and is comprised of trade and other receivables, prepaid expenses and inventories, less
trade and other accounts payables, deferred revenue and dividends and interest payable.
.
2011 Annual Report
139
Notes to the Consolidated Financial Statements
33. Geographic Information
Canada
United
States
Total
Other Consolidated
Revenues for the year ended December 31, 2011
1,743.7
2,091.8
90.1
3,925.6
Property, plant and equipment as at
December 31, 2011
Intangible assets as at December 31, 2011
Goodwill as at December 31, 2011
Total assets as at December 31, 2011
Revenues for the year ended December 31, 2010
Property, plant and equipment as at
December 31, 2010
Intangible assets as at December 31, 2010
Goodwill as at December 31, 2010
Total assets as at December 31, 2010
Property, plant and equipment as at January 1, 2010
Intangible assets as at January 1, 2011
Goodwill as at January 1, 2010
Total assets as at January 1, 2010
486.5
26.9
185.6
1,337.9
1,691.8
511.8
39.8
391.5
1,781.4
536.5
47.3
456.7
1,784.9
349.3
38.7
0.5
788.3
1,762.2
349.7
144.4
80.2
843.9
289.2
138.3
70.8
709.0
49.2
–
–
67.2
83.4
50.9
–
–
71.6
54.3
–
–
885.0
65.6
186.1
2,193.4
3,537.4
912.4
184.2
471.7
2,696.9
880.0
185.6
527.5
59.9
2,553.8
34. Comparative Figures
Certain reclassifications of prior year amounts have been made to conform to current period presentation.
Specifically, $16.1 million and $15.4 million have been reclassified to trade and other receivables
from trade and other payables to provide comparative presentation of certain Construction Products
Distribution vendor and customer rebates as at January 1, 2010 and December 31, 2010, respectively.
35. Explanation of Transition to IFRS
Superior’s financial statements for the year ended December 31, 2011 are the first annual financial
statements that comply with IFRS and these financial statements were prepared as described in Note 2,
including the application of IFRS 1.
IFRS also requires that comparative financial information be provided. As a result, the first date at
which Superior has applied IFRS was January 1, 2010 (Transition Date). IFRS 1 requires first-time
adopters to retrospectively apply all effective IFRS standards as of the reporting date, which for Superior
is December 31, 2011. However, it also provides for certain optional exemptions and certain mandatory
exceptions for first-time IFRS adopters.
First-time Adoption of IFRS
Set forth below are the applicable IFRS 1 elective exemptions and mandatory exceptions applied in the
conversion from GAAP to IFRS.
140
Superior Plus Corp.
IFRS Elective Exemptions
Share-Based Payment Transactions
IFRS 2, Share-based Payment, encourages application of its provisions to equity instruments granted
on or before November 7, 2002, but requires the application only to equity instruments granted after
November 7, 2002 that had not vested by the Transition Date. Superior has elected to utilize this
exemption to avoid applying IFRS 2 Share-Based Payment retrospectively and restate all share-based
liabilities that were settled before the date of transition to IFRS. Accordingly, all unsettled liabilities
arising from share-based payment transactions are in compliance with the principles of IFRS after the
Transition Date.
Changes in the Decommissioning Liabilities Included in the Cost of Property, Plant and Equipment
Superior as elected to utilize this exemption to avoid retrospective restatement of all changes in
decommissioning, restoration, and similar liabilities that are included in property, plant and equipment
prior to the Transition Date.
Leases
Superior has elected to apply the transitional provisions of IFRIC 4 Determining Whether an
Arrangement Contains a Lease to determine only whether any existing contract or arrangements at
the Transition Date contains a lease under IFRIC 4 and if so, to apply IAS 17 Leases from the inception
of that arrangement. Furthermore, Superior has elected to utilize the leases exemption to avoid the
reassessment of determining whether an arrangement contained a lease at the Transition Date for all
arrangements assessed prior to the Transition Date which resulted in the same outcome under IFRS and
previous GAAP.
Fair Value or Revaluation as Deemed Cost
Generally, for Energy Services, Specialty Chemicals and Construction Products Distribution property,
plant, equipment, Superior has elected to use the fair value as deemed cost exemption. Deemed cost
is the cost under previous GAAP that was established by measuring items at fair value due to business
combinations. For certain Energy Services property, plant and equipment, Superior has revalued assets
at deemed cost and recorded accumulated depreciation and amortization of its property, plant and
equipment in accordance with its IFRS policies.
Business Combinations
A first-time adopter may elect not to apply IFRS 3 Business Combinations, retrospectively to business
combinations completed before the Transition Date. However, if a first-time adopter restates any
business combinations to comply with IFRS 3, it shall restate all later business combinations and shall
also apply IAS 27 from that same date. Superior has elected not to apply IFRS 3 to business combinations
completed before the Transition Date. Superior has applied IFRS 3, Business Combinations, to all
acquisitions completed during 2010 in accordance with IFRS. Superior has also tested all goodwill for
impairment for acquisitions completed in 2010 and restated under IFRS 3. Superior also tested goodwill
for impairment at the Transition Date to IFRS which resulted in no adjustments to goodwill.
.
2011 Annual Report
141
Notes to the Consolidated Financial Statements
Employee Benefits
IFRS 1 provides the option to retrospectively apply the corridor approach under IAS 19, Employee
Benefits, for the recognition of actuarial gains and losses, or recognize all cumulative gains and losses
deferred under GAAP in opening retained earnings at the Transition Date. Superior elected to recognize
all cumulative actuarial gains and losses that existed at its Transition Date in opening deficit for all of its
employee benefit plans.
Cumulative Translation Differences
Retrospective application of IFRS would require Superior to determine cumulative currency translation
differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date
a subsidiary or equity method investee was formed or acquired. IFRS 1 permits cumulative translation
gains and losses to be reset to zero at the Transition Date. Superior elected to reset all cumulative
translation gains and losses to zero in accumulated other comprehensive loss at its Transition Date.
Borrowing Costs
IAS 23 Borrowing Costs, requires an entity to capitalize the borrowing costs related to all qualifying
assets for which the commencement date for capitalization is on or after January 1, 2009 or date of
transition whichever is later. Superior has applied the transitional provisions prescribed in IAS 23, which
has constituted a change in accounting policy. All borrowing costs related to qualifying assets for which
the commencement date for capitalization is on or after the Transition Date have been capitalized.
IFRS Mandatory Exceptions
Derecognition of financial assets and liabilities
A first-time adopter should apply the derecognition requirements in IAS 39 Financial Instruments:
Recognition and Measurement, prospectively to transactions occurring on or after January 1, 2004.
Superior has applied this mandatory exception which did not impact any of Superior’s previously
reported results.
Hedge Accounting
Hedge accounting can only be applied prospectively from the Transition Date to transactions that
satisfy the hedge accounting criteria in IAS 39 at that date. Hedging relationships cannot be designated
retrospectively and the supporting documentation cannot be created retrospectively. Superior has
applied this mandatory exception which did not impact any of Superior’s previously reported results.
142
Superior Plus Corp.
Non-Controlling Interests
A first-time adopter that applies IAS 27 Consolidated and Separate Financial Statements, should
apply the standard retrospectively, with the exception of the following requirements which are applied
prospectively from the Transition Date:
–
The requirement that total comprehensive income is attributed to the owners of the parent and to
the non-controlling interests have a deficit balance;
The requirements on accounting for changes in the parent’s ownership interest in a subsidiary that
do not result in a loss of control; and
The requirements on accounting for a loss of control over a subsidiary, and the related requirements
of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
–
–
Estimates
An entity’s estimates in accordance with IFRS at the date of transition to IFRS shall be consistent with
estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any
difference in accounting policies), unless there is objective evidence that those estimates were in error.
Superior has applied these mandatory exceptions which did not impact any of Superior’s previously
reported results.
Reconciliations between GAAP and IFRS
IFRS 1 requires an entity to reconcile equity, net earnings (losses) and comprehensive income for prior
periods. The following represents the reconciliations from GAAP to IFRS for the respective periods
noted for equity, earnings and comprehensive income.
.
2011 Annual Report
143
Notes to the Consolidated Financial Statements
Reconciliation of Equity as at January 1, 2010
GAAP Adjustments
GAAP accounts (millions of dollars)
Notes
Reclassifications
IFRS
IFRS accounts
Assets
Current Assets
Cash and cash equivalents
24.3
Accounts receivable and other
(a) (j)
329.9
Inventories
(k)
Future income tax asset
Current portion of unrealized gains
on derivative financial instruments
Property, plant and equipment
(b) (d)
Intangible assets
Goodwill
Accrued pension asset
Deferred income tax asset
Investment tax credits
Long-term portion of unrealized gains
on derivative financial instruments
(l)
(m)
(c)
(g)
−
145.7
59.0
22.2
581.1
668.0
180.0
528.4
18.2
165.7
120.2
28.5
−
85.7
−
(2.2)
−
−
83.5
213.6
4.0
(0.9)
(18.2)
(18.3)
−
−
2,290.1
263.7
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable and accrued
liabilities
(n)
296.8
(1.4)
Unearned revenue
Current portion of term loans
Dividends and interest payable to
shareholders and debenture holders
(a) (d)
Current portion of deferred credit
Current portion of unrealized losses
on derivative financial instruments
(e)
5.8
5.1
14.2
24.5
77.8
−
103.8
−
(24.5)
−
−
(21.3)
21.3
−
(59.0)
−
Current Assets
24.3 Cash and cash
equivalents
394.3
Trade and other
receivables
21.3 Prepaid expenses
Inventories
143.5
−
Unrealized gains on
22.2 derivative financial
instruments
(59.0)
605.6
(1.6)
1.6
−
−
179.2
(120.2)
880.0
185.6
Non Current Assets
Property, plant and
equipment
Intangible assets and
investment property
527.5 Goodwill
−
326.6 Deferred tax
− Deferred tax
Unrealized
−
28.5
− 2,553.8
gains on derivative
financial instruments
−
−
−
−
−
−
Current Liabilities
295.4
Trade and other
payables
5.8 Deferred revenue
108.9 Borrowings
14.2
−
77.8
Dividends and
interest payable
Unrealized losses
on derivative
financial instruments
424.2
77.9
−
502.1
Liabilities
Revolving term bank credits and
term loans
Convertible unsecured subordinated
debentures
Asset retirement obligations and
environmental liabilities
Employee future benefits
Future income tax liability
Deferred credit
Long-term portion of unrealized losses
on derivative financial instruments
(d)
(o)
(f)
(c)
(g)
(e)
633.2
309.0
0.9
17.2
22.1
246.4
52.6
46.9
(0.6)
6.0
12.9
16.4
(246.4)
−
Non Current
680.1 Borrowings
308.4
Convertible
unsecured
subordinated
debentures
6.9 Provisions
30.1
38.5
−
52.6
Employee future
benefits
Deferred tax
Unrealized losses on
derivative financial
instruments
−
−
−
−
−
−
−
Total Liabilities
1,705.6
(86.9)
− 1,618.7
Shareholders’ Equity
Shareholders’ capital
Contributed surplus
Deficit
Accumulated other comprehensive loss
(h)
Total Shareholders’ Equity
144
Superior Plus Corp.
1,502.0
5.3
(883.3)
(39.5)
584.5
2,290.1
−
−
332.2
18.4
350.6
263.7
5.3 1,507.3 Capital
(5.3)
−
−
(551.1) Deficit
(21.1)
−
Accumulated other
comprehensive loss
935.1
−
− 2,553.8
Reconciliation of Equity as at December 31, 2010
GAAP accounts (millions of dollars)
Notes
GAAP Adjustments Reclassifications
IFRS
IFRS accounts
Assets
Current Assets
Cash and cash equivalents
8.9
Accounts receivable and other
(a) (j)
487.2
87.1
Inventories
(k)
Future income tax asset
Current portion of unrealized gains on
derivative financial instruments
Property, plant and equipment
(b) (d)
Intangible assets
Goodwill
Accrued pension asset
Long-term portion of notes and
finance lease receivable
Future income tax asset
Investment tax credits
Long-term portion of unrealized gains
on derivative financial instruments
(l)
(i) (m)
(c)
(g)
173.3
48.6
31.4
749.4
687.7
181.0
478.7
21.0
12.1
191.1
117.4
26.6
−
(6.2)
−
–
−
80.9
225.9
2.0
(7.0)
(21.0)
−
(47.8)
−
−
(1.1)
(23.3)
23.3
−
(48.6)
–
−
551.0
7.8
Current Assets
Cash and cash
equivalents
Trade and other
receivables
23.3 Prepaid expenses
Inventories
167.1
−
31.4 Unrealized gains on
derivative financial
instruments
(49.7)
780.6
(1.2)
912.4
1.2
184.2
Property, plant and
equipment
Intangible assets and
investment property
−
−
−
471.7 Goodwill
−
12.1
Notes and finance
lease receivables
166.0
(117.4)
309.3 Deferred tax
−
−
26.6
Unrealized gains on
derivative financial
instruments
2,465.0
233.0
(1.1) 2,696.9
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable and accrued liabilities
(n)
317.8
Unearned revenue
Current portion of term loans
Dividends and interest payable to
shareholders and debenture holders
(a) (d)
Current portion of deferred credit
Future income tax liability
Current portion of unrealized losses on
derivative financial instruments
(e)
6.8
32.2
15.5
18.2
1.3
78.6
1.5
−
104.0
−
(18.2)
(1.1)
318.2
Trade and other
payables
−
−
−
−
(1.3)
6.8 Deferred revenue
136.2 Borrowings
15.5
Dividends and
interest payable
−
−
−
−
78.6
Unrealized losses on
derivative financial
instruments
Revolving term bank credits
and term loans
Convertible unsecured
subordinated debentures
Asset retirement obligations and
environmental liabilities
Employee future benefits
Future income tax liability
Deferred credit
Long-term portion of unrealized losses
on derivative financial instruments
Total Liabilities
Shareholders’ Equity
Shareholders’ capital
Contributed surplus
Deficit
Accumulated other comprehensive loss
Total Shareholders’ Equity
(d)
(o)
(f)
(c)
(g)
(e)
(i)
(h)
470.4
87.3
(2.4)
555.3
540.9
621.7
7.1
19.2
70.0
229.6
56.0
55.8
(0.8)
6.1
26.3
(16.4)
(229.6)
−
−
596.7 Borrowings
(1.8)
619.1
Convertible
unsecured
subordinated
debentures
−
−
1.3
−
1.8
13.2 Provisions
45.5
Employee future
benefits
54.9 Deferred tax
−
57.8 Unrealized losses on
derivative financial
instruments
2,014.9
(71.3)
(1.1) 1,942.5
1,601.2
5.5
(1,101.3)
(55.3)
450.1
2,465.0
(0.3)
−
303.4
1.2
304.3
233.0
.
5.5
(5.5)
−
−
1,606.4 Capital
−
(797.9) Deficit
(54.1)
Accumulated other
comprehensive loss
−
754.4
(1.1) 2,696.9
2011 Annual Report
145
Notes to the Consolidated Financial Statements
The following narratives explain the significant differences between the previous historical GAAP
accounting policies and the current IFRS policies applied by Superior.
(a) Derecognition of Financial Assets
GAAP: Certain financial assets are derecognized under GAAP when entities do not retain access to
all the economic benefits of the asset after a transfer of the receivable to a third party, including the
accounts receivable securitization program.
IFRS: Under IFRS only certain financial assets can be derecognized when the related criteria are met.
Based on a review of the IFRS criteria Superior’s accounts receivable securitization program does not
qualify for derecognition. As such the previously derecognized balances have been recognized under
IFRS and included under trade and other receivables and borrowings.
(b) Property, Plant and Equipment
Componentization and Major Inspection And Repairs
GAAP: The cost of an item of property, plant and equipment made up of significant separable component
parts should be allocated to the component parts when practicable. Costs meeting the criteria to be
classified as a betterment are capitalized. GAAP specifies that the costs incurred in the maintenance of
the service potential of an item of property, plant and equipment is a repair, not betterment.
IFRS: An entity is required to separately depreciate each part of property, plant and equipment that is
significant in relation to the total cost of the property, plant and equipment item. Also, major inspections
or overhauls required at regular intervals over the useful life of an item of property, plant and equipment
which allows the continued use of the asset are required to be capitalized. As a result, Superior adjusted
its depreciation of property, plant and equipment based on the each item’s component parts and
capitalized certain recertifications, inspections and overhauls related to certain Energy Services assets.
Reversal of Prior Asset Impairment
GAAP: An impairment loss recognized in a prior period shall not be reversed if the fair value of the asset
subsequently increases.
IFRS: An impairment loss recognized in a prior period for an asset other than goodwill may be reversed
if, and only if, there has been a change in the estimates used to determine the recoverable amount of
the asset since the last impairment loss was recognized. Under previous GAAP, Superior recognized an
impairment loss on a Specialty Chemicals’ facility. Upon transition to IFRS, Superior has reversed this
impairment up to previous cost less normal depreciation based on several market factor developments
including the lower power rate trend in the facility’s region, major cell upgrade investments made
between the time the impairment was recognized and the Transition Date and improved North American
pulp and paper fundamentals.
146
Superior Plus Corp.
Capitalized Assets Related To Finance Leases
GAAP: To determine the appropriate classification of a lease as either capital or operating, an entity
uses the following tests: the fair value versus the present value of the minimum lease payments, the
lease term versus economic useful life, and the transfer of risks and rewards.
IFRS: To determine the appropriate classification of a lease as either finance or operating, an entity uses
the same tests as under GAAP keeping in mind that IFRS adds an additional criterion noting that leased
assets of a highly specialized nature might also be an indicator of a capital lease. Although the tests
are consistent with GAAP and IFRS, the criteria in IAS 17 Leases are not framed in the same context as
they do not provide a “bright line” and leave more room for judgment when assessing when a lease
transfers substantially all of the risks and rewards incidental to ownership. As a result, on transition to
IFRS, Superior re-evaluated its leases and determined the appropriate classification between finance
and operating leases. For those resulting finance leases, certain assets were capitalized and associated
liabilities were recorded related to Energy Services and Construction Products Distribution.
(c) Accrued Pension Asset and Employee Future Benefits
As noted in the section discussing the IFRS applicable elective exemptions applied in the conversion
from GAAP to IFRS, Superior has elected to recognize all cumulative actuarial gains and losses that
existed at the Transition Date in opening retained earnings for all of its employee future benefit plans.
Actuarial Gains and Losses
GAAP: Actuarial gains and losses that arise in calculating the present value of the defined benefit
obligation and the fair value of plan assets are recognized on a systematic and consistent basis, subject
to a minimum required amortization based on a “corridor” approach. The corridor was 10% of the
greater of the accrued benefit obligation at the beginning of the year and the fair value of plan assets at
the beginning of the year. This excess is amortized as a component of pension expense into net earnings
(losses) over the expected average remaining life of the active employees participating in the plans.
Actuarial gains and losses below the 10% corridor are deferred.
IFRS: Superior has elected to recognize all actuarial gains and losses immediately in a separate
consolidated statement of net loss and comprehensive loss without recycling to the income statement
in subsequent periods. As a result, actuarial gains and losses are not amortized to net earnings (losses)
but rather are recorded directly to other comprehensive income at the end of each period. As a result,
Superior adjusted its pension expense to remove the amortization of actuarial gains and losses. Also
Superior reclassified any accrued pension asset related to actuarial gains (loss) to Deficit at the Transition
Date.
.
2011 Annual Report
147
Notes to the Consolidated Financial Statements
Measurement Date
GAAP: The measurement date of the defined benefit and plan assets can be a date up to three months
prior to the date of the financial statements, provided the entity adopted this practice consistently from
year to year. Superior used a measurement date of November 30th for the pension plans and December
31st for the other post-employment plans.
IFRS: An entity is required to determine the present value of the pension obligation and the fair value of
plan assets with sufficient regularity such that the amounts recognized in the financial statements do not
differ materially from the amounts that would be determined at the balance sheet date. As a result, on
transition to IFRS, Superior re-measured its pension obligations and plan assets as of January 1, 2010,
which impacted the calculation of the pension expense.
Fair Value of Expected Return on Plan Assets
GAAP: The expected return on plan assets is the product of the expected long-term rate of return
on plan assets and a market-related fair value of plan assets. The market-related fair value recognized
changes in the fair value of plan assets over a five year period.
IFRS: The expected return on plan assets is a product of the expected long-term rate of return on plan
assets and the fair value of plan assets on the balance sheet date. As a result, Superior adjusted its
pension expense to reflect an expected return on plan assets using the fair value of its plan assets at the
end of each reporting period.
(d) Finance Leasing Obligations
GAAP: To determine the appropriate classification of a lease as either capital or operating, an entity
uses the following tests: the fair value versus the present value of the minimum lease payments, the
lease term versus economic useful life, and the transfer or risks and rewards.
IFRS: To determine the appropriate classification of a lease as either finance or operating, an entity uses
the same tests as under GAAP keeping in mind that IFRS adds an additional criterion noting that leased
assets of a highly specialized nature might also be an indicator of a capital lease. Although the tests
are consistent with GAAP and IFRS, the criteria in IAS 17 Leases is not framed in the same context as
they do not provide a “bright line” and leaves more room for judgment when assessing when a lease
transfers substantially all of the risks and rewards incidental to ownership. As a result, on transition to
IFRS, Superior re-evaluated its leases and determined the appropriate classification between finance
and operating leases. Any finance lease obligations have been grouped with current and non current
borrowings. For those resulting finance leases, certain assets were capitalized and associated liabilities
were recorded related to Energy Services and Construction Products Distribution.
148
Superior Plus Corp.
(e) Deferred Credit
GAAP: When, through a business combination or reorganization, an entity obtains tax basis that can be
used to offset future income taxes payable, Emerging Ussues Committee (EIC) abstract – 110 stipulates
that these future tax benefits should be recorded as future tax assets on the balance sheet. Any excess
of the amounts assigned to the acquired assets over the consideration paid should be allocated pro rata
to reduce the values assigned to any non-monetary assets acquired. If the allocation reduces the non-
monetary assets to zero, then the remainder should be classified as a deferred credit and amortized to
net earnings (losses) over the life of the tax asset.
IFRS: When, through a business combination or reorganization, an entity obtains tax basis that can be
used to offset future income taxes payable, IFRS stipulates that the difference between the recognized
tax asset and the consideration paid to a third party to obtain those benefits is to be fully recognized in
the income statement during the period in which the transaction occurred. As a result, on transition to
IFRS, all deferred credits related to prior acquisitions were reclassified to opening deficit.
(f ) Provisions
GAAP: An entity is required to recognize a liability for an asset retirement obligation in the period
in which it is incurred when a reasonable estimate of the amount of the obligation can be made. If a
reasonable estimate of the amount of the obligation cannot be made in the period the asset retirement
obligation is incurred, the liability shall be recognized when a reasonable estimate of the amount of the
obligation can be made. Additionally, only a legal obligation associated with the retirement of a tangible
long-lived asset establishes a clear duty or responsibility to another party that justifies the recognition
of the liability.
IFRS: An entity is required to recognize a provision for obligations arising from both legal and constructive
obligations regardless of the uncertainty of the nature or timing of the provision. As a result, on transition
to IFRS, a provision for decommissioning costs related to certain Specialty Chemicals facilities has
been recorded.
Also restructuring provisions are only included as part of acquired liabilities when the acquiree has
recognized an existing liability for restructuring in accordance with application IFRS standards. As
a result, restructuring provisions recorded as part of the purchase price allocation under GAAP are
charged to earnings under IFRS. Superior recognized various restructuring provisions related to business
combinations completed in 2010 which could not be recognized under IFRS, as such the related amounts
were adjusted through deficit.
(g) Deferred Income taxes
Superior has adjusted both deferred tax assets and liabilities due to recognizing deferred income taxes
on the various adjustments made to the Superior balance sheet due to the transition to IFRS.
.
2011 Annual Report
149
Notes to the Consolidated Financial Statements
(h) Accumulated Other Comprehensive Income (Loss)
As noted in the section discussing the IFRS applicable elective exemptions applied in the conversion
from GAAP to IFRS, Superior has applied the one-time exemption to set the unrealized foreign currency
gains (losses) on translation of self-sustaining foreign operations (“currency cumulative translation
adjustment” or “CTA”) to zero as of January 1, 2010. The cumulative translation adjustment balance as
of January 1, 2010 of $22.1 million was recognized as an adjustment to opening deficit. The application
of the exemption had no impact on net equity.
(i) Goodwill
Business Combinations
As stated in the section entitled IFRS Exemption Options, Superior did not early adopt IFRS 3 for
business combinations completed during 2010. Consequently, business combinations completed prior
to January 1, 2010 have not been restated and the carrying amount of goodwill under IFRS as of January
1, 2010 is equal to the carrying amount under GAAP as of that date. The IFRS adjustments below relate
to acquisitions completed on or after January 1, 2010.
Measurement of Purchase Price
GAAP: Shares issued as consideration to complete a business combination are measured at their market
price a few days before and after the date the parties reached an agreement on the purchase price and
the proposed transaction is announced.
IFRS: Shares issued as consideration to complete a business combination are measured at their market
value at the acquisition closing date. As a result, goodwill and shareholders’ capital were reduced
relative to the re-measurement of the shares issued as consideration for the Burnaby Assets acquisition.
Acquisition Related Costs
GAAP: If certain conditions are met, the costs of restructuring an acquisition can be included in the
purchase price and the allocation of the acquisition costs. Also direct costs incurred to complete an
acquisition can be included in the allocation of acquisition costs to the assets acquired.
IFRS: Restructuring provisions are only included as part of the acquired liabilities when the acquiree
has recognized an existing liability for restructuring in accordance with application IFRS standards. As
a result, restructuring provisions recorded as part of the purchase price allocation under GAAP are
charged to earnings under IFRS. Superior recognized various restructuring provisions which could not
be recognized under IFRS, as such the related amounts were adjusted through goodwill and other
payables.
Under IFRS all direct acquisition costs incurred to complete a business combination are charged to
earnings. As such, Superior has adjusted goodwill and earnings due to previously capitalizing acquisition
costs under GAAP.
150
Superior Plus Corp.
Correction of Historical GAAP Differences
The net impact of correcting the historical GAAP differences was a decrease of $3.2 million in total assets,
a $2.0 million increase in total liabilities and a $5.2 million decrease in total equity, as at January 1, 2010.
The net impact as at December 31, 2010 was consistent with the above noted amounts. See below for
further details on the corrected items.
(j) Superior has reduced accounts receivables within the Specialty Chemicals segment due to previous
revenue recognition differences with GAAP.
(k) Superior has reduced inventories in order adjust for previous reconciliation issues associated with
inventory balances within the Energy Services segment. Also inventories have been reduced due
to a reclassification of parts related inventory within Specialty Chemicals into property, plant and
equipment and retained earnings.
(l) Superior has increased the value of its intangible assets in order to correct a previous revaluation issue
under GAAP.
(m) Superior has reclassified a portion of the Sunoco purchase equation under GAAP into property, plant
and equipment as certain amounts were previously incorrectly grouped with goodwill.
(n) Superior has decreased trade and other payables as certain liabilities under GAAP were not
properly recognized.
(o) Superior has adjusted the outstanding convertible debentures in order to comply with the effective
interest rate method under GAAP.
Presentation Reclassifications
1) Prepaid Expenses
All prepaid expenses are presented separately on the face of the balance sheet.
2) Investment Property
Under GAAP investment properties can be grouped with property, plant and equipment and under
IFRS any amounts associated with investment property should be reclassified. Superior has grouped all
investment property with intangible assets and investment property.
3) Deferred Taxes and Investment Tax Credits
Superior has reclassified all current deferred tax amounts and investment tax credits with non-current
deferred taxes on the face of the balance sheet.
4) Contributed Surplus
Superior has reclassified all contributed surplus with share capital on the face of the balance sheet.
.
2011 Annual Report
151
Notes to the Consolidated Financial Statements
Reconciliation of Net Loss for the Year Ended December 31,2010
IFRS
(millions of dollars except per share amounts) Notes
GAAP Adjustments
Reclassifications
IFRS Accounts
Revenues
Cost of products sold
Realized gains (losses) on derivative
financial instruments
Gross Profit
(i)
(a) (i)
3,529.2
(2,661.3)
(80.3)
787.6
−
(1.3)
−
(1.3)
8.2 3,537.4 Revenues
(94.2) (2,756.8) Cost of sales
80.3
(5.7)
−
780.6 Gross Profit
Operating and administrative costs
(b)
624.4
(23.4)
75.4
676.4
Deprecation of property, plant and
equipment
(c)
(d)
Amortization of intangible assets
Interest on revolving term bank credits
and term loan
Interest on convertible unsecured
subordinated debentures
Accretion of convertible debenture issue
costs and asset retirement obligations
Impairment of goodwill and intangible assets
(j)
(e)
(k)
−
37.7
25.0
39.6
27.6
6.7
89.5
5.4
13.7
3.0
4.4
−
(0.4)
−
1.2
6.6
(51.4)
(28.0)
−
−
(27.6)
−
(6.3)
−
−
89.5
31.2
75.2
Finance expense
Unrealized losses (gains) on derivative
financial instruments
2.2
−
−
2.2
Net loss before income taxes
(65.1)
(4.0)
(0.2)
(69.3)
Income tax recovery (expense)
(f)
18.1
(24.8)
0.2
(6.5)
852.7
2.7
(5.5)
849.9
Net Loss
Net Loss
Other comprehensive income (loss):
Unrealized foreign currency gains
(losses) on translation of foreign
operations
(47.0)
(28.8)
(47.0)
(28.8)
−
−
(75.8)
Net Loss
(75.8) Net Loss
(g)
(25.0)
(2.4)
−
(27.4)
Actuarial defined
benefit gains (losses)
(h)
−
(19.9)
−
(19.9)
Reclassification of derivative losses
previously deferred
12.1
−
Income tax on other comprehensive income
(2.9)
5.1
−
−
12.1
2.2
Selling, distribution
and administrative
costs
Other expenses
Impairment of
goodwill and
intangible assets
Unrealized losses
(gains) on derivative
financial
instruments
Net loss before
income taxes
Income tax recovery
(expense)
Unrealized foreign
currency gains (loss-
es) on translation of
foreign operations
Actuarial defined
benefit gains (losses)
Reclassification of
derivative losses
previously deferred
Income tax on other
comprehensive
income
Comprehensive Loss
(62.8)
(46.0)
−
(108.8) Comprehensive Loss
152
Superior Plus Corp.
The following narratives explain the significant differences between the previous historical GAAP
accounting policies and the current IFRS policies applied by Superior.
(a) Cost of Products Sold
GAAP: Under GAAP, all manufacturing costs are absorbed into the carrying cost of manufactured
inventory and flow through the income statement only once the related inventory has been sold. These
manufacturing costs (deprecation and amortization included) will then become part of the entity’s cost
of products sold.
IFRS: Under IFRS, inventory is accounted for in the same manner as under GAAP, with manufacturing
costs being absorbed into the inventory’s carrying value and expensed through the income statement as
a cost of product sold. The depreciation and amortization component of inventory is larger under IFRS
than GAAP, due to the componentization of Superior’s property, plant & equipment described and the
impairment reversal detailed above in note (b).
(b) Operating And Administrative Costs and Selling, Distribution and Administrative Costs
Leases
GAAP: To determine the appropriate classification of a lease as either capital or operating, an entity
uses the following tests: the fair value versus the present value of the minimum lease payments, the
lease term versus economic useful life, and the transfer or risks and rewards.
IFRS: To determine the appropriate classification of a lease as either finance or operating, an entity uses
the same tests as under GAAP keeping in mind that IFRS adds an additional criterion noting that leased
assets of a highly specialized nature might also be an indicator of a capital lease. Although the tests
are consistent with GAAP and IFRS, the criteria in IAS 17 Leases is not framed in the same context as
they do not provide a “bright line” and leaves more room for judgment when assessing when a lease
transfers substantially all of the risks and rewards incidental to ownership. As a result, upon transition
to IFRS, Superior re-evaluated its leases and determined the appropriate classification between finance
and operating leases, any finance lease obligations have been grouped with current and non current
borrowings. The classification of a number of leases as finance type has resulted in a decrease in operating
costs as lease payments are now broken into principal repayments and interest costs.
Componentization and Major Inspection and Repairs
GAAP: The cost of an item of property, plant and equipment made up of significant separable component
parts should be allocated to the component parts when practicable. Costs meeting the criteria to be
classified as a betterment are capitalized. GAAP specifies that the costs incurred in the maintenance of
the service potential of an item of property, plant and equipment is a repair, not a betterment.
IFRS: An entity is required to separately depreciate each part of property, plant and equipment that is
significant in relation to the total cost of the property, plant and equipment item. Also, major inspections
or overhauls required at regular intervals over the useful life of an item of property, plant and equipment
which allows the continued use of the asset are required to be capitalized. As a result operating costs
were reduced due to the capitalization of various expenditures for major inspections and overhauls.
.
2011 Annual Report
153
Notes to the Consolidated Financial Statements
Employee Benefit Expense
Fair Value of Expected Return on Plan Assets
GAAP: The expected return on plan assets is the product of the expected long-term rate of return
on plan assets and a market-related fair value of plan assets. The market-related fair value recognized
changes in the fair value of plan assets over a five year period.
IFRS: The expected return on plan assets is a product of the expected long-term rate of return on plan
assets and the fair value of plan assets on the balance sheet date. As a result, Superior adjusted its
pension expense to reflect an expected return on plan assets using the fair value of its plan assets at
the end of each reporting period. This adjustment has resulted in a reduction of the annual employee
benefits expense during the period.
(c) Other Expenses
Acquisition Related Costs
GAAP: If certain conditions are met, the costs of restructuring an acquisition can be included in the
purchase price and the allocation of the acquisition costs. Also direct costs incurred to complete an
acquisition can be included in the allocation of acquisition costs to the assets acquired.
IFRS: Under IFRS all direct acquisition costs incurred to complete a business combination are charged
to earnings. As such, Superior has increased other expenses due to the recognition in earnings of
previously capitalizing acquisition costs under GAAP.
(d) Depreciation of Property, Plant And Equipment
GAAP: When an entity owns complex assets that are comprised of numerous parts, each of the asset’s
major components must be separated and depreciated over its particular useful life. A component should
be separately tracked if its individual cost is significant in relation to the total cost of the asset. Although this
concept was theoretically included in Canadian GAAP, it was only required to be applied when practical to do so.
IFRS: In contrast to GAAP’s treatment of limiting the application of componentization to situations
where such application is practical, IFRS requires that an entity will apply componentization to all of
its assets.
Reversal of Impairment of Property, Plant and Equipment
GAAP: Reversal of impairment losses is not permitted.
IFRS: Reversal of impairment losses is required for assets other than goodwill if certain criteria are
met. As a result, Superior reversed the impairment on Specialty Chemicals Valdosta, Georgia sodium
chlorate facility due to changes in the North American chlorate market. The reversal of the impairment
has increased the amount of depreciation of property, plant and equipment.
154
Superior Plus Corp.
Capitalized Assets Related to Finance Leases
GAAP: To determine the appropriate classification of a lease as either capital or operating, an entity
uses the following tests: the fair value versus the present value of the minimum lease payments, the
lease term versus economic useful life, and the transfer of risks and rewards.
IFRS: To determine the appropriate classification of a lease as either finance or operating, an entity uses
the same tests as under GAAP keeping in mind that IFRS adds an additional criterion noting that leased
assets of a highly specialized nature might also be an indicator of a capital lease. Although the tests
are consistent with GAAP and IFRS, the criteria in IAS 17 Leases is not framed in the same context as
they do not provide a “bright line” and leaves more room for judgment when assessing when a lease
transfers substantially all of the risks and rewards incidental to ownership. As a result, on transition to
IFRS, Superior re-evaluated its leases and determined the appropriate classification between finance
and operating leases. For those resulting finance leases, certain assets were capitalized and associated
liabilities were recorded related to Energy Services and Construction Products Distribution. Depreciation
of property, plant and equipment has increased due to the capitalization of various finance type leases
as part of the transition to IFRS.
(e) Finance Expense
GAAP: Consistent with note (d) to the above reconciliation of comprehensive income (loss), the criteria
for capitalization of leases are narrower and less judgmental than under IFRS. Consequently, fewer
leases were capitalized under GAAP as compared to IFRS, resulting in a smaller interest expense on
Superior’s leasing obligations.
IFRS: Consistent with note (d) to the above reconciliations of financial position, the criteria for capitalization
of leases are broader and more judgmental under IFRS than GAAP. Consequently, upon transition to
IFRS, Superior has capitalized numerous Energy Services and Construction Products Distribution leases
under IFRS that were classified as operating leases under GAAP. The increased interest expense is
reflective of the interest incurred on these additional leasing obligations.
(f ) Income Tax Recovery (Expense)
Superior has adjusted income tax recovery (expense) due to the impact of the various adjustments
made to Superior balance sheet as a result of the transition to IFRS. Specifically, the changes to income
taxes are primarily related to the impact of reversing any amounts associated with previously recognized
deferred credits and adjustments to property, plant and equipment.
(g) Unrealized Foreign Currency Gains (Losses) on Translation of Foreign Operations
The change in unrealized foreign currency gains (losses) on translation of foreign operations is due to
the revaluation of IFRS related adjustments recognized in Superior’s foreign operations.
.
2011 Annual Report
155
Notes to the Consolidated Financial Statements
(h) Amortization of Actuarial Defined Benefit Gains (Losses)
Canadian GAAP: Actuarial gains and losses that arise in calculating the present value of the defined
benefit obligation and the fair value of plan assets are recognized on a systematic and consistent basis,
subject to a minimum required amortization based on a “corridor” approach. The corridor was 10%
of the greater of the accrued benefit obligation at the beginning of the year and the fair value of plan
assets at the beginning of the year, with the excess being amortized into the income statement over the
expected average remaining life of the active employees participating in the plans.
IFRS: An entity may adopt any systematic method that results in faster recognition of actuarial gains
and losses than the 10% corridor method, provided that the same basis is applied to both gains and
losses and is applied consistently from period to period. Superior has elected to recognize the entirety
of actuarial gains and losses during the period in which they occur. If an entity adopts a policy of
recognizing actuarial gains and losses in the period in which they occur, it may recognize them in other
comprehensive income, provided that it does so for all of its defined benefit plans and for all of its
actuarial gains and losses. Consistent with this, Superior’s actuarial gains and losses are now included in
its accumulated other comprehensive income.
Correction Of Historical GAAP Related Items
The net impact of correcting the historical GAAP differences was a $3.0 million increase in amortization
of intangible assets and a $0.2 million decrease in accretion of convertible debentures, for the twelve
months ended December 31, 2010. See below for further details on the corrected items.
(i) Revenues and Cost of Products Sold
The increase in revenue and cost of products sold was due to adjusting Specialty Chemical’s revenue
recognition policy in accordance with GAAP.
(j) Amortization of Intangible Assets
The increase in amortization of intangible assets is due to an increase in Specialty Chemicals’ amortization
of patents due to the correction of a prior period revaluation issue under GAAP.
(k) Accretion of Convertible Debentures
The decrease in accretion of the convertible debentures and borrowings is due the impact of adoption
of the effective interest rate method under GAAP.
Presentation Reclassification
Reclassification of Realized Gains (Losses) on Derivative Financial Instruments
Superior has chosen to present expenses in the consolidated statement of net loss and comprehensive
loss on the nature of the expense. As such any realized gains (losses) have been allocated between
revenue and cost of sales based on their nature.
156
Superior Plus Corp.
Reclassification of depreciation of property, plant and equipment and amortization of
intangible assets
Superior has chosen to present expenses in the consolidated statement of net loss and comprehensive
loss on the nature of the expense. As such any depreciation and amortization amounts have been
allocated to selling, distribution and administrative costs based on their nature.
Reclassification of Interest on Revolving Term Bank Credits, Interest on Convertible Debentures
and Accretion of Debenture Issues Costs
Superior has chosen to present expenses in the consolidated statement of net loss and comprehensive
loss on the nature of the expense. As such any interest and accretion amounts associated with obligations
have been allocated to finance expense based on their nature.
Impact of IFRS on Superior’s Statement of Cash Flows
The significant changes to Superior’s cash flow statement from GAAP to IFRS are as follows:
Capitalized Assets Related to Finance Leases
As noted above, Superior has capitalized approximately $60.0 million of leases due to the transition to
IFRS, as such under IFRS any repayment of those leases will be included in the financing activities of the
statement of cash flow as compared to an operating expense under GAAP.
Presentation Changes
Under IFRS, income taxes and interest paid during the period are deducted from cash flow from
operating activities and under GAAP there was no such requirement to include these amounts within
the cash flow reconciliation.
.
2011 Annual Report
157
Selected Historical Information (1)
Energy Services
(millions of dollars except where noted)
2011
Years Ended December 31
2010
2009
2008
2007
Canadian Propane Distribution sales volumes
(million of litres sold)
U.S. Refined Fuels sales volumes
(millions of litres sold) (2)
Fixed-price natural gas volumes (millions of GJs sold)
21
27
1,741
1,702
1,305
1,235
1,277
1,377
1,429
Total Canadian Propane Distribution sales margin
(cents per litre)
Total U.S. Refined Fuels sales margin (cents per litre) (2)
Natural gas sales margin (cents per GJ)
Gross profit
EBITDA from operations
Specialty Chemicals
(millions of dollars except where noted)
Total chemical sales volume (MT)
Average chemical selling price (dollars per MT)
Gross profit
EBITDA from operations
Construction Products Distribution
17.1
7.9
146.9
455.2
133.6
2011
772
685
238.7
115.2
(millions of dollars except where noted)
2011
153
33
18.5
10.0
90.2
340.2
97.6
–
33
–
37
18.4
17.2
–
80.5
331.9
103.3
–
84.1
325.3
111.5
17.5
7.6
91.2
434.9
114.7
Years Ended December 31
2010
2008
2009
735
655
220.2
101.5
634
720
210.0
93.0
727
633
235.3
116.5
Years Ended December 31
2010
2009
2008
2007
768
557
205.2
91.8
2007
Gross profit (3)
EBITDA from operations (3)
174.7
172.3
122.3
140.7
129.8
24.2
26.8
22.8
37.4
36.7
Superior Plus Corp. Consolidated
(millions of dollars except where noted)
2011
Years Ended December 31
2010
2009
2008
2007
Revenues
Gross profit
EBITDA from operations
Adjusted operating cash flow
Adjusted operating cash flow per share
Average number of shares outstanding (millions)
Total assets
Senior debt (4) (5)
Total debt (4) (5)
3,925.6
3,537.4 2,246.7
2,487.3 2,355.4
827.5
273.0
180.4
$1.65
109.2
780.6
243.0
162.9
$1.54
105.6
653.4
213.4
163.9
$1.80
91.0
669.1
257.2
192.3
$2.18
88.3
661.8
240.0
179.5
$2.08
86.5
2,193.4
2,696.9 2,274.0
2,026.9 1,542.8
612.1
590.0
738.1
1,353.5
1,381.4 1,054.8
577.7
825.3
441.0
687.8
(1)
(2)
(3)
(4)
(5)
Certain 2010 amounts have been restated as a result of the adoption of IFRS.
U.S. Refined Fuels assets were purchased during 2009 and 2010.
Acquisition of Specialty Products and Insulation Inc. was completed during 2009.
Includes off-balance sheet accounts receivable securitization program.
Senior debt and total debt are stated before deferred issue costs.
158
Superior Plus Corp.
Corporate Information
Board of Directors
Grant D. Billing
Chairman
Calgary, Alberta
Catherine (Kay) M. Best
Calgary, Alberta
Luc Desjardins
President and Chief Executive Officer
Calgary, Alberta
Robert J. Engbloom, Q.C.
Calgary, Alberta
Randall J. Findlay
Calgary, Alberta
Norman R. Gish
Calgary, Alberta
Peter A.W. Green
Lead Director
Campbellville, Ontario
James S.A. MacDonald
Toronto, Ontario
Walentin (Val) Mirosh
Calgary, Alberta
David P. Smith
Toronto, Ontario
Peter Valentine
Calgary, Alberta
Corporate Officers and
Senior Management
Jay Bachman
Vice-President, Investor Relations and Treasurer
Nick Beuglet
Corporate Controller
Wayne M. Bingham
Executive Vice-President
and Chief Financial Officer
Luc Desjardins
President and Chief Executive Officer
Douglas Elliott
President, Superior Propane
Craig S. Flint
Vice-President, Business Development
and Compliance
Greg L. McCamus
President, U.S. Refined Fuels
and Superior Energy Management
Eric McFadden
Executive Vice-President
Business Development
Dave Tims
Senior Vice-President, Commodity Portfolio
Management
Paul S. Timmons
President, Specialty Chemicals
Paul J. Vanderberg
President, Construction Products Distribution
.
2011 Annual Report
159
Businesses
Energy Services
Construction Products Distribution
Canadian Operations
4949 – 51 Street SE
Calgary, Alberta T2B 3S7
Toll-free: 1-800-668-1589
Tel: 403-236-5383
Fax: 403-279-0372
U.S. Operations
PO Box 576
1097 Commercial Avenue
East Petersburg, Pennsylvania
17520-0576
Tel: 717-569-3900
Specialty Chemicals
ERCO Worldwide
200, 302 The East Mall
Toronto, Ontario M9B 6C7
Tel: 416-239-7111
Fax: 416-239-0235
Canadian Propane Distribution
Superior Propane
1111 – 49 Avenue NE
Calgary, Alberta T2E 8V2
Toll-free: 1-877-873-7467
Tel: 403-730-7500
Fax: 403-730-7512
U.S. Refined Fuels
Superior Energy Services
1870 South Winton Road
Suite 200
Rochester, New York 14618
Toll-free: 1-877-927-6488
Fax: 585-328-7114
Supply Portfolio Management
Superior Gas Liquids
1400, 840 – 7 Avenue SW
Calgary, Alberta T2P 3G2
Toll-free: 1-888-849-3525
Fax: 403-883-6589
Fixed-Price Energy Services
Superior Energy Management
6860 Century Avenue
East Tower, Suite 2001
Mississauga, Ontario L5N 2W5
Toll-free: 1-866-772-7727
Fax: 905-542-7715
160
Superior Plus Corp.
Shareholder Information
Superior Plus Corp.
Suite 1400, 840 – 7 Avenue SW
Calgary, Alberta T2P 3G2
Telephone: 403-218-2970
Facsimile: 403-218-2973
Toll Free: 1-866-490-PLUS (7587)
E-mail: info@superiorplus.com
Website: www.superiorplus.com
Trustee and Transfer Agent
Computershare Trust Company of Canada
Suite 600, 530 – 8 Avenue SW
Calgary, Alberta T2P 3S8
or:
9th Floor, 100 University Avenue
Toronto, Ontario M5J 2Y1
Toll Free: 1-800-564-6253
Website: www.computershare.com/ca
Auditors
Deloitte & Touche LLP
Chartered Accountants
700, 850 – 2nd Street SW
Calgary, Alberta T2P 0R8
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Annual Meeting of Shareholders
The Corporation’s Annual Meeting of
shareholders will be held in the Bonavista Room
of The Westin Calgary, 320 – 4 Avenue SW,
Calgary, Alberta, on Wednesday, May 2, 2012,
at 2:00 p.m. (MDT).
Toronto Stock Exchange
(TSX) Listings
SPB:
Superior Plus Corp. shares
SPB.db.b:
SPB.db.c:
SPB.db.d:
SPB.db.e:
SPB.db.f:
SPB.db.g:
5.75% Convertible Debentures,
convertible at $36.00 per share
Maturity date: December 31, 2012
5.85% Convertible Debentures,
convertible at $31.25 per share
Maturity date: October 31, 2015
7.5% Convertible Debentures,
convertible at $13.10 per share
Maturity date: December 31, 2014
5.75% Convertible Debentures,
convertible at $19.00 per share
Maturity date: June 30, 2017
6.00% Convertible Debentures,
convertible at $15.10 per share
Maturity date: June 30, 2018
7.50% Convertible Debentures,
convertible at $11.35 per share
Maturity date: October 31, 2016
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Superior Plus Share Price and Volumes – TSX
Quarterly high, low, close and volumes for 2010 and 2011.
The table below sets forth the high and low prices, as well as the volumes, for the shares as traded on the TSX, on a
quarterly basis.
2011
High
Low
Volume
High
2010
Low
Volume
First quarter
Second quarter
Third quarter
$ 12.49
$ 11.85
$ 11.58
$ 10.50 20,530,193
$ 10.70 10,803,881
$ 7.35 16,046,126
$ 14.99
$ 14.50
$ 13.82
$ 13.34
$ 11.00
$ 11.12
20,539,218
16,576,309
15,692,164
Fourth quarter
$ 7.83
$ 5.21 28,655,110
$ 12.34
$ 10.37
19,864,927
Year
$ 12.49
$ 5.21 76,035,310
$ 14.99
$ 10.37
72,672,618
.
2011 Annual Report
161
For more information about Superior Plus Corp.
send your enquiries to info@superiorplus.com
Superior Plus Corp.
Suite 1400, 840 – 7 Avenue SW
Calgary, Alberta T2P 3G2
Tel: 403-218-2970 Fax: 403-218-2973
Toll-Free: 1.866.490-PLUS (7587)
www.superiorplus.com