2 0 1 2 A n n u A l R e p o R t
IFC
Performance Highlights
1
4
5
6
8
President’s Message
Management Team
Board of Directors
Corporate Governance
Management’s Discussion and Analysis
56
Management’s Report
57
58
62
124
125
126
IBC
Independent Auditors’ Report
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Selected Historical Information
Corporate Information
Businesses
Shareholder Information
PeRFoRMANCe HIGHlIGHTS
Financial Results
(millions of dollars)
Revenues
Gross profit
EBITDA from operations (1)
Adjusted operating cash flow (1)
Net income (loss)
Dividends
(dollar per basic share except shares outstanding)
EBITDA from operations (1)
Adjusted operating cash flow (1)
Net income (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)
Total debt (2)
Senior debt/Compliance EBITDA (3)
Total debt/Compliance EBITDA (3)
2012
2011
3,624.3
3,925.6
846.3
282.5
193.5
93.1
67.1
2.52
1.73
0.83
0.60
111.9
2012
2,036.3
1,653.4
39.3
5.5
489.6
1,181.1
1.8x
4.4x
827.5
273.0
180.4
(302.6)
136.7
2.50
1.65
(2.77)
1.17
109.2
2011
2,193.4
1,843.8
35.0
14.8
612.1
1,353.5
2.3x
5.1x
(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)
(3)
Senior debt and total debt are stated before deferred issue costs.
See Superior’s Management’s Discussion and Analysis for additional details and Superior’s Consolidated Financial Statements for the
calculation of Compliance EBITDA.
President’s Message
SUPERIOR PLUS CORP.
2012 ANNUAL REPORT
1
“The one single factor that assures me our
organization is going to continue to improve is the
genuine commitment and active involvement that
I see from the leadership of our businesses.”
Luc Desjardins President and Chief Executive Officer
I am pleased to report that 2012 was a year of
• Addressing the information system
significant accomplishments for Superior as we
requirements at our Canadian Propane
delivered improvements in our financial and
operations which will result in the
operational performance. Superior recorded
implementation of the ADD IT system
adjusted operating cash flow of $1.73 per share
throughout 2013 to facilitate ongoing
in 2012 compared to $1.65 per share in the
improvements in customer service,
prior year. In addition, Superior reduced its total
forecasting, logistics and invoicing;
leverage to 4.4x at December 31, 2012 from 5.1x
at December 31, 2011. The business environment
in 2012 continued to be challenging due in part
to ongoing global economic uncertainty. Despite
this environment, Superior’s businesses continue
to enjoy strong fundamentals and I am confident
that our financial performance will continue to
improve in 2013 and beyond.
During 2012 Superior executed a number of
operational improvements which I view as
key steps in improving not only our future
• Assessment of the Construction Products
Distribution segment’s branch network, which
resulted in adoption of a hub-and-spoke
model to service large regional markets,
enabling the closure of 15 individual branches
at a cost of $6.5 million; and
• Approval of $42 million in capital expenditure
to double the hydrochloric acid production
capabilities in our Specialty Chemicals
business.
financial performance but in meeting our goal
Destination 2015
of becoming a best-in-class operator in all our
business segments. Areas where improvements
were made in 2012 include:
• Upgrading the talent across the entire
organization to ensure we have the right
people to execute our business plans;
As part of Superior’s business transformation into
a best-in-class organization we have implemented
a number of business initiatives throughout
our operations. This transformation is internally
entitled Destination 2015. By developing a culture
of continuous improvement, Destination 2015
is intended to deliver ongoing improvements in
• Transitioning the Canadian Propane
operating and financial performance.
operations to a regional model from a
centralized model;
2
SUPERIOR PLUS CORP.
2012 ANNUAL REPORT
I want to stress to our shareholders that
Committed to Execution
Destination 2015 is not just an exercise in cost
Destination 2015 and the execution of our long-
cutting. It is true that the improvements in our
term business plan will not be without challenges
day-to-day processes will ensure that we run
and I want to assure all of our shareholders
our businesses as efficiently as possible, which
that we are up to the task. Superior’s senior
will translate into cost reductions in the years to
leadership team and I are fully committed to
come. The broader focus of Destination 2015 is,
ensuring we execute in a timely and successful
however, to invest in our businesses to facilitate
manner. Although the work will be arduous, the
operational improvements and create a strong
importance is simply too great. We can and will
platform for future growth.
Enhancing our Core Competencies
Although we remain committed to making
improvements under Destination 2015, we will
not lose sight of our core competencies. In fact,
we intend to lever what we already do well as the
basis for our future improvements. Our Energy
Services and Construction Products Distribution
businesses are distribution based and, therefore,
it is important that we continue to focus on
building best-in-class logistics capabilities
within these business. Delivering our products
and services on an accurate and timely basis
is imperative.
Our Specialty Chemicals business not only
manufactures high quality chemicals, but just
meet our objectives. We will do so by continuing
to focus on execution of our initiatives, a central
feature of which is holding those responsible
for execution accountable across the entire
organization. Accountability on our initiatives
is the responsibility of our senior leadership
team, and is based on the collective efforts
of our whole organization. By providing our
teams the appropriate leadership and sharing
best practices across our entire organization,
we are providing ourselves with the necessary
framework and tools to ensure we meet our goal
of becoming a best-in-class organization.
2013 Priorities
Our priorities for 2013 are as follows:
•
Superior will remain committed to executing on
as importantly, is a developer of technology
the initiatives that underpin Destination 2015;
that improves the operations of Superior and
its customers. We will continue to foster and
develop all of these competencies in 2013
and beyond.
• Superior will continue to focus on reducing
the Company’s total debt;
• Superior will continue to focus on improving
asset productivity, inventory turnover and
overall working capital management;
SUPERIOR PLUS CORP.
2012 ANNUAL REPORT
3
• Superior will continue to focus on
our awareness of the need to remain focused on
streamlining processes and improving
the importance of our day-to-day operations.
management information systems to
facilitate improved day-to-day management
decisions and cost reduction initiatives,
including the implementation of the ADD IT
system in the Canadian Propane operations
and an integration of the IT systems in the
Construction Products Distribution business;
By continuing to develop and build a cohesive
leadership team we will develop and foster
a culture of accountability and continuous
improvement, which I view as the cornerstone
of every best-in-class business. By achieving the
goals of our business improvement initiatives,
I am confident that we will complete our
• Superior will continue to work towards
transformation into a best-in-class operator,
building a customer-centric culture;
realizing a range of operational and financial
•
It is vital that we understand the true
costs of serving our customers, so we can
improvements over the short-term, medium-
term and long-term.
intelligently price our services, while at
Acknowledgements
the same time differentiating our services
Superior’s success will ultimately be due to the
to our customers, thereby providing us
hard work and dedication of our more than
with a competitive advantage; and
4,500 employees. I would like to thank each of
• Superior will continue to assess talent to
ensure the business has the right people
in key positions to facilitate and lead the
execution of Superior’s short and long-
term business plans. Accountability for
execution will be a priority across the entire
organization.
Conclusion
There is no doubt that 2013 will be a year of heavy
lifting for Superior, but despite the challenges
Superior is likely to encounter throughout
this period, we will remain acutely focused on
the execution of the initiatives underpinning
Destination 2015. We will balance the need for
our employees for your commitment to your
respective businesses. I look forward to working
with all of Superior’s employees as well as each
of Superior’s directors 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.
On behalf of the Board of Directors,
(signed) “Luc Desjardins”
Luc Desjardins
President and Chief Executive Officer
timely execution of our long-term objectives with
February 14, 2013
4
SUPERIOR PLUS CORP.
2012 ANNUAL REPORT
Management Team
Luc Desjardins
President and
Chief Executive Officer
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 LLP, a private
equity firm. Mr. Desjardins also
served as President and CEO at
Transcontinental Inc. from 2004 to
2008 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.
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.
Wayne M. Bingham
Executive Vice-President and
Chief Financial Officer
Greg L. McCamus
President, Energy Services
and Superior Propane
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 S. Timmons
President,
Specialty Chemicals
Dave Tims
President,
Energy Supply and Oilfield
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.
Paul J. Vanderberg
President,
Construction Products
Distribution
Keith Wrisley
President,
U.S. Refined Fuels
Mr. McCamus joined Superior Energy
Management as President in 2005
before being appointed President,
Energy Services and Superior
Propane in 2012. He previously was
President of Sprint Canada Business
Solutions and held various executive
positions within the deregulated
telecom industry over a 20–year
period. He holds B.A. and M.B.A.
designations.
Mr. Tims joined Superior in 2009.
Prior to joining Superior Plus he
was CEO of a natural gas storage
development company. Mr. Tims 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.
Mr. Wrisley joined Superior in 2009
as Director, U.S. Refined Fuels and
was subsequently named President
in 2012. Mr. Wrisley has held various
executive positions within the energy
sector over the past 25 years, most
recently with Sunoco. Mr. Wrisley is
a graduate of the State University
of New York and the Leadership
Philadelphia program.
Board of Directors
SUPERIOR PLUS CORP. 5
2012 ANNUAL REPORT
Catherine (Kay)
Best (1)
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, AltaGas Ltd.,
Aston Hill Financial Inc.
and Wawanesa Insurance.
Grant D. Billing
Luc Desjardins
Robert J.
Engbloom, Q.C. (2)
Randall J.
Findlay (2)
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 Pembina
Pipeline Corporation.
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.
Director since 1996;
Deputy Chair and Partner
of Norton Rose Canada
LLP, formerly Macleod
Dixon LLP; Director of
Parex Resources Inc.
Director since 2007;
Corporate Director;
Past President of
Provident Energy from
2001 through 2006;
Director of HNZ Group
Inc., Pembina Pipelines
Corporation, Whitemud
Resources Inc. and
Charger Energy Inc.
Norman R. Gish
(3)
Peter A.W.
Green (1) (2)
James S.A.
MacDonald (3)
Walentin (Val)
Mirosh (3)
David P. Smith
(1)
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.
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.
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.
Director since 1998;
Corporate Director;
former Managing
Partner of Enterprise
Capital Management
Inc.; Director of Xinergy
Ltd.; Chair of the Audit
Committee.
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; Chair
of the Compensation
Committee.
Committee
(1) Audit Committee
(2) Governance and
Nominating Committee
(3) Compensation Committee
6
SUPERIOR PLUS CORP.
2012 ANNUAL REPORT
Corporate Governance
The Board of Directors (“Board”) and senior
and operate the underlying businesses of
management of Superior Plus Corp. (“Superior”)
Superior LP in a responsible, reliable and safe
consider good corporate governance to be
manner. The Board works with management of
central to the effective and efficient operation
the businesses to identify business risks and to
of Superior.
Superior strives to conduct its business ethically
and in conformance with applicable laws and
regulations. As such, Superior has earned a
oversee the appropriate strategies to maximize
shareholder value, while seeking to reduce the
environmental impacts of our operations and
products.
well-deserved reputation for honesty, integrity
The Board is comprised of 10 members,
and maintaining a high standard of business
eight of whom are considered independent.
conduct. To preserve and build upon that
Grant Billing, Chairman, is not considered to
reputation, Superior continues to strengthen
be independent until three years following his
its governance processes, and foster a good
November 2011 retirement as Chief Executive
governance culture throughout the organization.
Officer. Luc Desjardins is not considered to be
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.
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 with
well-defined policies and procedures such as
the Communication and Disclosure, Insider
The Board’s fundamental objectives are to
enhance Superior’s investments and ensure that
Trading and Whistleblower policies, all designed
to promote honesty and integrity throughout
Superior and Superior GP meet their obligations
Superior.
SUPERIOR PLUS CORP.
2012 ANNUAL REPORT
7
To assist the Board with its fiduciary
social responsibility and support for their local
responsibilities, the Board is supported by an
communities. These and other programs are also
Audit Committee, a Compensation Committee
monitored through the Advisory Committees.
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.
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
In further keeping with our commitment to
maximum exposure to each of the businesses of
high standards of corporate governance, Superior
Superior LP.
has Advisory Committees for each of Superior
LP’s businesses. The Advisory Committees
are composed of two to three independent
directors and senior corporate management.
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
standards pertaining to quality, health and safety,
while being committed to environmental and
For complete information on our corporate
governance practices, please read our 2012
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.
8
SUPERIOR PLUS CORP.
2012 annual report
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, 2012 and for the years ended December 31,
2012 and 2011. The information in this MD&A is current to February 14, 2013. This MD&A should be read in
conjunction with Superior’s audited consolidated financial statements and notes thereto as at and for the
years ended December 31, 2012 and 2011.
The accompanying audited consolidated financial statements of Superior were prepared by and are the
responsibility of Superior’s management. Superior’s audited consolidated financial statements as at and for
the years ended December 31, 2012 and 2011 were prepared in accordance with International Financial
Reporting Standards (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. All tables and
graphs are for the 12 months ended December 31 of the year indicated, unless otherwise stated.
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.
Summary of Adjusted Operating Cash Flow
(millions of dollars except per share amounts)
EBITDA from operations: (1)
Energy Services
Specialty Chemicals
Construction Products Distribution
Interest expense
Cash income tax expense
Corporate costs
Adjusted operating cash flow (1)
2012
2011
134.2
127.5
20.8
282.5
(71.7)
(1.1)
(16.2)
193.5
133.6
115.2
24.2
273.0
(79.2)
(1.5)
(11.9)
180.4
Adjusted operating cash flow per share (2), basic (2) and diluted (3)
$1.73
$1.65
(1) Earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted operating cash flow are not IFRS measures. See “Non-IFRS
Financial Measures”.
(2) The weighted average number of shares outstanding for the year ended December 31, 2012, is 111.9 million (2011 – 109.2 million).
(3) For the years ended December 31, 2012 and 2011, there were no dilutive instruments.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
9
Adjusted Operating Cash Flow Reconciled to Net Cash Flow from Operating Activities (1)
(millions of dollars)
Net cash flow from operating activities
Add: Non cash interest expense
Less: Decrease in non-cash working capital
Income tax expense
Finance costs recognized in net earnings
Gain on debenture redemption
Adjusted operating cash flow
2012
347.9
6.7
(81.6)
(1.1)
(77.6)
(0.8)
193.5
2011
291.2
8.0
(30.1)
(1.5)
(85.5)
(1.7)
180.4
(1) See the audited consolidated financial statements for net cash flow from operating activities and changes in non-cash working capital.
Adjusted operating cash flow for the year ended December 31, 2012 was $193.5 million, an increase of
$13.1 million or 7% from the prior year. The increase in adjusted operating cash flow was due to increased
EBITDA from operations of Specialty Chemicals and lower interest costs offset in part by lower EBITDA
from operations of Construction Products Distribution and higher corporate costs. Adjusted operating cash
flow per share was $1.73 per share for the year ended December 31, 2012, an increase of $0.08 per share or
5% due to the increase in adjusted operating cash flow as noted above, offset in part by a 2% increase in
the weighted average number of shares outstanding. The average number of shares outstanding increased
in 2012 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 48%, 45%, and 7% of EBITDA from operations
in 2012, respectively.
EBITDA from Operations
$257.2
$243.0
$213.4
$273.0
$282.5
10
SUPERIOR PLUS CORP.
2012 annual report
Superior had net earnings of $93.1 million for 2012, compared to a net loss of $302.6 million for 2011. The
increase in net earnings was due to a reduction in impairments as the prior year included an impairment
charge of $378.6 million, higher gross profits, lower operating costs and gains on financial instruments.
Consolidated revenues of $3,624.3 million in 2012 were $301.3 million lower than in the prior year. This was
due primarily to lower Energy Services revenue as a result of lower commodity prices and sales volumes,
offset in part by higher Specialty Chemicals revenue due to a more profitable sales mix and higher sales
volumes and higher Construction Products Distribution revenue due to improved sales volumes and the
introduction of new products. Gross profit of $846.3 million was $18.8 million higher than in the prior year
due to improved gross profit at Specialty Chemicals and Construction Products Distribution due to increased
sales volumes, offset in part by lower gross profit at Energy Services due to lower sales volumes.
Operating expenses of $694.0 million in 2012 were $12.7 million lower than in the prior year, due to the reduced
amortization expense offset in part by restructuring costs incurred by Construction Products Distribution
and higher corporate costs. The decrease in amortization expense was due to the impairment of Energy
Services intangible assets, which was recorded in 2011. Restructuring costs of $6.5 million were incurred by
Construction Products Distribution as part of its efforts to optimize the cost structure and $4.2 million was
incurred at Energy Services. Corporate costs were higher than in the prior year due to increased long-term
incentive costs, which resulted from the increase in Superior’s share price and severance costs offset in part
by year-end accrual adjustments. Total interest expense of $77.6 million was $7.9 million lower than in the
prior year due principally to lower average debt throughout the year due to lower net working capital and
higher cash flow. Unrealized gains on financial instruments were $32.1 million in 2012 compared to unrealized
losses of $9.7 million in the prior year. The increase in unrealized gains from the prior year is primarily due to
higher unrealized gains in the current year on natural gas forward contracts due to fluctuations in the spot
prices of natural gas. Gains or losses on Superior’s various financial instruments are without consideration of
the fair value of the underlying customer or supplier commitment. Total income tax expense was $9.0 million
for 2012 compared to a recovery of $50.4 million for 2011. The increase in income tax expense was due to
higher net earnings in 2012 as the prior year included an impairment charge recorded to intangible assets
and goodwill which resulted in a net loss.
Annual Financial Results Of Superior’s Operating Segments
Energy Services
Energy Services’ condensed operating results for 2012 and 2011:
(millions of dollars)
Revenue (1)
Cost of sales (1)
Gross profit
Less: Cash operating and administrative costs (1)
EBITDA from operations
2012
2,301.6
(1,854.2)
447.4
(313.2)
134.2
2011
2,686.1
(2,230.9)
455.2
(321.6)
133.6
(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, Cost of Sales and Cash
Operating and Administrative Costs Included in this MD & A” for detailed amounts.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
11
Revenues were $2,301.6 million in 2012, a decrease of $384.5 million from revenues of $2,686.1 million in
2011. The decrease in revenues is primarily due to lower commodity prices and sales volumes. Total gross
profit for 2012 was $447.4 million, a decrease of $7.8 million or 2% from the prior year. The decrease in gross
profit is due to lower sales volumes within U.S. refined fuels and lower gross profits from the fixed-price
energy services businesses largely offset by higher gross profit within the Canadian propane distribution
business due to higher gross margins. 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
Canadian Propane Distribution
2012
235.7
123.1
39.6
18.3
30.7
447.4
2011
223.0
137.7
42.3
15.1
37.1
455.2
Canadian propane distribution gross profit for 2012 was $235.7 million, an increase of $12.7 million or 6%
from 2011, due to higher gross margins offset in part by lower sales volumes. Residential and commercial
sales volumes in 2012 were 14 million litres or 4% lower than in the prior year due to warm weather during
the first quarter of 2012, offset in part by colder weather and increased demand during the fourth quarter
of 2012. Average weather across Canada for the year, as measured by degree days, was 3% warmer than in
the prior year and 3% warmer than the five-year average. Industrial volumes increased by 12 million litres or
2%, primarily due to increased oilfield services demand and agent demand. Automotive propane volumes
declined by 4 million litres or 5%. This is lower than the structural decline experienced in prior years in this
end-use market, due to the favourable price spread between propane and gasoline.
Average propane sales margins for 2012 increased to 18.2 cents per litre from 17.1 cents per litre in the
prior year. The increase was principally due to the implementation of price increases to industrial and
commercial sales contracts during the first quarter of 2012 and improved pricing management, offset in
part by unfavourable movement in the sales mix as 2012 included a higher proportion of lower-margin
sales volumes.
Canadian Propane Distribution Sales Volumes
Volumes by End-Use Application
(millions of litres)
Residential
Commercial
Agricultural
Industrial
Automotive
2012
121
255
60
781
75
2011
128
262
67
769
79
Volumes by Region (1)
(millions of litres)
Western Canada
Eastern Canada
Atlantic Canada
2012
751
440
101
2011
738
460
107
1,292
1,305
1,292
1,305
(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 region consists of New Brunswick,
Newfoundland & Labrador, Nova Scotia and Prince Edward Island.
12
SUPERIOR PLUS CORP.
2012 annual report
U.S. Refined Fuels Distribution
U.S. refined fuels gross profit for 2012 was $123.1 million, a decrease of $14.6 million or 11% from the prior
year. The decrease in gross profit was due to lower sales volumes and lower gross margins. Sales volumes of
1,599 million litres decreased by 142 million litres or 8% from the prior year. The decrease was primarily due
to warm weather during the first quarter, higher customer attrition and lack of continuous heating degree
days to trigger deliveries. Weather as measured by heating degree days for the year was 10% warmer than
the prior year. Average U.S. refined fuels sales margins of 7.7 cents per litre decreased slightly from the
7.9 cents per litre recorded in the prior year. The decrease in sales margins was due to higher transportation
costs incurred to secure supply offset in part by continued strong propane margins.
U.S. Refined Fuels Distribution Sales Volumes
Volumes by End-Use Application (1)
(millions of litres)
Residential
Commercial
Automotive
2012
274
764
561
2011
336
892
513
Volumes by Region (2)
(millions of litres)
Northeast United States
2012
1,599
2011
1,741
1,599
1,741
1,599
1,741
(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 $39.6 million in 2012, a decrease of $2.7 million or 6% from the prior year. The
decrease in other services gross profit is due to lower customer demand and service calls.
Supply Portfolio Management
Supply portfolio management gross profits were $18.3 million in 2012, an increase of $3.2 million from the
prior year due to improved market-related opportunities and gains realized on fixed-price settlements.
Fixed-Price Energy Services
Fixed-Price Energy Services Gross Profit
2012
2011
(millions of dollars except volume
and per unit amounts)
Natural gas (1)
Electricity (2)
Total
Gross
Profit
21.5
Volume
Per Unit
18.7 GJ
115.0 ¢/GJ
9.2
816.7 KWh 1.13 ¢/KWh
30.7
Gross
Profit
31.0
6.1
37.1
Volume
Per Unit
21.1 GJ
146.9 ¢/GJ
606.3 KWh
1.01 ¢/KWh
(1) Natural gas volumes are expressed in millions of gigajoules (GJ).
(2) Electricity volumes are expressed in thousands of kilowatt hours (KWh).
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
13
Fixed-price energy services gross profit was $30.7 million in 2012, a decrease of $6.4 million (17%) from
$37.1 million in the prior year. Natural gas gross profit was $21.5 million, a decrease of $9.5 million from the
prior year due to lower margins and sales volumes. Gross profit per unit was 115.0 cents per gigajoule (GJ), a
decrease of 31.9 cents per GJ (22%) from the prior year. The decrease in natural gas gross margins was due to
the loss of higher-margin residential customers. Sales volumes of natural gas were 18.7 million GJ, 2.4 million
GJ or 11% lower than in the prior year due a continued decline in residential volumes as a result of focusing
marketing efforts towards the commercial segment, declines in the residential customer base and continued
low natural gas prices. Electricity gross profit in 2012 was $9.2 million, an increase of $3.1 million or 51%
from the prior year due to the aggregation of additional commercial customers in the Ontario market and
residential customers in the Pennsylvania electricity market, which increased sales volumes. The fixed-price
energy services business 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 $313.2 million in 2012, a decrease of $8.4 million or 3% from
the prior year. Operating costs were lower than in the prior year due to lower bad debt provisions, lower
employee costs due to reduced sales volumes and employee incentive costs, offset in part by $4.2 million of
one-time restructuring costs.
U.S. Refined Fuels Impairments
During the third quarter of 2011, U.S. refined fuels incurred asset impairments of $3.4 million due to flooding
in Montoursville, Pennsylvania, and due to a fire at one of its locations in Mumford, New York, each of which
damaged buildings, tanks and equipment. These interruptions did not affect U.S. refined fuels operations
and management is working with Superior’s 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 indicated
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.
On October 20, 2012, a kerosene leak was discovered in the bottom of a storage tank at U.S. refined fuels
Marcy terminal location. The leak was investigated and contained by the environmental group. U.S. refined
fuels than notified the Department of Environmental Conservation (DEC) which performed an independent
review of the leak and other tanks at this location. On December 27, 2012, the DEC issued a notice of violation
based on their inspections and subsequent to discussions between management and the DEC, a consent
order was issued to U.S. refined fuels on February 4, 2013. The consent order identified that the secondary
containment system and storage tanks are not in compliance with DEC design requirements and need to be
rebuilt to specific standards by September 1, 2013 in order to remain operational. Management is assessing
the implications of the consent order on the future operations of the facility and potential alternatives to
completing the repair work required. This event is not expected to have an impact on the operations of U.S.
refined fuels or operating results going forward. Also, management is assessing the impact of additional
remediation costs although they are not expected to be material.
14
SUPERIOR PLUS CORP.
2012 annual report
Due to the leak and receipt of the consent order, management has performed a detailed impairment review
of the Marcy terminal to assess whether the carrying value of all the storage tanks does not exceed the
recoverable amount. The recoverable amount of the assets was based on management’s estimate of the fair
value less costs to sell. Based on a detailed review by management, the fair value less costs to sell of the
storage tanks was lower than the carrying value. An impairment charge of $4.7 million was recorded against
net earnings along with a $4.7 million reduction in the carrying value of the impaired storage tanks.
Overall, Energy Services’ operations benefit from the segment’s 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 4% of gross profits in 2012. Energy Services’ top 10 customers comprised approximately 6% of
its revenues in 2012, with its largest customer representing approximately 3% of its revenues.
As shown in the chart below, wholesale propane and heating oil prices fluctuated throughout 2012.
Approximately 26% of Superior’s fuel distribution sales volumes are due to heating-related applications and
74% are due to general economic activity levels.
Relative Change in Edmonton Propane, WTI Crude Oil, Natural Gas, NYMEX Heating Oil vs. Sarnia Propane
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
15
Acquisitions
On July 17, 2012, Superior completed the acquisition of certain assets constituting a propane distribution
business for an aggregate price of $5.5 million including adjustments for net working capital. The primary
purpose of the acquisition was to expand Energy Services’ business in British Columbia and benefit from
synergies.
During 2011, Canadian propane distribution and U.S. refined fuels completed several acquisitions totalling
$14.9 million, to expand Energy Services’ geographical footprint and customer base.
Outlook
Superior expects business conditions in 2013 for its Energy Services segment to be similar to 2012. EBITDA
from operations is anticipated to be higher in 2013 than in 2012 due in part to the assumption that weather
will be consistent with the five-year average in 2013. Superior’s 2012 results were negatively affected by warm
weather, as average temperature in the first quarter of 2012, as measured by degree days, across Canada and
the Northeastern U.S. was at record or near-record levels. Additionally, Superior expects to realize ongoing
improvements in its financial results as a result of the business initiatives noted below.
Initiatives to improve results in the Energy Services’ business continued during the fourth quarter of 2012 in
conjunction with Superior’s goal for each of its businesses to become best-in-class. Business improvement
projects for 2013 include: a) improving customer service, b) improving overall logistics and procurement
functions, c) enhancing the management of margins, d) working capital management, and e) improving
existing and implementing new technologies to facilitate improvements to the business.
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 2012 and 2011:
(millions of dollars except per metric tonne (MT) amounts)
Chemical revenue (1)
Chemical cost of sales (1)
Chemical gross profit
Less: Cash operating and administrative costs (1)
EBITDA from operations
2012
$ per MT
2011
$ per MT
542.2
(283.9)
258.3
(130.8)
127.5
703
(368)
335
(170)
165
529.1
(290.4)
238.7
(123.5)
115.2
685
(376)
309
(160)
149
Chemical volumes sold (thousands of MTs)
771
772
(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 or gains related to U.S.-denominated working capital. See “Reconciliation
of Divisional Segmented Revenue, Cost of Sales and Cash Operating and Administrative Costs Included in this MD & A” for detailed amounts.
16
SUPERIOR PLUS CORP.
2012 annual report
Chemical revenue was $542.2 million in 2012, $13.1 million or 2% higher than in the prior year, primarily
as a result of increased sodium chlorate sales volumes and higher gross margins, offset in part by lower
chloralkali/potassium sales volumes and pricing.
Gross profit of $258.3 million in 2012 was $19.6 million or 9% higher than in the prior year due to increased
sodium chlorate gross profits, which included the one-time favourable net contribution from a settlement
payment received from TransCanada Energy Ltd. during August 2012 (see “Settlement” for further details).
Sodium chlorate gross profit (excluding the settlement) increased by $4.4 million or 3%, due to slightly
higher sales volumes, slightly higher gross margins and higher technology gross profits due to increased
project activity.
Sodium chlorate sales volumes increased by 7,000 tonnes or 2% over the prior year due to higher demand in
North America as a result of increased demand for pulp and increased Chilean sale volumes.
Average selling prices for sodium chlorate were 2% higher than in the prior year due to price increases
from contract renewals, offset in part by lower 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 lower than in the prior year due to lower inventory purchase costs, lower
electrical input costs and the one-time favourable net contribution from the settlement payment received
from TransCanada Energy Ltd. during August 2012 (see “Settlement” for further details). Electrical costs,
which represent 70% to 85% of the variable costs of the production of sodium chlorate, were lower than in
the prior year due to downward pressure on overall electricity pricing and production management activities
at facilities where the cost of electricity is subject to market fluctuations.
Chloralkali/potassium gross profits decreased by $7.4 million or 8%, due to a reduction in sales volumes,
lower gross margins and a less profitable sales mix. Chloralkali/potassium sales volumes decreased by
8,500 tonnes or 3% due to a temporary production curtailment associated with the completion of a mandatory
bromine upgrade project at Specialty Chemicals Port Edwards facility and decreased demand for hydrochloric
acid. Overall average selling prices were lower than in 2011 due primarily to weakness in the price of chlorine,
which negatively impacted results.
Total chemical sales volumes were 771,000 tonnes in 2012, a decrease of 1,000 tonnes or nil% from the prior
year, due to lower chloralkali/potassium sales volumes, offset in part by higher sodium chlorate sales volumes
as noted above. Average chemical revenue was $703 per MT in 2012 compared to $685 per MT in 2011, an
increase of 3%, reflecting higher realized sodium chlorate pricing, offset in part by lower overall average
pricing on chloralkali/potassium products. Sodium chlorate and chloralkali/potassium production capacity
utilization in 2012 averaged 92% (2011 – 95%) and 84% (2011 – 94%), respectively.
Cash operating and administrative costs were $130.8 million in 2012, an increase of $7.3 million or 6% from the
prior year. Operating expenses were affected by higher maintenance expenditures, employee compensation
costs and general inflationary increases.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
17
Settlement
During August 2012, Specialty Chemicals received a payment of $15.8 million from TransCanada Energy Ltd.,
a subsidiary of TransCanada Corporation, in connection with the arbitration ruling related to the Sundance
Power Purchase Agreement (PPA) between TransAlta Corporation and TransCanada Energy Ltd. The payment
resulted from the Electrical Sales Agreement (ESA) between TransCanada Energy Ltd. and Superior whereby
TransCanada Energy Ltd. supplies Superior with fixed-priced energy from the PPA. A one-time gain of $12.5
million, representing the payment net of certain settlement costs, is recorded in cost of goods sold.
Major Capital Projects
As announced in the first quarter of 2012, Superior has approved an $18 million expansion of hydrochloric
acid production capacity at the Port Edwards, Wisconsin chloralkali facility. The existing capacity of 110,000
wet metric tonnes (WMT), or 36,000 dry metric tonnes, will be increased to approximately 220,000 WMT.
The project will be carried out through 2012 and 2013, with commercial production expected in the second
quarter of 2014. As of this date, a total of $1.4 million has been spent on the project.
As announced in the third quarter of 2012, Superior has approved a $25 million expansion of the hydrochloric
acid production capacity at the Saskatoon, Saskatchewan chloralkali facility. The existing capacity of 70,000
WMT, or 22,000 dry metric tonnes, will be increased to approximately 140,000 WMT. The project will be
carried out through 2013 and 2014 with commercial production expected in the fourth quarter of 2014.
Upon completion of both projects, Superior will have total hydrochloric acid production capacity of
approximately 360,000 WMT. The two expansions will allow Superior to optimize overall returns at both
facilities by converting a larger portion of its chlorine into higher-value hydrochloric acid.
Sodium chlorate sales in 2012 represented 63% of Specialty Chemicals’ EBITDA from operations, excluding
the PPA Settlement, an increase of 6% from the 57% contribution in 2011. Sodium chlorate is principally sold
to bleached pulp manufacturers. It is used to generate chlorine dioxide for bleaching 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).
Pulp Prices Compared to Sodium Chlorate Prices and Sales Volumes
18
SUPERIOR PLUS CORP.
2012 annual report
Chloralkali/potassium sales in 2012 contributed 37% of EBITDA from operations, a decrease of 6% from the
43% contribution in 2011. Operating rates of the North American Chloralkali segment and electrochemical
unit pricing have remained relatively stable in 2012.
Chloralkali ECU Pricing Compared to Operating Rates
Specialty Chemicals’ top 10 customers comprised approximately 49% of its revenues in 2012, with its largest
customer representing 7% of its revenues.
Outlook
Superior expects that business conditions in 2013 for its Specialty Chemicals’ business will be similar to 2012.
EBITDA from operations, excluding the impact of the $12.5 million one-time payment from TransCanada, is
anticipated to be modestly higher in 2013, due to improved performance of the chloralkali product segment
driven by higher gross profits from hydrochloric acid and modestly higher selling prices for caustic soda,
which will more than offset anticipated reduced pricing for chlorine. Superior continues to see a stable
market for sodium chlorate as a result of the current market for pulp. Superior also expects a stable market
for chloralkali sales volumes and pricing as North American supply-demand fundamentals continue to be
balanced. The market for chloralkali continues to be supported by low natural gas prices.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
19
Construction Products Distribution
Construction Products Distribution’s condensed operating results for 2012 and 2011:
(millions of dollars)
2012
2011
Revenue
Gypsum Specialty Distribution (GSD) revenue (1)
Commercial and Industrial Insulation (C & I) revenue
Cost of sales
GSD cost of sales
C & I cost of sales
Gross profit
Less: Cash operating and administrative costs
EBITDA from operations
526.1
252.8
(408.6)
(186.4)
183.9
(163.1)
20.8
479.9
231.9
(367.7)
(169.4)
174.7
(150.5)
24.2
(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, Cost of Sales and Cash
Operating and Administrative Costs Included in this MD & A” for detailed amounts.
GSD and C & I revenues were $778.9 million for 2012, $67.1 million or 9% higher than in the prior year. The
increase in revenue was due to higher demand for GSD and C & I products in both Canada and the U.S, the
expansion of GSD product lines into U.S. locations, and the introduction of new products.
Gross profit was $183.9 million in 2012, $9.2 million or 5% higher than in the prior year due to increased
revenues as noted above, offset in part by lower gross margins. Gross margins were lower than in the
prior year due to supplier price increases which were not fully passed through to customers, introduction of
lower-margin products, competitive pressures in some regions and changes in sales mix.
Cash operating and administrative costs were $163.1 million in 2012, an increase of $12.6 million or 8% from
the prior year. The increase was primarily due to higher restructuring charges, as a total of 15 branches were
closed during 2012 (see “Restructuring” for further details) at a total cost of $6.5 million and higher employee
costs associated with increased sales volumes.
Intangible and Goodwill Impairments
During the third quarter of 2011, Construction Products Distribution performed a detailed impairment review
of its intangible assets and goodwill, due to a reduction in the near-term and medium-term forecasts for
the segment. The review indicated 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. No
impairment charges were recorded for the segment in 2012.
Construction Products Distribution enjoys considerable geographical and customer diversification, servicing
over 17,000 customers from 113 distribution branches (see “Total Revenues by Region” pie chart). Its 10
largest customers represent approximately 7% of its annual distribution sales, with the largest customer
generating approximately 1% of annual distribution sales. Construction Products Distribution enjoys a strong
position in its operating markets, 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).
20
SUPERIOR PLUS CORP.
2012 annual report
Total Revenues by Region – 2012
Total Revenues by Product – 2012
15% Prairies
16% Central/Eastern Canada
9% Residential insulation
8% Steel framing and accessories
9% Stucco, tools and miscellaneous
59% U.S.
31% Commercial and
industrial insulation
10% British Columbia
22% Drywall and components
21% 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 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 charts on the Canadian
and U.S. end-use construction segments below).
Canadian End-Use Construction Segments
U.S. End-Use Construction Segments
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
21
Outlook
Superior expects business conditions in 2013 for its Construction Products Distribution business to be similar
to 2012, with conditions improving slightly in the U.S. and lower residential construction in Canada. EBITDA
from operations is anticipated to be higher in 2013 than in 2012 due in part to the absence of restructuring costs
incurred in 2012 and the benefit from the business initiatives noted below. Superior continues to see difficult
market conditions in the residential and commercial segments in both countries although U.S. housing starts
are increasing and this will provide support for future sales growth. Superior does not anticipate significant
near-term improvements in the end-use markets.
Restructuring
The Construction Products Distribution business continues to review all aspects of operations to optimize
its cost structure and improve gross margins. A total of $6.5 million in restructuring costs were recognized
in 2012 associated with the closure or reorganization of 15 branches. Restructuring activities were actively
managed to minimize costs and the impact on customers.
Initiatives to improve results in the Construction Products Distribution business continued during the fourth
quarter. Ongoing business improvement projects for 2013 include: a) assessment of overall logistics and
existing branch network, b) review of supply chain management including procurement and transportation,
c) review of product pricing, and d) working capital management.
22
SUPERIOR PLUS CORP.
2012 annual report
In addition to the segment’s significant assumptions detailed above, refer to “Risk Factors to Superior” for a
detailed review of the significant business risks affecting this segment.
Consolidated Capital Expenditure Summary
(millions of dollars)
Efficiency, process improvement and growth-related
Other capital
Other acquisitions
Proceeds on disposition of capital
Total net capital expenditures
Investment in financing leases
Total expenditures
2012
11.4
32.4
43.8
5.5
(4.5)
44.8
8.1
52.9
2011
16.3
21.9
38.2
14.8
(3.2)
49.8
15.7
65.5
Efficiency, process improvement and growth-related expenditures were $11.4 million in 2012 compared to
$16.3 million in the prior year. They are primarily related to Energy Services’ purchases of rental assets and
truck-related expenditures and Specialty Chemicals-related capital projects.
Other capital expenditures were $32.4 million in 2012, compared to $21.9 million in the prior year, consisting
primarily of required maintenance and general capital across Superior’s segments. The increase was primarily
related to Specialty Chemicals’ bromine removal project and several other smaller projects.
In July 2012, the Energy Services segment completed the acquisition of the assets of a small regional propane
distribution business for $5.5 million, excluding $1.0 million in net working capital. 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 in 2011.
Proceeds on the disposal of capital were $4.5 million in 2012 and consisted of Superior’s disposition of
surplus tanks, cylinders and other assets.
During 2012, Superior entered into new leases with capital-equivalent value of $8.1 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
and revolving-term bank credit facilities.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
23
Corporate and Interest Costs
Corporate costs were $16.2 million in 2012, an increase of $4.3 million over the prior year. The increase was
due to higher long-term incentive plan costs associated with the increase in Superior’s share price during the
year and severance costs, offset in part by lower provisions.
Interest expense on borrowing was $38.4 million in 2012, a decrease of $4.3 million from the $42.7 million
incurred in the prior year. The decrease was primarily due to lower average debt during the majority of 2012,
offset in part by the redemption of $49.9 million on August 1, 2012 of Superior’s previously issued 5.75%
debentures due December 31, 2012. See “Liquidity and Capital Resources” for further details.
Interest on Superior’s convertible unsecured subordinated debentures (“Debentures”, which include
all series of convertible unsecured subordinated debentures) was $33.3 million for 2012, a decrease of
$3.2 million from the $36.5 million incurred in the prior year. The decrease is primarily due to the
redemption of $75.0 million on November 7, 2011, $50.0 million on December 12, 2011 and $49.9 million on
August 1, 2012 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 expense for 2012 was $9.0 million, comprised of $1.1 million in cash income tax expense and
$7.9 million in deferred income tax expense. This compares to a total income tax recovery of $50.4 million in
the prior year, which consisted of $1.5 million in cash income tax expense and a $51.9 million deferred income
tax recovery.
Cash income taxes for 2012 were $1.1 million, consisting of income taxes in the U.S. of $1.1 million
(2011 – $1.5 million of U.S. cash tax expense). Deferred income tax expense for 2012 was $7.9 million (2011
– $51.9 million deferred income tax recovery), resulting in a corresponding net deferred income tax asset of
$300.6 million as at December 31, 2012. Deferred income taxes in 2012 were impacted by higher net earnings
as the prior year included impairment charges recorded in Canada and the U.S.
24
SUPERIOR PLUS CORP.
2012 annual report
As at December 31, 2012, 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
Non-capital losses
Chile
Tax basis
Non-capital loss carry-forwards
(millions of dollars)
311.6
92.5
607.3
608.3
160.0
185.3
110.1
19.2
20.3
See the audited consolidated financial statements for the year ended December 31, 2012 for a summary
of the expiry 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.
Update on Review of Conversion Transaction
Since the beginning of 2010, the Canada Revenue Agency (CRA) has requested information relating to
Superior’s conversion transaction, which occurred on December 31, 2008 (the “Conversion”), and Superior
has responded to such requests and engaged in extensive discussions, including detailed settlement
discussions, with representatives of the CRA. The CRA advised Superior that the CRA believes it does not
have authority to settle the matter in this context. During the discussions, the CRA indicated that the general
anti-avoidance rule of the Income Tax Act (Canada) is available to the CRA as a basis upon which to challenge
the tax consequences of the Conversion.
On February 11, 2013, Superior received a proposal letter from the CRA which confirms its intention to
challenge the tax consequences of the Conversion. As disclosed in Superior’s MD&A for the period ended
September 30, 2012, Superior anticipated receiving a proposal letter from the CRA in due course on this
matter. The CRA has indicated in their proposal letter that they intend to challenge the transaction on the
basis of the acquisition of control rules, in addition to the general anti-avoidance rules of the Income Tax Act
(Canada). Superior has 30 days to respond to the letter and believes that the CRA will then proceed with a
Notice of Reassessment for Superior’s 2009, 2010 and 2011 taxation years. Superior remains confident in the
appropriateness of its tax filing position and the expected tax consequences of the Conversion and intends
to vigorously defend such. Superior also strongly believes that the acquisition of control or the general
anti-avoidance rules do not apply to the Conversion and intends to file its future tax returns on a basis
consistent with its view of the outcome of the Conversion.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
25
Superior is required to make a payment of 50% of the tax liability claimed by the CRA in order to appeal
the expected reassessment and, based on Superior’s 2009, 2010, and 2011 taxation years, that amount is
approximately $10 million and approximately $5 million for the 2012 taxation year once that information
is filed with CRA and then ultimately reassessed. Superior would also be required to make a payment of
50% of the taxes the CRA claims are owed in any future tax year if the CRA were to issue a similar notice
of reassessment for such years and Superior were to appeal it. Superior has 90 days from the Notice of
Reassessment to prepare and file a Notice of Objection, which would be reviewed by the CRA’s appeals
division. If the CRA is not in agreement with Superior’s Notice of Objection, Superior has the option to file its
case with the Tax Court of Canada. Superior anticipates that legal proceedings through the various tax courts
would take approximately two to four years. If Superior is ultimately successful in defending its position, such
payments plus applicable interest, will be refunded to Superior. If the CRA is successful, Superior will be
required to pay the balance of the taxes claimed plus applicable interest and penalties.
Superior’s 2013 financial outlook as provided in this MD&A does not include the impact of a potential
reassessment, as any interim tax payments made by Superior will be recorded to the balance sheet and will
not impact either adjusted operating cash flow or net earnings.
Based on the midpoint of Superior’s current 2013 financial outlook of adjusted operating cash flow per share
of $1.80, if the tax pools from the Conversion were not available to Superior, the impact would be an increase
to cash income taxes of approximately $0.15 per share. As previously stated, Superior intends to file its future
income tax returns on a basis consistent with its view of the outcome of the Conversion.
Financial Outlook
Superior achieved adjusted operating cash flow per share for 2012 of $1.73, within the 2012 financial outlook
range as provided in Superior’s 2012 third-quarter MD&A. See the detailed discussions on each segment for
a breakdown of the results achieved.
Superior’s outlook is for adjusted operating cash flow for 2013 to be between $1.65 per share and $1.95 per
share, consistent with Superior’s previous financial outlook as provided in the 2012 third-quarter MD&A.
Achieving Superior’s 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 2013 outlook are:
• Economic growth in Canada and the U.S. is expected to be similar to or modestly higher than in 2012;
• Superior is expected to continue to attract capital and obtain financing on acceptable terms;
• Superior’s estimated total debt to EBITDA ratio is based on maintenance and growth related expenditures
of $76.1 million and working capital funding requirements which do not contemplate any significant
commodity price changes;
26
SUPERIOR PLUS CORP.
2012 annual report
• The foreign currency exchange rate between the Canadian dollar and U.S. dollar is expected to average
par in 2013 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 2012 levels;
and
• Canadian and U.S. based cash taxes are expected to be minimal for 2013 based on existing statutory
income tax rates and the ability to use available losses.
Energy Services
• Average temperatures across Canada and the Northeast U.S. are expected to be consistent with the
recent five-year average for 2013;
• Total propane and U.S. refined fuels-related sales volumes are expected to increase in 2013, due to
assumptions that weather will be consistent with the five-year average and that there will be an impact
from customer win-back and retention programs;
• 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 results in 2013 are expected to increase as compared to 2012 due
to supply chain management efforts and higher sales volumes due to a return to normal weather; and
• Fixed-price energy services is expected to be able to access sales channel agents on acceptable contract
terms, and gross profits in 2013 will decrease from 2012. The decrease will be primarily related to lower
natural gas gross margins due to lower transportation-related gross profits and lower contribution from
residential customer renewals and residential customer count. Total new customer aggregation volumes
are expected to decline from 2012 as the system price for natural gas remains low. Growth in the fixed-
price electricity segment is expected to offset a portion of the decline in natural gas gross profits.
Specialty Chemicals
• Sodium chlorate sales volumes, pricing and margins in 2013 are expected to be consistent with 2012, as
market conditions remain balanced;
• Chloralkali sales volumes, pricing and margins are expected to increase in 2013 due to improved
contribution from hydrochloric acid and caustic soda;
• Electrical costs are expected to be consistent with 2012 as overall electrical pricing remains stable; and
• Average plant utilization will approximate 94% in 2013.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
27
Construction Products Distribution
• GSD sales revenue from Canada is expected to decline in 2013 due to branch closures and lower residential
construction activity, offset in part by the successful introduction of new products and price management.
GSD sales revenue from the United States is expected to increase in 2013 due to continued expansion of
existing product lines into U.S. branches, emphasis on specific product opportunities, pricing initiatives
and market improvements in some regions. C & I sales revenue is expected to increase in 2013 due to
emphasis on specific product opportunities and pricing initiatives;
• Sales margins for GSD and C & I are expected to increase slightly from 2012 due to price management
initiatives, procurement strategy and closure of low-margin branches; and
• Operating costs as a percentage of revenue are expected to decrease due to the branch closures and
restructuring completed in 2012.
Debt Management Update
Superior remains committed to reducing its total debt and its total debt leverage ratios. Superior’s total debt
to EBITDA ratio as at December 31, 2012 of 4.4X was within Superior’s third quarter 2012 MD&A range of
4.2X to 4.4X.
Superior has increased the high end of its forecasted December 31, 2013 total debt to EBITDA range to 4.2X
from the prior range of 4.0X provided at the third quarter of 2012 due to higher anticipated working capital
levels and the anticipated payment to CRA. Superior’s targeted total debt to EBITDA remains unchanged at
3.5X to 4.0X.
Debt Management Summary
Per Share Millions of Dollars
2013 financial outlook adjusted operating cash flow per share – mid-point (1)
Maintenance capital expenditures, net
Capital lease obligation repayments
Cash flow available for dividends and debt repayment before growth capital
Expansion of Port Edward’s and Saskatoon facilities and one-time environmental costs
Other growth capital expenditures
Anticipated payment to CRA in relation to tax challenge (2)
Proceeds from dividend reinvestment program
Estimated 2013 free cash flow available for dividend and debt repayment
Dividends (annualized)
Total estimated debt repayment (including Q4 2012 actuals)
$ 1.80
(0.27)
(0.14)
$ 1.39
(0.25)
(0.16)
(0.13)
0.12
$ 0.97
$
(0.60)
$ 0.37
204.2
(30.2)
(15.5)
158.5
(28.2)
(18.1)
(15.0)
13.6
110.8
(68.1)
42.7
Estimated total debt to EBITDA ratio as at December 31, 2013
3.8X – 4.2X
3.8X – 4.2X
Dividends (annualized)
Calculated payout ratio after all capital expenditures and anticipated payment to CRA
$ 0.60
61%
68.1
61%
(1) See “Financial Outlook” for additional details including assumptions, definitions and risk factors.
(2) See “Update on Review of Conversion Transaction” for additional details.
In addition to Superior’s significant assumptions detailed above, refer to “Risk Factors to Superior” for a
detailed review of Superior’s significant business risks.
28
SUPERIOR PLUS CORP.
2012 annual report
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, 2012
(millions of dollars)
Revolving term bank credit facilities (1)
Term loans (1)
Finance lease obligations
Total
Total
Amount
Letters of
Borrowing Credit Issued
Amount
Available
570.0
244.2
62.0
876.2
333.4
244.2
62.0
639.6
31.1
205.5
–
–
–
–
31.1
205.5
(1) Revolving term bank credit facilities and term loan balances are presented before deferred financing fees.
Superior’s revolving syndicated bank facility (Credit Facility), term loans and finance lease obligations
(collectively Borrowing) before deferred financing fees totalled $639.6 million as at December 31, 2012, a
decrease of $122.5 million from December 31, 2011. Overall Borrowing decreased from the prior year due
to additional cash flow retained as a result of reducing the monthly dividend on November 2, 2011, lower
accounts receivable in the Canadian propane distribution segment and higher cash flow from operating
activities, offset in part by finance lease repayments, net capital expenditures and the $49.9 million redemption
of 5.75% convertible unsecured subordinated debentures.
On March 28, 2012, Superior completed an extension of its Credit Facility with eight lenders and reduced
the size of the facility from $615 million to $570 million. The Credit Facility matures on June 27, 2015 and
can be expanded to $750 million. The Credit Facility was reduced to reflect Superior’s anticipated credit
requirements as a result of Superior’s ongoing debt reduction plan. Financial covenant ratios were unchanged
with a consolidated secured debt to consolidated EBITDA ratio and a consolidated debt to consolidated
EBITDA ratio of 3.0x and 5.0x, respectively. See “Summary of Cash Flow” for details on Superior’s sources
and uses of cash.
As at December 31, 2012, Debentures (before deferred issuance costs and option value) issued by Superior
totalled $541.5 million, $49.9 million lower than the balance of $591.4 million as at December 31, 2011. The
decrease in Debentures was due to the redemption of $49.9 million on August 1, 2012 (see “Redemption”).
Redemptions
On August 1, 2012 Superior completed the previously announced redemption of the remaining
$49.9 million principal of its previously issued 5.75% convertible subordinated debentures (2012 Debentures)
due December 31, 2012, using funds from its Credit Facility. The 2012 Debentures were redeemed, in
accordance with their terms, at the redemption price of $1,000 in cash per $1,000 principal plus accrued and
unpaid interest thereon up to the redemption date, being $1,005.0411 per $1,000 principal.
On November 30, 2012, Superior announced that it provided notice that it will redeem $50 million principal
amount of its previously issued 5.85% convertible subordinated debentures due October 31, 2015 on January
3, 2013. As previously announced, Superior will use proceeds from its bank facility to fund the redemption of
the 2015 Debentures. The 5.85% convertible subordinated debentures will, in accordance with their terms,
be redeemed at the redemption price of $1,000 in cash per $1,000 principal amount of 2015 Debentures
plus accrued and unpaid interest up to but excluding the redemption date. The record date for the partial
redemption is December 31, 2012.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
29
As at December 31, 2012, approximately $205.5 million was available under the Credit Facility,
which Superior considers sufficient to meet its expected net working capital, capital expenditure and
refinancing requirements.
Consolidated net working capital was $287.8 million as at December 31, 2012, a decrease of $89.5 million from
net working capital of $377.3 million as at December 31, 2011. The decrease was primarily due to significant
collections of past due accounts receivable related to the system upgrade at Canadian propane distribution,
offset in part by higher inventory at U.S. refined fuels due a key supplier exiting the refinery business and
warmer than expected weather. Lower net working capital at Construction Products Distribution was due to
continued effort at optimizing net working capital as part of the segment’s supply chain management review.
In May 2010, Superior re-established its DRIP. It 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 2012 were $14.2 million as compared to $28.9 million in 2011, the decrease being primarily due to the
reduction in Superior’s dividend on November 2, 2011.
As at December 31, 2012, when calculated in accordance with the Credit Facility, the consolidated secured
debt to compliance EBITDA ratio was 1.8 to 1.0 (December 31, 2011 – 2.3 to 1.0) and the consolidated debt
to compliance EBITDA ratio was 2.4 to 1.0 (December 31, 2011 – 2.9 to 1.0). For both of these covenants all
outstanding Debentures are omitted. 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. Also, Superior is subject to several distribution tests and the most restrictive
stipulates that distributions (including Debenture holders and related payments) cannot exceed compliance
EBITDA less cash income taxes, plus $35.0 million, on a trailing 12-month rolling basis. On a 12-month rolling
basis as at December 31, 2012, Superior’s available distribution amount was $120.0 million under the above
noted distribution test.
On March 30, 2012, Standard and Poor’s confirmed both Superior and Superior LP’s long-term
corporate credit rating as BB- and the secured debt rating as BB+. The outlook rating for Superior and
Superior LP remains stable and the credit rating on Superior’s unsecured debt is unchanged at BB-. On
August 17, 2012, DBRS confirmed Superior LP’s senior secured rating of BB (high) and Superior LP’s senior
unsecured rating of BB (low). The trend for both ratings is stable.
As at December 31, 2012, Superior had an estimated defined benefit pension solvency deficiency of
approximately $36.7 million (December 31, 2011 – $36.3 million) and a going concern solvency deficiency of
approximately $6.5 million (December 31, 2011 – $16.6 million). Funding requirements required by applicable
pension legislation are based upon going concern and solvency actuarial assumptions. These assumptions
differ from the going concern actuarial assumptions used in Superior’s financial statements. Superior has
sufficient liquidity through existing revolving term bank credits and anticipated future operating cash flow to
fund this deficiency over the prescribed funding period.
30
SUPERIOR PLUS CORP.
2012 annual report
In the normal course of business, Superior is subject to lawsuits and claims. Superior believes the resolution of
these matters will not have a material adverse effect, individually or in the aggregate, on Superior’s liquidity,
consolidated financial position or results of operations. Superior records costs as they are incurred or when
they become determinable.
Contractual Obligations and Other Commitments
(millions of dollars)
Note (1)
Payments Due In
2014-2015
2016-2017
Thereafter
Borrowing (including capital leases)
Debentures
Minimum future lease payment
under finance leases
Operating leases (2)
US$ foreign currency forward
sales contracts
Natural gas, propane,
heating oil, and electricity
purchase commitments (3)
Total contractual obligations
Total
639.6
525.1
62.0
163.6
2013
59.7
50.0
16.4
38.1
416.3
91.5
30.1
89.9
162.4
239.6
13.0
35.6
649.4
218.0
315.0
116.4
18
20
19
19
22
22
94.8
2,134.5
20.3
402.5
39.2
982.0
35.3
602.3
1.2
144.0
2.5
–
–
–
147.7
(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 22 to the consolidated financial statements.
Shareholders’ Capital
The weighted average number of common shares issued and outstanding was 111.9 million in 2012
compared to 109.2 million in 2011, an increase of 2.7 million shares from the prior year due to the issuance of
1,968,606 common shares over the year and the resulting impact on the weighted average number of shares
outstanding. The following table provides details:
Average
Issuance Price
per Share
Issued
Number
of Common
Shares (Millions)
Closing Date
As at December 31, 2011
Issuance of common shares under Superior’s DRIP
As at December 31, 2012
January 13, 2012
through December 14, 2012
$ 7.48
110.8
2.0
112.8
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
31
As at February 14, 2013, December 31, 2012 and December 31, 2011, the following common shares and
securities convertible into common shares were issued and outstanding:
(millions)
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)
Common shares outstanding
and upon conversion
of Debentures
February 14, 2013
December 31, 2012
December 31, 2011
Convertible
Securities
–
$ 25.0
$ 69.0
$ 172.5
$ 150.0
$ 75.0
Shares
112.9
–
0.8
5.3
9.1
9.9
6.6
Convertible
Securities
–
$ 75.0
$ 69.0
$ 172.5
$ 150.0
$ 75.0
Shares
112.8
–
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
144.6
146.1
145.5
(1) Common shares outstanding as at February 14, 2013, includes 114,704 common shares issued under Superior’s DRIP program in 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 depend on its cash flow from operating activities with consideration
for Superior’s changes in working capital requirements, investing activities and financing activities. See
“Summary of Adjusted Operating Cash Flow” and “Summary of Cash Flow” for additional details.
Dividends paid to shareholders for 2012 were $67.1 million (before DRIP proceeds of $14.2 million) or
$0.60 per share compared to $136.7 million or $1.26 per share in 2011. The decrease of $69.6 million was due
to the two reductions to Superior’s dividend rate. On February 17, 2011, Superior announced that the monthly
dividend had been reduced to $0.10 per share per month effective with the March 2011 dividend payment,
and on November 2, 2011, Superior announced that the monthly dividend had been reduced to $0.05 per
share. The rationale was that Superior deemed it prudent to accelerate its debt reduction by reducing
its monthly dividend. See “Debt Management Update” for further details. Dividends to shareholders are
declared at the discretion of Superior’s Board of Directors.
32
SUPERIOR PLUS CORP.
2012 annual report
Superior’s primary sources and uses of cash are detailed below:
Summary of Cash Flow (1)
(millions of dollars)
Cash flow from operating activities
Investing activities (2):
Purchase of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Other acquisitions
Cash flow 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 7.50% convertible debentures
Costs incurred for the issuance of 7.50% convertible debentures
Proceeds from the dividend reinvestment plan
Dividends paid to shareholders
Cash flow 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 flow for additional details.
(2) See “Consolidated Capital Expenditure Summary” for additional details.
2012
273.3
(43.8)
4.5
(5.5)
(44.8)
(74.4)
(31.8)
(16.4)
–
(49.9)
–
–
14.2
(67.1)
(225.4)
3.1
5.2
(0.7)
7.6
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
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
33
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, share-based compensation 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 in order to manage its economic exposure of
providing fixed-price natural gas to its customers and maintains its natural gas swap positions with seven
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
12 counterparties to manage the economic exposure of Superior’s operations to movements in foreign
currency exchange rates. Energy Services contracts a portion of its fixed-price natural gas, propane and
heating oil purchases and sales in US dollars and enters into forward US dollar purchase contracts to create
an effective Canadian dollar fixed-price purchase cost. Specialty Chemicals enters into US dollar forward
sales contracts on an ongoing basis to mitigate the impact of foreign exchange fluctuations on sales margins
on production from its Canadian plants that is sold in US dollars. Interest expense on Superior’s US dollar
debt is also used to mitigate the impact of foreign exchange fluctuations.
34
SUPERIOR PLUS CORP.
2012 annual report
As at December 31, 2012, Superior has hedged approximately 90% of its estimated U.S. dollar exposure
for 2013. The estimated sensitivity of 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 2013, is $0.2 million, after giving effect to United States forward contracts for
2013, as shown in the table below. Superior’s sensitivities and guidance are based on an anticipated average
Canadian to U.S. dollar foreign currency exchange rate for 2013 of par.
(US$ millions except exchange rates)
Energy Services – US$ forward sales
Construction Products Distribution –
US$ forward sales
Specialty Chemicals – US$ forward sales
Corporate – US$ forward purchases
2013
44.0
2014
26.0
24.0
150.0
12.0
133.0
(25.0)
(27.0)
2015
26.0
12.0
106.0
–
Net US$ forward sales
193.0
144.0
144.0
2016
–
12.0
80.4
–
92.4
Energy Services – Average US$ forward sales rate 1.06
1.01
1.01
–
Construction Products Distribution –
Average US$ forward sales rate
Specialty Chemicals –
Average US$ forward sales rate
Corporate – US$ forward purchases rate
Net average external US$/CDN$ exchange rate
1.07
1.00
1.00
1.03
1.04
1.01
1.05
1.03
1.01
1.02
1.00
–
1.00
1.04
–
1.03
2018 and
2017 Thereafter
–
–
24.0
–
24.0
–
–
1.03
–
1.03
–
–
–
–
–
–
–
–
–
–
Total
96.0
60.0
493.4
(52.0)
597.4
1.03
1.03
1.03
1.01
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 creditworthiness 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 creditworthiness 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 debt risk for residential and
small commercial customers. Fixed-price energy services actively monitors the creditworthiness of its
direct-billed industrial customers. All of Superior’s business segments have credit risk policies to minimize
credit exposure.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
35
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 22 to the audited consolidated financial statements.
Sensitivity Analysis
Superior’s estimated cash flow sensitivity in 2012 to various changes is provided below:
Cash Flow
Per Share
Energy Services
Change in propane sales margin
Change in propane sales volume
Change in U.S. refined fuels sales margin
Change in U.S. refined fuels sales volume
Change in natural gas sales margin
Change in natural gas sales volume
Specialty Chemicals
Change in sales price
Change in sales volume
Construction Products Distribution
Change in sales margin
Change
$0.005/litre
50 million litres
$0.005/litre
50 million litres
$0.10/GJ
2 million GJ
$10.00/MT
15,000 MT
1% change in average
gross margin
Change in sales volume
5% change in sales volume
Impact on
Adjusted
Operating
Change
3%
4%
7%
3%
8%
11%
1%
2%
4%
5%
$6.5 million
$8.3 million
$8.0 million
$2.2 million
$1.9 million
$2.4 million
$7.7 million
$4.8 million
$7.2 million
$4.5 million
Corporate
Change in CDN$/US$ exchange rate
Corporate change in interest rates
$0.01
0.5%
1%
17%
$0.2 million
$1.9 million
$0.06
$0.07
$0.07
$0.02
$0.02
$0.02
$0.07
$0.04
$0.06
$0.04
$nil
$0.02
36
SUPERIOR PLUS CORP.
2012 annual report
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 release. An evaluation of the effectiveness of the design and
operation of Superior’s disclosure controls and procedures was conducted as at December 31, 2012 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 IFRS.
The evaluation of the design of Superior’s internal controls over financial reporting was conducted as at
December 31, 2012 by and under the supervision of Superior’s management, including the CEO and CFO.
Based on this evaluation, the CEO and CFO have concluded that the design of Superior’s internal controls
over financial reporting, as defined in National Instrument 52-109, Certification of Disclosure in Issuers’
Annual and Interim Filings, provides reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements in accordance with IFRS.
The evaluation of the effectiveness of Superior’s internal controls over financial reporting was conducted as
at December 31, 2012 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, 2012.
No changes were made in Superior’s internal controls 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, 2012.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
37
Critical Accounting Policies and Estimates
Superior’s audited consolidated financial statements were prepared in accordance with IFRS. The significant
accounting policies are described in the audited consolidated financial statements for the period ended
December 31, 2012. 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. Superior’s 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, asset impairments and the assessment of potential
asset retirement obligations.
Critical Accounting Estimates
Superior’s significant accounting policies are described 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 debt 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 flow, and measurement of an impairment
loss is based on the fair value of the assets.
38
SUPERIOR PLUS CORP.
2012 annual report
Goodwill is not amortized, but is assessed for impairment at the reporting unit level annually, or sooner if
events or changes in circumstances indicate that the carrying amount could exceed fair value. Goodwill is
assessed for impairment using a two-step approach, with the first step being to assess whether the fair value
of the reporting unit to which the goodwill is assigned is less than its carrying value. If this is the case, a
second impairment test is performed which requires a comparison of the fair value of goodwill to its carrying
amount. If fair value is less than the carrying value, goodwill is considered to be impaired and an impairment
charge would be recognized immediately.
Valuation of Derivatives and Non-Financial Derivatives
The valuation of derivatives and non-financial derivatives is determined by reference to quoted bid or asking
prices, as appropriate, in the most advantageous active market for that instrument to which Superior has
immediate access. Where bid and ask prices are unavailable, Superior uses the closing price of the most
recent transaction of the instrument. In the absence of an active market, Superior determines fair value based
on prevailing market rates (bid and ask prices, as appropriate) for instruments with similar characteristics and
risk profiles or internal or external valuation models, such as discounted cash flow analysis, using observable
market-based inputs.
Fair values determined using valuation models require the use of assumptions concerning the amount and
timing of estimated future cash flow 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
39
Recent Accounting Pronouncements
Certain new standards, interpretations, amendments or improvements to existing standards were issued by
the IASB or the International Financial Reporting Interpretations Committee (IFRIC) that are mandatory for
accounting periods beginning on January 1, 2012 or later. The affected standards that apply to Superior are
as follows:
IFRS 9 – Financial Instruments: Classification and Measurement
IFRS 9, Financial Instruments, was issued in November 2009 and is intended to replace International
Accounting Standard (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, 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; changes, if
any, are not expected to be material.
IFRS 10 – Consolidated Financial Statements
IFRS 10 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 was effective for Superior on January 1, 2013. Superior adopted the
amendments on January 1, 2013, with no impact to Superior.
IFRS 11 – Joint Arrangements
IFRS 11 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
became applicable on January 1, 2013. Superior adopted the amendments on January 1, 2013, with no
impact to Superior.
40
SUPERIOR PLUS CORP.
2012 annual report
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 12 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
disclosure 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 became effective for Superior on
January 1, 2013. Superior adopted the amendments on January 1, 2013, with no impact to Superior.
IFRS 13 – Fair Value Measurement
IFRS 13 defines fair value, sets out a single IFRS framework for measuring fair value and requires disclosure
about fair value measurements. IFRS 13 applies to accounting standards that require or permit fair value
measurements or disclosure about fair value measurements (and measurements, such as fair value less costs
to sell, based on fair value or disclosure about those measurements), except in specified circumstances. IFRS
13 became applicable on January 1, 2013. Superior adopted the amendments on January 1, 2013, with no
impact to Superior.
IAS 1 – Presentation of Other Comprehensive Income
The amendments to IAS 1, Presentation of Financial Statements, issued in June 2011, require entities to
group items presented in other comprehensive income on the basis of whether they might be reclassified
to the consolidated statement of income in subsequent periods and items that will not be reclassified to the
consolidated statement of income. The amendments did not address which items are presented in other
comprehensive income and did not change the option to present items net of tax. The amendments to
IAS 1 became effective for annual periods beginning on or after July 1, 2012, which was January 1, 2013 for
Superior, and are to be applied retrospectively. Superior adopted the amendments on January 1, 2013, with
no impact to Superior.
IAS 19 – Employee Benefits, Amendments
IAS 19 amendments were issued in June 2011, and changed the accounting and disclosure for defined
benefit plans and termination benefits. The 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 applies for accounting periods beginning on or
after January 1, 2013. Superior adopted IAS 19 on January 1, 2013 and the financial impact is an increase of
$3.1 million to pension expenses and a corresponding decrease to accumulated other comprehensive loss
for the year ended December 31, 2012. The impact on Superior’s balance sheet as at January 1, 2012 is a $4.1
million increase to retained deficit and a corresponding decrease to accumulated other comprehensive loss.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
41
Superior adopted the following on January 1, 2012:
IFRS 7 – Financial Instruments: Disclosure, Amendments Regarding Disclosures – Transfer of Financial Assets
The December 2011 changes by the IASB and the Financial Accounting Standards Board (FASB) to IFRS 7
require quantitative and qualitative disclosure regarding transfers of financial assets when 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. Superior adopted the amendments on
January 1, 2012, with no impact to Superior.
IAS 12 – Income Taxes, Amendments Regarding Deferred Tax: Recovery of Underlying Assets
IAS 12 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 introduced a presumption that an entity
will assess whether an asset’s sale will recover its carrying amount. Superior’s adoption of IAS 12 on
January 1, 2012 did not impact Superior’s financial results or financial position.
Selected Financial Information
(millions of dollars except per share amounts)
Total assets (as at December 31)
Total revenues
Gross profit
Net earnings (loss)
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)
2012
2,036.3
3,624.3
846.3
93.1
2011
2,193.4
3,925.6
827.5
(302.6)
2010
2,696.9
3,537.4
780.6
(75.8)
$
0.83
$
(2.77)
$
(0.72)
273.3
193.5
$
$
1.73
0.60
639.6
212.0
180.4
$
$
1.65
1.17
762.1
9.9
162.9
$
$
1.54
1.62
740.0
(1) Current and long-term debt before deferred financing fees, option value and accounts receivable securitization and Debentures.
42
SUPERIOR PLUS CORP.
2012 annual report
Fourth Quarter Results
Fourth quarter adjusted operating cash flow was $62.6 million, a decrease of $1.2 million or 2% from the prior
year quarter. The decrease in adjusted operating cash flow was primarily due to lower operating results at
Specialty Chemicals offset in part by lower interest costs. Adjusted operating cash flow of $0.56 per share,
decreased by $0.02 per share as compared to the prior year quarter due to a 2% decrease in adjusted
operating cash flow as noted above and a 2% increase in the weighted average number of shares outstanding.
The average number of shares outstanding increased in 2012 as a result of shares issued from Superior’s DRIP.
The net earnings for the fourth quarter were $14.2 million, compared to a net loss of $231.4 million in the prior
year quarter. Net earnings were primarily impacted by a reduction in impairments as the prior year quarter
included an impairment charge of $300.6 million and lower operating costs offset in part by unrealized losses
on financial instruments in the current quarter and higher income tax expense. The change in the unrealized
losses on financial instruments was due principally to losses 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. Revenues of $934.0 million were $109.4 million lower than the prior year quarter
due to lower Energy Services revenue as a result of lower propane prices offset in part by higher revenue
at Construction Products Distribution as a result of increased sales volumes and the introduction of new
products. Gross profit of $228.2 million was $6.4 million lower than the prior year quarter primarily due to
decreased Energy Services gross profits due to reduced sales volumes and gross margins and Specialty
Chemical gross profits due to lower gross margins. Operating expenses of $177.9 million in the fourth quarter
were $10.8 million lower than in the prior year quarter due to reduced amortization expense offset by lower
risk reserve funding credits offset in part by $2.3 million of restructuring costs incurred at Construction
Products Distribution and $3.0 million incurred at Energy Services. Total income tax recovery for the fourth
quarter was $0.9 million compared to income tax recovery of $43.7 million in the prior year quarter. The
decrease in income tax recovery was due to higher net earnings in the fourth quarter of 2012 as the prior year
quarter included an impairment charge of $300.6 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
43
Quarterly Financial and Operating Information
(millions of dollars except
per share amounts)
Canadian propane sales volumes
2012 Quarters
2011 Quarters
Fourth
Third
Second
First
Fourth
Third
Second
First
(millions of litres)
383
240
255
413
368
239
260
U.S. refined fuels sales volumes
(millions of litres)
428
335
363
473
440
344
405
Natural gas sales volumes
(thousands of GJ)
Electricity sales volumes
(thousands of KwH)
Chemical sales volumes
(thousands of MT)
Revenues (millions of dollars)
Gross profit
Net earnings (loss)
Per share, basic
Per share, diluted
Adjusted operating cash flow
5
5
5
5
5
5
6
200
245
187
185
167
176
146
200
934.0
228.2
14.2
193
790.1
195.9
36.7
190
188
187
834.3 1,065.9
1,043.4
184.8
238.1
234.6
197
845.0
178.5
13.5
28.7
(231.4)
(113.4)
192
898.4
176.0
1.1
$ 0.13 $ 0.33
$0.12 $ 0.26
$ (2.10)
$ (1.04)
$ 0.01
$ 0.38
$ 0.13 $ 0.31
$0.12 $ 0.24
$ (2.10)
$ (1.04)
$ 0.01
$ 0.34
(millions of dollars)
62.6
34.5
29.0
67.4
63.8
23.5
19.8
73.3
Per share, basic and diluted
Net working capital (1)
(millions of dollars)
$ 0.56 $ 0.31
$0.26 $ 0.61
$ 0.58
$ 0.21
$ 0.18
$ 0.68
287.8
218.3
234.4
325.3
377.3
295.0
365.3
416.1
(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.
Forward-Looking Information
Certain information included herein is forward-looking information within the meaning of applicable
Canadian securities laws. Forward-looking information may include statements regarding the objectives,
business strategies to achieve those objectives, expected financial results (including those in the area of risk
management), economic or market conditions, and the outlook of or involving Superior, Superior LP and
its businesses. Such information is typically identified by words such as “anticipate”, “believe”, “could”,
“estimate”, “expect”, “plan”, “intend”, “forecast”, “future”, “guidance”, “may”, “predict”, “project”,
“should”, “strategy”, “target”, “will” or similar expressions suggesting future outcomes.
439
552
6
117
196
1,138.8
238.4
41.1
44
SUPERIOR PLUS CORP.
2012 annual report
Forward-looking information in this MD&A includes future financial position, consolidated and business
segment outlooks, expected EBITDA from operations, expected adjusted operating cash flow and adjusted
operating cash flow per share, expected leverage ratios and debt repayment, debt management summary,
business strategy, objectives and initiatives, development plans and programs, business conditions, business
expansion and improvement projects and expected timing of commercial productions associated therewith,
expected timing of commercial production associated therewith, market conditions in Canada and the U.S.,
expected tax consequences of the Conversion, the expected challenge by the CRA of the tax consequences of
the Conversion (and the expected timing and impact of such process including any payment of taxes and the
quantum of such payments), future income taxes and the basis of preparation of future tax returns, the impact
of proposed changes to Canadian tax legislation or U.S. tax legislation, future economic conditions, future
exchange rates and exposure to such rates, dividend strategy, payout ratio, expected weather, commodity
prices and costs, the impact of contracts for commodities, demand for chemicals including sodium chlorate
and chloralkali, production capacity, effect of operational and technological improvements, the impact of
ongoing legal proceedings, expected life of facilities and statements regarding net working capital and
capital expenditure requirements of Superior or Superior Plus LP.
Forward-looking information is provided for the purpose of providing information about management’s
expectations and plans about the future and may not be appropriate for other purposes. Forward-looking
information herein is based on various assumptions and expectations that Superior believes are reasonable
in the circumstances. No assurance can be given that these assumptions and expectations will prove to
be correct. Those assumptions and expectations are based on information currently available to Superior,
including information obtained from third party industry analysts and other third party sources, and the
historic performance of Superior’s businesses. 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, the assumptions set
forth under the “Financial Outlook” section of this MD&A and are subject to the risks and uncertainties set
forth below.
By its very nature, forward-looking information involves numerous assumptions, risks and uncertainties, both
general and specific. Should one or more of these risks and uncertainties materialize or should underlying
assumptions prove incorrect, as many important factors are beyond our control, Superior’s or Superior LP’s
actual performance and financial results may vary materially from those estimates and intentions contemplated,
expressed or implied in the forward-looking information. These risks and uncertainties include incorrect
assessments of value when making acquisitions, increases in debt service charges, the loss of key personnel,
fluctuations in foreign currency and exchange rates, inadequate insurance coverage, liability for cash taxes,
counterparty risk, compliance with environmental laws and regulations, our ability to access external sources
of debt and equity capital, and the risks identified in (i) of this MD&A under the heading “Risk Factors” and
(ii) Superior’s most recent Annual Information Form. The preceding list of assumptions, risks and uncertainties
is not exhaustive.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
45
When relying on our forward-looking information to make decisions with respect to Superior, investors
and others should carefully consider the preceding factors, other uncertainties and potential events.
Any forward-looking information is provided as of the date of this MD & A and, except as required by law,
neither Superior nor Superior LP undertakes to update or revise such information to reflect new information,
subsequent or otherwise. For the reasons set forth above, investors should not place undue reliance on
forward-looking information.
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 in its calculation of adjusted operating cash
flow; these items would generally, but not necessarily, be items of a non-recurring nature. Adjusted operating
cash flow is the main performance measure used by management and investors to evaluate Superior’s
performance. Readers are cautioned that adjusted operating cash flow 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
expenses, which can differ significantly from quarter to quarter. Adjustments are also made to reclassify the
cash flow related to natural gas and electricity customer contract-related costs in a manner consistent with
the income statement’s recognition of these costs. Adjusted operating cash flow is reconciled to net cash
flow from operating activities on page 11.
EBITDA
EBITDA represents earnings before taxes, depreciation, amortization, finance expense and certain 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. The EBITDA of Superior’s operating segments
may be referred to as EBITDA from operations. Net earnings before income taxes are reconciled to EBITDA
from operations on page 39.
46
SUPERIOR PLUS CORP.
2012 annual report
Compliance EBITDA
Compliance EBITDA represents earnings before interest, taxes, depreciation, amortization and certain
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 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.
Reconciliation of Net Earnings (Loss) before Income Taxes to EBITDA from Operations (1)(2)
2012 (millions of dollars)
Net Earnings before income taxes
Add: Amortization of property, plant and equipment and intangible assets
Amortization included in cost of sales
Losses on disposition of assets
Amortization of customer contract-related costs
Customer contract-related costs
Impairment of property, plant and equipment
Finance costs
Unrealized gains on derivative financial instruments
EBITDA from operations
2011 (millions of dollars)
Net Earnings (Loss) before income taxes
Add: Amortization of property, plant and equipment and intangible assets
Amortization included in cost of sales
Customer contract-related costs
Amortization of customer contract-related costs
Losses (gains) on disposition of assets
Gain on bargain purchase
Impairment of property, plant and equipment
Impairment of intangible assets and goodwill
Finance costs
Unrealized gains on derivative financial instruments
EBITDA from operations
Energy
Services
113.0
53.4
−
0.2
3.3
(1.1)
4.7
4.5
(43.8)
134.2
Energy
Services
(233.9)
71.1
−
(1.6)
4.2
2.4
(0.9)
3.4
300.6
3.9
(15.6)
133.6
Specialty
Chemicals
Construction
Products
Distribution
77.0
6.3
44.9
0.6
−
−
−
0.3
(1.6)
127.5
13.8
6.1
−
0.2
−
−
−
0.7
−
20.8
Specialty
Chemicals
Construction
Products
Distribution
56.1
8.5
44.9
−
−
−
−
−
−
0.3
5.4
115.2
(63.3)
8.4
−
−
−
(0.1)
−
−
78.0
1.2
−
24.2
(1) See the audited consolidated financial statements for net earnings (loss) before income taxes, depreciation of property, plant and equipment,
intangible assets and accretion of convertible debenture issuance costs, amortization included in cost of sales, amortization of customer
contract-related costs, customer contract-related costs and unrealized gains or losses on derivative financial instruments.
(2) See “Non-IFRS Financial Measures” for additional details.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
47
Reconciliation of Divisional Segmented Revenue, Cost of Sales and Cash Operating and
Administrative Costs Included in this MD & A
2012
2011
Revenue per financial statements
2,301.6
543.8
778.9
Energy
Services
Construction
Specialty
Products
Chemicals Distribution
Energy
Services
2,686.1
Specialty
Chemicals
Construction
Products
Distribution
527.7
711.8
Foreign currency gains (losses)
related to working capital
−
(1.6)
−
−
Revenue per the MD & A
2,301.6
542.2
778.9
2,686.1
1.4
529.1
−
711.8
Cost of products sold per
financial statements
(1,854.2)
(328.8)
(595.0)
(2,225.7)
(335.3)
(537.1)
Risk reserve recovery reclassification
Non-cash amortization
−
−
−
44.9
−
−
(5.2)
−
−
44.9
−
−
Cost of products sold per the MD & A
(1,854.2)
(283.9)
(595.0)
(2,230.9)
(290.4)
(537.1)
Gross profit
447.4
258.3
183.9
455.2
238.7
174.7
Cash operating and administrative
costs per financial statements
(369.0)
(139.3)
(169.4)
(405.4)
(130.6)
(158.8)
Amortization and depreciation
expenses
Gains (losses) on disposal of assets
Amortization of customer
contract-related costs
Customer contract-related costs
Impairment of property, plant and
equipment, intangible assets
and goodwill
Gain on bargain purchase
Risk reserve recovery reclassification
Reclassification of foreign
currency (gains) losses
53.4
0.2
3.3
(1.1)
4.7
−
−
6.3
0.6
−
−
−
−
−
related to working capital
−
1.6
6.1
0.2
−
−
−
−
−
−
73.5
2.4
4.2
(1.6)
3.4
(0.9)
5.2
8.5
(0.1)
−
−
−
−
−
−
(1.4)
8.4
−
−
−
−
−
−
Cash operating and administrative
costs per the MD & A
(313.2)
(130.8)
(163.1)
(321.6)
(123.5)
(150.5)
48
SUPERIOR PLUS CORP.
2012 annual report
Reconciliation of Net Earnings (Loss) to Compliance EBITDA (1)(2)
(millions of dollars)
Net Earnings (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
Losses (gains) on disposal of assets
Impairment of intangible assets and goodwill
Impairment of property, plant and equipment
Income tax expense (recovery)
Unrealized (gains) losses on derivative financial instruments
Pro-forma impact of acquisitions
Compliance EBITDA
(1) See the consolidated financial statements for additional details.
(2) See “Non-IFRS Financial Measures” for additional details.
Risk Factors to Superior
2012
93.1
77.6
2.2
42.4
44.9
23.5
1.0
−
4.7
9.0
(32.1)
0.6
266.9
2011
(302.6)
85.5
2.3
47.9
44.9
41.9
(1.6)
378.6
3.4
(50.4)
9.7
1.5
263.2
The risks factors and uncertainties detailed below are a summary of Superior’s assessment of its material
risk factors as detailed in Superior’s 2012 Annual Information Form under “Risk Factors” which is
filed on the Canadian Securities Administrators’ website, www.sedar.com, and on Superior’s website,
www.superiorplus.com.
Risks to Superior
Superior depends entirely on the operations and assets of Superior LP. Superior’s ability to make dividend
payments to its shareholders depends on the ability of Superior LP to make distributions on its outstanding
limited partnership units, as well as on the operations and business of Superior LP.
There is no assurance regarding the amount of cash to be distributed by Superior LP or generated by
Superior LP and, therefore, there is no assurance regarding funds available for dividends to shareholders. The
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., the general
partner of Superior LP, 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
49
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, and 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
borrowing 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 demand from Superior’s customers, thereby increasing Superior’s sales and its 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. Increased interest rates, however, will affect
Superior’s borrowing costs, which may have an adverse effect on Superior.
A portion of Superior’s net cash flow is denominated in U.S. dollars. Accordingly, fluctuations in the
Canadian/U.S. dollar exchange rate can affect 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 assurance 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 CRA (or provincial tax agency), U.S. Internal
Revenue Service (or a state or local tax agency), or the Chilean Internal Revenue Service (collectively, the Tax
Agencies) will agree with how Superior calculates its income for tax purposes or that the various Tax Agencies
will not change their administrative practices to the detriment of Superior or its shareholders.
50
SUPERIOR PLUS CORP.
2012 annual report
Since the beginning of 2010, the CRA has requested and reviewed information from Superior relating to the
plan of arrangement involving Superior Plus Income Fund and Ballard Power Systems Inc. and the Conversion.
As disclosed by Superior on September 20, 2012, Superior anticipated receiving a proposal letter from the
CRA in due course on this matter and on February 11, 2013, Superior received the proposal letter from the
CRA. The proposal letter proposes to deny the availability of capital losses of approximately $623 million and
other tax basis of approximately $1,000 million. Superior remains confident in the appropriateness of its tax
filing position and the expected tax consequences of the Arrangement and the Conversion and intends to
vigorously defend such position. Superior also strongly believes that the acquisition of control or the general
anti-avoidance rule do not apply to the Arrangement and the Conversion and intends to file its future tax
returns on a basis consistent with its view of the outcome of the Arrangement and the Conversion.
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 service 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 in general and Canadian propane distribution in particular, in the future. The trend towards
increased conservation measures and technological advances in energy efficiency may have a detrimental
effect on propane demand and Canadian propane distribution’s sales. Demand for traditional propane
end-use applications is increasing marginally with general economic growth. However, increases in the cost of
propane encourage customers to reduce fuel consumption and to invest in more energy efficient equipment,
reducing demand. Automotive propane demand is presently stabilizing after several years of decline but
this trend could return depending upon propane pricing and the market acceptance of propane conversion
options and the availability of infrastructure.
Competition in the U.S. refined fuels’ business markets generally occurs on a local basis between large, full-
service, multi-state marketers and smaller, independent local marketers. Marketers primarily compete based
on price and service and tend to operate in close proximity to customers, typically within a 35-mile marketing
radius from a central depot, in order to minimize delivery costs and provide prompt service.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
51
Weather and general economic conditions affect distillates market volumes. Weather influences the
immediate demand for distillates, primarily for heating, while longer-term demand declines due to economic
conditions as customers trend towards conservation and supplement heating with alternative sources such
as wood pellets.
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 (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 environmental, health and safety protection program. It 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 pose the potential for spills which impact the soil 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 compliance 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.
In 2013, Canadian propane distribution will implement an order to cash, billing and logistics IT system
to replace the distribution and invoicing functions of the present enterprise system. To mitigate the risk
associated with system changes, Canadian propane distribution will leverage the learnings from the U.S
refined fuels organization that has been using this new system and implementation will be rolled out one
region at a time.
52
SUPERIOR PLUS CORP.
2012 annual report
Approximately 19% of Superior’s Canadian propane distribution business employees are unionized and
5% of U.S. refined fuels distribution business 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 renegotiation process that could have an adverse impact on Superior.
Fixed-Price Energy Services Business
There may be new market entrants in the energy retailing business that compete directly for the customer
base that Superior targets, slowing or reducing its market share.
Superior Energy Management (SEM) purchases natural gas to meet its estimated commitments to its customers
based on their historical consumption of gas. 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, minimizing imbalances. 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. The financial condition of each counterparty is, however,
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
53
Fixed-price energy services must retain qualified sales agents in order to properly execute its business
strategy. The continued growth of fixed-price energy services is reliant on the services of agents to sign up
new customers. There can be no assurance that competitive conditions will allow these agents to achieve
these customer additions. Lack of success in the marketing programs of fixed-price energy services would
limit future growth of cash flow.
Fixed-price energy services operates in the highly regulated energy industry in Ontario and Quebec.
Changes to laws 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. Fixed-price energy services also markets electricity in Pennsylvania and New York State and natural
gas in New York State only. The regulatory environment in Pennsylvania is favourable to retail choice. The
Pennsylvania Utility Commission’s Retail Market Investigation focused on solutions to increase retail market
share and included orders for utilities to investigate retail opt-in auctions to entice customers to consider
retail choice, reduce enrolment timelines, implement retail referral programs and design seamless moves
that would reduce churn as a customer moves or changes accounts.
The Ontario Energy Board issued an update to the revised Codes of Conduct supporting the Energy
Consumer Protection Act (Ontario). Although the industry had anticipated automatic renewal of natural gas
accounts on a month-to-month basis, the OEB confirmed that the automatic renewal of natural gas contracts
will be allowed for a period of one year capped at the customer’s 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 services’ 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 the segment’s 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 remain 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. Specialty Chemicals currently has a limited ability to source KCl from additional suppliers.
54
SUPERIOR PLUS CORP.
2012 annual report
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 U.S. dollar 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. There is potential for the release of highly toxic and lethal substances,
including chlorine. Equipment failure could result in damage to facilities, death or injury and liabilities to third
parties. If at any time the appropriate regulatory authorities deem any of the segment’s facilities unsafe, they
may order that such facilities be shut down.
Specialty Chemicals’ operations and activities in various jurisdictions require regulatory approval for
the handling, production, transportation and disposal of chemical products and waste substances. The
failure to obtain or comply fully with such applicable regulatory approval 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. 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 at the affected facility.
Although the segment has insurance coverage to mitigate substantial loss due to equipment outage,
Specialty Chemicals’ reputation and its ability to meet customer requirements could be negatively affected
by a major electrical equipment failure.
Approximately 24% 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 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 general economic activity
and, in particular, residential and non-residential construction. New residential construction is subject to
such factors as household income, employment levels, customer confidence, population changes and the
local supply of residential units. 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 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 Superior’s insulation businesses. As a result, changes to general
economic activity or other factors mentioned above that affect the amount of construction or renovation in
residential and non-residential markets can have an adverse effect on the segment’s business and Superior.
MANAGEMENT'S DISCUSSION AND ANALYSIS
2012 annual report
55
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 the segment’s ability to provide reliable service at competitive prices.
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 affect existing housing sales, new home construction, new non-residential construction,
and office/commercial space turnover, all of which are significant factors in determining demand for products
and services.
The C & I market is driven largely by C & I construction spending and economic growth. Demand is influenced
by commercial construction and renovation, the construction, maintenance and expansion of industrial
process facilities (such as oil refineries, petrochemical plants and power generation facilities) and institutional
facilities in the government, healthcare and education sectors.
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 negotiation process that could have an adverse impact on the segment
and Superior.
56
SUPERIOR PLUS CORP.
2012 annual report
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 were 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 consolidated 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
consolidated financial statements and the external auditor’s report. The Committee reports its findings to the
Board for the Board’s consideration in approving the consolidated 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 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 LLP has
full and free access to the Audit Committee.
(signed) “Luc Desjardins”
(signed) “Wayne M. Bingham”
Luc Desjardins
President and Chief Executive Officer
Superior Plus Corp.
Wayne M. Bingham
Executive Vice-President and Chief Financial Officer
Superior Plus Corp.
Calgary, Alberta
February 14, 2013
INDEPENDENT AUDITORS' REPORT
2012 annual report
57
Independent Auditor’s 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, 2012 and December 31, 2011, and the consolidated
statement of changes in equity, consolidated statement of net earnings (loss) and comprehensive income (loss)
and consolidated statement of cash flows for the years then ended 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, 2012 and December 31, 2011 and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
(signed) “Deloitte LLP”
Chartered Accountants
February 14, 2013
Calgary, Alberta
58
SUPERIOR PLUS CORP.
2012 annual report
Consolidated Balance Sheets
(millions of Canadian dollars)
Assets
Current Assets
Cash and cash equivalents
Trade and other receivables
Prepaid expenses
Inventories
Unrealized gains on derivative financial instruments
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
Total Non-Current Assets
Total Assets
Liabilities and Equity
Current Liabilities
Trade and other payables
Deferred revenue
Borrowing
Convertible unsecured subordinated debentures
Dividends and interest payable
Unrealized losses on derivative financial instruments
Total Current Liabilities
Non-Current Liabilities
Borrowing
Convertible unsecured subordinated debentures
Other liabilities
Provisions
Employee future benefits
Deferred tax
Unrealized losses on derivative financial instruments
Total Non-Current Liabilities
Total Liabilities
Equity
Capital
Deficit
Accumulated other comprehensive loss
Total Equity
Total Liabilities and Equity
See accompanying Notes to the Consolidated Financial Statements.
Notes
December 31,
2012
December 31,
2011
5 & 22
6
7
22
11
12
14
23
22
16
17
18 & 19
20 & 35
22
18 & 19
20
15
21
23
22
25
24
7.6
389.0
24.7
213.7
16.6
651.6
829.9
39.6
189.1
10.1
303.1
12.9
5.2
472.9
20.7
203.1
13.3
715.2
885.0
65.6
186.1
10.0
315.5
16.0
1,384.7
2,036.3
1,478.2
2,193.4
314.1
18.2
59.7
50.0
7.3
36.5
485.8
574.7
475.1
1.0
17.6
54.1
2.5
42.6
1,167.6
1,653.4
1,646.5
(1,202.3)
(61.3)
382.9
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
1,359.1
1,843.8
1,633.1
(1,228.2)
(55.3)
349.6
2,036.3
2,193.4
CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
59
Consolidated Statement of Changes in Equity
(millions of Canadian dollars)
January 1, 2011
Net loss
Option value associated with
redemption of
convertible debentures
Shares issued under the
Share
Capital
1,600.9
–
–
Contributed
Surplus (1)
5.5
–
Total
Capital
1,606.4
–
(2.2)
(2.2)
Dividend Reinvestment Plan
28.9
Dividends declared to
shareholders (Note 25)
Unrealized foreign currency
gains on translation of
foreign operations
Actuarial defined benefit losses
Reclassification of derivative
losses previously deferred
Income tax on other
comprehensive income
–
–
–
–
–
December 31, 2011
1,629.8
Net earnings
Option value associated with
redemption of
convertible debentures
Shares issued under the
–
–
Dividend Reinvestment Plan
14.2
Dividends declared to
shareholders (Note 25)
Unrealized foreign currency
losses on translation of
foreign operations
Actuarial defined benefit gains
Income tax on other
comprehensive income
–
–
–
–
Accumulated
Other
Comprehensive
Loss
Deficit
(797.9)
(302.6)
–
–
(127.7)
–
–
–
–
(54.1)
–
–
–
–
13.6
(25.5)
5.9
4.8
28.9
–
–
–
–
–
–
–
–
–
–
–
3.3
–
1,633.1
(1,228.2)
(55.3)
–
93.1
(0.8)
(0.8)
–
–
–
–
–
14.2
–
–
–
–
–
–
(67.2)
–
–
–
–
–
–
–
(9.0)
4.1
(1.1)
(61.3)
Total
754.4
(302.6)
(2.2)
28.9
(127.7)
13.6
(25.5)
5.9
4.8
349.6
93.1
(0.8)
14.2
(67.2)
(9.0)
4.1
(1.1)
382.9
December 31, 2012
1,644.0
2.5
1,646.5
(1,202.3)
(1) Contributed surplus represents Superior’s equity reserve for the option value associated with the issuance of convertible unsecured subordinated
debentures and warrants.
See accompanying Notes to the Consolidated Financial Statements.
60
SUPERIOR PLUS CORP.
2012 annual report
Consolidated Statement of Net Earnings (Loss) and
Comprehensive Income (Loss)
Years ended December 31
(millions of Canadian dollars except per share amounts)
REVENUES
Cost of sales
Gross profit
EXPENSES
Selling, distribution and administrative costs
Finance expense
Impairment of property, plant and equipment,
intangible assets, and goodwill
Unrealized (gains) losses on derivative financial instruments
Net earnings (loss) before income taxes
Income tax (expense) recovery
Net earnings (loss)
Net earnings (loss)
Other comprehensive loss:
Unrealized foreign currency (losses) gains on translation
of foreign operations
Actuarial defined benefit gains (losses)
Reclassification of derivative gains and losses previously deferred
Income tax (expense) recovery on other comprehensive loss
Other comprehensive loss
Total Comprehensive Income (Loss)
Net earnings (loss) per share
From operations:
Basic and diluted
See accompanying Notes to the Consolidated Financial Statements.
Notes
26
26
26
26
11, 12 & 14
22
23
24
24
24
23
2012
3,624.3
(2,778.0)
846.3
694.0
77.6
4.7
(32.1)
744.2
102.1
(9.0)
93.1
93.1
(9.0)
4.1
–
(1.1)
(6.0)
87.1
2011
3,925.6
(3,098.1)
827.5
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)
27
$ 0.83
$
(2.77)
CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
61
Consolidated Statement of Cash Flows
Years ended December 31
(millions of Canadian dollars)
OPERATING ACTIVITIES
Net Earnings (Loss)
Adjustments for:
Notes
2012
2011
93.1
(302.6)
11
12
11
12
22
4
29
11
11
4
20
20
20
Depreciation included in selling, distribution and administrative costs
Amortization of intangible assets
Depreciation included in cost of sales
Amortization of contract-related costs
Losses on disposal of assets
Unrealized (gains) 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 (loss)
Income tax expense (recovery) recognized in net earnings (loss)
Decrease 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
Acquisitions
Cash flows used in investing activities
FINANCING ACTIVITIES
Net (repayment) proceeds 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 7.50% convertible debentures
Issuance costs incurred for the 7.50% convertible debentures
Proceeds from the dividend reinvestment program
Dividends paid to shareholders
Cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Effect of translation of foreign currency-denominated cash and cash equivalents
Cash and cash equivalents, end of year
See accompanying Notes to the Consolidated Financial Statements.
42.4
23.5
44.9
3.3
1.0
(32.1)
–
(1.1)
–
4.7
77.6
9.0
81.6
347.9
(0.3)
(74.3)
273.3
(43.8)
4.5
(5.5)
(44.8)
(74.4)
(31.8)
(16.4)
–
(49.9)
–
–
14.2
(67.1)
(225.4)
3.1
5.2
(0.7)
7.6
44.3
41.9
44.9
4.2
4.1
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
62
SUPERIOR PLUS CORP.
2012 annual report
Notes to the Consolidated Financial Statements
( Tabular amounts in Canadian millions of dollars, except per share amounts and as otherwise noted. Tables labeled “2012” and
“2011” are for full year ended December 31.)
1. Organization
Superior Plus Corp. (Superior) is a diversified business corporation, incorporated under the Canada Business
Corporations Act. The registered office is at Suite 1400, 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, 2012 were authorized for
issuance by the Board of Directors on February 14, 2013.
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. Specialty Chemicals is a leading
supplier of sodium chlorate and technology to the pulp and paper industries and a regional supplier of
potassium and chloralkali products in the U.S. Midwest. Construction Products Distribution 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 33).
2. Basis of Presentation
The accompanying consolidated financial statements were 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, 2012. These financial statements have been prepared on a going concern basis.
The 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
63
The consolidated financial statements were 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 earnings (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
are 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) Inventories
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 overhead based
on normal operating capacity.
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.
64
SUPERIOR PLUS CORP.
2012 annual report
(c) 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 22.
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 depends 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 (loss) (FVTNEL) 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 (loss) as incurred. Financial assets at FVTNEL are measured at fair value, and
changes therein are recognized in net earnings (loss).
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 (loss).
Impairment of Financial Assets
Financial assets measured at amortized cost are assessed for indicators of impairment at each reporting date.
Financial assets are impaired when there is objective evidence that, as a result of one or more events that
occurred after the financial asset’s initial recognition, the estimated future cash flows of the investment have
been negatively impacted.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
65
For certain categories of financial assets, such as trade receivables, assets that are assessed as not impaired
individually are subsequently assessed for collective impairment. Objective evidence of the impairment of a
portfolio of receivables could include Superior’s past experience of collecting payments, an increase in the
number of delayed payments 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 (loss)
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
issuance costs.
Compound Financial Instruments
The components 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 issuance, the
fair value of the liability component is estimated using the prevailing market interest rate for 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. The equity component is
determined by deducting 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 FVTNEL or other financial liabilities.
Financial Liabilities at FVTNEL
Financial liabilities are classified as FVTNEL when the financial liability is held for trading or are designated as
FVTNEL upon initial recognition. Financial liabilities at FVTNEL 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 related
interest expense. 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 22.
66
SUPERIOR PLUS CORP.
2012 annual report
Other Financial Liabilities
Other financial liabilities, including borrowing, 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. Financial liabilities are recognized at amortized cost,
using the effective interest rate method, at each reporting period, net of transaction costs directly attributable
to the issuance of the liability. Transaction costs related to the issuance of any liability are netted against the
carrying value of the associated liability and amortized as part of financing costs over the life of that debt using
the effective interest rate method.
Derecognition of Financial Liabilities
Superior derecognizes financial liabilities when, and only when, Superior’s obligations are discharged, cancelled
or they expire.
Financial Guarantees at FVTNEL
Financial guarantees are classified as FVTNEL when the financial liability is designated as FVTNEL upon initial
recognition. Financial guarantees at FVTNEL are stated at fair value with any resulting gain or loss recognized
in net earnings (loss). Fair value is determined in the manner described in Note 22.
(d) Property, Plant and Equipment
Cost
Property, plant and equipment are 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 (loss).
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which
are assets that necessarily take substantial time to 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 (loss) in the period in which they are incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
67
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.
(e)
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
when 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.
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 in net earnings (loss) 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 being approximately two years.
A summary of Superior’s other intangible assets and related amortization rates is as follows:
Non-competition agreements
Term of the agreements (1-5 years)
Royalty agreements
Software
Technology patents
1 – 10 years
1-3 years
Approximately 10 years
68
SUPERIOR PLUS CORP.
2012 annual report
Investment Properties
Property 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 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 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, which ceases once the asset is substantially complete or suspended if the development of
the asset is suspended.
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 alternate 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
69
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.
(f) 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 so, 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
into the smallest group of assets that generates cash inflows from continuing use that are largely independent
of the cash inflows of other assets or groups.
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.
If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying
amount is reduced to its recoverable amount. An impairment loss is recognized immediately in net earnings
(loss). When 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.
(g) 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 issuance 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 International Reporting Standard (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.
70
SUPERIOR PLUS CORP.
2012 annual report
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 amount that would
be recognized in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
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
exceed 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 (loss).
Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated
impairment losses.
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 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 as of the acquisition date, to a maximum of one year.
(h) 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 interest 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 (loss) 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.
CGUs to which goodwill has been allocated are tested for impairment annually or more frequently upon
indication of impairment. If the recoverable amount of the CGU is less than its carrying amount, 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
71
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the net
earnings (loss) on disposal.
(i) 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;
• 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 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
When 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.
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SUPERIOR PLUS CORP.
2012 annual report
When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized to
the extent it is probable that contract costs 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.
(j) 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 borrowing.
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 (loss), 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 (d) 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.
(k) 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
73
(l) 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 payment 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.
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 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 (loss) 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. When the liability will not be settled
for a number of years, the amount recognized is the present value of the estimated future expenditure.
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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.
(m) 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.
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.
(n)
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 (loss) for the year. Taxable net earnings (loss)
differs from net earnings (loss) 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
75
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 (loss).
Deferred income tax assets are generally recognized for all deductible temporary differences to the extent
that it is probable that taxable net earnings (loss) 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 (loss) nor taxable net earnings (loss); and
• 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 be reversed 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 be reversed in the foreseeable future and
it is probable that there will be sufficient taxable net earnings (loss) 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 carry-forward, 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. It is possible, however, 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.
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Current and Deferred Tax for the Period
Current and deferred tax are recognized as an expense in net earnings (loss), except where they relate to
amounts recognized outside of net earnings (loss) (whether in other comprehensive income or directly in
equity), in which case the tax is also recognized outside net earnings (loss), 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.
(o) Foreign Currencies
The financial statements of each subsidiary of Superior are translated into the currency of the subsidiary’s primary
economic environment (its functional currency). For the purpose of the consolidated financial statements, the
results and balance sheets of each subsidiary are expressed in Canadian dollars, Superior’s functional currency.
The accounts of the foreign operations of Energy Services, Specialty Chemicals and Construction Products
Distribution in the United States, and of 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 exchange
rates 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 net
earnings (loss).
(p) 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.
(q) 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 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 (loss) in the period in which they become receivable.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
77
(r) Net Earnings (Loss) per Common Share
Basic net earnings (loss) per share are calculated by dividing the net earnings by the weighted average number
of shares outstanding during the period, which is calculated using the number of shares outstanding at the end
of each month in that year. Diluted net earnings (loss) per share are calculated by factoring in the dilutive impact
of the 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.
(s) 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
(loss) and related disclosure. The estimates and associated assumptions are based on historical experience and
various other factors deemed 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 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 values 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
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(d) and 2(e) above.
Provisions
Provisions have been estimated for decommissioning costs, restructuring and environmental expenditures.
These provision are estimates and the actual costs and timing of future cash flows depend on future events.
Any differences between estimates and the actual future liability will be accounted for in the period when such
determination is made.
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2012 annual report
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. These
require assumptions including the determination of the discount rate, future salary increases, mortality rates
and future pension increases. Due to the valuation’s complexity, its underlying assumptions and long-term
nature, a defined benefit obligation is highly sensitive to changes in the underlying 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 there may be an impact on current and future income tax
provisions in the period when the difference is determined.
Decommissioning Liabilities
Determining decommissioning liabilities requires estimates regarding the useful life of certain operating
facilities, the timing and cost of future remediation activities, discount rates and the interpretation and changes
to various environmental laws and regulations. Differences between estimates and results will affect Superior’s
accrual for decommissioning liabilities with an impact to net earnings.
Asset Impairments
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 applying Superior’s accounting policies, 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 impairment evaluation involves consideration of whether there are indicators of impairment Indicators
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, there is no such
clearly identifiable event. Instead, a series of individually insignificant events over a period of time leads to an
indication that an asset may be impaired, including events that only become subsequently known. 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
79
Income Taxes
Preparation of the consolidated financial statements involves making 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 22.
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 on 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.
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2012 annual report
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 January 1, 2012 or later periods. The affected standards applicable to Superior
are as follows:
IFRS 9 – Financial Instruments: Classification and Measurement
IFRS 9 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 must 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; changes, if any, are not expected to be material.
IFRS 10 – Consolidated Financial Statements
IFRS 10 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. Superior adopted the amendments
on January 1, 2013, with no impact to Superior.
IFRS 11 – Joint Arrangements
IFRS 11 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. The standard is effective for
Superior on January 1, 2013. Superior adopted the amendments on January 1, 2013, with no impact to Superior.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
81
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 12 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 disclosure and
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. Superior adopted
the amendments on January 1, 2013, with no impact to Superior.
IFRS 13 – Fair Value Measurement
IFRS 13 defines fair value, sets out a single IFRS framework for measuring fair value and requires disclosure
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 disclosure about those measurements), except in specified circumstances. Superior adopted the
amendments on January 1, 2013, with no impact to Superior.
IAS 1 – Presentation of Other Comprehensive Income
The amendments to IAS 1 were issued in June 2011 and require entities to group items presented in Other
Comprehensive Income on the basis of whether they might be reclassified to the Consolidated Statement
of Income in subsequent periods and items that will not be reclassified to the Consolidated Statement of
Income. The amendments did not address which items are presented in other comprehensive income and
did not change the option to present items net of tax. The amendments to IAS 1 are effective for annual
periods beginning on or after July 1, 2012, which will be January 1, 2013 for Superior, and are to be applied
retrospectively. These amendments are not expected to have any impact on Superior’s financial position, cash
flows, or earnings.
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 must be applied for accounting periods beginning on or
after January 1, 2013. Subsequent to the year ended December 31, 2012, Superior adopted IAS 19 on January 1,
2013 and this will have a financial impact on Superior’s 2013 results. For 2012 the financial impact is an increase of
$3.1 million to pension expense and a corresponding decrease to Accumulated Other Comprehensive Loss
(AOCL). The impact on Superior’s balance sheet as at January 1, 2012 is a $4.1 million increase to retained
deficit and a corresponding decrease to AOCL.
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2012 annual report
Superior adopted the following on January 1, 2012:
IFRS 7 – Financial Instruments: Disclosures, Amendments Regarding Disclosures – Transfer Of Financial Assets
In December 2011, the
IASB and the Financial Accounting Standards Board
(“FASB”) amended
IFRS 7 – Financial Instruments: Disclosures to require quantitative and qualitative disclosure 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 transfer activity occurs in the closing days of a reporting period. Superior’s adoption
of the IFRS 7 amendments on July 1, 2012 did not impact Superior.
IAS 12 – Income Taxes, Amendments Regarding Deferred Tax: Recovery Of Underlying Assets
IAS 12 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. Superior’s adoption of
IAS 12 amendments on January 1, 2012 did not affect its financial results or financial position.
3. Seasonality of Operations
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 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 seasonal lows in the second and third quarters. Net working capital is also significantly
influenced by wholesale propane prices and other refined fuels.
Construction Products Distribution
Sales typically peak during the second and third quarters with the seasonal increase in building and renovation
activities. They then decline through the fourth quarters and into the subsequent first quarters. Similarly, net
working capital is typically at seasonal highs during the second and third quarters, and normally decline to
seasonal lows in the fourth and first quarters.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
83
4. Acquisitions
On July 17, 2012, Superior completed the acquisition of certain assets which constitute a propane distribution
business for an aggregate purchase price of $5.5 million including adjustments for net working capital. The
main purpose was to expand Energy Services’ business in British Columbia and benefit from synergies.
Propane Acquisition
Trade and other receivables (1)
Inventories
Property, plant and equipment
Net identifiable assets and liabilities
Goodwill arising on acquisition
Total consideration
Purchase consideration components:
Cash (paid on August 2, 2012)
Total purchase consideration
Fair Value Recognized on Acquisition
0.9
0.1
1.9
2.9
2.9
2.6
5.5
5.5
5.5
(1) The gross amount of trade and other receivables is $0.9 million, of which $nil is expected to be uncollectible.
Revenue and net earnings for the period ended December 31, 2012 would have been $8.3 million and
$1.9 million, respectively, if the acquisition had occurred on January 1, 2012. Subsequent to the acquisition
date of July 17, 2012, the acquisition contributed revenue and net earnings, respectively, of $4.4 million and
$1.5 million to Energy Services for the period ended December 31, 2012.
On November 17, 2011, Superior completed the acquisition of certain assets which constitute an insulation
services business for an aggregate purchase price of $0.2 million. Superior elected not to disclose a purchase
price equation for the acquisition as it was considered immaterial. Superior cannot reasonably determine the
net earnings attributable to the acquired assets had the acquisition closed on January 1, 2011 or from the date
of acquisition as operations were integrated into Superior’s 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 not to disclose
a purchase price equation for the acquisition as it was considered immaterial. Superior cannot reasonably
determine the net earnings attributable to Hamilton had the acquisition closed on January 1, 2011 or from the
date of acquisition as operations were integrated into Superior’s 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 not to disclose a purchase
price equation for the acquisition as it was considered immaterial. Superior cannot reasonably determine the
net earnings attributable to Walts had the acquisition closed on January 1, 2011 or from the date of acquisition
as operations were integrated into Superior’s operations.
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SUPERIOR PLUS CORP.
2012 annual report
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 main purposes are to expand the Energy Services’ business in Pennsylvania and benefit from synergies.
Elkhorn
Intangible assets
Property, plant and equipment
Trade and other payables
Net identifiable assets and liabilities
Gain on bargain purchase
Total consideration
Purchase consideration components:
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 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 attributable to Brennan had
the acquisition closed on January 1, 2011 or from the date of acquisition as its operations were integrated into
Superior’s 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 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 operations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
85
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 acquisition’s main purposes are to expand Energy Services’ business in Ontario and benefit
from synergies.
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
Purchase consideration components:
Cash (paid on March 9, 2011)
Deferred consideration
Total purchase 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
(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 its operations
were integrated into Superior’s 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 not to disclose a purchase price equation for the acquisition as it was
considered immaterial. Superior cannot reasonably determine the net earnings attributable to Butler had
the acquisition closed on January 1, 2011 or from the date of acquisition as operations were integrated into
Superior’s operations.
5. Trade and Other Receivables
A summary of trade and other receivables is as follows:
Trade receivables, net of allowances
Accounts receivable – other
Finance lease receivable
Trade and other receivables
Note
22
2012
355.9
32.3
0.8
389.0
2011
427.1
45.1
0.7
472.9
86
SUPERIOR PLUS CORP.
2012 annual report
6. Prepaid Expenses
Balance at the beginning of the year
Added to prepaid assets
Expensed to net earnings (loss)
Foreign exchange impact
Balance at the end of the year
7.
Inventories
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
Wall, ceiling and insulation construction products
2012
20.7
89.2
(85.1)
(0.1)
24.7
2012
105.1
10.7
21.1
9.3
67.5
213.7
2011
23.3
83.3
(85.5)
(0.4)
20.7
2011
87.5
12.6
20.9
8.5
73.6
203.1
The cost of inventories recognized as an expense in the year ended December 31, 2012 was $2,528.9 million
(December 31, 2011 – $2,769.2 million). Inventories of $nil as at December 31, 2012 (December 31, 2011 – $nil)
are expected to be recovered after more than twelve months. Inventory was written down during the year
ended December 31, 2012 by $3.6 million (December 31, 2011 – $2.6 million). No reversals of write downs were
recorded during the years ended December 31, 2012 and 2011.
8.
Insurance Claim
During the fourth quarter of 2010, Specialty Chemicals’ Buckingham, Quebec sodium chlorate plant experienced
an electrical transformer failure which caused one of 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, some sodium chlorate sales were lost and costs were incurred to purchase additional product and
repair equipment. In the fourth quarter of 2011, a partial payment of $3.7 million was received from Specialty
Chemicals’ business interruption and property damage insurance claim. The $3.7 million was 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. An additional
$1.1 million was received in 2012 which reduced selling, distribution and administrative costs.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
87
9. Finance Lease
In November 2010, Superior entered into a finance lease arrangement with a customer from the Specialty
Chemicals segment. It 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
2012
1.6
10.6
12.2
(3.7)
8.5
2011
1.6
12.4
14.0
(4.6)
9.4
Present Value of Minimum
Lease Payments
2012
2011
0.8
7.7
8.5
–
8.5
0.7
8.7
9.4
–
9.4
The interest rate inherent in the lease is fixed at a constant effective interest rate of 10% per year.
There is no allowance for doubtful accounts, as the finance lease receivables are neither past due nor impaired.
10. Construction Contracts
Revenue relating to construction contracts is recognized based on the stage of completion, based in turn 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
Recognized and included in the financial statements as amounts due:
Accounts payable to customers under construction contracts
Note
16
2012
2011
12.9
(14.2)
(1.3)
2012
1.3
1.3
6.0
(8.2)
(2.2)
2011
2.2
2.2
88
SUPERIOR PLUS CORP.
2012 annual report
11. Property, Plant and Equipment
Specialty
Chemicals
Plant &
Equipment
Energy
Services
Retailing
Equipment
Construction
Products
Distribution
Equipment
Leasehold
Improvements
Total
Land
Buildings
Cost
Balance at
December 31, 2010
Additions
Disposals
Impairment losses
charged to net loss
Acquisitions through
business combinations
Net foreign currency
29.4
0.1
(0.1)
–
–
140.4
713.8
7.3
(1.7)
–
–
14.2
(5.3)
–
–
exchange differences
0.3
1.0
5.7
582.8
36.3
(24.6)
(3.8)
–
0.8
37.8
5.4
(2.7)
–
0.2
0.5
9.2
0.7
–
–
–
–
1,513.4
64.0
(34.4)
(3.8)
0.2
8.3
Balance at
December 31, 2011
Accumulated Depreciation
Balance at
December 31, 2010
Depreciation expense
Eliminated on
disposal of assets
Impairment losses
charged to net loss
Net foreign currency
exchange differences
Balance at
December 31, 2011
29.7
147.0
728.4
591.5
41.2
9.9
1,547.7
–
–
–
–
–
–
33.7
5.3
269.1
41.1
272.9
36.1
18.6
5.6
6.7
1.1
601.0
89.2
(0.1)
(0.2)
(0.1)
(3.6)
(20.8)
(1.9)
–
1.6
(0.5)
(2.0)
–
0.1
–
–
–
(26.4)
(0.7)
(0.4)
38.6
308.2
285.7
22.4
7.8
662.7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
89
Specialty
Chemicals
Plant &
Equipment
Energy
Services
Retailing
Equipment
Construction
Products
Distribution
Equipment
Leasehold
Improvements
Total
Land
Buildings
29.7
–
–
(0.3)
–
(0.2)
0.5
147.0
3.5
728.4
17.6
591.5
24.9
41.2
4.9
–
(0.8)
–
(1.2)
0.1
–
(2.0)
–
(5.7)
–
1.9
(17.9)
(4.7)
(1.7)
(4.2)
–
(1.9)
–
(0.9)
–
9.9
0.1
–
(0.4)
–
0.1
–
1,547.7
51.0
1.9
(23.3)
(4.7)
(9.6)
(3.6)
29.7
148.6
738.3
589.8
43.3
9.7
1,559.4
–
–
–
–
–
–
38.6
5.6
(0.6)
(0.2)
–
308.2
40.8
285.7
34.9
(1.4)
(11.1)
(1.3)
–
(0.6)
(2.9)
22.4
5.2
(1.8)
(0.2)
–
7.8
0.8
662.7
87.3
(0.2)
(15.1)
(0.2)
–
(2.5)
(2.9)
43.4
346.3
306.0
25.6
8.2
729.5
Cost
Balance at
December 31, 2011
Additions
Additions from
business combinations
Disposals
Impairment losses charged
to net earnings
Net foreign currency
exchange differences
Reclassification
Balance at
December 31, 2012
Accumulated Depreciation
Balance at
December 31, 2011
Depreciation expense
Eliminated on
disposal of assets
Net foreign currency
exchange differences
Reclassification
Balance at
December 31, 2012
Carrying Value
As at December 31, 2011
As at December 31, 2012
29.7
29.7
108.5
105.2
420.2
392.0
305.7
283.8
18.8
17.7
2.1
1.5
885.0
829.9
The carrying value of Superior’s property, plant, and equipment includes $67.8 million of leased assets as at
December 31, 2012 (December 31, 2011 – $74.2 million).
On October 20, 2012, a kerosene leak was discovered in the bottom of a storage tank at U.S. refined fuels’ Marcy
terminal location. The leak was investigated and contained by the environmental group. U.S. refined fuels then
notified the Department of Environmental Conservation (DEC) which performed an independent review of the
leak and other tanks at this location. On December 27, 2012, the DEC issued a notice of violation based on their
inspections and subsequent to discussions between management and the DEC, a consent order was issued to
U.S. refined fuels on February 4, 2013. The consent order identified that the secondary containment system and
storage tanks are not in compliance with DEC design requirements and need to be rebuilt to specific standards
by September 1, 2013 in order to remain operational. Management is assessing the implications of the consent
order on the future operations of the facility and potential alternatives to completing the repair work required.
This event is not expected to have an impact on the operations of U.S. refined fuels or operating results going
forward. Management is assessing the impact of additional remediation costs although they are not expected
to be material.
90
SUPERIOR PLUS CORP.
2012 annual report
Due to the leak and receipt of the consent order, management has performed a detailed impairment review
of the Marcy terminal to assess whether the carrying value of all the storage tanks does not exceed their
recoverable amount. The recoverable amount of the assets was based on management’s estimate of the fair
value less costs to sell. Based on a detailed review by management, the fair value less costs to sell of the
storage tanks was lower than the carrying value. An impairment charge of $4.7 million was recorded against net
earnings along with a $4.7 million reduction in the carrying value of the impaired storage tanks.
During the third quarter of 2011, a fire occurred at U.S. refined fuels’ Mumford, New York fuel distribution
location and flooding occurred at the Mountoursville, Pennsylvania distribution location, damaging both
facilities. Superior recognized an associated impairment charge of $3.4 million. At that time, it was not possible
to estimate the expected recovery under Superior’s business interruption insurance and, therefore, as at
December 31, 2011, no receivable for insurance recovery was recorded. Insurance recoveries are recorded
when the amount has been agreed with the insurer or payments have been received.
Depreciation per cost category:
Cost of sales
Selling, distribution and administrative costs
Total
12. Intangible Assets
Energy
Services
Trademarks,
Customer
Base &
Related Non-Compete
Agreements
Costs
Customer
Contract-
2012
44.9
42.4
87.3
2011
44.9
44.3
89.2
Construction
Products
Distribution
Intangible
Assets
Specialty
Chemicals
Royalty
Assets and
Patents
Investment
Property
Total
Cost
Balance at December 31, 2010
Additions from internal developments
Additions acquired separately
Acquisitions through business
combinations
Impairment losses charged to net loss
Disposals
Net foreign currency exchange differences
38.2
–
1.6
–
–
–
–
Balance at December 31, 2011
39.8
Accumulated Depreciation
Balance at December 31, 2010
27.0
Impairment losses charged to net loss
Disposals
Net foreign currency exchange
differences
Amortization expense
Balance at December 31, 2011
–
–
–
4.2
31.2
166.5
1.3
0.3
12.2
(107.3)
(1.3)
(2.0)
69.7
25.1
(35.1)
(1.3)
(0.5)
32.5
20.7
20.5
2.6
–
–
(22.8)
–
1.4
1.7
2.8
(5.3)
–
0.7
2.8
1.0
65.4
1.0
291.6
–
–
–
–
–
–
–
–
–
–
–
–
3.9
1.9
12.2
(130.1)
(1.3)
(0.6)
65.4
1.0
177.6
52.5
–
–
–
6.6
59.1
–
–
–
–
–
–
107.4
(40.4)
(1.3)
0.2
46.1
112.0
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
91
Construction
Products
Distribution
Intangible
Assets
Specialty
Chemicals
Royalty
Assets and
Patents
Investment
Property
Total
Energy
Services
Trademarks,
Customer
Base &
Related Non-Compete
Agreements
Costs
Customer
Contract-
Cost
Balance at December 31, 2011
Additions from internal developments
Additions acquired separately
Disposals
Reclassifications
Net foreign currency exchange differences
39.8
–
1.1
–
–
69.7
1.7
65.4
1.0
177.6
1.0
0.1
(1.7)
2.4
(1.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.0
1.2
(1.7)
2.4
(1.0)
Balance at December 31, 2012
40.9
70.5
1.7
65.4
1.0
179.5
Accumulated Depreciation
Balance at December 31, 2011
31.2
Disposals
Reclassification
Net foreign currency exchange differences
Amortization expense
Balance at December 31, 2012
Carrying value (1)
As at December 31, 2011
As at December 31, 2012
–
–
–
3.3
34.5
8.6
6.4
20.7
(1.0)
2.6
(0.5)
17.0
38.8
49.0
31.7
1.0
59.1
–
–
–
0.2
1.2
0.7
0.5
–
–
–
6.3
65.4
6.3
–
–
–
–
–
–
–
112.0
(1.0)
2.6
(0.5)
26.8
139.9
1.0
1.0
65.6
39.6
(1) Superior has pledged 100% of the intangible assets balance as at December 31, 2012 excluding leased assets as security on Superior’s borrowing.
An impairment charge was recorded to the intangible assets of Superior’s Construction Products Distribution
and Energy Services’ segments during the third and fourth quarters of 2011; see Note 14 for further details.
Amortization per cost category:
Selling, distribution and administrative costs
Total
2012
23.5
23.5
2011
41.9
41.9
92
SUPERIOR PLUS CORP.
2012 annual report
13. Investment Properties
At Cost
Investment property
Accumulated depreciation at the beginning of the year
Depreciation expense
Accumulated depreciation at the end of the year
Carrying Value
Rental income from investment properties
Net income from investment properties
All of Superior’s investment property is held under freehold interests.
Fair value of investment properties
Investment property is included with intangible assets on the balance sheet.
14. Goodwill
Balance at the beginning of the year
Additional amounts recognized from business combinations during the year
Purchase price equation adjustments
Impairment of Energy Services
Impairment of Construction Products Distribution
Effect of foreign currency differences
Balance at the end of the year
2012
1.1
(0.1)
–
(0.1)
1.0
2012
–
–
2012
1.0
2012
186.1
2.6
0.4
–
–
–
189.1
2011
1.1
–
(0.1)
(0.1)
1.0
2011
0.1
0.1
2011
1.0
2011
471.7
3.6
(2.1)
(227.8)
(61.2)
1.9
186.1
Superior determined the recoverable amount of CGUs based on a value in use calculation using cash flow
projections, which take into account financial budgets and forecasts approved by senior management
covering a five-year period with a terminal value calculated by discounting the final year in perpetuity. The
key assumptions for the value in use calculation include estimated sales volumes, selling prices, cost of
products sold and input costs, as well as discount rates which are based on estimates of the risks associated
with the projected cash flows based on the best information available as of the date of the impairment test.
The pre-tax discount rate was separately determined for each CGU resulting in rates applied to cash flow
projections ranging from 10.6% to 12.1% in 2012. The growth rate used to calculate the terminal value is
based on growth rates reflecting inflation ranging from 0.5% to 1.0% in 2012 and do not exceed the long-term
historical growth rate and industry average growth rate. Superior determined that no reasonably possible
change in the assumptions would have resulted in any impairment of goodwill or indefinite life intangible
assets in 2012. During 2011, Superior recorded impairment charges at two CGUs based on the assumptions
and information detailed below.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
93
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. Superior
assesses quarterly 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 so, 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 CGUs.
Construction Products Distribution
During the third quarter of 2011 impairment indicators were observed in Superior’s Construction Products
Distribution segment. As such, Superior completed a detailed assessment of the segment’s operations; the
recoverable amount 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 residential housing starts and ongoing weakness in
commercial construction markets. Based on the recoverable amount calculated, it was determined that the
segment’s goodwill and intangible assets were impaired. 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 was determined using a detailed cash flow model which was based on evidence from
an internal budget approved by Superior’s Board of Directors. Management’s internal budgets are based on
past experience 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. 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 projected cash flow used in the model were based on management’s internal budgets and
after five years were extrapolated using annual growth rates in line with historical long-term growth rates in the
construction products industry, in this case 1.5%.
Discount Rates
Cash flows in the model were discounted using a segment-specific discount rate. 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. Segment-specific risks were reflected in 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 was 12.0%.
94
SUPERIOR PLUS CORP.
2012 annual report
Inflation Rates
Inflation rates used in the cash flow model were based on a blend of publicly available forecasts, in this case,
2% annually.
Key Assumptions
The model used to determine the recoverable amount was based on the assumption that sales revenue will
decline from 2011 due to market conditions which were expected to continue to impact the financial results of
the business segment through year-end 2012.
Energy Services
During the fourth quarter of 2011 it was determined that Superior’s Energy Services’ business segment was
impaired. As such Superior completed a detailed assessment of the business segment’s operations. The
recoverable amount 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, a 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 segment’s
goodwill and intangible assets 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 was determined using a detailed cash flow model which was based on evidence
from an internal budget approved by the Board of Directors. Management’s internal budgets are based on
past experience and are 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. 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 projected cash flow were based on management’s internal budgets and after five years
were extrapolated using annual growth rates in line with historical long-term growth rates, in this case 0.5%.
Discount Rates
Cash flows in the model were discounted using a segment specific discount rate. 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. Segment-specific risks were reflected in 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 was 10.8% for Canadian propane
distribution and 11.5% for U.S. refined fuels.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
95
Inflation Rates
Inflation rates used in the cash flow model were based on a blend of publically available forecasts, in this case
2% annually.
Key Assumptions
The model used to determine the recoverable amount was based on the assumption that it is expected to
decline from 2011 levels due to the items noted above which were expected to continue to impact the segment’s
operating results through the end of 2012.
15. Provisions
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
Utilization
Unwinding of discount
Impact of change in discount rate
Net foreign currency exchange difference
Balance at December 31, 2012
Decommissioning Costs
Specialty Chemicals
Decommissioning
Costs
Environmental
Expenditures
10.2
3.4
–
–
0.4
1.7
(0.2)
15.5
–
0.4
0.4
(0.1)
16.2
3.0
–
(0.9)
(0.5)
–
–
0.1
1.7
(0.3)
–
–
–
1.4
Total
13.2
3.4
(0.9)
(0.5)
0.4
1.7
(0.1)
17.2
(0.3)
0.4
0.4
(0.1)
17.6
Superior makes full provision for the future cost of decommissioning Specialty Chemicals’ chemical facilities.
The provision is on a discounted basis and is based on existing technologies at current prices or long-term
price assumptions, depending on the activity’s expected timing. As at December 31, 2012, the discount rate
used in Superior’s calculation was 2.4% (December 31, 2011 – 2.5%). Superior estimates the total undiscounted
amount of expenditures required to settle its decommissioning liabilities is approximately $20.1 million
(December 31, 2011 – $20.3 million) which will be paid out over the next nineteen to twenty-seven 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, the amount and timing of incurring these costs is uncertain.
Energy Services
Superior makes full provision for the future costs of decommissioning certain assets associated with the
Energy Services segment. Superior estimates the total undiscounted amount of expenditures required to
settle
its asset retirement obligations to be approximately $8.8 million at December 31, 2012
(December 31, 2011 – $9.2 million) which will be paid out over the next nineteen to twenty-four years. The
discount rate of 2.4% at December 31, 2012 (December 31, 2011 – 2.5%) was used to calculate the present value
of the estimated cash flows.
96
SUPERIOR PLUS CORP.
2012 annual report
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 or, if earlier,
on divestment or 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 2.4% at December 31, 2012
(December 31, 2011 – 2.5%). 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 Superior’s share of the liability.
16. Trade and Other Payables
A summary of trade and other payables is as follows:
Trade payables
Net benefit obligation
Other payables
Amounts due to customers under construction contracts
Share-based payments
Trade and other payables
Notes
21
10
28
2012
241.6
3.6
57.7
1.3
9.9
314.1
2011
240.4
3.5
47.8
2.2
3.7
297.6
The average credit period on purchases by Superior is 25 days. No interest is charged on the trade payables
between 7 and 30 days from the date of the invoice. Thereafter, interest is charged at 23% per annum on the
balance. Superior’s financial risk management policies ensure that all payables are normally paid within the
pre-agreed credit terms.
17. Deferred Revenue
Balance at the beginning of the year
Deferred during the year
Released to net earnings (loss)
Foreign exchange impact
Balance at the end of the year
Current
Non-current
2012
14.2
29.1
(23.9)
(0.2)
19.2
2012
18.2
1.0
19.2
2011
6.8
21.4
(14.5)
0.5
14.2
2011
14.2
–
14.2
The deferred revenue relates to Energy Services’ unearned service revenue and Specialty Chemicals’
unearned product-related revenues.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
97
Effective Interest Rate
2012
2011
18. Borrowing
Revolving Term Bank Credits (1)
Bankers Acceptances (BA)
Canadian Prime Rate Loan
LIBOR Loans
Year of
Maturity
2015
2015
2015
(US$138.0 million; 2011– US$138.9 million)
US Base Rate Loan
(US$34.6 million; 2011– US$29.2 million)
2015
Floating BA rate plus
applicable credit spread
Prime rate plus credit spread
Floating LIBOR rate plus
applicable credit spread
US prime rate plus credit
spread
Other Debt
Deferred consideration
2013-2016
Non-interest bearing
148.6
13.0
219.5
19.8
137.3
141.3
34.5
333.4
2.7
2.7
29.7
410.3
4.0
4.0
Senior Secured Notes (2)
Senior secured notes subject to
fixed interest rates (US$92.0 million;
2011 – US$124.0 million)
Senior Unsecured Debentures
2013-2015
7.65%
91.5
126.1
Senior unsecured debentures
2016
8.25%
150.0
150.0
Finance Lease Obligations
Finance lease obligations
Total borrowing before deferred financing fees
Deferred financing fees
Borrowing
Current maturities
Borrowing
62.0
639.6
(5.2)
634.4
(59.7)
574.7
71.7
762.1
(6.4)
755.7
(54.3)
701.4
(1) Superior and its wholly-owned subsidiaries, Superior Plus Financing Inc. and Commercial E Industrial (Chile) Limitada, reduced the revolving term bank
credit borrowing capacity to $570 million from $615 million on March 28, 2012. The credit facilities mature on June 27, 2015 and are secured by a general
charge over the assets of Superior and certain of its subsidiaries. As at December 31, 2012, Superior had $31.1million of outstanding letters of credit
(December 31, 2011 – $34.8 million) and approximately $121.9 million of outstanding financial guarantees (December 31, 2011 – $84.2 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) Senior secured notes (the Notes) totaling US$92.0 million and US $124.0 million (respectively, CDN$91.5 million at December 31, 2012 and CDN$126.1
million at December 31, 2011) 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 as at December 31, 2012 was CDN$94.4 million (December 31, 2011 –
CDN$121.1 million).
98
SUPERIOR PLUS CORP.
2012 annual report
Repayment requirements of borrowing before deferred finance costs are as follows:
Current maturities
Due in 2014
Due in 2015
Due in 2016
Due in 2017
Due in 2018
Subsequent to 2018
Total
19. Leasing Arrangements
Operating Lease Commitments
59.7
48.0
368.3
158.4
4.0
1.2
–
639.6
Superior has entered into leases on certain vehicles, rail cars, premises and other equipment. 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
Obligations Under Finance Lease
2012
38.1
89.9
35.6
163.6
2011
26.8
57.2
27.1
111.1
Finance leases relate to fuel distribution and construction products vehicles and equipment and office space
with lease terms of 5 to 15 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.
Not later than one year
Later than one year and not later than five years
Later than five years
Less: future finance charges
Present value of minimum lease payments
Minimum Lease Payments
Present Value of Minimum
Lease Payments
2012
17.0
49.5
3.1
(7.6)
62.0
2011
19.8
57.9
5.8
(11.8)
71.7
2012
16.4
43.1
2.5
–
62.0
2011
15.6
51.5
4.6
–
71.7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
99
Included in the Consolidated Financial Statements as:
Current portion of leasing obligations
Non-current portion of leasing obligations
20. Convertible Unsecured Subordinated Debentures
Superior’s debentures are as follows:
2012
16.4
45.6
62.0
2011
15.6
56.1
71.7
Maturity
Interest rate
Conversion price per share
Face value, December 31, 2011
Debentures redeemed (2)
Face value, December 31, 2012
Issuance costs, December 31, 2011
Issuance costs incurred
Redemption adjustment
Accretion of issue costs
Issuance costs, December 31, 2012
Discount value, December 31, 2011
Accretion of discount value
Discount value, December 31, 2012
Debentures outstanding
as at December 31, 2012
Less current maturities (note 35)
Debentures outstanding
as at December 31, 2012
Debentures outstanding
as at December 31, 2011
Quoted market value
as at December 31, 2012
Quoted market value
December
2012
5.75%
$36.00
October December
2014
7.50%
$13.10
2015
5.85%
$31.25
June
2017
5.75%
$19.00
June
2018
6.0%
$15.10
October
2016 (1)
7.50%
$11.35
Total
Carrying
Value
49.9
(49.9)
–
(0.5)
–
0.2
0.3
–
(0.1)
0.1
–
–
–
–
75.0
–
75.0
(0.9)
–
–
0.2
(0.7)
(0.2)
–
(0.2)
74.1
(50.0)
69.0
–
69.0
(2.1)
–
–
0.7
(1.4)
(0.3)
0.1
(0.2)
172.5
150.0
–
–
172.5
150.0
(5.7)
(5.3)
–
–
0.9
(4.8)
(0.2)
0.1
(0.1)
–
–
0.7
(4.6)
(1.6)
0.2
(1.4)
67.4
167.6
144.0
–
–
–
75.0
–
75.0
(3.1)
(0.1)
–
0.6
(2.6)
(0.4)
–
(0.4)
72.0
–
591.4
(49.9)
541.5
(17.6)
(0.1)
0.2
3.4
(14.1)
(2.8)
0.5
(2.3)
525.1
(50.0)
24.1
67.4
167.6
144.0
72.0
475.1
49.3
73.9
66.6
166.6
143.1
71.5
571.0
–
75.2
71.4
169.2
148.0
84.2
548.0
as at December 31, 2011
50.0
63.0
65.2
122.5
105.6
62.3
468.6
(1) Superior issued $75.0 million in 7.5% convertible unsecured subordinated debentures during the fourth quarter of 2011.
(2) Superior redeemed $49.9 million being the outstanding amount of the 5.75% December 2012 convertible unsecured subordinated debentures, on
August 2, 2012.
100
SUPERIOR PLUS CORP.
2012 annual report
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,
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. Superior also 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 FVTNEL
(see Note 22 for further details).
21. Employee Future Benefits
Energy Services and Specialty Chemicals have defined benefit and defined contribution pension plans
covering most employees. The benefits provided under defined benefit 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 defined benefit and other post-retirement benefit plans as at December 31, 2012
and December 31, 2011 in aggregate is as follows:
Recognized Liability for Defined Benefit Obligations
Balance as at December 31, 2011
Present value of obligations
Fair value of plan assets
Recognized liability
Balance as at December 31, 2012
Present value of obligations
Fair value of plan assets
Recognized liability
Energy
Services
Pension
Benefit Plans
Specialty
Chemicals
Pension
Benefit Plans
Other
Benefit Plans
48.6
(39.1)
9.5
49.3
(42.4)
6.9
96.3
(70.6)
25.7
108.3
(82.1)
26.2
33.6
–
33.6
24.6
–
24.6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
101
Movement in Present Value of Defined Benefit Obligations and Plan Assets
Energy Services
Pension Benefit Plans
Specialty Chemicals
Pension Benefit Plans
Other
Benefit Plans
2012
2011
2012
2011
2012
2011
Movement in benefit obligations during the year:
Benefit obligation at January 1
48.6
46.2
96.3
80.8
33.6
30.3
Current service cost
Interest cost
Contributions by the plan participants
Actuarial losses
Past service cost
Benefits paid
0.1
2.0
–
1.9
0.7
(4.0)
0.1
2.3
–
3.9
–
(3.9)
2.3
4.1
0.1
8.9
–
(3.4)
Benefit obligation as at December 31
49.3
48.6
108.3
Movement in fair value of plan assets during the year:
Fair value of plan assets at January 1
Expected return on plan assets
Actuarial gains (losses)
Contributions by the employer
Contributions by plan participants
Benefits paid
Fair value of plan assets as at December 31
Funded status – plan deficit
39.1
2.5
1.9
2.8
–
(3.9)
42.4
(6.9)
41.1
2.8
(2.8)
1.8
–
(3.8)
39.1
(9.5)
70.6
4.6
3.6
6.6
0.1
(3.4)
82.1
(26.2)
2.3
4.3
0.1
11.4
–
(2.6)
96.3
67.2
4.8
(4.3)
5.5
–
(2.6)
70.6
(25.7)
0.1
1.3
–
(9.4)
–
(1.0)
24.6
–
–
–
1.0
–
(1.0)
–
0.1
1.6
–
2.8
–
(1.2)
33.6
–
–
–
1.2
–
(1.2)
–
(24.6)
(33.6)
Net benefit obligation
(6.9)
(9.5)
(26.2)
(25.7)
(24.6)
(33.6)
Current portion of net benefit obligation recorded
in trade and other payables
–
–
(3.3)
(3.1)
(0.3)
(0.4)
Non-current net benefit obligation
(2012 – $54.1 million; 2011 – $65.3 million)
(6.9)
(9.5)
(22.9)
(22.6)
(24.3)
(33.2)
The accrued net pension obligation related to the Energy Services’ pension benefit plan on
December 31, 2012 was $7.0 million (December 31, 2011 – $9.5 million), and the expense for the year
ended December 31, 2012 was $0.4 million (December 31, 2011 – recovery of $0.3 million). The accrued net
benefit obligation related to the Specialty Chemicals’ pension benefit plan in 2012 was $26.2 million
(December 31, 2011 – $25.7 million), and the expense for the year ended December 31, 2012 was $1.7 million
(December 31, 2011 – $1.8 million).
The accrued net benefit obligation related to the total other benefit plans of Energy Services and Specialty
Chemicals on December 31, 2012 was $24.6 million (December 31, 2011 – $33.6 million), and the expense for
the year ended December 31, 2012 was $1.5 million (December 31, 2011 – $1.7 million).
102
SUPERIOR PLUS CORP.
2012 annual report
Amounts recognized in net earnings (loss) in respect of these defined benefit plans are as follows for the
years ended:
Current service cost
Interest on obligation
Defined contribution plan payments
Expected return on plan assets
Past service cost
2012
2.5
7.4
0.1
(7.1)
0.7
3.6
2011
2.5
8.2
0.1
(7.6)
–
3.2
The total expense for the year is included in the “Selling, Distribution and Administrative Costs” expense in
the statement of net earnings (loss).
The amount recognized in accumulated other comprehensive loss is as follows:
Actuarial defined benefit gains (losses) during the year (before income taxes)
Cumulative actuarial losses (before income taxes)
2012
4.1
(41.3)
2011
(25.5)
(45.4)
Superior’s defined contribution pension plans are fully funded by their nature. The total cost of Superior’s
defined plans for the year ended December 31, 2012 was $3.7 million (December 31, 2011 – $3.2 million).
The significant actuarial assumptions adopted in measuring accrued benefit obligations are as follows:
Discount rate
Expected long-term rate-of-return on plan assets (1)
Expected rate of compensation increase
(1) Based on market-related values.
Defined Benefit Plans
Other Benefit Plans
2012
4.25%
6.50%
3.25%
2011
4.25%
7.00%
3.25%
2012
4.25%
–%
3.25%
2011
4.25%
–%
3.25%
The weighted average annual assumed healthcare cost inflation rate 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 healthcare
inflation rate would result in a change to the accrued benefit obligation of $1.6 million and a change to the
current service expense of $nil.
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were
carried out on December 31, 2012 by Hewitt Associates LLC.
Major categories of plan assets as a percentage of the fair value of total defined benefit plan assets:
Equities
Bonds
Other assets
Energy
Services
Pension
Benefit Plans
Specialty
Chemicals
Pension
Benefit Plans
61.2%
38.8%
nil%
64.1%
34.9%
1.0%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
103
The actual return on Energy Services’ and Specialty Chemicals’ plan assets in 2012 was 11.1% and 11.4%,
respectively (Energy Services – nil% and Specialty Chemicals – 0.5% for 2011).
As at December 31, 2012 Superior expects to make a contribution of $10.3 million (December 31, 2011:
$8.8 million) to the defined benefit plans during the next financial year.
Below is a summary of the experience adjustments for the past two years:
Experience adjustments on plan assets
Experience adjustments on plan liabilities
Total experience adjustment
Future employee benefits per cost category:
Selling, distribution and administrative costs
Total
22. Financial Instruments
2012
(3.6)
7.7
4.1
2012
3.6
3.6
2011
(16.1)
(9.4)
(25.5)
2011
3.2
3.2
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 input 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 consideration that is 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. 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.
Fair values determined using valuation models require 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 forecast commodity price curves, interest
rate yield curves, currency rates, and price and rate volatilities as applicable. With respect to the valuation of
104
SUPERIOR PLUS CORP.
2012 annual report
Specialty Chemicals’ fixed-price electricity agreement, the valuation requires Superior to make assumptions
about the long-term price of electricity in electricity markets for which active market information is not available.
The impact of the assumption for the long-term forward price curve of electricity has a material impact on the
fair value of this agreement. A $1/MWh change in the forecast price of electricity would result in a change in the
fair value of this agreement of $0.8 million, with a corresponding impact to net income before income taxes.
Any changes in the fair values of derivative financial instruments classified or designated as held-for-trading are
recognized in net income.
During August 2012, Specialty Chemicals received a payment of $15.8 million from TransCanada Energy Ltd.,
a subsidiary of TransCanada Corporation, in connection with the arbitration ruling related to the Sundance
Power Purchase Agreement (PPA) between TransAlta Corporation and TransCanada Corporation. The payment
resulted from the Electrical Sales Agreement (ESA) between TransCanada Corporation and Superior whereby
TransCanada Corporation supplies Superior with fixed-priced energy from the PPA. A one-time gain of
$12.5 million, representing the payment, net of certain settlement costs, is recorded in cost of goods sold.
This settlement relates to Specialty Chemicals’ fixed-price electricity purchase agreement which expires in
2017. Specialty Chemicals expects to receive electricity production from the PPA by the end of 2013 once the
production units have been returned to service.
Notional (1)
Term
25.28 GJ (2)
2013-2017
Effective
Rate
CDN
$3.93/GJ
Asset (Liability)
Fair Value
Input
Level
Dec. 31,
2012
Dec. 31,
2011
Level 1
(42.2)
(78.9)
Description
Natural gas financial
swaps – AECO
Foreign currency forward
contracts, net sale
Energy Services propane
wholesale purchase and
sale contracts, net sale
Energy Services butane
wholesale purchase and
sale contracts, net sale
US$642.4 (3)
2013-2017
1.03
Level 1
10.7
Foreign currency forward contracts,
balance sheet-related
US$59.0 (3)
2013-2014
1.01
Level 1
Interest rate swaps – CDN$
$150.0 (3)
2013-2017
Six-month BA
rate plus 2.65%
Level 2
Equity derivative contracts
$7.5 (3)
2013
$9.48/share
Level 2
0.2
9.4
0.5
Debenture-embedded derivative
$255.0 (3)
2013-2018
–
Level 3
(19.8)
3.5
2.2
10.9
–
(0.6)
5.73 USG (4)
2013-2014
$0.92 USG
Level 2
0.7
(0.6)
Energy Services electricity swaps
0.91MWh (5)
2013-2016
$41.76/MWh
Level 2
1.54 USG (4)
2013-2014
$1.78/USG
Level 2
(0.2)
(10.3)
0.2
(16.0)
Energy Services swaps and option
purchase and sale contracts
Specialty Chemicals fixed-price
electricity purchase agreement
27.17 Gallons (4)
2013
$2.95 USG
Level 2
(0.2)
(0.7)
12-45 MW (6)
2013-2017
$37-$59/MWh
Level 3
1.6
–
(1) Notional values as at December 31, 2012
(2) Millions of gigajoules (GJ) purchased
(3) Millions of dollars
(4) Millions of United States gallons purchased
(5) Millions of megawatt hours (MWh)
(6) Megawatts (MW) on a 24/7 continual basis per year purchased.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
105
All financial and non-financial derivatives are designated as held-for-trading upon their initial recognition.
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
Specialty Chemicals fixed-price electricity purchase agreement
Current
Assets
Long-term
Assets
Current
Liabilities
Long-term
Liabilities
–
–
7.1
2.6
–
3.1
0.2
0.3
–
–
–
7.7
8.3
–
–
–
–
–
46.7
8.6
1.7
–
–
3.7
–
1.0
–
32.2
7.4
7.4
–
0.6
–
–
–
–
As at December 31, 2011
13.3
16.0
61.7
47.6
Description
Natural gas financial swaps – NYMEX and AECO
Energy Services electricity swaps
Foreign currency forward contracts, net sale
Foreign currency forward contracts, balance sheet-related
Interest rate swaps
Equity derivative contracts
Debenture-embedded derivative
Energy Services propane wholesale purchase and sale contracts
Energy Services propane purchase and sale contracts
Energy Services butane wholesale purchase and sale contracts
Energy Services heating oil purchase and sale contracts
Specialty Chemicals fixed-price electricity purchase agreement
As at December 31, 2012
Current
Assets
Long-term
Assets
Current
Liabilities
Long-term
Liabilities
–
–
10.3
0.1
2.5
0.5
–
2.8
–
0.1
0.3
–
16.6
–
–
4.2
0.2
6.9
–
–
–
–
–
–
1.6
12.9
27.6
6.0
–
–
–
–
–
1.7
0.4
0.3
0.5
–
14.6
4.3
3.8
0.1
–
–
19.8
–
–
–
–
–
36.5
42.6
Description
Natural gas financial swaps – NYMEX and AECO
Energy Services electricity swaps
Foreign currency forward contracts, net
Interest rate swaps
Equity derivative contracts
Foreign currency forward contracts – balance sheet-related
Energy Services propane wholesale purchase and sale contracts
Energy Services propane 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
Total (losses) gains on financial and non-financial derivatives
Foreign currency translation of senior secured notes
Unrealized change in fair value of debenture-embedded derivative
Total (losses) gains
2012
2011
Realized
gain (loss)
Unrealized
gain (loss)
Realized
gain (loss)
Unrealized
gain (loss)
(53.6)
(11.6)
10.1
2.5
–
(0.3)
–
–
–
(5.9)
(2.0)
(60.8)
–
–
(60.8)
36.7
5.7
7.2
(1.5)
0.5
(2.0)
1.7
(0.4)
(0.4)
0.5
1.6
49.6
1.7
(19.2)
32.1
(63.9)
(7.3)
15.7
2.5
–
(0.2)
–
–
–
1.7
(3.4)
(54.9)
–
–
(54.9)
19.4
(3.1)
(27.0)
9.3
–
–
–
–
–
(1.7)
(5.4)
(8.5)
(2.8)
1.6
(9.7)
106
SUPERIOR PLUS CORP.
2012 annual report
Realized gains (losses) on financial and non-financial derivatives and foreign currency translation gains (losses) on
the revaluation of Canadian domiciled US-denominated working capital have been classified on the statement
of net earnings (loss) 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
Notes and finance lease receivable
Financial liabilities
Trade and other payables
Dividends and interest payable
Borrowing
Convertible unsecured subordinated debentures (1)
Derivative liabilities
Classification
Measurement
Loans and receivables
Loans and receivables
FVTNEL
Amortized cost
Amortized cost
Fair Value
Loans and receivables
Amortized cost
Other liabilities
Other liabilities
Other liabilities
Other liabilities
FVTNEL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair Value
(1) Except for derivatives embedded in the related financial instruments that are classified as FVTNEL and measured at fair value.
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 borrowing
and debentures is provided in Notes 18 and 20.
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.
Energy Services enters into natural gas financial swaps to manage its economic exposure of providing fixed price
natural gas to its customers and maintains its historical natural gas swap positions with six other 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
107
Energy Services enters 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 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 position in
relation to its wholesale customer supply commitments.
Superior, on behalf of its operating divisions, enters into foreign currency forward contracts with twelve
counterparties to manage the economic exposure of its 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
US dollars and enters into forward US dollar purchase contracts to create an effective Canadian dollar fixed-
price purchase cost. Specialty Chemicals enters into US dollar forward sales contracts on an ongoing basis to
mitigate the impact of foreign exchange fluctuations on sales margins on production from its Canadian plants
that is sold in US dollars. Interest expense on Superior’s US dollar debt is also used to mitigate the impact of
foreign exchange fluctuations.
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 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 debt 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 geographical (primarily Canada and the United States) and end-use (primarily commercial,
residential and industrial) markets.
108
SUPERIOR PLUS CORP.
2012 annual report
Allowances for doubtful accounts and past due receivables are reviewed by Superior at each balance sheet
date. Superior updates its estimate of the allowance for doubtful accounts based on the evaluation of the
recoverability of trade receivables with each customer taking into account historical collection trends of past
due accounts and current economic conditions. Trade receivables are written-off once it is determined they are
not collectible.
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
2012
243.1
108.2
11.8
363.1
2011
280.3
128.1
39.5
447.9
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 make payment.
Superior’s trade receivables are stated after deducting a provision of $7.2 million as at December 31, 2012
(December 31, 2011 − $20.8 million). The movement in the provision for doubtful accounts was as follows:
December 31
Allowance for doubtful accounts, at the beginning of the year
Opening adjustment due to acquisitions
Impairment losses recognized on receivables
Amounts recovered
Amounts written-off during the year as uncollectible
Allowance for doubtful accounts, at the end of the year
2012
(20.8)
–
(3.9)
–
17.5
(7.2)
2011
(14.0)
0.3
(10.8)
3.7
–
(20.8)
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 it is able to react to contingencies and investment opportunities quickly, Superior maintains sources
of liquidity at the corporate and subsidiary levels. The main sources of liquidity are 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
109
Equity Price Risk
Equity price risk is the risk of volatility in earnings as a result of volatility in Superior’s share price. Superior has
equity price risk exposure to shares that it issues under various forms of share-based compensation programs
which affect earnings when outstanding units are revalued at each reporting period. Superior uses equity
derivatives to manage volatility derived from its share-based compensation program.
As at December 31, 2012, Superior estimates that a 10% increase in its share price would have resulted in a
$0.8 million increase in earnings due to the revaluation of equity derivative contracts.
Superior’s contractual obligations associated with its financial liabilities are as follows:
Borrowing
Convertible unsecured
subordinated debentures
US$ foreign currency forward
sales contracts (US$)
US$ foreign currency forward
purchases contracts (US$)
CDN$ natural gas purchases
US$ heating oil purchases (US$)
CDN$ propane purchases
US$ propane purchases (US$)
Fixed-price electricity purchase commitments
2013
59.7
2014
48.0
2015
2016
2018 and
2017 Thereafter
368.3
158.4
4.0
1.2
Total
639.6
50.0
67.4
24.1
72.0
167.6
144.0
525.1
218.0
171.0
144.0
92.4
24.0
(39.0)
15.5
0.2
3.3
1.3
–
(27.0)
2.8
–
0.1
–
–
0.8
–
0.1
–
–
0.4
–
–
–
–
0.2
–
–
–
17.7
17.7
17.7
17.0
–
–
–
–
–
–
–
649.4
(66.0)
19.7
0.2
3.5
1.3
70.1
Superior’s contractual obligations are considered 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 resulting impact to net earnings are detailed below:
Increase (decrease) to net earnings of a $0.01 increase in the CDN$ to the US$
Increase (decrease) to net earnings of a 0.5% increase in interest rates
Increase (decrease) to net earnings of a $0.40/GJ increase in the price of natural gas
Increase (decrease) to net earnings of a $0.04/litre increase in the price of propane
Increase (decrease) to net earnings of a $0.10/gallon increase in the price of heating oil
Increase (decrease) to net earnings 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
2012
(5.6)
(1.5)
2.4
(0.1)
–
1.6
–
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.
110
SUPERIOR PLUS CORP.
2012 annual report
23. Income Taxes
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 2012 of 26.2% (2011 – 27.6%). The reduction in statutory rates reflects previously enacted
federal tax rate reductions. The reasons for these differences are as follows:
Net earnings (loss)
Income tax expense (recovery)
Net earnings (loss) of Superior before taxes
Computed income tax expense (recovery)
Higher effective foreign tax rates
Changes in future income tax rates
Non-deductible costs and other
Prior-period adjustment
Other
2012
93.1
9.0
102.1
26.7
(2.7)
(4.1)
(6.8)
(4.7)
0.6
9.0
2011
(302.6)
(50.4)
(353.0)
(97.4)
(24.6)
1.7
70.5
(2.1)
1.5
(50.4)
Income tax expense or recovery for the years ended December 31, 2012 and 2011 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 expense (recovery)
Total income tax expense (recovery)
2012
2011
1.4
(0.3)
–
0.8
0.3
0.3
1.1
1.4
16.9
(4.0)
(4.3)
(0.7)
7.9
9.0
(51.5)
3.1
(2.3)
(1.1)
(51.8)
(50.4)
Income tax recognized in other comprehensive income (loss)
2012
2011
Deferred tax
Reclassification of derivative gains and losses previously deferred
Amortization of actuarial gains and losses
Total income tax (expense) recovery recognized in other comprehensive income (loss)
–
(1.1)
(1.1)
(1.7)
6.5
4.8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
111
(Credited)/
Charged to
Other
(Credited)/
Charged to Comprehensive
Income
Net Earnings
1.8
(4.4)
0.8
(2.0)
–
2.3
0.2
50.2
1.9
(2.0)
2.1
50.9
–
–
–
–
–
–
–
–
6.5
–
(1.7)
4.8
Opening
Balance
2.0
18.5
(4.4)
5.8
117.4
41.6
(2.9)
(124.1)
29.0
151.7
19.8
254.4
Exchange
Differences
Other
Closing
Balance
–
0.1
–
–
–
0.8
–
(2.3)
0.2
–
–
2.0
3.3
(1.7)
1.3
(4.1)
–
–
(4.2)
–
4.1
–
5.8
17.5
(5.3)
5.1
113.3
44.7
(2.7)
(80.4)
37.6
153.8
20.2
(1.2)
0.7
309.6
Opening
Balance
Other
(Credited)/
Charged to Comprehensive
Income
Net Earnings
Exchange
Differences
Other
Closing
Balance
5.8
17.5
(5.3)
5.1
113.3
44.7
(2.7)
(80.4)
37.6
153.8
0.1
(4.9)
4.7
(1.6)
(0.7)
22.5
0.5
(15.8)
(4.7)
3.7
(12.4)
(8.6)
–
–
–
–
–
–
–
–
(1.1)
–
–
(1.1)
(0.1)
(0.1)
–
–
–
(1.3)
–
1.8
(0.2)
–
–
0.1
4.5
(0.1)
0.2
(1.6)
–
–
(4.1)
–
1.6
–
5.9
17.0
(0.7)
3.7
111.0
65.9
(2.2)
(98.5)
31.6
159.1
7.8
0.1
0.6
300.6
2011
Provisions
Finance leases
Borrowing
Financing fees
Investment tax credits
Non-capital losses
Other
Property, plant and equipment
Reserves and employee benefits
Scientific research and development
Unrealized foreign exchange gains (losses)
Total
2012
Provisions
Finance leases
Borrowing
Financing fees
Investment tax credits
Non-capital losses
Other
Property, plant and equipment
Reserves and employee benefits
Scientific research and development
Unrealized foreign exchange gains (losses)
20.2
Total
309.6
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.
The deferred income tax asset relates to the following tax jurisdictions as at December 31, 2012 and 2011:
Canada
United States
Chile
Total deferred income tax asset
2012
297.3
5.5
(2.2)
300.6
2011
315.3
(4.6)
(1.1)
309.6
112
SUPERIOR PLUS CORP.
2012 annual report
Superior has available to carry forward the following as at December 31, 2012 and 2011:
Canadian non-capital losses
Canadian scientific research expenditures
Canadian capital losses
United States non-capital losses – federal
United States non-capital losses – state
Chilean non-capital losses
Canadian federal and provincial investment tax credits
2012
92.5
608.3
607.3
110.1
130.1
20.3
160.0
2011
52.8
602.2
611.5
81.4
101.9
28.0
164.9
As at December 31, 2012, Superior had non-capital loss carry-forwards available to reduce future years’
taxable income, which expire as follows:
2012
2013
2014
2015
2016
Thereafter
Total
US
CDN
–
–
–
–
–
110.1
110.1
–
–
–
–
–
92.5
92.5
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, 2012, Superior had Canadian federal and provincial investment tax credits available to
reduce future years’ taxable income, which expire as follows:
2013
2014
2015
2016
2017
Thereafter
Total
7.6
5.6
4.3
4.6
–
137.9
160.0
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
113
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
Total unrecognized deferred income tax assets
2012
24.8
20.0
607.3
652.1
2011
25.2
20.4
611.5
657.1
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 sufficient future taxable income against which to
utilize the temporary differences.
Uncertain Tax Positions
On February 11, 2013, Superior received a proposal letter from the Canada Revenue Agency (“CRA”) which
confirms its intention to challenge the tax consequences of Superior’s December 31, 2008 conversion
transaction. CRA is seeking to apply the acquisition of control rules and the general anti-avoidance rules
of the Income Tax Act (Canada). In 2013, CRA will issue a Notice of Reassessment for Superior’s 2009, 2010
and 2011 taxation years. Superior is required to make a payment of 50% of the tax liability claimed by the
CRA in order to appeal the expected reassessment and, based on Superior’s 2009, 2010, and 2011 taxation
years, that amount is approximately $10 million and approximately $5 million for the 2012 taxation year once
that information is filed with CRA and then ultimately reassessed. Superior would also be required to make a
payment of 50% of the taxes the CRA claims are owed in any future tax year if the CRA were to issue a similar
notice of reassessment for such years and Superior were to appeal it. Superior has 90 days from the Notice
of Reassessment to prepare and file a Notice of Objection, which would be reviewed by the CRA’s appeals
division. If the CRA is not in agreement with Superior’s Notice of Objection, Superior has the option to file its
case with the Tax Court of Canada. Superior anticipates that legal proceedings through the various tax courts
would take approximately two to four years. If Superior is ultimately successful in defending its position, such
payments plus applicable interest, will be refunded to Superior. If the CRA is successful, Superior will be
required to pay the balance of the taxes claimed plus applicable interest and penalties.
The impact of the proposal on Superior’s tax provision has been considered by management; however, its
best estimate of the most likely outcome has not changed. If Superior is unsuccessful in overturning the
reassessment, the impact on Superior’s future income tax asset at December 31, 2012 would be a reduction
of approximately $287.4 million.
24. 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.
114
SUPERIOR PLUS CORP.
2012 annual report
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. Superior does not have any preferred shares outstanding.
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
Net earnings
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, 2012
Issued Number
of Common
Shares (Millions)
107.7
–
–
–
3.1
–
110.8
–
–
–
2.0
–
112.8
Total
Equity
754.4
(302.6)
(1.2)
(2.2)
28.9
(127.7)
349.6
93.1
(6.0)
(0.8)
14.2
(67.2)
382.9
(1) Dividends to shareholders are declared at the discretion of Superior. During the year ended December 31, 2012, Superior paid dividends of $67.1
million or $0.60 per share (December 31, 2011 – $136.7 million or $1.25 per share).
Accumulated other comprehensive
loss as at December 31, 2012 and 2011 consisted of the
following components:
Currency translation adjustment
Balance at the beginning of year
Unrealized foreign currency gains and losses on translation of foreign operations
Balance at the end of the year
Actuarial defined benefits
Balance at the beginning of the year
Actuarial defined benefit gains (losses)
Income tax (expense) recovery
Balance at the end of the year
Accumulated derivative gains (losses)
Balance at the beginning of the year
Reclassification of derivative gains previously deferred
Balance at the end of the year
Accumulated other comprehensive loss at the end of the year
2012
2011
(13.8)
(9.0)
(22.8)
(35.5)
4.1
(1.1)
(32.5)
(6.0)
–
(6.0)
(61.3)
(27.4)
13.6
(13.8)
(14.8)
(25.5)
4.8
(35.5)
(11.9)
5.9
(6.0)
(55.3)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
115
Other Capital Disclosure
Additional Capital Disclosure
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 its assets
while 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) 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,
or 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 its other public reports.
Superior is subject to various financial covenants in its credit facility agreements, including senior debt,
total debt to EBITDA ratio and restricted payments test which are measured on a quarterly basis. As at
December 31, 2012 and December 31, 2011 Superior was in compliance with all of its financial covenants.
Superior’s financial objectives and strategy related to managing its capital as described above 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
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.
116
SUPERIOR PLUS CORP.
2012 annual report
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 accumulated other comprehensive loss
Current borrowing (1)
Borrowing (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
(1) Borrowing and convertible unsecured subordinated debentures are before deferred issuance costs and option value.
Twelve Months Ended December 31
Net earnings (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
Losses on disposal of assets
Amortization of intangible assets
Impairment of goodwill and intangible assets
Impairment of property, plant and equipment
Income tax expense (recovery)
Unrealized (gains) losses on derivative financial instruments
Pro-forma impact of acquisitions
Compliance EBITDA (1)
2012
93.1
77.6
2.2
42.4
44.9
1.0
23.5
–
4.7
9.0
(32.1)
0.6
266.9
(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 secured debt to Compliance EBITDA
Consolidated debt to Compliance EBITDA
Total debt to Compliance EBITDA
2012
1.8:1
2.4:1
4.4:1
2011
2.3:1
2.9:1
5.1:1
2012
382.9
61.3
444.2
59.7
579.9
2011
349.6
55.3
404.9
54.3
707.8
(150.0)
(150.0)
489.6
150.0
639.6
50.0
491.5
1,181.1
1,625.3
612.1
150.0
762.1
49.9
541.5
1,353.5
1,758.4
2011
(302.6)
85.5
2.3
47.9
44.9
0.5
41.9
378.6
3.4
(50.4)
9.7
1.5
263.2
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
117
25. Deficit and Dividends
Balance at the beginning of the year
Net earnings (loss)
Dividends declared
Balance at the end of the year
2012
(1,228.2)
93.1
(67.2)
2011
(797.9)
(302.6)
(127.7)
(1,202.3)
(1,228.2)
As at December 31, 2012, Superior declared dividends of $5.6 million or $0.05 per share payable on
January 15, 2013 to shareholders of record on December 31, 2012.
26. Supplemental Disclosure of Condensed Consolidated Statement of Comprehensive Income
Revenue is recognized at the fair value of consideration received or receivable when the significant risks and
rewards of ownership have been transferred.
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
Losses on disposal of assets
Impairment of property, plant and equipment
Realized losses (gains) on the translation of U.S. denominated net working capital
Finance expense
Interest on borrowing
Interest on convertible unsecured subordinated debentures
Interest on obligations under finance leases
Gain on debenture redemption
Unwinding of discount on debentures, borrowing and decommissioning liabilities
Realized gains on derivative financial instruments
2012
2011
3,526.3
3,823.9
59.3
26.1
4.9
7.7
53.7
29.6
2.0
16.4
3,624.3
3,925.6
(2,660.0)
(2,979.7)
(44.9)
(73.1)
(44.9)
(73.5)
(2,778.0)
(3,098.1)
281.0
3.6
340.9
–
42.4
23.5
1.0
–
1.6
272.2
3.2
339.3
(0.9)
44.3
41.9
4.1
3.4
(0.8)
694.0
706.7
33.1
35.8
5.0
(0.8)
6.7
(2.2)
77.6
37.4
39.1
5.0
(1.7)
8.0
(2.3)
85.5
118
SUPERIOR PLUS CORP.
2012 annual report
27. Net Earnings (Loss) per Share
Net earnings (loss) per share computation, basic and diluted (1)
Net earnings (loss)
Weighted average shares outstanding (millions)
Net earnings (loss) per share, basic and diluted
2012
2011
93.1
111.9
(302.6)
109.2
$ 0.83
$
(2.77)
(1) All outstanding convertible debentures have been excluded from this calculation as they were ant-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 (loss) per share in each period.
(millions)
Convertible Debentures
5.75%
5.85%
7.50%
5.75%
6.00%
7.50%
Maturity
Note
2012
2011
December 2012
October 2015
December 2014
June 2017
June 2018
October 2016
20
20
20
20
20
20
–
2.4
5.3
9.1
9.9
6.6
1.4
2.4
5.3
9.1
9.9
6.6
Total anti-dilutive instruments
33.3
34.7
28. Share-Based Compensation
Restricted and Performance Shares
Under 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 three years from the grant date, except for RSs issued to directors which
vest three years from the grant date. Payments are made on the anniversaries 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 grant date and their notional value depends on Superior’s performance as compared to
established benchmarks. DSs vest immediately on the grant date 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 (loss) over the vesting period
of the RSs, PSs, and 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.
For the year ended December 31, 2012 total compensation expense related to RSs, PSs and DSs was
$9.6 million (December 31, 2011 – $3.9 million). Payouts during the year ended December 31, 2012 under the long-
term incentive plan were completed at a weighted average price of $8.67 per share (2011 – $8.43 per share) for
RSs and $1.67 per share (2011 – $14.65 per share) for PSs and $8.56 per share (2011 – $9.93 per share) for DSs. For
the year ended December 31, 2012, the total carrying amount of the liability related to RSs, PSs and DSs was
$9.9 million (December 31, 2011 – $3.7 million).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
119
The movement in the number of shares under the long-term incentive program was as follows:
Year Ended December 31, 2012
Year Ended December 31, 2011
Opening number of shares
1,255,379
951,751
187,655
962,193
1,008,945
RSs
PSs
DSs
RSs
PSs
Reclassification (1)
Granted
Dividends reinvested
Forfeited
Payouts
(115,715)
117,571
(1,856)
580,229
535,918
68,454
56,710
54,293
16,017
–
715,093
175,583
–
386,881
77,401
(105,281)
(18,679)
−
(168,575)
(232,785)
(474,009)
(270,371)
(28,344)
(428,915)
(288,691)
DSs
−
–
187,655
−
−
−
Ending number of shares
1,209,057
1,372,900
227,765
1,255,379
951,751
187,655
(1) As a result of the redefinition of its share based compensation, Superior made some reclassifications to the opening balances for 2012.
During 2012, Superior entered into equity derivative contracts in order to manage the volatility and costs
associated with its share-based compensation plans. As at December 31, 2012, Superior had outstanding
notional values of $7.5 million of equity derivative contracts at an average share price of $9.48. See Note 22
for further details.
29. Supplemental Disclosure of Non-Cash Operating Working Capital Changes
December 31
Changes in non-cash working capital
Trade receivables and other
Inventories
Trade and other payables
Purchased working capital
Other
2012
2011
79.0
(10.6)
21.0
1.1
(10.2)
81.6
82.8
(36.0)
(13.1)
0.7
(4.3)
30.1
120
SUPERIOR PLUS CORP.
2012 annual report
30. Commitments
Purchase commitments under long-term natural gas and propane contracts for the next five years and thereafter
are as follows:
2013
2014
2015
2016
2017
2018 and thereafter
(1) Does not include the impact of financial derivatives (See Note 22).
CDN$ (1)
Natural Gas
CDN$
Propane
US$
Propane
US$
Heating Oil
15.5
2.8
0.8
0.4
0.2
−
3.3
0.1
0.1
−
−
−
1.3
−
−
−
−
−
0.2
−
−
−
−
−
Superior is similarly committed to long-term natural gas and propane sales contracts to supply customers.
31. 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, 2012, Superior incurred $0.7 million (December 2011 – $1.7 million) in legal
fees respectively, with Norton Rose Canada LLP, a related party with Superior as a member of Superior’s Board
of Directors is a Partner at the law firm.
Remuneration of Directors and Other Key Management Personnel
The key management personnel of Superior are comprised of 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 are as follows:
Twelve Months Ended December 31
Short-term employee benefits (1)
Post-employment benefits
Other long-term employee benefits
Termination benefits
Share-based payments
2012
2011
6.8
0.3
0.1
0.6
3.6
11.4
4.6
0.2
–
1.8
4.4
11.0
(1) Short-term employee benefits paid to directors and other members of key management personnel includes salaries and bonuses.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
121
Country of
Incorporation
Ownership
Interest
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
United States
United States
United States
United States
United States
United States
United States
Canada
Chile
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
32. Group Entities
Significant Subsidiaries
Superior Plus LP
Superior Gas Liquids Partnership
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 (USA) 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
33. 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. Energy Services provides distribution, wholesale procurement and related
services in relation to propane, heating oil and other refined fuels, plus fixed-price natural gas and electricity
supply services. Specialty Chemicals 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 in the U.S. Midwest.
Construction Products Distribution 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 foreign exchange contracts from time to time.
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 their revenue stream.
122
SUPERIOR PLUS CORP.
2012 annual report
For the Year Ended December 2012
Revenues
Energy
Services
2,301.6
Cost of sales (includes product and services)
(1,854.2)
Gross Profit
Expenses
Selling, distribution and administrative costs
Employee costs
Depreciation of property, plant and equipment
Amortization of intangible assets
Losses on disposal of assets
Finance expense
Impairment of property, plant and equipment
Unrealized losses (gains) on derivative
financial Instruments
Net earnings (loss) before income taxes
Income tax expense
Net Earnings (Loss)
For the Year Ended December 2011
Revenues
Cost of sales (includes product and services)
Gross Profit
Expenses
Selling, distribution and administrative costs
Employee costs
Depreciation of property, plant and equipment
Amortization of intangible assets
Losses (Gains) on disposal of assets
Finance expense
Impairment of property, plant and equipment
447.4
130.9
184.5
36.5
16.9
0.2
4.5
4.7
(43.8)
334.4
113.0
–
113.0
Energy
Services
2,686.1
(2,225.7)
460.4
142.0
186.5
38.6
32.5
2.4
3.9
3.4
Impairment of intangible assets and goodwill
300.6
Unrealized losses (gains) on derivative
financial instruments
Net earnings (loss) before income taxes
Income tax recovery
Net Earnings (Loss)
(15.6)
694.3
(233.9)
–
(233.9)
Specialty
Chemicals
543.8
(328.8)
215.0
Construction
Products
Distribution
778.9
(595.0)
183.9
83.6
48.8
–
6.3
0.6
0.3
–
(1.6)
138.0
77.0
–
77.0
67.5
95.6
5.9
0.2
0.2
0.7
–
–
170.1
13.8
–
13.8
Corporate
Total
Consolidated
–
–
–
4.2
12.0
–
0.1
–
72.1
–
13.3
101.7
(101.7)
9.0
(110.7)
3,624.3
(2,778.0)
846.3
286.2
340.9
42.4
23.5
1.0
77.6
4.7
(32.1)
744.2
102.1
9.0
93.1
Specialty
Chemicals
Construction
Products
Distribution
Corporate
Total
Consolidated
527.7
(335.3)
192.4
59.9
62.2
–
6.7
1.8
0.3
–
–
5.4
136.3
56.1
–
56.1
711.8
(537.1)
174.7
63.9
86.6
5.7
2.7
(0.1)
1.2
–
78.0
–
238.0
(63.3)
–
(63.3)
–
–
–
7.9
4.0
–
–
–
80.1
–
–
19.9
111.9
(111.9)
(50.4)
(61.5)
3,925.6
(3,098.1)
827.5
273.7
339.3
44.3
41.9
4.1
85.5
3.4
378.6
9.7
1,180.5
(353.0)
(50.4)
(302.6)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2012 annual report
123
Net Working Capital, Total Assets, Total Liabilities, Acquisitions and Purchase of Property, Plant
and Equipment
As at December 31, 2012
Net working capital (1)
Total assets
Total liabilities
As at December 31, 2011
Net working capital (1)
Total assets
Total liabilities
For the year ended December 31, 2012
Acquisitions
Purchase of property, plant and equipment
For the year ended December 31, 2011
Acquisitions
Purchase of property, plant and equipment
Energy
Services
Specialty
Chemicals
Construction
Products
Distribution
Corporate
Total
Consolidated
188.1
729.6
298.8
239.8
1,008.6
369.2
5.5
21.9
14.8
19.9
16.3
585.6
171.7
25.7
618.8
208.3
–
20.3
–
16.1
105.5
199.6
84.2
129.8
218.8
68.8
–
1.6
–
2.1
(22.1)
521.5
1,098.7
(18.0)
347.5
1,197.5
–
–
–
0.1
287.8
2,036.3
1,653.4
377.3
2,193.4
1,843.8
5.5
43.8
14.8
38.2
(1) Net working capital reflects amounts at year-end and is comprised of trade and other receivables, prepaid expenses and inventories, less trade and
other accounts payable, deferred revenue and dividends and interest payable.
34. Geographic Information
Revenues for the year ended December 31, 2012
Property, plant and equipment as at December 31, 2012
Intangible assets as at December 31, 2012
Goodwill as at December 31, 2012
Total assets as at December 31, 2012
Revenues for the year ended December 31, 2011
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
35. Subsequent Events
Canada
1,428.5
460.6
15.8
188.3
1,320.6
1,743.7
486.5
26.9
185.6
1,337.9
United
States
2,094.6
324.4
23.8
0.8
649.6
2,091.8
349.3
38.7
0.5
788.3
Other
101.2
44.9
–
–
66.1
90.1
49.2
–
–
Total
Consolidated
3,624.3
829.9
39.6
189.1
2,036.3
3,925.6
885.0
65.6
186.1
67.2
2,193.4
On November 30, 2012, Superior announced that it would redeem $50.0 million principal amount of its
previously issued 5.85% convertible subordinated debentures due October 31, 2015 on January 3, 2013. As
previously announced, Superior used proceeds from its bank facility to fund the redemption. The debentures,
in accordance with their terms, were redeemed at the redemption price of $1,000 in cash per $1,000 principal
amount of the debentures plus accrued and unpaid interest up to but excluding the redemption date. The
record date for the partial redemption was December 31, 2012.
124
SUPERIOR PLUS CORP.
2012 annual report
Selected Historical Information (1)
Energy Services
(millions of dollars except where noted)
2012
2011
2010
2009
2008
Years Ended December 31
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)
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
(millions of dollars except where noted)
Gross profit (3)
EBITDA from operations (3)
Superior Plus Corp. Consolidated
1,292
1,305
1,235
1,277
1,377
1,599
19
18.2
7.7
115
447.4
134.2
2012
771
703
258.3
127.5
1,741
21
17.1
7.9
146.9
455.2
133.6
1,702
27
17.5
7.6
91.2
434.9
114.7
Years Ended December 31
2011
772
685
238.7
115.2
2010
735
655
220.2
101.5
153
33
18.5
10.0
90.2
340.2
97.6
2009
634
720
210.0
93.0
Years Ended December 31
2012
183.9
20.8
2011
174.7
24.2
2010
172.3
26.8
2009
122.3
22.8
Years Ended December 31
–
33
18.4
–
80.5
331.9
103.3
2008
727
633
235.3
116.5
2008
140.7
37.4
(millions of dollars except where noted)
2012
2011
2010
2009
2008
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)
3,624.3
3,925.6
3,537.4
2,246.7
2,487.3
846.3
282.5
193.5
$1.73
111.9
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
2,036.3
2,193.4
2,696.9
2,274.0
2,026.9
489.6
612.1
590.0
738.1
1,181.1
1,353.5
1,381.4
1,054.8
577.7
825.3
(1) Certain 2010 amounts have been restated as a result of the adoption of IFRS.
(2) U.S. Refined Fuels assets were purchased during 2009 and 2010.
(3) Acquisition of Specialty Products and Insulation Inc. was completed during 2009.
(4) Includes off-balance sheet accounts receivable securitization program.
(5) Senior debt and total debt are stated before deferred issue costs.
SUPERIOR PLUS CORP.
2012 ANNUAL REPORT
125
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
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
Craig S. Flint
Vice-President, Business Development
and Compliance
Greg L. McCamus
President, Energy Services and Superior Propane
Dave Tims
President, Energy Supply and Oilfield
Paul S. Timmons
President, Specialty Chemicals
Paul J. Vanderberg
President, Construction Products Distribution
Keith Wrisley
President, U.S. Refined Fuels
126
SUPERIOR PLUS CORP.
2012 ANNUAL REPORT
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
1650 Manheim Pike, Suite 202
Lancaster, Pennsylvania 17601-3088
Tel: 717-569-3900
Fax: 717-519-4046
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 3000
Mississauga, Ontario L5N 2W5
Toll-free: 1-877-784-4262
Fax: 1-905-542-5935
SHAReHolDeR INFoRMATIoN
Superior Plus Corp.
Annual Meeting of Shareholders
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
The Corporation’s Annual Meeting of shareholders
will be held in the Grand Lecture Theatre of the
Metropolitan Centre, 333 – 4 Avenue SW, Calgary,
Alberta, Canada on Wednesday, May 1, 2013 at
2:00 p.m. (MDT).
Toronto Stock Exchange
(TSX) Listings
SPB:
Superior Plus Corp. shares
SPB.db.c:
SPB.db.d:
SPB.db.e:
SPB.db.f:
SPB.db.g:
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
a
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Superior Plus Share Price and Volumes – TSX
Quarterly high, low, close and volumes for 2011 and 2012.
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.
2012
2011
High
low
Volume
High
low
Volume
First quarter
Second quarter
Third quarter
$ 7.98
$ 7.74
$ 9.67
$ 5.62 26,769,848
$ 5.96 11,921,806
$ 6.06 15,330,933
$ 12.49
$ 11.85
$ 11.58
$ 10.50
$ 10.70
$ 7.35
20,530,193
10,803,881
16,046,126
Fourth quarter
$ 10.50
$ 8.60 13,078,752
$ 7.83
$ 5.21
28,655,110
Year
$ 10.50
$ 5.62 67,101,339
$ 12.49
$ 5.21
76,035,310
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
403-218-2970
Tel:
Fax:
403-218-2973
Toll-Free: 1.866.490-PlUS (7587)
www.superiorplus.com