TSX: SPF.UN
TORONTO, May 3 /CNW/ -
- Q1 Distributable Cash Flow per trust unit declined 20% from the prior
year period.
- Operating results reflect challenging conditions at Superior Propane
and ERCO Worldwide's sodium chlorate business, particially offset by
ownership of JWA and strong performance at Winroc and SEM.
- May 2006 distribution reduced to $0.13 per trust unit
($1.56 annualized).
- Special Committee of the Board formed to conduct a Strategic Review to
maximize unitholder value.
<<
Three Months
(millions of dollars, except Ended March 31
per trust unit amounts) 2006 2005
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Financial
Operating distributable cash flow
Superior Propane 37.6 44.2
ERCO Worldwide 18.4 22.0
JW Aluminum ("JWA") 9.4 -
Winroc 7.8 4.4
Superior Energy Management ("SEM") 1.7 1.6
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74.9 72.2
Corporate costs (4.0) (1.4)
Interest (14.4) (7.1)
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Distributable cash flow (see Management Discussion
& Analysis) 56.5 63.7
Distributable cash flow per trust unit, basic $0.66 $0.83
Distributable cash flow per trust unit, diluted $0.66 $0.79
Average number of trust units outstanding (millions) 85.5 76.5
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Operating
Propane retail sales volumes (millions of litres) 448 485
Propane retail sales margin (cents per litre) 15.7 16.5
Total chemical sales (thousands of metric tonnes "MT") 211 164
Average chemical selling price (dollars per MT) 482 551
Aluminum sales (millions of pounds) 81 -
Aluminum gross profit (cents per pound) 17.3 -
Natural gas sold (millions of gigajoules ("GJ")) 9 9
Natural gas sales margin (cents per GJ) 49.6 38.6
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Q1 Highlights:
- Distributable cash flow per trust unit of $0.66, down 20% from Q1 last
year due to an 11% decrease in distributable cash flow and a
12% increase in the average number of trust units outstanding.
- Superior Propane results impacted by unseasonably warm weather.
- ERCO Worldwide results impacted by lower sodium chlorate sales due to
weakness in the North American bleached pulp industry and the
appreciation of the Canadian dollar on sales denominated in United
States dollars.
- JW Aluminum contributed $9.4 million of operating distributable cash
flow during its first full quarter of ownership by the Fund.
- Winroc results benefit from the expansion of its distribution network
into the Ontario market during the first half of 2005.
- Interest expense increased due to financing of 2005 growth capital
expenditures and higher interest rates.
Webcast of Annual Meeting of Unitholders
The Fund's Annual Meeting will be held in the Strand/Tivoli Room of The
Metropolitan Centre, 333 - 4 Avenue SW, Calgary, Alberta at 2:00 pm (MST) on
Wednesday, May 3, 2006. A live audio webcast of the meeting, including a
corporate update presentation can be accessed at www.superiorplus.com. This
webcast will also be archived for future reference.
Analyst Conference Call
Superior Plus will be conducting a conference call and webcast for
investors, analysts, brokers and media representatives to discuss the 2006
First Quarter Results at 10:30 a.m. EST (8:30 a.m. MST) on Thursday, May 4,
2006. To participate in the call, dial: 1-800-814-4890. An archived recording
of the call will be available for replay until midnight, May 11, 2006. To
access the recording, dial: 877-289-8525 and enter pass code 21182436 followed
by the No. key. Internet users can listen to the call live, or as an archived
call, on Superior's website at: www.superiorplus.com under the "Events and
Presentations" section.
Cash Distribution Notice
As announced on April 24, 2006, the May distribution of $0.13 per trust
unit ($1.56 on an annualized basis) has been reduced from $0.185 per trust
unit paid previously. This reduction in the monthly distribution rate reflects
anticipated challenges in ERCO Worldwide's North American sodium chlorate
business over the medium term. This is believed to be a prudent level based on
our current outlook.
The Fund announced today its cash distribution for the month of May 2006
of $0.13 (13 cents) per trust unit, payable on June 15, 2006, to Unitholders
of record at the close of business on May 31, 2006. The ex-distribution date
will be May 29, 2006. For income tax purposes, the cash distribution of
$0.13 per trust unit is considered to be "other income". A cash distribution
summary since inception of the Fund, together with tax information, is posted
on our website at www.superiorplus.com.
Management's Discussion and Analysis of 2006 First Quarter Results
Forward Looking Statements
Except for the historical and present factual information, certain
statements contained herein are forward-looking. Such forward-looking
statements are not guarantees of future performance and involve a number of
known and unknown risks and uncertainties which may cause the actual results
of the Superior Plus Income Fund (the "Fund") or Superior Plus Inc.
("Superior") in future periods to differ materially from any projections
expressed or implied by such forward-looking statements and therefore should
not be unduly relied upon. Any forward-looking statements are made as of the
date hereof and neither the Fund nor Superior undertakes any obligation to
publicly update or revise such statements to reflect new information,
subsequent events or otherwise.
Distributable Cash Flow and Other Non-GAAP Measures
Distributable cash flow of the Fund available for distribution to
Unitholders, is equal to cash generated from operations before natural gas
customer acquisition costs and changes in working capital, less amortization
of natural gas customer acquisition costs and maintenance capital
expenditures. Maintenance capital expenditures are equal to capital
expenditures incurred to sustain the ongoing capacity of Superior's operations
and are deducted from the calculation of distributable cash flow. Acquisitions
and other capital expenditures incurred to expand the capacity of Superior's
operations or to increase its profitability ("growth capital"), are excluded
from the calculation of distributable cash flow. Distributable cash flow is
the main performance measure used by management and investors to evaluate the
performance of the Fund and its businesses. Readers are cautioned that
distributable cash flow is not a defined performance measure under Canadian
generally accepted accounting principles ("GAAP"), and that distributable cash
flow cannot be assured. The Fund's calculation of distributable cash flow,
maintenance capital and growth capital may differ from similar calculations
used by comparable entities. Operating distributable cash flow is
distributable cash flow before corporate and interest expenses. It is also a
non-GAAP measure and is used by management to assess the performance of the
operating divisions.
EBITDA represents earnings before interest, taxes, depreciation and
amortization calculated on a 12 month trailing basis giving pro forma effect
to acquisition and divestitures and is used by Superior to calculate its debt
covenants and other credit information. Superior's calculation of EBITDA may
differ from similar calculations used by comparable entities.
The following should be read in conjunction with the Fund's Interim
Consolidated Financial Statements contained herein, along with the Management
Discussion and Analysis and Consolidated Financial Statements for the year
ended December 31, 2005.
First Quarter Results
First quarter distributable cash flow was $56.5 million, a decrease of
$7.2 million (11%) compared to the prior year quarter. Operating distributable
cash flow increased by $2.7 million (4%) as the contribution from JW Aluminum
("JWA") acquired on October 19, 2005 and improved results from Winroc, were
more than offset by lower results from Superior Propane and ERCO Worldwide.
Interest costs increased by $7.3 million due to increased debt levels incurred
to finance growth capital investments made during 2005 in addition to higher
interest rates.
Distributable cash flow per trust unit was $0.66 in the first quarter,
down $0.17 (20%) from the prior year quarter due to an 11% decrease in
distributable cash flow and a 12% increase in the average number of trust
units outstanding, as a result of trust units issued to partially finance the
acquisition of JWA and the conversion of Debentures and Warrants into trust
units during 2005.
Net earnings for the first quarter were $33.8 million, a decrease of
$7.7 million (19%) from the prior year quarter, due to similar reasons that
contributed to the decrease in distributable cash flow.
Distributable Cash Flow(1)
-------------------------------------------------------------------------
For the three months ended March 31 2006 2005
-------------------------------------------------------------------------
Cash generated from operations before natural gas
customer acquisition costs and changes in
working capital 61.1 66.9
Less: Maintenance capital expenditures, net (3.9) (2.7)
Amortization of natural gas customer
acquisition costs (0.7) (0.5)
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Distributable cash flow 56.5 63.7
Distributable cash flow reinvested (5.6) (17.8)
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Distributed cash flow 50.9 45.9
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Distributable cash flow per trust unit, basic(2) $ 0.66 $ 0.83
Distributable cash flow per trust diluted, basic(3) $ 0.66 $ 0.79
-------------------------------------------------------------------------
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(1) See the Interim Consolidated Financial Statements for cash generated
from operations before natural gas customer acquisition costs and
changes in working capital, maintenance capital expenditures, and
amortization of natural gas customer acquisition costs.
(2) The weighted average number of trust units outstanding for the
quarter ended March 31, 2006, is 85.5 million (2005 - 76.5 million).
(3) For the quarter ended March 31, 2006, there were no dilutive
instruments. For the prior year quarter, the dilutive impact of the
convertible debentures, trust unit options and trust unit warrants
was 6.7 million trust units (83.2 million total trust units on a
diluted basis) with a resulting impact on distributable cash flow of
$2.0 million ($65.7 million total on a diluted basis).
Segmented Distributable Cash Flow(1)
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For the three
months ended Total
March Superior Corp- Consol-
31, 2006 Propane ERCO JWA Winroc SEM orate idated
-------------------------------------------------------------------------
Net earnings 20.4 2.5 3.1 5.7 1.0 1.1 33.8
Add:
Amortization of
property, plant
and equipment,
intangible assets
and convertible
debenture issue
costs 4.9 16.9 9.7 0.8 - 0.6 32.9
Future income tax
expense (recovery) 12.0 1.2 (2.7) 2.6 0.7 (18.9) (5.1)
Trust unit
incentive plan
recovery - - - - - (1.2) (1.2)
Less:
Maintenance capital
expenditures, net 0.3 (2.2) (0.7) (1.3) - - (3.9)
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Distributable
cash flow 37.6 18.4 9.4 7.8 1.7 (18.4) 56.5
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For the three
months ended Total
March Superior JWA Corp- Consol-
31, 2005 Propane ERCO (2) Winroc SEM orate idated
-------------------------------------------------------------------------
Net earnings 24.7 6.3 - 3.6 0.8 6.1 41.5
Add:
Amortization of
property, plant
and equipment,
intangible assets
and convertible
debenture issue
costs 5.2 13.5 - 0.6 - 0.3 19.6
Future income tax
expense (recovery) 14.8 3.1 - 1.5 0.8 (14.6) 5.6
Trust unit incentive
plan recovery - - - - - (0.3) (0.3)
Less:
Maintenance capital
expenditures, net (0.5) (0.9) - (1.3) - - (2.7)
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Distributable
cash flow 44.2 22.0 - 4.4 1.6 (8.5) 63.7
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(1) See the Interim Consolidated Financial Statements for net earnings,
amortization of property, plant and equipment, intangible assets and
convertible debenture issue costs, future income tax expense
(recovery), trust unit incentive plan recovery, and maintenance
capital expenditures.
(2) JWA was acquired October 19, 2005.
Distributions Paid to Unitholders
Distributions paid to Unitholders in the first quarter was $50.9 million
or $0.595 per trust unit, as compared to $45.9 million or $0.60 per trust unit
paid in the first quarter of 2005. Distributable cash flow exceeded
distributions paid to Unitholders by $5.6 million in the first quarter
(2005 Q1 (equal sign) $17.8 million) resulting in a payout ratio of
90% (2005 Q1 (equal sign) 72%). On March 8, 2006, the Fund announced the
reduction of its monthly distribution rate from $0.205 per trust unit to
$0.185 effective with the March distribution in light of the negative impact
that record warm temperatures experienced across Canada in January and
February was having on Superior Propane's results, as well as continuing
difficulties faced by ERCO Worldwide's North American sodium chlorate
business. On April 24, 2006, the Fund announced the further reduction in the
monthly distribution rate to $0.13 per trust unit due to anticipated
challenges in ERCO Worldwide's North American sodium chlorate business over
the medium term.
Superior Propane
Superior Propane generated operating distributable cash flow of
$37.6 million in the first quarter, down $6.6 million from the prior year
quarter due principally to the impact of unseasonably warm weather on propane
sales volumes to heating end-use applications. Condensed operating results for
the three months ended March 31, 2006 and 2005 are provided below:
-------------------------------------------------------------------------
(millions of dollars except Three Months Ended March 31
per litre amounts) 2006 2005
-------------------------------------------------------------------------
Gross Profit cents/ cents/
litre litre
------ ------
Propane sales 70.5 15.7 80.1 16.5
Other services 15.0 3.4 12.5 2.6
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Total Gross Profit 85.5 19.1 92.6 19.1
Less: Cash operating,
admin & cash tax costs (48.2) (10.8) (47.9) (9.9)
-------------------------------------------------------------------------
Cash generated from operations before
changes in working capital 37.3 8.3 44.7 9.2
Maintenance capital proceeds
(expenditures), net 0.3 0.1 (0.5) (0.1)
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Operating distributable cash flow 37.6 8.4 44.2 9.1
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Propane retail volumes sold
(millions of litres) 448 485
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Propane sales gross profit was $70.5 million, down $9.6 million (12%)
from the prior year quarter, as sales volumes declined by 37 million litres
(8%) and sales margins decreased by 0.8 cents per litre (5%). Residential and
commercial volumes declined by 25 million litres (12%) as temperatures were
9% warmer on average across Canada (10% warmer than the last 5 year comparable
period average). Volumes were also negatively impacted by customer
conservation in response to a 15% increase in average wholesale propane costs
over the prior year quarter. Industrial sales volumes decreased 2 million
litres (1%), as higher oilfield and refined fuel sales volumes were offset by
lower mine shaft heating volumes. Auto propane sales volumes declined by
5 million litres (14%), consistent with decline trends in this end-use market.
Propane sales margins averaged 15.7 cents per litre, down 0.8 cents per litre
(5%) from the prior year quarter due to the impact of reduced, higher margin
heating sales on the average sales mix, as well as an approximate 0.6 cents
per litre reduction of average sales margin and cash operating costs resulting
from the sale of the Energy Transportation primary transportation fleet
operations in the fourth quarter of 2005. In conjunction with the sale of
Energy Transportation, a seven year transportation service agreement was
entered into which is anticipated to be cash neutral going forward. Other
services gross profit reached $15.0 million in the first quarter, an increase
of $2.5 million (20%) over the prior year quarter, as increased contribution
from the Superior Gas Liquids ("SGL") wholesale operations acquired in
February 2005 and transportation fee income, offset reduced profitability from
fixed-price winter heating propane sales programs as hedging costs increased
in the aftermath of the gulf coast hurricanes in the third quarter of 2005.
Volume and Gross Profit by End-Use Market Segment
-------------------------------------------------------------------------
Three Months Ended March 31
2006 2005
--------------------------------------------
End Use Gross Gross
Applications: Volume(1) Profit(2) Volume(1) Profit(2)
--------------------------------------------
Residential 65 22.9 77 24.7
Commercial 111 23.0 124 23.8
Agricultural 28 2.9 33 3.5
Industrial 212 18.1 214 23.4
Automotive 32 3.6 37 4.7
Other Services - 15.0 - 12.5
--------------------------------------------
448 85.5 485 92.6
--------------------------------------------
Average Margin(3) 15.7 16.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended March 31
2006 2005
--------------------------------------------
Gross Gross
Regions: Volume(1) Profit(2) Volume(1) Profit(2)
--------------------------------------------
Atlantic 33 9.3 38 10.4
Quebec 73 12.3 82 15.2
Ontario 103 25.7 118 27.6
Sask/Man 71 8.6 81 9.6
AB/NWT/YK 108 11.3 103 17.8
BC 60 18.3 63 12.0
--------------------------------------------
448 85.5 485 92.6
--------------------------------------------
Average Margin(3) 15.7 16.5
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(1) Volume of retail propane sold (millions of litres)
(2) Millions of dollars
(3) Average retail propane sale margin (cents per litre)
Cash operating, administrative and capital tax costs of $48.2 million,
increased by $0.3 million (1%) over the prior year quarter as compensation
costs increased reflecting a full quarter's ownership and improved results
from SGL, partially offset by the reduction of operating costs due to the sale
of Energy Transportation. Net maintenance capital proceeds totaled
$0.3 million for the quarter and were comprised of expenditures of
$0.3 million and proceeds of $0.6 million from the sale of surplus properties,
resulting in an improvement of $0.8 million as compared to the prior year
quarter.
In January 2006, Superior Propane's president left the organization and
has been replaced by Mr. John Gleason. Mr. Gleason joined Superior Plus in
April 2005 as Senior Vice-President Corporate Development and brings
considerable executive experience gained over a 14 year period at MDS Inc., a
global health and life science company in the areas of finance, business
development and operations management. Superior Propane has begun to implement
initiatives designed to reduce its cost structure while improving customer
service processes.
ERCO Worldwide
ERCO Worldwide generated operating distributable cash flow in the first
quarter of $18.4 million, down $3.6 million (16%) from the prior year quarter
principally due to lower contributions from sodium chlorate operations,
partially offset by a $4.7 million operating distributable cash flow
contribution from the Port Edwards chloralkali/potassium facility acquired in
June 2005. Condensed operating results for the three months ended March 31,
2006 and 2005 are provided below:
-------------------------------------------------------------------------
(millions of dollars except Three Months Ended March 31
per metric tonne ("MT") amounts) 2006 2005
-------------------------------------------------------------------------
Revenue $ per MT $ per MT
Chemical 101.7 482 90.4 551
Technology 4.4 21 5.9 36
Cost of Sales
Chemical (53.9) (256) (47.4) (289)
Technology (2.4) (11) (2.8) (17)
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Gross Profit 49.8 236 46.1 281
Less: Cash operating,
administrative and cash tax costs (29.2) (138) (23.2) (141)
-------------------------------------------------------------------------
Cash generated from operations
before changes in net working
capital 20.6 98 22.9 140
Maintenance capital expenditures (2.2) (10) (0.9) (6)
-------------------------------------------------------------------------
Operating distributable cash flow 18.4 88 22.0 134
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Chemical volumes sold
(thousands of MTs) 211 164
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended March 31
Chemical sales volume by product 2006 2005
-------------------------------------------------------------------------
MT MT
Sodium Chlorate 127 146
Potassium/chloralkali and other 84 18
-------------------------------------------------------------------------
Total chemical sales volume
(thousands of MTs) 211 164
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Chemical sales gross profits of $47.8 million increased by $4.8 million
(11%) over the prior year quarter. Average chemical sales prices of
$482 per tonne declined by 13% from the prior year period due principally to
changes in the sales mix resulting from the increase in sales of lower value
potassium chloralkali products and the continued impact of the rising Canadian
dollar. Gross profit from potassium/chloralkali operations reached
$16.6 million, an increase of $10.7 million over the prior year quarter, due
to an additional 65,000 tonnes of chemical sales from the Port Edwards
facility combined with a strong chloralkali pricing environment.
Potassium/chloralkali operations contributed 36% of ERCO Worldwide's gross
profit in the first quarter, up from 11% in the prior year quarter. Sodium
chlorate operations generated gross profit of $31.2 million, down $5.9 million
(16%) from the prior year quarter due to a 13% decline in sales volumes and a
2% decline in average sales prices. Lower average sales prices reflected a
$1.5 million reduction in sales priced in United States dollars resulting from
the appreciation of the Canadian dollar. Lower sodium chlorate sales volumes
reflect continued weakness in the North American bleached pulp industry due to
increased, low cost, offshore pulp production, which has resulted in a number
of pulp mill closures in North America over the past year. Technology gross
profit of $2.0 million declined by $1.1 million from the prior year quarter
due to normal course royalty license expirations.
Cash operating, administrative and tax costs were $29.2 million, an
increase of $6.0 million over the prior year quarter, due primarily to the
addition of $5.5 million in Port Edwards operating costs and United States
cash income taxes of $0.1 million. No significant costs were incurred in the
quarter related to the closure in mid-April of the 48,000 tonne per year
Thunder Bay sodium chlorate facility. Maintenance capital expenditures of
$2.2 million, increased by $1.3 million over the prior year quarter due to the
timing of expenditures.
Growth capital expenditures of $19.3 million were incurred in the
quarter. Construction of the 55,000 tonne sodium chlorate plant in Chile
continues on time and on budget. The plant is scheduled to start up in
mid-2006 at a cost of $65 million and will provide CMPC Celulosa S.A. with a
long-term sodium chlorate supply to its three pulp mills. Expenditures of
$13.1 million were incurred during the quarter ($42.0 million cumulatively).
The remaining construction costs are anticipated to be funded from existing
revolving term bank credit facilities. Other growth capital expenditures
included expenditures on the five year cell replacement program of
$5.3 million during the first quarter ($24.8 million cumulatively). The
project is approximately three-quarters finished and is anticipated to be
completed over the next three years. Improvements in cell design are yielding
an approximate 7% increase in electrical efficiency.
ERCO Worldwide has completed a review of North American sodium chlorate
supply and demand. The instability of the North American bleached pulp
industry, as evidenced by the announcements since early March 2006 of four
additional pulp mills reducing or closing operations due to high energy and
fiber costs and the rising Canadian dollar, is anticipated to continue and may
result in an oversupply of sodium chlorate, leading to sodium chlorate plant
closures.
ERCO Worldwide has recently received initial estimates of power supply
costs starting January 1, 2007 for its Valdosta, Georgia sodium chlorate plant
which could significantly reduce the economic operating level of this
facility. The Valdosta plant comprises approximately 20% of ERCO Worldwide's
North American sodium chlorate production capacity. ERCO Worldwide's
chloralkali operations continue to perform above historical levels and demand
is expected to return to more balanced conditions going forward. International
opportunities for sodium chlorate and related technologies are robust and are
expected to lead to growth over the next several years. On balance, we expect
financial performance to continue to move lower over the medium term.
JW Aluminum
JWA contributed $9.4 million of operating distributable cash flow to
Superior's first quarter results. For comparison purposes only, the 2005 prior
year period results are also provided below and are not included in the
Interim Consolidated Financial Statements, as JWA was acquired on October 19,
2005. Prior year quarter results do not include cash taxes due to differences
in JWA's capital structure prior to being acquired by Superior. The condensed
operating results for the three months ended March 31, 2006 are provided
below:
-------------------------------------------------------------------------
(millions of dollars Three Months Ended March 31
except per pound amounts) 2006 2005
-------------------------------------------------------------------------
cents/lb cents/lb
Gross profit 14.0 17.3 18.0 21.7
Less: Cash operating and
administrative (2.6) (3.2) (2.3) (2.8)
Cash taxes (1.3) (1.6) - -
-------------------------------------------------------------------------
Cash generated from operations
before changes in net working
capital 10.1 12.5 15.7 18.9
Maintenance capital
expenditures, net (0.7) (1.0) (0.9) (1.1)
-------------------------------------------------------------------------
Operating distributable cash flow 9.4 11.5 14.8 17.8
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Aluminum pounds sold
(millions of pounds) 81 83
-------------------------------------------------------------------------
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-------------------------------------------------------------------------
Three Months Ended March 31
Sales volume by product 2006 2005
-------------------------------------------------------------------------
Fin Stock 49% 37%
Building Sheet 21% 26%
Convertor Foil 16% 18%
Other Products 14% 19%
-------------------------------------------------------------------------
Total 100% 100%
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-------------------------------------------------------------------------
Gross profit was $14.0 million or 17.3 cents per pound, down $4.0 million
(22%) or 4.4 cents per pound (20%) as compared to the prior year quarter. The
decrease in gross profit was the result of unexpected plant down time and
increased maintenance costs at the Mount Holly and St. Louis operating
facilities which reduced production and sales during the quarter by
approximately 2 million pounds. Increased natural gas costs reduced gross
profit by $2.0 million compared to the prior year period. JWA's product mix
continued to shift towards fin stock sales used in the production of air
conditioning and heat transfer equipment, as the implementation in the United
States of increased minimum energy efficiency regulations in 2006 is requiring
manufacturers to use increased aluminum fin stock content per air conditioning
unit. Fin stock production requires more rolling capacity than building sheet
and other products and also contributed to the reduction in sales volumes
compared to the prior year quarter. Maintenance capital expenditures of
$0.7 million incurred in the first quarter were consistent with the prior year
quarter. The appreciation of the Canadian dollar over the prior year quarter
resulted in a reduction of first quarter operating distributable cash flow
which is denominated in United States dollars by $0.7 million (0.8 cents/lb).
Completion of the US$15 million, 42 million pound, Phase II Russellville
plant expansion is now not anticipated until early 2007 due to equipment
procurement delays. Demand for JWA's principal products remains strong.
Winroc
Winroc generated operating distributable cash flow of $7.8 million, an
increase of 77% ($3.4 million) over the prior year period mainly due to the
expansion of its distribution network in the Ontario market through the
acquisition of Leon's Insulation Inc. ("Leon's") in April 2005 combined with
strong results from Winroc's Western Canada and United States operations.
Condensed operating results for the three months ended March 31, 2006 and
2005, are provided below:
-------------------------------------------------------------------------
Three Months Ended March 31
(millions of dollars) 2006 2005
-------------------------------------------------------------------------
Distribution sales gross profit 31.3 20.9
Direct sales gross profit 1.1 0.8
-------------------------------------------------------------------------
Gross Profit 32.4 21.7
Less: Cash operating,
administrative and cash tax costs (23.3) (16.0)
-------------------------------------------------------------------------
Cash generated from operations
before changes in net working capital 9.1 5.7
Maintenance capital expenditures, net (1.3) (1.3)
-------------------------------------------------------------------------
Operating distributable cash flow 7.8 4.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Distribution sales gross profit reached $31.3 million in the first
quarter, an increase of 50% ($10.4 million) over the prior year period. Higher
sales volumes contributed to improved gross profit performance as drywall
sales volumes, which are an indicator of overall sales volumes, increased by
43%. Approximately two-thirds of the increase in sales volumes was generated
by the expansion of Winroc's distribution network in Ontario. The remainder of
the growth in sales volumes is the result of strong overall construction and
renovation demand and favourable weather conditions in the United States and
Western Canada. Distribution sales margins improved by 3% over the prior year
period, due to improved purchasing performance at acquired operations and
improved selling prices for key products. Cash operating, administration and
tax costs were $23.3 million in the quarter, an increase of 46% ($7.3 million)
over the prior year quarter, due to increased costs associated with the growth
in Winroc's distribution network, higher variable delivery costs associated
with the growth in sales volumes, increased fuel costs and increased cash
taxes on earnings generated in the United States. Maintenance capital
expenditures were $1.3 million in the first quarter and were comparable to the
prior year quarter.
Growth capital expenditures of $1.5 million were incurred in the first
quarter and were comprised of the acquisition of Georgian Building Supplies in
Collingwood, Ontario, and additional consideration paid to the former
shareholders of Leon's based on the business achieving post-acquisition
profitability targets.
Superior Energy Management ("SEM")
SEM's condensed operating results for the three months ended March 31,
2006 and 2005 are provided below:
-------------------------------------------------------------------------
(millions of dollars except Three Months Ended March 31
per gigajoule ("GJ") amounts) 2006 2005
-------------------------------------------------------------------------
cents cents
per GJ per GJ
------ ------
Gross profit 4.4 49.6 3.4 38.6
Less: Cash operating,
admin. & selling costs (2.7) (30.0) (1.8) (20.7)
-------------------------------------------------------------------------
Operating distributable cash flow 1.7 19.6 1.6 17.9
-------------------------------------------------------------------------
Natural gas sold (millions of GJs ) 9 9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SEM generated operating distributable cash flow of $1.7 million in the
first quarter, comparable to the prior year quarter. The increase in gross
profit is due to residential and small commercial volume growth and increased
margins partially offset by lower contributions from gas volume balancing
activities compared to the prior year period. Residential and small commercial
customer growth continued in the first quarter and contributed 17% of total
sales volumes (March 31, 2005 - 7%). Operating, administration and selling
costs increased by $0.9 million over the prior year quarter due to higher
amortization of customer acquisition costs, customer servicing costs and
overhead costs attributable to the growth in SEM's customer base. The majority
of fixed-price sales contracts entered into during the quarter were for a five
year term. The average remaining term of SEM's sales contracts at March 31,
2006 was 44 months (March 31, 2005 - 39 months).
Corporate
Corporate costs, excluding non-cash trust unit incentive plan recoveries,
were $4.0 million in the first quarter, an increase of $2.6 million over the
prior year quarter due to severance related to the previous President of
Superior Propane, costs associated with Superior's C-S0X compliance project,
as well as United States inter-divisional income tax allocations.
Interest expense on revolving term bank credits and term loans was
$9.4 million, an increase of $4.2 million from the prior year quarter. The
increase in interest expense is due to higher interest on floating rate debt
and higher debt levels. Higher debt levels are the result of financing various
acquisitions during 2005, including the acquisition of JWA in the fourth
quarter and increased net working capital levels due to higher commodity
prices at JWA, Propane and Winroc.
Interest on convertible debentures was $5.0 million, an increase of
$3.1 million over the prior year quarter. The increase in convertible
debenture interest expense is the result of the issuance of $175.0 million,
5.75% convertible debentures in June 2005 and $75.0 million, 5.85% convertible
debentures in October 2005, offset partially by the conversion of
$31.3 million, 8% convertible debentures into 1.6 million trust units since
March 31, 2005.
Cash income and withholding taxes of $2.7 million were incurred with
respect to operations in the United States in the first quarter (2005 - Nil)
and have been charged to the businesses from which the taxable income was
derived. In Canada, cash taxes were limited to federal and provincial capital
taxes of $1.1 million, similar to the prior year quarter, as Canadian income
taxes were fully deferred. Capital taxes have been allocated to Superior's
four business segments operating in Canada based on net capital deployed.
Liquidity and Capital Resources
On March 3, 2006, Superior closed the issuance of a $200.0 million,
5.50% Medium Term Notes maturing March 3, 2016. Proceeds from the issue were
used to repay the JWA acquisition credit facility, as well as to reduce the
off balance-sheet accounts receivable securitization program by $65.0 million.
After giving effect to the Medium Term Note issue, approximately 50% of the
Fund's total debt bears fixed interest rates and more than 50% is not
repayable for at least 5 years.
As at March 31, 2006, revolving term bank credits and term loans totaled
$703.7 million, an increase of $78.9 million from December 31, 2005 levels.
The majority of the increase is due to the $65.0 million reduction of the
accounts receivable securitization program described above. The remaining
$13.9 million increase in debt combined with distributable cash flow generated
during the first quarter in excess of distributions paid to Unitholders of
$5.6 million and other funding services, was used to finance $21.7 million of
growth capital expenditures. As at March 31, 2006, Superior had available
undrawn revolving term bank lines of $147 million.
As at March 31, 2006, convertible debentures issued by the Fund totaled
$313.5 million, down $0.8 million from December 31, 2005 due to the conversion
of $0.9 million of Series 1 and 2, 8% convertible debentures into trust units.
As at March 31, 2006, Superior's senior debt (including off-balance sheet
accounts receivable sales program amounts) was 2.6 times earnings before
interest, taxes and amortization for the last 12 month period on a pro forma
basis adjusted for acquisitions including JWA, calculated in accordance with
its debt covenants (December 31, 2005 - 2.4 times). Superior's senior debt
covenants restrict its ability to make distributions to the Fund and incur
additional long-term indebtedness if Senior Debt to EBITDA exceeds 3.0 times.
There is no default of Superior's debt covenants unless total; debt of
Superior exceeds 5.5 times EBITDA. Including the Fund's convertible
debentures, Superior's total leverage ratios increased to 3.7 times from
3.5 times at December 31, 2005.
In response to Superior's announcement on April 24, 2006, that it was
initiating a comprehensive strategic review of its business, Standard & Poor's
confirmed Superior's BBB- long-term debt credit rating, but altered their
outlook from stable to negative and Dominion Bond Rating Service confirmed
Superior's secured long-term debt at BBB (low), but altered their outlook from
stable to under review with negative implications.
Total consolidated net working capital was $307.4 million as at March 31,
2006, an increase of $58.2 million from December 31, 2005. The increase in net
working capital levels is principally the result of Superior reducing its
accounts receivable securitization program by $65.0 million to $35.0 million
as at March 31, 2006 (December 31, 2005 - $100.0 million), which brought the
associated accounts receivable back on to the balance sheet. Superior's net
working capital requirements peak seasonally in the first quarter and then
decline in the second and third quarters before building again in the fall,
consistent with the seasonal demand profile of its heating end-use customers.
See Note 10 to the Interim Consolidated Financial Statements for segmented
working capital balances, net of the accounts receivable sales program.
Unitholders' Capital
The weighted average number of trust units outstanding during the first
quarter was 85.5 million trust units, an increase of 12% (9.0 million trust
units) over the prior year period due to 6.2 million trust units issued to
partially finance the acquisition of JWA on October 19, 2005, the issue of
0.8 million trust units resulting from the exercise of trust unit warrants
with the remainder of the increase due to the issue of trust units as a result
of Debenture conversions described previously.
As at March 31, 2006 and 2005, the following trust units, and securities
convertible into trust units, were outstanding:
-------------------------------------------------------------------------
March 31, 2006 December 31, 2005
Conver- Conver-
tible tible
Secur- Trust Secur- Trust
(millions) ities Units ities Units
-------------------------------------------------------------------------
Trust units outstanding 85.5 85.5
Series 1, 8% Debentures
(convertible at $16 per
trust unit) $8.1 0.5 $8.9 0.5
Series 2, 8% Debentures
(convertible at $20 per
trust unit) $59.2 3.0 $59.3 3.0
Series 1, 5.75% Debentures
(convertible at $36 per
trust unit) $174.9 4.9 $174.9 4.9
Series 1, 5.85% Debentures
(convertible at $31.25 per
trust unit) $75.0 2.4 $75.0 2.4
Warrants (exercisable (at)
$20 per trust unit until
May 2008) 2.3 2.3 2.3 2.3
-------------------------------------------------------------------------
Trust units outstanding,
and issuable upon
conversion of Debenture
and Warrant securities 98.6 98.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at March 31, 2006, there were 1,160,834 trust unit options outstanding
(December 31, 2005 - 1,177,000 trust units) with a weighted average exercise
price of $21.42 per trust unit. The number of trust units issued upon exercise
of the trust unit options is equal to the growth in the value of the options
at the time the options are exercised, (represented by the market price less
the exercise price) times the number of options exercised, divided by the
current trust unit market price.
Foreign Currency Hedging
SEM and Superior Propane contract a portion of their fixed price natural
gas and propane purchases in US dollars and enter into forward US dollar
purchase contracts to create an effective Canadian dollar fixed price purchase
cost. ERCO Worldwide enters into US dollar forward sales contracts on an
ongoing basis to mitigate the impact of foreign exchange fluctuations on sales
margins on production from its Canadian plants that is sold in US dollars.
Interest expense on Superior's US dollar debt is also used to mitigate the
impact of foreign exchange fluctuations on its US dollar distributable cash
flow. Superior's US dollar debt acts as a balance sheet hedge against its
US dollar net assets. Superior hedges its net US dollar future cash flows with
external third party contracts after first matching internally SEM's and
Superior Propane's forward US dollar purchase requirements against ERCO
Worldwide's US dollar revenues where possible.
As at March 31, 2006, SEM and Superior Propane had hedged approximately
100% of their US dollar natural gas and propane purchase obligations and ERCO
Worldwide had hedged 93%, 55%, and 10% of its estimated US dollar revenue
stream for the remainder of 2006, 2007, and 2008 respectively, as shown in the
table below. (See Note 9(i) to the Interim Consolidated Financial Statements).
-------------------------------------------------------------------------
(US$ millions) 2006 2007 2008 2009 2010 2011 Total
-------------------------------------------------------------------------
SEM - US $ forward
purchases 112.8 124.7 113.0 107.6 58.4 2.7 519.2
Superior Propane -
US $ forward sales (18.6) - - - - - (18.6)
ERCO - US $ forward
sales (88.4) (71.0) (12.6) - - - (172.0)
-------------------------------------------------------------------------
Net US $ forward
purchases 5.8 53.7 100.4 107.6 58.4 2.7 328.6
-------------------------------------------------------------------------
SEM - Average US $
forward purchase rate 1.26 1.23 1.22 1.21 1.16 1.14 1.22
Superior Propane -
Average US $ forward
sales rate 1.15 - - - - - 1.15
ERCO - Average US $
forward sales rate 1.27 1.24 1.23 - - - -
-------------------------------------------------------------------------
Net average external
US$/Cdn$ exchange rate 1.26 1.23 1.22 1.21 1.16 1.14 1.23
-------------------------------------------------------------------------
Quarterly Financial and Operating Information
-------------------------------------------------------------------------
(millions of 2006
dollars except Quar- 2005 Quarters 2004 Quarters
per trust ters
unit amounts) First Fourth Third Second First Fourth Third Second
(2)
-------------------------------------------------------------------------
Propane sales
volumes
(millions of
litres) 448 420 277 286 485 438 290 302
Chemical sales
volumes
(thousands
of metric
tonnes) 211 225 224 175 164 170 163 161
Aluminum sales
volumes
(millions
of pounds) 81 71 - - - - - -
Natural gas
sales volumes
(millions
of GJs) 9 9 9 9 9 7 7 7
Gross profit 186.1 185.5 149.6 137.2 163.8 155.2 130.2 116.0
Net earnings 33.8 21.7 24.0 18.9 41.5 33.5 20.8 21.1
Per basic
trust unit $0.40 $0.25 $0.30 $0.24 $0.54 $0.45 $0.28 $0.29
Per diluted
trust unit $0.40 $0.25 $0.30 $0.24 $0.52 $0.44 $0.27 $0.29
Distributable
cash flow 56.5 60.0 33.4 29.9 63.7 55.8 36.7 31.4
Per basic
trust unit $0.66 $0.70 $0.42 $0.38 $0.83 $0.74 $0.50 $0.44
Per diluted
trust unit $0.66 $0.67 $0.42 $0.38 $0.79 $0.70 $0.49 $0.43
Net working
capital (1) 307.4 249.2 96.4 64.3 54.9 97.9 62.9 36.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Net working capital reflects amounts as at the quarter end and is
comprised of accounts receivable and inventories, less accounts
payable and accrued liabilities.
(2) JWA was acquired October 19, 2005
Outlook and Strategic Review Process
For the remainder of 2006, we anticipate distributable cash flow per
trust unit to be lower than 2005. Increased distributable cash flow is
expected from a full year's contribution from JWA and improved results at
Winroc and SEM. Offsetting this, are expected lower results at Superior
Propane as result of record warm weather experienced during the first quarter,
lower results at ERCO Worldwide due to decreasing demand for sodium chlorate
from North American bleached pulp producers and higher interest costs.
For 2007, we anticipate distributable cash flow per trust unit to decline
from our 2006 outlook due to anticipated higher power costs at ERCO
Worldwide's Valdosta, Georgia sodium chlorate facility and continued
challenges faced by the North American pulp industry, as well as higher
floating interest rates. Partially offsetting this is a full year's
contribution from ERCO Worldwide's sodium chlorate plant in Chile and the
return to normal weather and cost reduction initiatives at Superior Propane.
On April 24, 2006, the Fund announced that it had initiated a
comprehensive strategic review process, intended to maximize unitholder value.
The strategic review process will include consideration of all feasible
alternatives to maximize unitholder value. A Strategic Review Committee of the
Board has been formed, consisting of Jim MacDonald (chair), Grant Billing,
Norm Gish, and David Smith to oversee the process. The Board has received
advice from financial and legal advisors, which are currently being retained.
SUPERIOR PLUS INCOME FUND
Consolidated Balance Sheets
-------------------------------------------------------------------------
March 31 December 31
(unaudited, millions of dollars) 2006 2005
-------------------------------------------------------------------------
Assets
Current Assets
Accounts receivable (Note 4) 396.8 336.1
Inventories 158.3 193.4
-------------------------------------------------------------------------
555.1 529.5
Property, plant and equipment 1,163.2 1,167.6
Intangible assets 89.6 89.4
Goodwill 542.2 541.3
-------------------------------------------------------------------------
2,350.1 2,327.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Unitholders' Equity
Current Liabilities
Accounts payable and accrued liabilities 247.7 280.3
Current portion of term loans (Note 5) 2.7 2.0
Distributions and interest payable to
Unitholders and Debentureholders 22.3 25.0
-------------------------------------------------------------------------
272.7 307.3
Revolving term bank credits and
term loans (Note 5) 701.0 622.8
Convertible unsecured subordinated
debentures (Note 6) 313.5 314.3
Future employee benefits 18.1 17.7
Future income tax liability 258.8 262.8
-------------------------------------------------------------------------
Total Liabilities 1,564.1 1,524.9
Unitholders' Equity
Unitholders' capital (Note 7) 1,338.2 1,338.3
Retained earnings from operations 402.2 368.4
Accumulated distributions on trust unit equity (954.0) (903.1)
-------------------------------------------------------------------------
Deficit (551.8) (534.7)
Currency translation account (0.4) (0.7)
-------------------------------------------------------------------------
Total Unitholders' Equity 786.0 802.9
-------------------------------------------------------------------------
2,350.1 2,327.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Interim Consolidated Financial Statements)
SUPERIOR PLUS INCOME FUND
Consolidated Statements of Net Earnings and Deficit
-------------------------------------------------------------------------
(unaudited, millions of dollars except Three Months Ended March 31
per trust unit amounts) 2006 2005
-------------------------------------------------------------------------
Revenues 765.8 512.1
Cost of products sold 579.7 348.3
-------------------------------------------------------------------------
Gross profit 186.1 163.8
-------------------------------------------------------------------------
Expenses
Operating and administrative 106.3 89.1
Amortization of property, plant and equipment 30.2 18.0
Amortization of intangible assets 2.1 1.3
Interest on revolving term bank credits and
term loans 9.4 5.2
Interest on convertible unsecured subordinated
debentures 5.0 1.9
Amortization of convertible debenture issue costs 0.6 0.3
Income tax expense (recovery) of Superior (1.3) 6.5
-------------------------------------------------------------------------
152.3 122.3
-------------------------------------------------------------------------
Net Earnings 33.8 41.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deficit, Beginning of Period (534.7) (448.8)
Net earnings 33.8 41.5
Distributions to Unitholders (50.9) (45.9)
-------------------------------------------------------------------------
Deficit, End of Period (551.8) (453.2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings per trust unit, basic (Note 8) $0.40 $0.54
Net earnings per trust unit, diluted (Note 8) $0.40 $0.52
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Interim Consolidated Financial Statements)
SUPERIOR PLUS INCOME FUND
Consolidated Statements of Cash Flows
-------------------------------------------------------------------------
Three Months Ended March 31
(unaudited, millions of dollars) 2006 2005
-------------------------------------------------------------------------
Operating Activities
Net earnings 33.8 41.5
Items not affecting cash:
Amortization of property, plant and
equipment, intangible assets and
convertible debenture issue costs 32.9 19.6
Amortization of natural gas customer
acquisition costs 0.7 0.5
Trust unit incentive plan compensation recovery (1.2) (0.3)
Future income tax expense (recovery) of Superior (5.1) 5.6
-------------------------------------------------------------------------
Cash generated from operations before natural gas
customer acquisition costs and changes in
working capital 61.1 66.9
Natural gas customer acquisition costs capitalized (1.8) (1.4)
Decrease in non-cash operating working capital items 3.9 18.5
-------------------------------------------------------------------------
Cash flows from operating activities 63.2 84.0
-------------------------------------------------------------------------
Investing Activities
Maintenance capital expenditures, net (3.9) (2.7)
Other capital expenditures, net (22.4) (3.3)
Acquisition of Foster Energy Corporation (Note 3) - (14.7)
-------------------------------------------------------------------------
Cash flows from investing activities (26.3) (20.7)
-------------------------------------------------------------------------
Financing Activities
Revolving term bank credits and term loans 49.4 (47.4)
Net proceeds from issue of Medium Term Notes 197.2 -
Repayment of JW Aluminum Company acquisition
credit facility (167.8) -
Net proceeds (repayment) from sale of
accounts receivable (65.0) 30.0
Distributions to Unitholders (50.9) (45.9)
Proceeds from exercise of trust unit warrants 0.2 -
-------------------------------------------------------------------------
Cash flows from financing activities (36.9) (63.3)
-------------------------------------------------------------------------
Change in Cash - -
-------------------------------------------------------------------------
Cash at Beginning and End of Period - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Interim Consolidated Financial Statements)
Notes to Interim Consolidated Financial Statements
(tabular amounts in millions of dollars, unless noted otherwise, except
per trust unit amounts)
1. Accounting Policies
(a) Basis of Presentation
The accompanying unaudited Interim Consolidated Financial Statements have
been prepared according to Canadian generally accepted accounting
principles ("GAAP"), applied on a consistent basis and include the
accounts of the Superior Plus Income Fund (the "Fund") and its wholly
owned subsidiary, Superior Plus Inc. ("Superior"), and Superior's
subsidiaries. These financial statements do not conform in all respects
to the note disclosure requirement of GAAP for annual financial
statements as certain information and disclosures included in the annual
financial statements notes have been condensed or omitted. The accounting
principles applied are consistent with those as set out in the Fund's
annual financial statements for the year ended December 31, 2005. These
financial statements and notes thereto should be read in conjunction with
the Fund's financial statements for the year ended December 31, 2005. All
significant transactions and balances (including Superior's Shareholder
Notes) between the Fund, Superior, and Superior's subsidiaries have been
eliminated on consolidation.
In the opinion of Management, the accompanying unaudited Interim
Consolidated Financial Statements include all adjustments (of a normal
recurring nature) necessary to present fairly the consolidated financial
position of the Fund as at March 31, 2006 and December 31, 2005 and the
consolidated results of its operations for the three months ended March
31, 2006 and 2005.
(b) Business Segments
Superior operates five distinct business segments; the delivery of
propane and propane related services and accessories operating under the
Superior Propane trade name; the manufacture and sale of specialty
chemicals and related products and services operating under the ERCO
Worldwide trade name ("ERCO"); the manufacture and sale of specialty
flat-rolled aluminum products operating as JW Aluminum Company ("JWA" or
JW Aluminum"); the distribution of walls and ceilings construction
products operating under the Winroc trade name; and the sale of natural
gas under fixed-price term contracts operating under the Superior Energy
Management trade name ("SEM"). (See Note 10).
2. Seasonality of Operations
Superior Propane
Propane sales typically peak in the first quarter when approximately
one-third of annual propane 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 levels
are typically at seasonally high levels at the end of the first quarter,
and normally decline to seasonally low levels in the second and third
quarters. Net working capital levels are also significantly influenced by
wholesale propane prices.
Winroc
Winroc's sales typically peak during the second and third quarters with
the seasonal increase in building and remodeling activities. They then
decline through the fourth and first quarters. Similarly, net working
capital levels are typically at seasonally high levels during the second
and third quarter, and normally decline to seasonally low levels in the
fourth and first quarters.
3. Acquisition
On February 2, 2005, Superior Propane acquired the business of Foster
Energy Corporation, a wholesale marketer of natural gas liquids, for
consideration of $25.6 million of which $14.7 million was paid in cash
(net of $2.3 million in cash acquired). Deferred consideration is payable
over a five year period and has been recorded at its fair market value of
$10.9 million, calculated by discounting future cash payments. Foster
Energy is now being operated under the trade name Superior Gas Liquids
("SGL").
Using the purchase method of accounting for acquisitions, Superior
consolidated the assets and liabilities from the acquisition and included
earnings as of the closing date. The consideration paid for this
acquisition has been allocated as follows:
Superior Propane's
Acquisition of SGL
-------------------------------------------------------------------------
Cash consideration paid 14.6
Transaction costs 0.1
-------------------------------------------------------------------------
Total cash consideration 14.7
Notes payable and deferred consideration(1) 10.9
-------------------------------------------------------------------------
Total consideration 25.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill 22.7
Intangibles 1.3
Working capital, net 1.6
-------------------------------------------------------------------------
25.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Notes payable and deferred consideration are unsecured obligations
and have been included in revolving term bank credits and term loans
on the Interim Consolidated Balance Sheets.
4. Accounts Receivable
Superior sells, with limited recourse, certain trade accounts receivable
on a revolving basis to an entity sponsored by a Canadian chartered bank.
The accounts receivable are sold at a discount to face value based on
prevailing money market rates. Superior has retained the servicing
responsibility for the accounts receivable sold and has therefore
recognized a servicing liability. The level of accounts receivable sold
under the program fluctuates seasonally with the level of accounts
receivable. At March 31, 2006 proceeds of $35.0 million (December 31,
2005 - $100.0 million) had been received.
5. Revolving Term Bank Credits and Term Loans
Maturity
Dates Effective Interest
Rates(5) 2006 2005
-------------------------------------------------------------------------
Revolving term bank credits(1)
Floating BA rate plus
Bankers Acceptances applicable credit
("BA") 2008 spread 16.9 137.7
LIBOR Loans Floating LIBOR
(US$242.5 million; rate plus applicable
2005 - US$95.3 million) 2008 credit spread 283.0 111.1
-------------------------------------------------------------------------
299.9 248.8
-------------------------------------------------------------------------
Other Debt
Notes payable 2009, 2010 Prime 8.0 8.0
Deferred consideration 2010 Non-interest bearing 9.0 11.3
Mortgage payable
(US$0.9 million;
2005 - US$0.9 million) 2011 7.53% 1.1 1.1
-------------------------------------------------------------------------
18.1 20.4
-------------------------------------------------------------------------
Senior Secured Notes
JWA acquisition Floating LIBOR rate
credit facility plus applicable credit
(US$145.0 million)(2) 2007 spread - 169.1
Medium Term Notes(3) 2016 5.57% 199.0 -
Senior secured notes
subject to floating
interest rates
(US$85.0 million; 2005 - Floating LIBOR rate
US$85.0 million)(4) 2015 plus 1.7% 99.2 99.1
Senior secured notes
subject to fixed interest
rates (US$75.0 million;
2005 -
US$75.0 million)(4) 2013, 2015 6.65% 87.5 87.4
-------------------------------------------------------------------------
385.7 355.6
-------------------------------------------------------------------------
Total revolving term bank
credits and loans 703.7 624.8
Less current maturities 2.7 2.0
-------------------------------------------------------------------------
Revolving term bank
credits and term loans 701.0 622.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Superior has revolving term credit capacity of $425.0 million. These
facilities are secured by a general charge over the assets of
Superior and certain of its subsidiaries.
(2) On October 19, 2005, Superior Plus US Holdings Inc. entered into a
secured non-revolving term bank facility for US$145.0 million
(Cdn$169.1 million at December 31, 2005) to partially finance the
acquisition of JWA. The facility is secured by a general charge over
the assets of Superior and certain of its subsidiaries. This
facility was repaid and cancelled in March 2006.
(3) On March 3, 2006, Superior issued $200.0 million, 5.50% coupon,
Medium Term Notes which mature on March 3, 2016 with an effective
yield to maturity of 5.57%. These facilities are secured by a
general charge over the assets of Superior and certain of its
subsidiaries.
(4) Senior Secured Notes (the "Notes") totaling US$160.0 million
(Cdn$186.7 million at March 31, 2006) are secured by a general
charge over the assets of Superior and certain of its subsidiaries.
Principal repayments begin in 2009. In conjunction with the issue of
the Notes, Superior swapped US$85.0 million (Cdn$99.2 million at
March 31, 2006) of the fixed rate obligation into a US dollar
floating rate obligation.
(5) The fixed interest rate obligation on $100.0 million of the Fund's
Debentures (see Note 6) was swapped into a floating rate obligation.
6. Convertible Unsecured Subordinated Debentures
The Fund has issued four series of Debentures denoted as 8% Series 1,
8% Series 2, 5.75% Series 1, and 5.85% Series 1 as follows:
Unamor Total
tized Car-
Series Series Series Series Dis- rying
1 2 1 1 count Value
-------------------------------------------------------------------------
Nov- Dec- Oct-
July ember ember ober
31, 1, 31, 31,
Maturity date 2007 2008 2012 2015
Fixed distribution rate 8.0% 8.0% 5.75% 5.85%
Conversion price per
trust unit $16.00 $20.00 $36.00 $31.25
-------------------------------------------------------------------------
Debentures outstanding
December 31, 2005 8.9 59.3 174.9 75.0 (3.8) 314.3
Conversion of Debentures
and amortization of
discount during 2006 (0.8) (0.1) - - 0.1 (0.8)
-------------------------------------------------------------------------
Debentures outstanding
March 31, 2006 8.1 59.2 174.9 75.0 (3.7) 313.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quoted market value
March 31, 2006 9.0 63.4 174.5 75.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Debentures may be converted into trust units at the option of the
holder at any time prior to maturity and may be redeemed by the Fund in
certain circumstances. The Fund may elect to pay interest and principal
upon maturity or redemption by issuing trust units to a trustee in the
case of interest payments, and to the Debentureholders in the case of
payment of principal. The number of any trust units issued will be
determined based on market prices for the trust units at the time of
issuance.
7. Unitholders' Equity
Authorized
The Fund may issue an unlimited number of trust units. Each trust unit
represents an equal undivided beneficial interest in any distributions
from the Fund and in the net assets in the event of termination or
wind-up of the Fund. All trust units are of the same class with equal
rights and privileges.
Issued Number Unit-
of Trust Units holders'
(millions) Equity
-------------------------------------------------------------------------
Unitholders' equity, December 31, 2005 85.5 802.9
Conversion of Debentures -
(8% Series 1 - $0.8 million converted (at)
$16 per trust unit
8% Series 2 - $0.1 million converted (at)
$20 per trust unit) (Note 6) - 0.9
Exercise of trust unit warrants - 0.2
Trust unit incentive plan compensation recovery - (1.2)
Currency translation adjustment - 0.3
Net earnings - 33.8
Distributions to unitholders - (50.9)
-------------------------------------------------------------------------
Unitholders' equity, March 31, 2006 85.5 786.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unitholders' capital and deficit as at March 31, 2006 and December 31,
2005 consists of the following components:
2006 2005
-------------------------------------------------------------------------
Unitholders' capital
Trust unity equity 1,333.4 1,332.3
Conversion feature on warrants and
convertible debentures 4.8 4.8
Contributed surplus - 1.2
-------------------------------------------------------------------------
1,338.2 1,338.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deficit
Retained earnings from operations 402.2 368.4
Accumulated distributions on trust unit equity (954.0) (903.1)
-------------------------------------------------------------------------
(551.8) (534.7)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At March 31, 2006, the Fund had 2.3 million trust unit warrants
outstanding (2005 - 2.3 million), exercisable at $20 per trust unit
warrant. The trust unit warrants expire May 8, 2008.
8. Net Earnings per Trust Unit
Three Months Ended March 31
2006 2005
Net earnings per trust unit
computation, basic
Net earnings 33.8 41.5
Weighted average trust units outstanding 85.5 76.5
-------------------------------------------------------------------------
Net earnings per trust unit, basic $ 0.40 $ 0.54
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings per trust unit computation, diluted
-------------------------------------------------------------------------
Net earnings 33.8 41.5
Dilutive effect of Debentures - 1.8
-------------------------------------------------------------------------
Net earnings, assuming dilution 33.8 43.3
-------------------------------------------------------------------------
Net earnings, weighted average trust
units outstanding 85.5 76.5
Dilutive effect of:
Debentures - 5.4
Trust unit options - 0.2
Trust unit warrants - 1.1
-------------------------------------------------------------------------
Weighted average trust units outstanding,
assuming dilution 85.5 83.2
-------------------------------------------------------------------------
Net earnings per trust unit, diluted $ 0.40 $ 0.52
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Trust unit options and warrants whose exercise price was greater than the
market price and Debentures that were anti-dilutive were excluded from
this calculation.
9. Commitments
(i) Superior has entered into long-term forward contracts to
purchase US dollars in order to hedge US dollar out-flows of
SEM net of in-flows of ERCO Worldwide as follows:
Net US $ Purchases Conversion Rate
-------------------- -----------------
2006 5.8 1.26
2007 53.7 1.23
2008 100.4 1.22
2009 107.6 1.21
2010 58.4 1.16
2011 and thereafter 2.7 1.14
As at March 31, 2006, the net mark-to-market loss on long-term
foreign currency forward contracts was $17.8 million.
(ii) ERCO Worldwide has entered into a long-term agreement with CMPC
Celulosa S.A. ("CMPC"), a division of Empresas S.A. to supply
sodium chlorate to CMPC's three pulp mills in Chile. As part of
this agreement, ERCO Worldwide will construct a sodium chlorate
manufacturing plant adjacent to the CMPC Pacifico Mill at an
estimated total cost of $65 million. The new plant is scheduled
to start-up in mid-2006. Cumulative expenditures to March 31,
2006 were $42.0 million (2005 - $28.9 million).
10. Business Segments
Superior operates five distinct business segments; the delivery of
propane and propane related services and accessories operating under the
Superior Propane trade name; the manufacture and sale of specialty
chemicals and related products and services operating under the ERCO
Worldwide trade name ("ERCO"); the manufacture and sale of specialty flat
rolled aluminum products operating as JW Aluminum Company ("JWA" or "JW
Aluminum"); the distribution of walls and ceilings construction products
operating under the Winroc trade name; and the sale of natural gas under
fixed price term contracts operating under the Superior Energy Management
trade name ("SEM"). Superior's corporate office arranges intersegment
foreign exchange contracts from time to time between its business
segments. Intersegment revenues and cost of sales pertaining to
intersegment foreign exchange gains and losses are eliminated under the
Corporate cost column.
For the three Total
months ended Superior Corp- Consol-
March 31, 2006 Propane ERCO JWA(1) Winroc SEM orate idated
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Revenues 315.1 106.1 141.5 127.9 76.0 (0.8) 765.8
Cost of products sold 229.6 56.3 127.5 95.5 71.6 (0.8) 579.7
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Gross profit 85.5 49.8 14.0 32.4 4.4 - 186.1
Expenses
Operating and
administrative 47.9 28.5 2.5 22.2 2.7 2.5 106.3
Amortization of
property, plant
and equipment 4.9 15.7 8.9 0.7 - - 30.2
Amortization of
intangible assets - 1.2 0.8 0.1 - - 2.1
Interest on revolving
term bank credits
and term loans - - - - - 9.4 9.4
Interest on
convertible
unsecured
subordinated
debentures - - - - - 5.0 5.0
Amortization of
convertible
debenture issue costs - - - - - 0.6 0.6
Income tax expense
(recovery) of
Superior 12.3 1.9 (1.3) 3.7 0.7 (18.6) (1.3)
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65.1 47.3 10.9 26.7 3.4 (1.1) 152.3
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Net Earnings 20.4 2.5 3.1 5.7 1.0 1.1 33.8
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For the three Total
months ended Superior Corp- Consol-
March 31, 2005 Propane ERCO JWA(1) Winroc SEM orate idated
-------------------------------------------------------------------------
Revenues 256.1 96.3 - 96.4 64.1 (0.8) 512.1
Cost of products sold 163.5 50.2 - 74.7 60.7 (0.8) 348.3
-------------------------------------------------------------------------
Gross profit 92.6 46.1 - 21.7 3.4 - 163.8
Expenses
Operating and
administrative 47.6 22.7 - 15.6 1.8 1.4 89.1
Amortization of
property, plant
and equipment 5.2 12.2 - 0.6 - - 18.0
Amortization of
intangible assets - 1.3 - - - - 1.3
Interest on term
bank credits
and term loans - - - - - 5.2 5.2
Interest on
convertible
unsecured
subordinated
debentures - - - - - 1.9 1.9
Amortization of
convertible
debenture issue costs - - - - - 0.3 0.3
Income tax expense
(recovery) of
Superior 15.1 3.6 - 1.9 0.8 (14.9) 6.5
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67.9 39.8 - 18.1 2.6 (6.1) 122.3
-------------------------------------------------------------------------
Net Earnings 24.7 6.3 - 3.6 0.8 6.1 41.5
-------------------------------------------------------------------------
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(1) JWA was acquired October 19, 2005
Total Assets, Net Working Capital, Acquisitions and Other Capital
Expenditures
Total
Superior Corp- Consol-
Propane ERCO JWA(1) Winroc SEM orate idated
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As at March 31, 2006
Net working capital 135.3 15.1 95.1 57.7 3.3 0.9 307.4
Total assets 680.7 759.3 627.6 208.7 42.3 31.5 2,350.1
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As at December 31, 2005
Net working capital 101.8 (3.1) 84.9 64.1 (8.3) 9.8 249.2
Total assets 695.2 738.8 622.2 194.8 42.9 33.9 2,327.8
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For the three months
ended March 31, 2006
Acquisitions - - - - - - -
Other capital
expenditures, net - 19.3 1.6 1.5 - - 22.4
-------------------------------------------------------------------------
For the three months
ended March 31, 2005
Acquisitions 14.7 - - - - - 14.7
Other capital
expenditures, net - 3.3 - - - - 3.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) JWA was acquired October 19, 2005
Total
Geographic United Consol-
Information Canada States Other idated
-------------------------------------------------------------------------
Revenues for the three months ended
March 31, 2006 523.0 232.0 10.8 765.8
Property, plant and equipment as at
March 31, 2006 576.0 544.5 42.7 1,163.2
Total assets as at March 31, 2006 1,473.1 818.3 58.7 2,350.1
-------------------------------------------------------------------------
Revenues for the three months ended
March 31, 2005 431.1 77.6 3.4 512.1
Property, plant and equipment as at
December 31, 2005 591.8 551.7 24.1 1,167.6
Total assets as at December 31, 2005 1,475.8 814.4 37.6 2,327.8
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